Media concentration, pluralism and diversity in the converging era Giovanni Gangemi CMPF Policy Conference http://cmpf.eui.eu/events/policy-conference.aspx Florence, EUI (Villa La Fonte ) 29/10/2012

1. Economic aspects
of media pluralism
Media concentration, pluralism and
diversity in the converging era
Giovanni Gangemi
Policy Conference
Florence, EUI (Villa La Fonte )
29/10/2012

2. Media markets tend to concentration
Entry With few contestants, prices can grow up, thus narrowing the
barriers access of new entrants (e.g. the TV sports rights)
Dominant firms can keep the prices low (predatory prices),
High initial making the market not profitable for potential entrants,
costs especially because of the high initial costs
For press media marginal costs are low, as additional cost is
Low marginal related to just a part of the product (paper, distribution…)
costs For broadcasting media the marginal cost is zero, as any new
viewer/listener does not have any additional cost.
Economies of On the internet, though, more viewers/listeners mean more
scale bandwidth, and more costs

3. Media markets tend to concentration
Due to high initial costs and to economies of scale, big
media firms tend to expand vertically.
Vertical In the media markets, vertical integration is a strategic
integration issue as a firm could control both content production
and content delivery levels.
Low marginal costs and consequent economies of scale
make more profitable for a media firm to expand
horizontally.
Fragmentation increases this tendency, because the
Horizontal
same product will be available on a cross-media base in
integration order to match the audience, as the latter is more and
more spread on different means of communication.
(Doyle, 2002)

4. New context and the technological change
On the one hand it lowers entry barriers, reducing dominance, with
Lowering of positive effects on market plurality
barriers to entry On the other hand it contributes to fragment the audience,
dispersing consumers and thus making the market less attractive for
Products new entrants.
customization Aggregated consumers have stronger bargaining power, because
they constitute an attractive group and so stimulate tighter
competition (in particular when customer are well informed)
If consumers are homogeneous and aggregated they attract
Long tail possible new entrants (and this reduces the incumbent market
effect power)
If consumers are dispersed, fixed costs make entrance into the
market unattractive (the entrant will probably deal only with a
Audience small proportion of consumers)
fragmentation Audience fragmentation in media markets could discourage the
access of new entrants

5. Media concentration and ownership debate
Is concentration increasing or decreasing in the online media environment?
the media sky has never been brighter (Thierer 2005),
Optimists more competition than ever (Compaine, 2000)
While the number of channels increased dramatically, the ownership of those
channels has narrowed to an even smaller few (Lessig, 2004),
it is easier to speak, but harder to be heard (Einstein, 2004),
five global dimension firms won most of the newspapers, magazines, book
publishers, motion picture studios and radio and television station in the United
Pessimists
States (Bagdikian, 2004),
more does not necessarily mean different (Murdock, 1982),
while there is indubitably greater “numercial diversity”, we are seeing a greater
concentration at the level of “source diversity” (Winseck, 2008).
Media ownership is increasingly concentrated (Castells, Arsenault 2008)
There are fewer and larger companies controlling more and more (McChesney)

6. Dynamic of media concentration
u-shape effect
If barriers to entry increase and economies of scale decline, in a
Noam first moment there is more concentration with less contestants,
but then, due to scale economies, there will be more players.
If barriers to entry drop, but economies of scale increase, then in
a first moment there will be more contestant, attracted by low
barriers to entry, but then competition will increase and
contestants will decrease
The lowering of distribution costs lead firms to allocate more
Baker resources on the first copy of the product, to keep the same profit.
The increase of the costs of the first copy creates higher barriers to
entry and thus could lead to a reduction of diversity

7. Old and new concerns on media pluralism
As internet develops, traditional media move to the online, and online media
conglomerates boost their profits, notwithstanding the crisis. Though, all this is rising a
new patterns of concerns about pluralism and diversity:
There is an unclear definition of relevant markets: what should be measured and
how?
It is difficult to assess competition between offline and online media (level playing
field).
Successful online information and content providers are not new but are mainly
traditional media outlets moving online (BBC, CNN, FOX…)
New content providers are smaller and find hard to compete with traditional
players.
Successful players are mainly intermediaries and aggregators, with low/no
investments in new contents.

8. Tendency to concentration in the online media market
An further question is the increasing tendency to market concentration in new media
(search engines, social networks…): the winner takes all.
Some examples of concentration in the online media markets are
Google and Yahoo! revenues 2004-2012 Facebook and MySpace 2007-2012
40.000 4.500
35.000 4.000
30.000 3.500
25.000 3.000
20.000 Yahoo! 2.500 Facebook
15.000 Google 2.000 MySpace
1.500
10.000
1.000
5.000
500
0 0
2004 2005 2006 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011
Source: Netmarketshare. Source: eMarketer and data provided by operators.
Note: figures include only revenues coming from audiovisual

9. Geographical market
A final concern is about the geographical origin of new players and the role of EU
industry.
The balance of trade between US and Europe has mainly taken one direction, due
to internal market size, linguistic and cultural factors, general economic wealth
New operators emerging from the internet economy are almost exclusively coming
from the US.
Europe struggles to establish new players able to compete worldwide.
The challenge is between local-based and well-established media firms and
international globalised organisations, mainly based in the US, operating as
content aggregators.
Traditional instruments such as quotas or public funding to protect local industries
risk to be ineffective in the online media environment

10. The gap between US and EU audiovisual industry increase
EU industry has been deeply affected by the economic crisis, while US firms keep on
growing in the globalised economy. EU audiovisual firms revenues are flat, while US
and Japan companies increased their turnovers. This happens despite public funding
(license fee, grants, etc.).
Total revenues of the audiovisual industry 2006-2010
250.000
CAGR +4.8%
200.000
US
150.000
EU
JP
100.000 CAGR +0.5%
BR
MX
Million €
50.000
CAGR +7.8% Source: European Audiovisual Observatory,
Yearbook 2011.
Note: figures include only revenues coming from
0 audiovisual activities. They include results from
2006 2007 2008 2009 2010 the 50 leading audiovisual worldwide companies

11. Conclusion
A greater diversity on the supply side could not correspond to a
greater diversity on the demand side, and could not lead
automatically to more pluralism.
There is a need for a clearer definition of relevant markets to better
address both pluralism and market competition on media.
An excessive fragmentation in the EU media markets and the lack of a
unified market risk to make European media outlets too vulnerable in
the globalised economy.
It must be understood whether current tools to protect European
industry are still effective or not.