Page 143 - Critical Political Economy of the Media

122 Critical investigations in political economy

costs of production, low marginal reproduction and distribution costs – are
reproduced online. While reproduction and distribution costs plunge compared
to costs such as paper, printing and physical distribution of newspapers, content
creation costs remain a key barrier in certain markets. The Internet lowers
reproduction costs but the costs to produce a first copy of various kinds of media
content such as general news or filmed entertainment remains a high barrier. For
instance, the average cost to make a US TV show is between $1.5 and $2 million,
with Netflix in 2013 spending a minimum of $4.5 million per episode for House
of Cards (Deadline Hollywood 2013). That barrier is eroded by producing and
packaging specialist or niche content, but remains a high barrier for ‘premium’
entertainment content and for aggregated news content services. This helps
explain the direct competition of online publishing but also the barrier in meeting
the costs of ‘quality’ content.
The lowering of market entry barriers allows new players to challenge
incumbents, yet where content creation costs remain high, significant barriers
remain. In addition, the Internet provides benefits of scale and scope that benefit
incumbent providers. The principal benefit arises from more flexible and cost-
effective delivery of existing content. Where content production remains capital
intensive, there are advantages of economy of scale where upfront investments
can be averaged over the entire user base. Realising such economies of scale
increases the advantages of larger players over market entrants. Technological
advance has overcome monopolies arising from scarcity, but ‘the natural monopoly
of economies of scale’ (Graham et al. 1999: 24) remains. A belief that new net-
work enterprises would compete against old Fordist firms failed to take account
of the cost-advantages of large-scale production.
As well as content production costs remaining high, another key problem has
been the difficulties in recovering costs through selling content to audiences.
Multimedia firms can benefit from economies of scope as well as scale, where
content costs are recouped through different sales vehicles. By contrast, those
reliant on the Internet alone have tended to struggle to recover high production
costs. Rather than Internet-only ventures, new entrants in content services tend
to be firms who could cross-subsidise and achieve cross-firm benefits. In media
many ‘insurgents’ have come from established positions in other markets (and
allied markets), for instance Handbag.com launched by a major retailer, Boots,
and the Telegraph Group publishers. Market openings have often been short-
lived and the costs of sustaining attractive, high profile content for repeat visits
remains prohibitive; the provision of expensive ‘professional’ media content is
still largely governed by the economics of scale and scope which favour dominant
firms (Freedman 2006).
These economic dynamics help to explain the absence of new online content
providers in highly capitalised markets such as national news and feature films.
According to van der Wurff (2008), the Internet has increased the availability of
existing professional media content rather than adding new content; the Internet
increases publication (not production) of content (Sparks 2004). Yet such