and structure of media enterprise is important. For the owners of media enter-prises commercial success must either be an end in itself or a condition necessary to achieve and maintain prestige, power, and influence. This is because they cannot gain power and influence alone without commercial success except in the absence of competition. The content that best serves those media owners whose goal is power and influence is not, in general, the same content required for commercial success—and therefore perhaps survival—in a competitive market environment (see Owen 1975 for an extensive discussion of the relationship between media struc-ture and economic competition affecting content).
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The second basic characteristic of media content is that it is heterogeneous or differentiated. No two items of media content are identical, in part because media have intellectual property rights in the content they produce, and in part because for commercial reasons media need to differentiate their content to compete success-fully with media having larger audiences, and therefore lower unit costs. Product differentiation is a costly activity that generally faces decreasing returns to scale.
The structure of the newspaper industry illustrates these factors. Economies of scale in spreading the first copy costs of content creation over an increasing number of readers would suggest that a newspaper might be a natural monopoly. As news-papers with larger circulations have lower unit costs, they should be able to drive smaller newspapers out of the market. Yet in most countries more than one newspa-per serves both national and local markets. The presence of multiple newspanewspa-pers does not necessarily mean that the market is in disequilibrium, on the path to mo-nopoly. It may simply mean that the competing newspapers have found ways to appeal to different audiences or different advertisers, each with tastes that cannot be satisfied simultaneously by a single content provider. Differentiation may take many forms. Some media, such as local newspapers, specialize by locality. The Bombay Times cannot compete in Calcutta because it cannot efficiently cover local Calcutta news in depth while remaining attractive to readers and advertisers in Bombay. Simi-larly, Ulaanbaatar, Mongolia, is highly unlikely to have been able to support 18 “prin-cipal” newspapers in 1994 if these newspapers had not been sharply differentiated along political and other lines (Williams 1995).
In many countries newspapers are also specialized by political affiliation. Non-commercial, party-sponsored newspapers are common. Some readers may not trust content from newspapers aligned with an opposition party, or may simply enjoy having their own opinions reinforced by like-minded content. Publishers seeking to compete in an industry with economies of scale naturally gravitate to clusters of consumers with such tastes. Similar specialization takes place with respect to lan-guage, ethnicity, and cultural factors. Both newspapers and broadcast media have some ability to serve different tastes within the same medium. Newspapers have sections, news and sports, for example, that cater to different audience segments.
Radio and television broadcasters often serve different audience segments, such as children versus adults, by offering different content at different times of day. Mongolia is again an interesting case. While the country only had four broadcast channels in 1995, viewers reported in interviews that it had as many as seven. Each channel offered programming in different languages at different times of day, and viewers perceived these languages as being offered on different channels (Williams 1995).
In the case of newspapers, technology and geography also play a role in setting limits on newspaper scale. Urban newspapers face increasing transport costs (and costs associated with delivery delays) as they attempt to serve areas outside the city, costs that increase more than proportionately with distance because of declining population
density. Smaller countries are more likely than larger ones to have national newspa-pers for this reason. In recent times national and regional newspanewspa-pers have addressed this problem by using advanced communications technologies that permit a given news-paper to be printed simultaneously in multiple locations. Geography is somewhat less important to radio and television than to newspapers. Broadcast media are instanta-neous and can be simultainstanta-neously transmitted cheaply from antennas all over a coun-try. Hence the United States had national radio and television networks long before it had any national newspapers.
A number of economic models of competing advertiser-supported media reach the conclusion that such media will tend to cater to mass interests, or least common denominator mass interests, wastefully duplicating similar programming and ne-glecting minority tastes (Steiner 1952; see Owen and Wildman 1992, chapter 3, for a literature review.). One might conclude from this that multiple media channels owned by a monopolist would produce greater content diversity than the same number of channels each independently owned and operated; however, more general models cast doubt on such a conclusion. Today economists recognize that the extent of con-tent diversity produced by a competitive, profit-maximizing media industry depends on consumer and advertiser preferences, program costs, and other factors, and there is no basis for assuming that a monopolist would produce more diverse program-ming (Owen and Wildman 1992, chapter 4).
The term diversity is often used in discussions of mass media. Content diversity refers to the range of content made available; source diversity refers to the range of content selectors or gatekeepers. Presumably what matters for favorable political outcomes is source diversity, or perhaps the absence of barriers to entry at the gatekeeping level. From an economic point of view, however, recognizing that con-tent diversity rather than source diversity affects consumer welfare is important.
There is no necessary relationship between source diversity and content diversity.
The quality of mass media content is multidimensional and difficult to measure or to compare; however, the factors of production of commercially successful con-tent are scarce and typically earn economic rents. This is why, for example, popular movie stars earn large incomes. If one is willing to associate commercial success with quality, then it follows that the rents that accrue to scarce inputs create a correlation between production cost and quality. Therefore, with appropriate qualifications, the quality of media content can be measured by its production cost. At least within the same genre, more costly content attracts larger audiences. The U.S. motion picture industry, for example, owes its worldwide success in part to the huge production budgets of its films.
Advertising
Advertising (or the sale of audiences) is no less important than content in under-standing media economics. The demand for mass media advertising is based on its
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ability to generate additional sales of consumer goods and services. Much advertis-ing, such as newspaper classified advertisements, contains detailed and specific in-formation that facilities buyers’ and sellers’ searches for favorable transaction opportunities. Other advertising appeals mainly to more subjective needs. The psy-chological and economic mechanism by which advertising is effective is complex, and beyond the scope of this chapter. In brief, media advertising conveys informa-tion that, when processed, alters consumers’ valuainforma-tions of advertised and unadver-tised goods. Some advertising, of course, is aimed at changing opinions or institutional images rather than at selling commercial goods.
Advertisers seek to reach a target audience consisting of those consumers most likely to be influenced favorably by their messages. Mass media such as broadcast television are extremely effective in reaching large, relatively undifferentiated audi-ences. Such media are useful vehicles for advertisers selling products such as soap, beverages, foodstuffs, or retail services that nearly every household might use. Broad-cast television is inefficient, however, for advertisers seeking small or specialized target audiences, such as potential buyers of expensive antiques. An antique dealer seeks to reach potential customers who are both geographically concentrated near the dealer’s location and suitable in terms of income and taste. Such an advertiser would use certain periodicals; local newspapers; flyers; and, where available, direct mail solicitation.
In addition to seeking to reach an audience with certain target characteristics, advertisers seek to avoid wasteful duplication of coverage. Therefore advertisers prefer media able to deliver larger audiences of a given composition to media that deliver smaller audiences of that composition. Put differently, advertisers will prefer a medium with a given reach (circulation) among the target audience to media with a lesser reach, because using several smaller media typically results in duplication of advertising to overlapping members of the audience.
The efficiency of mass media for advertisers is summarized in an index number:
the cost per thousand (CPM). Advertising media promote themselves by offering large audiences with attractive (low) CPMs. Media CPMs are defined both for the overall audience and for specialized demographic segments defined by location, age, sex, edu-cation, and income. Segments are defined in a way that approximates the target audi-ences of particular advertisers or types of advertisers. Some media such as periodicals specialize in content that is attractive to a particular demographic segment to produce audiences that have low CPMs for advertisers seeking to reach that segment.
A medium dependent both on subscription payments from the audience and on advertising revenues must recognize the interdependence of advertising revenues and subscription pricing. Higher subscription prices reduce circulation and there-fore lower advertising revenue. Because many members of the audience may value advertisements, especially those with pricing and other specific information, as well as noncommercial content, a reduction in advertising resulting from higher prices for advertisements reduces circulation.
Government legislation influences the economics of advertising, especially in broadcasting. For example, the U.S. government regulates advertising on children’s programs, limits the advertising of proprietary drugs, and forbids the advertising of tobacco products; however, the courts struck down voluntary industry agreements limiting the number of commercial minutes as violating antitrust laws. In contrast, Germany limits private television broadcasting companies to a maximum of 20 per-cent of daily broadcasting time devoted to advertising.
The dissemination of information by the government can be an important source of advertising revenue for some media, as well as a subtle vehicle for the exercise of political control. Many local governments in the United States, for example, are re-quired by law to publish various legal notices in “a local newspaper of general circu-lation.” For smaller newspapers these notices can be a significant revenue source, and hence one not lightly jeopardized by aggressive political content.