Page 110 - Critical Political Economy of the Media

Concentration and commercialisation 89

to assess arguments about the significance of media concentration and corporate
media ownership.

Economic analysis
Several economic characteristics of media markets encourage concentration and
consolidation and it is the intensification of this market ‘logic’ that prevails in
commercial media systems today. In particular, the benefits of economies of
scale and scope are often considerable. Economies of scale occur when the cost
of providing an extra unit (of a good or service) falls as the scale of output
expands. Economists refer to average cost (AC) as the total costs involved in pro-
viding a particular product or service divided by the total number of consumers.
Marginal costs (MC) refer to the cost of supplying a product or service to one
extra consumer. Economies of scale exist where the marginal costs are lower
than the average costs. Such economies are prevalent because many media
industries have high initial costs of production combined with low marginal
reproduction and distribution costs (Doyle 2002b: 13–14; Picard 1989: 62–72).
Film, broadcasting and publishing are all characterised by high ‘first copy costs’,
while the cost of bringing additional copies to market is low, falling to zero.
When the gap between first copy and second copy costs is large there tend to be
economies of scale. Beyond ‘break-even point’, the volume of sales at which total
revenues equal total costs, the profits made from selling additional units can be
immense. In addition, where fixed costs of production are high, firms need to
achieve significant sales to spread the costs across a large number of consumers.
This explains the strong orientation towards ‘audience maximization’ strategies.
Economies of scope occur when activities in one area either decrease costs or
increase revenues in a second area. Such economies drive the integration of
firms, the repurposing of content across different platforms and media, as well as
tie-in merchandising.
As in other industries, large media companies enjoy scale benefits when long-run
average costs (LRAC) decline as output and plant size increase (Picard 1989: 122).
Existing firms with high volume will usually operate at lower cost per unit than a
new firm entering the market, creating a ‘barrier’ to market entry. Of course
new competitors may have other advantages, but where entry to market is difficult
there tends to be concentration. Historically this has fuelled concerns that the
major means of communication would tend to be owned by the powerful and
wealthy – because the strategies for profitability have required huge capital
investment in resources, such as printing presses. What resource barriers persist
today is at the heart of debate on the Internet (chapter five), but while some
production and circulation costs have fallen dramatically with digitalisation,
labour costs and marketing costs tend to remain significant barriers.
Corporate consolidation has also been driven by the benefits of horizontal and
vertical integration. Horizontal integration refers to the process of acquiring competitors
in the same industry or sector. This process is evident in the ‘chain’ ownership of