Sun, 08 Jun 2003

Media Concentration

There seems to be huge amounts of angst over the way the FCC has been allowing higher levels of media concentration. I'm not even going to begin to link to everybody who's bemoaning it. If you notice, economists are remaining silent on the issue. I'm gonna explain why.

I will go out on an economical limb and say that a corporation never makes a "profit". Everything that comes into a company is owed to someone. Perhaps it's not paid out immediately, but no matter, an identifiable individual owns every bit of money. Employees get their salaries, salesmen get their commissions, suppliers get their accounts payables, banks get their interest, founders get their entrepreneurial income.

Now, this last bit is the part that is often called "profit". It comes from the creation of something new -- from the solution of a sore-felt problem. Unfortunately, consumers are fickle. Just because a company was the first to solve a problem, that doesn't mean that consumers will stick with that company. Consumers have a tendency, in a free market economy, to pursue identical solutions for less money, or a better solution for the same money. This destroys entrepreneurial income, or in more conventional economic terms, competes away all profits. But that's okay! Without anybody designing it to work that way, it forces entrepreneurs to keep inventing.

Even small improvements to reduce cost or gain income, in their own way, generate entrepreneurial income. Over time, though, there are less and less improvements possible for the same thing. Once a thing has gotten to that point, it is called a commodity. Competition to provide commodities is fierce. Entrepreneurial profits can be had through very small improvements, such as making a receipt 1/2" shorter, so that 10% can be saved on a $100,000 bill for receipt printer paper. If you have 238 stores, you might buy that much receipt paper.

In the media market, we are awash in a stream of communications. You can get your news via TV, radio, newspaper, website, and even your cellphone. Does anybody remember pagers? A pager was like a cellphone, only you couldn't talk on it, and you couldn't even send messages out from one. You used to be able to get news through your pager, too.

It's fair to say that communications has become a commodity market. One of the things about a commodity market is that there is an intense push to cut costs. That's why people who work in supermarkets usually earn only the minimum wage. The owner can't afford to pay his workers any more. People are usually the largest cost of any enterprise. A typical medium-sized university will burn through a million dollars a week just on salaries.

A media company like a radio, or TV, has a high personnel cost. Takes a lot of people to man a station 24x7, or even 18x7. For the most part, these people are doing the same thing from one station to another to another. Given the commodity nature of communications, there is going to be intense pressure to cut these costs. A media company that can do that will make a lot of entrepreneurial profits.

In steps the FCC, though. They say "No, you can't own more than X% of the media in a given area." They're concerned about monopolistic control over a market. Their concern is mostly misplaced. Yes, there are a limited number of frequencies which may be used in a single area. However, there is still competition between the companies that own these frequencies. Even if a company was to purchase all the frequency licenses in a given area, they are still subject to competition from other media. There's satellite radio, or Internet radio, or websites, or newspapers, or nothing (one can always hit the off button and prefer silence). In the end, a media company has to produce something worth the attention, even if they own all the TV, radio, and newspapers in a given market.

I think that the real concern is not so much about monopolies, but is instead directed at preserving the jobs of people working in media outlets. They realize that, like the followers of Ned Ludd, commodification of the custom goods they are used to making is threatening their jobs. This commodification helps everyone by making higher quality goods available at a lower price. Rather than accepting that which is best for everyone, they are arguing for special protection under the law.

Special protection is responsible for 90% of the economic nonsense that you see. Decry it whenever you see it, because it's money out of your pocket.

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