Discussion Mini-Essay Post #3 and Peer response: Complex and Interdependent Relationships

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Chapter 7

Economic Perspective

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

Key Idea: The businesses in the media industries are in strong competition with each other to acquire limited resources, play the high-risk game of appealing to audiences, and achieve a maximum profit.

The Media Game of Economics

The Players

You, the consumer

The advertisers

The media companies

The employees of media companies

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

You, the consumer: pour in money, time and attention and seek to exchange money and time for entertainment and information. Largest group with almost 330 million people in the country and 7 billion worldwide. If consumers pull out, the game would collapse.

The advertisers: bring money to the game. They negotiate an exchange of their money for time and space in the media in order to expose their ads to their target audiences. Advertisers are very sophisticated in their economic exchanges, because they want to get access to their target audiences for the lowest cost possible.

The media companies: bring money, messages, and audiences to the game as they compete in three different markets simultaneously.

The employees of media companies: bring their time, skills, and talent to the game.

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

The Media Game of Economics

The Players

Consumers’ resources: money, time, attention

Seek worthwhile exchange of resources

Advertisers’ resources: money, time, space in media

Concentrate on niche audience

Consumers

We are the consumers.

Our resources include our money, time, and attention.

Advertisers

Advertisers bring money to the game.

They negotiate an exchange of their money for time and space in the media in order to expose their ads to their target audiences.

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

The Media Game of Economics

The Players

Companies’ role: Talent targets audience using advertising

Employees’ resources: time, skill, talent

Distinction between below-the-line and above-the-line employees

Top executives have managerial talent

Distinction between below-the-line and above-the-line employees:

Below-the-line employees:

The crafts and clerical people--such as a lighting technician, sound boom operator, copy editor, ticket taker, cable installer, secretary, or a receptionist--who apply fairly common skills in the performance of their jobs. These skills can be learned by many people and can be improved with practice.

Above-the-line employees:

The creative types, and this requires talent much more than training or effort, although training and effort are also important. These above-the-line people are the writers, producers, directors, photographers, actors, singers, web designers, and choreographers.

Media Companies

These businesses bring money, messages, and audiences to the game as they compete in three different markets simultaneously.

Media companies compete for the best talent.

Media businesses compete for audiences.

Media companies compete in the advertising market.

Media Employees

Employees bring their time, skills, and talent to the game.

Below-the-line employees compromise low-skill and low-paying jobs.

Above-the-line employees are the creative types, and this requires talent much more than training or effort, although training and effort are also important.

On average are paid twice as much as below-the-line employees.

Includes celebrities and media managers.

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

The Media Game of Economics

The Goal

Maximize value for self: net winners and net losers

Computing value by businesses to understand profit or loss

Value for customers is quantitative (money), qualitative (satisfaction)

Maximize value for self: net winners and net losers: difference between net winners and net losers. Net winners: The value of payoff is more than their cost. Net losers: Resources spent are of more value than the payoff earned.

The Goal

For all four types of players, the general goal is to maximize the value of the exchange for themselves.

Net winners have negotiated resource exchanges so well that their payoffs are of greater value than their costs.

Net losers give up more resources than the value they receive back.

Value is computed in very different ways for different players.

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

The Media Game of Economics

The Rules

Presence of resources and willingness to exchange

Personal negotiation to maintain fairness

Need to attract consumers to stay in the game

The Rules

The most central rule of this economic game is that to play, you must have resources and a willingness to exchange them for other resources

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

The Attention Economy - How They Addict Us

Characteristics of the Game

Importance of valuing resources well

Complex interdependency among players

Digital convergence

Nature of competition

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

Importance of Valuing Resources Well

One factor in valuing a resource is making an assessment about how well the resource will achieve a particular goal.

A second factor that is important in valuing resources is to consider supply and demand.

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

Characteristics of the Game

Importance of Valuing Resources Well

Consider supply and demand

Assess the utility of a resource to achieve a goal

Leads to better negotiations

Absence of knowledge leads to over-value or under-value of resources

Absence of knowledge leads to over-value or under-value of resources: When resources are over-valued, people avoid making exchanges with the business. In the case of resources being under-valued, a lot of exchanges are made but they continually are shortchanged. Little knowledge of the value of resources can lead one to lose the game.

Indirect as well as Direct Support

Direct costs are the financial payments you make directly to a media company.

Indirect costs are typically payments of time you make when you expose yourself to media messages.

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

Characteristics of the Game

Complex Interdependency Among Players

Individual exchange, simple

Complex interdependence

Characteristics:

Relationship between similar businesses

Dilemma of decision makers

Market dynamics

Complex interdependence:

Involves multiple negotiations between many heads.

Example: Suppose a radio station wants to attract more advertisers. It cuts the price of its ads by 20% in its highest rated show. Advertisers want to buy those ad times, so their demand at this station increases. The station, which used to air 15 min of ads during an hour, decides to air 20 min of ads, thus increasing its supply to meet the increasing demand. The station likes this because even though it has cut its income per ad by 20%, it is now selling 33% more avails, and thus the station has increased its total revenue. But the audience notices this change and becomes upset that there are so many ads and not nearly as much music. Most of the audience switches channels during the ads and never comes back. The station’s ratings drop dramatically. Then advertisers become unhappy because it is no bargain to get a 20% discount on ads if the audience they expected to reach is almost gone. Advertisers begin feeling they are wasting their money, so they stop buying those ads.

Complex Interdependency Among Players

The economics of the mass media industries are complex; three characteristics make this interrelationship even more complex.

When a person at one media company makes a decision, it can often have an impact on other companies in the same industry and perhaps other media industries.

Sometimes decision makers are conflicted because they are experiencing cross-purposes.

Media vehicles compete in different markets.

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Characteristics of the Game

Digital Convergence

Wide distribution of content

Easy and quick creation and dissemination of content

Increase in entrepreneurs

Shift of focus to target niche audience

Digital Convergence

Digitization has created many more opportunities to market content simultaneously across all channels.

The digitization of content has also lowered the barriers to entry for entrepreneurs.

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

Characteristics of the Game

Nature of Competition

Distinction between monopolistic and competitive industries

Monopolistic competition

Meeting unsatisfied needs of niche audience

Monopolistic competition: large firm as compared to market, aggressive competition. Easy entry to market followed by struggle which can be overcome when unsatisfied needs of niche audience can be met. If new companies can generate the satisfaction, then they will dominate the market.

Nature of Competition

Many businesses compete for few resources.

We have evolved into a situation referred to as monopolistic competition.

Media businesses do not really compete on product features as much as they compete on product images.

Advertising as the Engine

Advertising is important to our economy.

A decline in the proportion of farmers and blue-collar workers and an increase in the proportion of white-collar professional workers mean that people are not as self-sufficient and must buy their food and clothing.

There has been a high level of employment, which gives people the resources to buy goods and services.

Advertising makes it possible for new goods to enter markets and let us know immediately that they are available.

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Capitalism And Monopolies: How Five Companies Control All US Media

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

Media Industry Perspective

Overview of Success

Rise of digital technology in various sectors

Films generate huge revenue through collections

Digital music sales generate huge revenue

Digital technology has revolutionized music industry

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

Media Industry Perspective

Overview of Success

Book publishing capturing digital format

Largest market of consumer books

Video game sector on the boom

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

Media Industry Perspective

Advertising

Drives growth of industries

Awareness of new products

Exposure to ads leads to purchase

Flow of money in a cycle

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

Media Industry Perspective

Media Strategies

Maximizing profits

Constructing audiences

Reducing risk

Potter, Media Literacy, 9e. © SAGE Publishing, 2019

Media Industry Perspective

Media Strategies: Maximizing Profits

Increasing ways to generate revenue

Minimizing expenses: less salary for below-the-line employees

Economies of scale

Economies of scope

Maximizing Profits

Increasing Revenue Streams

Media businesses need to appeal to more than one audience.

Media businesses try to develop several ways to generate money from the same audience.

Minimizing Expenses

One of the largest expenses across all the media industries is personnel.

Companies need to pay the talent a lot, so they pay the below-the-line employees very little.

The media reduce expenses through economies of scale and economies of scope.

Economies of scale exist when marginal costs are lower than average costs, that is, when producing an extra unit of a good decreases as the scale of output expands.

Economies of scope are achieved through multiproduct production, that is, there are variations on the product produced.

Media Industry Perspective

Media Strategies: Constructing Audiences

Using quantity audience strategy (large audience)

Using quality audience strategy (niche audience)

Attract niche audience against larger group

Niche audience value for advertisers

Media Industry Perspective

Media Strategies: Constructing Audiences

Long tail marketing initiated

Buyers and sellers brought on same platform

Widespread use of technology, no limitations

Condition audience to keep up business

Constructing Audiences

Attracting people to niches involves using a quality audience strategy.

Niche audiences are valuable to advertisers.

Special groups of people have special needs.

This niche orientation is called long tail marketing.

Long tail marketing relies on aggregators, which are platforms that bring together buyers and sellers of all kinds of products and services.

Long tail marketing is so successful because of the widespread use of technologies that many people can use to create products and messages, the removal of limitations in bottlenecks of distribution, and limits on product lines in stores.

Conditioning Audiences

Once a mass media business has constructed an audience, it needs to keep that audience, so it can continue to rent it out to advertisers.

Media companies must condition their audience members so that they develop a habit of exposure.

Media Industry Perspective

Media Strategies: Reducing Risk

Use of prime-time slot by media houses

Marketing concept: identify audience, create specific messages

Examples of sequels or spin-offs

Reducing Risk

Although all businesses face risk, risk is especially high for media businesses.

Less than 2% of films released each year in the United States account for 80% of box office returns.

Media companies reduce risk through the marketing concept.

Managers conduct research to find niche audiences.

Then, media messages are developed to meet previously unmet needs in those audiences.

How The Super Bowl Became The Championship Of Advertising

Consumer Strategies

Default Strategy

Follow preprogrammed habits unconsciously

Routine habits developed in the past

Gave us pleasure so became habit

Default Strategy

The default strategy typically runs continuously in our unconscious minds.

We keep repetitive habits because they are easy to do and require little thinking and attention.

Consumer Strategies

Media Literacy Strategy

Better negotiation for maximum satisfaction

Understand direct and indirect support to decide

Selling cost: addition of producer’s expenses

Personal locus helps make decisions

Understand direct and indirect support to decide: direct support: financial payments made to businesses. Indirect support: time invested in comprehending a message.

Media Literacy Strategy

People who follow a media literacy strategy have higher expectations for a return on the resources they expend.

Individuals with a weak personal locus will not invest the effort needed to be a better player in the economic game

How Instagram And Facebook Make Money

Summary

Businesses aim to make larger profit

Reduce expenses, construct and condition niche audience, reduce risk

Strategy: default with habitual exposure and no risk

Strategy: media literacy with development of existing knowledge

Summary

When you add the economic information from this chapter to your knowledge structure about the media, you develop a deeper understanding about how decisions are made. Remember that the media industries are composed of businesses that are run to make as large a profit as they can. Each of the media industries does this well, and each earns a profit much higher than the average of almost all other industries in the United States.

The media businesses play the economic game very well because they follow three strategies. First, they maximize profits by increasing revenue and decreasing expenses. Second, they construct niche audiences, then condition audience members into habits of continual exposures. Third, they reduce their risks by using the marketing concept.

We as consumers have two strategies available to us. One strategy is the default strategy, where we follow habits conditioned by the media. By following this strategy, we exchange our resources of time and money for a continual state of satisfaction with our habitual exposures; our focus is on keeping our costs low by limiting our exposures to content we have liked in the past and avoiding the risk of trying new content that would require more effort to find and understand. The alternative is to follow a media literacy strategy, where we expend more effort to develop our skills and knowledge structures so that we profit by using the media better to fulfill our own needs for entertainment and information.