MMAP02 Hieu 1829034 Essay PDF

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Title:

Drawing on Western and local evidence, compare and contrast

the key economic characteristics of the newspaper industry, the

traditional television broadcasting industry and the cable

television industry.

Students name: Hieu Nguyen (ID: 1829034)

Course Title: Media Economics

Lecturer: Dr An Nguyen

Date Submitted: 28 February 2010


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Comparing and Contrasting Key Economic

Characteristics of Newspaper, Traditional TV

Broadcasting and Cable TV industries

Hieu Nguyen

MSc of Media and Communications University of Stirling

Introduction

This essay points out similarities and differences of the key economic

characteristics between three mass media industries: newspaper,

traditional TV broadcasting and cable TV, based on evidences in

Western and local (Vietnamese) context. Besides reviewing each key

economic characteristic, dissimilarities between these industries in

different countries will be examined where possible. The approach is to

bring a broad view over the three industries instead of focusing into anyparticular perspective. Thus, reader may have the big picture of how

industries distinctively deal with scarcity of resources and allocate them

to achieve maximum efficiency.

Nature of products/services

Newspaper is the original mass medium. It is one of the oldest types of

mass media, and is now more than three hundred years old. The

newspaper industry is also the most profitable media industry in the US,

and now accounts for approximately $50 billion in sales annually

(Picard 2004, p.109). The industry had its golden time during 1920s and1930s across Europe and in the US. However, there was a gradual

decrease for newspaper industry since the arrival of commercial TV in

the 1950s (Doyle 2002).

Television plays a very important role in most developed economies.

The television industry grew fast in the US of the late 1940s, taking

advantages from its sibling, the radio industry. By the mid-1950s,

television had become the primary source of entertainment and

information in most US households (Albarran 2002, p.73). In the UK,

television accounts for 28% of total expenditure on advertising in 2000;

and in the US, it attracts about 20% of all media revenues in 1996 (Doyle

2002). Different from newspaper product, traditional television

broadcasting is a public good, which means its accessible for everyone

and it is very difficult to find a way of collecting money from audience.

Traditional TV broadcasting also proposes the problem of asymmetric

information that People do not know what theyre buying until they


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have experienced it, yet once they have experienced it they no longer

need to buy it! (Graham & Davies 1997, p.19).

While the job of traditional broadcasters is usually to assemble TV

programmes from different production sources into packages

(channels), marketing and distributing them to audience over-the-air,cable TV merely distributes available channels to audience. In the past,

only 4-5 channels could be broadcasted in a single area without

interference. Now cable TV allows many more channels to be

transmitted via cable system, which offers audience a broader range of

selection. More complex digital signals can also enable high definition

channels or advanced features such as VODs (videos on demand -

subscribers can choose which programmes to pay for) and

recording/rewinding etc (Gasson 1996).

All three industries are characterized as having dual-product. The first

product is content sold/distributed to audience and the second product

is the access to audience sold to advertisers.

Cost structures

Cost structures of three mass media industries differ greatly as they

have different operating mechanisms. Newspaper industry

characterized by economies of scale, has high initial cost (first copy) and

low marginal cost. Reproduction cost, which has been reduced

tremendously since 1980s thanks to technological improvements still

remains a high proportion of the industrys cost structure. Newspapers

in the US devote only 14% of cash operating to content creation, 16% to

advertising sales and 70% to production, distribution and corporate

services. This can be a great challenge for this industry to reduce

traditional manufacturing cost structure and focus more into content -

the primary value creation activity (MacMillan 2009). Vietnamese

newspaper industry also suffers from the same situation. Huynh (2010)

gives the fact that only 10% of total budget for producing a Tuoi Tre

newspaper (the biggest daily title in Vietnamese market) is spent for

content creation. Production cost (paper and printing) takes more than

50% of total cost.

Traditional TV broadcasting also has high fixed cost but it does not

suffer from heavy cost structure as newspaper industry since

distribution is rather easy over-the-air (marginal cost is zero) so its

major cost is spent for programming. Most expensive programmes are

usually news, sports and prime-time entertainment programmes (TV

shows). They are often not as profitable as talk shows, game shows or


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reality TV which are usually categorized as less expensive programmes.

However, they help generating positive feedback from audience and

building up reputation for the broadcaster, which will eventually bring

back profits. Once gaining profits, broadcasters can have more expense

for higher budgeted programmes. This creates the virtuous circles of

profitability in broadcasting. Vicious circles of low programme budgets

and deteriorating audiences also exist in the other end (Doyle 2002,

p.61).

Cable TV is one of the media industries with heaviest set up cost due to

expensive coaxial/fibre cables, antennas and satellite reception system.

It also has low marginal cost like newspaper and traditional television

industries. Because cable TV operators mostly buy packages (channels)

and then distribute to viewers, they do not really have production cost

but license fee or copyright fee for acquiring programmes/channels.

This cost accounts for 36% of total cost in the US. Van (2010), Chairmanof Song Thu Cable TV (the first cable TV in Danang, Vietnam) reports

that the company spends 20% total operating budget for copyright fee

and 30% for human resources, marketing and administration. The rest

of the cost goes into setting up and maintaining the physical system.

Revenue streams

Newspaper, traditional TV broadcasting and Cable TV all participate in

dual-product market, which means they can both sell content to

readers/viewers and sell access to audience to advertisers at the same

time. There is an exception with newspapers that are freely delivered their revenue streams rely solely on sale of advertising space. For

example, the Metro first introduced their free newspapers in Sweden

(1995), and then in Czech Republic (1996), Hungary (1998) and Finland

(1999) (Bakker 2007). Another exception is public services broadcasting

TV that depends mostly on public funding. They usually carry no

advertising at all or some very little (ABC in Australia, NRK in Norway,

SVT in Sweden and BBC in the UK). In a developing country like Vietnam,

broadcasting channels are free of charge. They are funded by the

government (Van 2010).

Despite certain success of free newspapers in the last decade,

traditional newspaper business relies on two main sources of income:

circulation and advertising. In the UK, quality titles aim at higher class of

socio-economic sections of the population, which results in higher

proportion of income from advertising. On the other hand, popular

titles source of revenue rely more on copy sales (Doyle 2002). In the

US, since 1950s newspapers revenue has increasingly depended on


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advertising. In 2000, advertising accounted for 81% of daily newspapers

total income (Picard 2004). In Vietnam, the situation is somewhat

different. Advertising also contributes as a main stream of newspaper

revenue. Newspapers gain profit from circulation as well but cover

prices are manipulated by the government so they do not have much

control over this aspect (Huynh 2010).

In case of traditional TV broadcasting, apart from public services

broadcasting, there are also commercial broadcasting and a hybrid

model of both. Their first customers are the viewers who usually pay

nothing. In some countries, there have been efforts to collect tax or fee

from those viewers. For example: in the UK, the BBC was funded by the

BBC licence fee (a tax charged to broadcast receiving equipment

owners) (BBC 2009). The second customers are the advertisers, who will

pay broadcasters to have access the audiences (viewers who consume

TV programmes). This is the main income of traditional TV broadcasting.

Contrary to traditional television, cable TV makes a lot of money out of

its first customers audience. Cable operators in US generate 80% of its

revenue from subscribers (Bates & Chambers 2004). Song Thu Cable TV

in Danang, Vietnam also reports to have the same amount 80% of total

income from viewer subscriptions (Van 2010). Other than that, Cable TV

also has different smaller sources of income such as: equipment &

installation, pay-per-view, share with Home Shopping Channels, and

advertising.

Market structure and competition

Newspaper, traditional TV broadcasting and cable TV have the same

aspect that their markets tend to be geographically defined. Newspaper

has regional/local titles and national titles. In UK, Ireland, Australia and

Japan, national newspapers prevail while in the US and other large

European countries, regional and local papers are preferred by the

audience. US daily newspaper market is defined as monopoly with 98%

of titles are the only player within their markets (Picard 2004). In the

UK, there are several successful national titles (The Independent, The

Times, The Daily Telegraph, The Guardian, The Observer, The Daily Mail,

The Sun, The Daily Express...) which defines the market as oligopoly.

Vietnamese market also has national and regional titles but there are

two main dominating national titles: Tuoi Tre and Thanh Nien. Huynh

(2010) announces that Tuoi Tre newspaper has the circulation of

354,000 copies per day and the direct rival Thanh Nien has at least

100,000 copies less.


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Traditional TV broadcasting also has national and local stations. In most

countries, local stations often operate in a monopoly and national

stations operate in an oligopoly. This is possibly due to the cost of

nationwide interconnection and the limited supply of affiliate stations

within market areas have served as limiting factors to competition

(Ferguson 2004, p.151). However, in Vietnam, it is interesting that each

province (of total 64 provinces) has a local station and some stations

even have multiple channels. The total number of channels is far more

than from other developed countries (Thuy Lan 2009).

Different from Newspaper and Traditonal TV broadcasting, Cable TV

operators usually participate in local competitions. In the US, most

markets naturally form a monopoly for local cable operators (Bates &

Chambers 2004; Clint 1984). Higher growth of market demand and

programmes providers also leads to acquisition and merger to take

advantage of scale and cope. The two last decades of twentieth centuryhas witnessed remarkable merger and acquisition activities by American

MSOs (Multiple System Operators) (Bates & Chambers 2004). In UK, this

trend also happens:

1999 was truly a monumental year, with NTL (as it was

now known), buying Cable and Wireless' UK cable

operations - which now contained digital TV capability

in some franchises. There had been much speculation

that either NTL or Telewest - by now the big players in

the cable industry after most of the consolidation hadbeen done. The general consensus was that there was

room only for two big operators to rival Sky - and that it

wouldn't be long before NTL and Telewest leapt into

bed. That has yet to happen (Digital Spy 2005).

Vietnamese local cable markets on the other hand are characterized as

oligopoly. This can be explained by the density of population in rural

areas such as Ho Chi Minh City (with HTVC and SCTV cable operators),

Hanoi (with HCTV and VCTV), which can supply multiple service

providers. Only Danang cable market is a monopoly with the only major

operator - Song Thu Cable TV (Nam Hung 2006; Van 2010).

Pricing strategies

Pricing strategy of an industry is decided by the following major factors:

organization objectives, cost structure and market competition. As the

difference in nature of three industries leads to different objectives,

cost structures and competitions - they have very different pricing


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strategies to maximize their profits and values. Organizations with main

objective that is different from profit maximisation might set price to

survive rather than making profits. Typical example could be the

Observerand the Guardian of Guardian Newspaper Limited or the BBC

(UK) and the PBS (US). The rest operates as profit-oriented firms who

can benefit by strategically pricing for two products: content and

advertising.

Newspaper has a long history of establishment and competition has

been very severe, especially in oligopoly markets. Sole player in a

monopoly might get away with increasing cover price of its titles since

there are no substitutes for the products. However in an oligopoly,

changes in price may totally change the market share. A good example

could be the classic price war in the UK during 1990s. After one year

from August 1993 to August 1994, the Independentscirculation has

dropped 11% when its direct competitor The Times cut down the pricefrom 45p to 30p. By February 2001, The Times has raised its circulation

to 723,000 from just 354,000 in August 1993. It is noticeable that the

Daily Telegraph and the Financial Times have not really been influenced

by this price cut as no close substitutes were available (Doyle 2002;

Tugend 1995).

The nature of traditional TV broadcasting product as being asymmetric

information and a public good, makes it difficult for it to collect money

from audience. There were two main approaches to overcome this

situation: public funding (an example could be BBC licence feementioned earlier) and sponsorship. Sponsorship can be described as a

fee paid by companies (for example Procter and Gamble in the US) to

introduce about their commercial products/services on TV (Doyle 2002;

OHagan & Jennings 2003). Cable TV does not suffer from this problem

it is rather easy for operators to collect money from subscribers.

However, cable TV market usually functions as local monopoly, which

leads to the possibility of pricing manipulation that does not benefit the

audience welfare. Government regulates cable TV price to

accommodate the issue but this approach might not always work. In

the US: Throughout its history, the FCC has been charged with bothregulating and deregulating the demand side of the industry - basic

cable television rates (Bates & Chambers 2004, p.188). In Vietnam, the

situation is quite different with oligopoly market. Since the entering of

DTH (1993-1994), SCTV has apparently lowered its price and provided

more channels. Customers certainly benefit from such competition (Van

2010).


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Advertising price of the three industries is usually determined based on

the audience magnitude and composition. Despite that it may take

different forms such as per-viewer cost, rating points (broadcasting and

cable) or size-based, colour-based (newspaper), price is set based on

how much exposure the ad can have over a certain segment of

readers/viewers. Thompson (1989) posits that a higher socioeconomic

status of a newspaper's readership (as measured by a single metric

developed by the British government) should cause a simultaneous

increase in the price of advertising (quoted in Depken 2003). The needs

for knowing audience profile and behaviours triggers the birth of

corporations such as AC Nielsen or TNS who conducts extensive media

market research and help advertisers decide which media will suit their

needs the most.

Economies of scale and scope

Three industries can develop economies of scale as they have high initialcosts and low marginal cost (even zero in case of traditional TV

broadcasting). TV industries (both cable and broadcasting) have shown

a huge trend towards acquisition and merger to take advantages of

scale. There were broadcasting TV networks (ITV in the UK or the big

four network in the US) and Cable MSOs (Multiple System Operators) as

a result of this trend (Bates & Chambers 2004; Doyle 2002). Newspapers

create economies of scale by exploiting technological advancements

(such as offset printing and phototypesetting) to reduce high first-copy

cost and minimum efficient scale (Norton & Norton Jr. 1986; Picard

2004).

Economies of scope are achieved when savings arises as the firm widens

its output. Newspapers can publish more than one title and create

economies by methods such as sharing editorial content, centralising ad

sales or even combining back offices for administration or finance

activities (Doyle 2002). Broadcasting networks or large broadcasting

companies can develop economies of scope as content flows from

production to viewers in a process managed by only one company.

Networks can also widen its scope by acquiring other networks: in 2002,

ABC & CNN has seriously discussed about merging their newsoperations (Ferguson 2004). The prominence of cable MSOs is a result

of achieving not only economies of scale but also scope. Large MSOs

sought to cluster their systems geographically so they could reap the

benefits of economies of scope by having several systems under

regional management (Strover n.d.).

Impact of new media technologies


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New technologies have obviously created benefits for media industries.

As in case of newspaper, new printing and computer technologies allow

the industry to dramatically reduce cost and shorten production time

(Picard 2004). Cable TV also receives lots of benefits with the invention

of fibre cable as a much better substitute for coaxial cables. Digital

technology helps storing and transferring media content becoming

much easier/cheaper. The replacement of analogue with digital

technology has lowered costs and human resources involved in media

production (Doyle 2002).

Despite that, newspaper, traditional TV broadcasting and cable TV has

to face new threats from new media technologies. The birth of online

news has directly affected newspaper industries. Since the first stage of

taking off in earlier 1990s, online news has been more mature and

reached a second fear-driven development stage in the late 1990s

(Nguyen 2008, p.10). Murdoch (2005) confessed:

Scarcely a day goes by without some claim that new

technologies are fast writing newsprints obituary. Yet,

as an industry, most of us have been remarkably,

unaccountably complacent. Certainly, I didnt do as

much as I should have after all the excitement of the

late 1990s. I suspect many of you in this room did the

same, quietly hoping that this thing called the digital

revolution would just limp away.

Well, it hasnt ... it wont ... and its a reality we had

better get used to - and fast (quoted from Nguyen 2008,

p.12).

TV industries also suffer from the same competition from the Internet

as there are more and more people watching TV and surfing the net at

the same time. According to a survey conducted by Forrester in 2007,

European consumers are reported to spend 14.3 hours per week online,

11.3 hours on TV and only 4.4 hours reading newspaper and magazine.

New TV distribution technologies (from cable to satellite and recentlydigital compression) have forced companies to continuously transform

and adapt. Van (2010) mentions that if media firms do not catch up with

latest technologies, they will be soon out of competition.

Conclusion

Newspaper, traditional TV broadcasting and cable TV industries though

share the same characteristic of having dual products, possesses many


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other distinctive features. While newspapers had to wisely allocate

resources to reduce heavy cost structure, traditional TV broadcasting

and cable TV industry witnessed many acquisitions and mergers to

maximize economies of scale and scope. Government regulations also

play an important role to ensure society welfare against harmful

monopoly or to prevent discontinuation of public services that may not

survive severe competitions. The invention of a new media always

proposes dangers to other existing media (as TV did to newspaper and

cable TV to traditional TV broadcasting). It is interesting to watch how

those three mass media industries re-innovate themselves in order to

defend their markets against the invasion of new coming media such as

the Internet.

References

Albarran A. B. (2002) Media economics: understanding markets,

industries and concepts. 2nd

ed. Iowa, Iowa State Press

Bakker P. (2007)About free dailies [Internet]. Available:

http://www.newspaperinnovation.com/index.php/about-free-dailies/

[Accessed 15 Feb 2010]

Bates B. J. & Chambers T. (2004) The Economics of Cable Industry. In

Alexander A. et al. Media Economics Theory and Practice. 3rd ed. New

Jersey, Lawrence Erlbaum Associates, pp. 173-192

BBC (2009) TV Licence Fee: facts & figures [Internet]. Avaliable:

http://www.bbc.co.uk/pressoffice/keyfacts/stories/licencefee.shtml [Accessed 16 Feb 2010]

Bolick C. (1984) Cable Television: An Unnatural Monopoly[Internet].

PATO Institute. Available: http://www.cato.org/pubs/pas/pa034.html


Depken C. A. (2003)Audience characteristics and the price of advertising

in a circulation industry: evidence from US magazines. Arlington,

University of Texas at Arlington.

Digital Spy (2005) History of cable TV in the UK[Internet]. Digital Spy.Available: http://www.digitalspy.co.uk/cable/history/ [Accessed 18 Feb

2010]

Doyle G. (2002) Understanding Media Economics. London, SAGE

Publications


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Ferguson D. A. (2004) The Broadcast Television Network. In Alexander

A. et al. Media Economics Theory and Practice. 3rd ed. New Jersey,

Lawrence Erlbaum Associates, pp. 149-171

Gasson C. (1996) Media Sector. In: Doyle G. ed. The Economics of The

Mass Media. Cheltenham, Edward Elgar Publishing

Graham A. & Davies G. (1997) Broadcasting, society and policy in the

multimedia age. Luton, University of Luton Press.

Huynh P. (2010) Presentation on the business of Tuoi Tre Newspaper. Ho

Chi Minh City, HCMC University of Social Sciences & Humanities

Jennings R., Favier J. & VanBoskirk S. (2007) European Online Marketing

Tops 16 Billion In 2012. Forrester.

MacMillan R. (2009) Newspapers: Theyre *still* dying [Internet].

Reuters. Available:

http://blogs.reuters.com/mediafile/2009/06/04/newspapers-theyre-

still-dying/ [Accessed 14 Feb 2010]

Nam Hung (2006) Dch v truyn hnh cp: Cnh tranh s lng, cht

lng rt dn [Internet]. Tuoi Tre Online. Available:

http://www.tuoitre.com.vn/Tianyon/Index.aspx?ArticleID=160258&Cha

nnelID=57 [Accessed 18 Feb 2010]

Nguyen A. (2008) FACING THE FABULOUS MONSTER. Journalism

Studies. 9 (1), pp. 91-104

Norton S. W. & Norton Jr. W. (1986) Economies of Scale and the New

Technology of Daily Newspapers: A Survivor Analysis. Quarterly Review

of Economics and Business. 26 (2), pp. 66-83

OHagan J. & Jennings M. (2003) Public Broadcasting in Europe:

Rationale, Licence Fee and Other Issues.Journal of Cultural Economics.

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Strover S. (No date) United States: Cable Television [Internet]. The

Museums of Broadcast Communications. Available:

http://www.museum.tv/eotvsection.php?entrycode=unitedstatesc



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Thompson R. S. (1989) Circulation versus advertiser appeal in the

newspaper industry: an empirical investigation. Journal of Industrial

Economics 37 (3), pp. 259271

Thuy Lan (2009) Taking up time [Internet]. VnEconomy News. Available:

http://news.vneconomy.vn/20091013045311129P0C6/taking-up-time.htm [Accessed 17 Feb 2010]

Tugend A. (1995) Rupert Murdoch's Price War[Internet]. American

Jounalism Review. Available: http://www.ajr.org/Article.asp?id=2166


Van Q. (2010) Presentation on the Vietnamese pay TV market. Ho Chi

Minh City, HCMC University of Social Sciences & Humanities

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