Media Concentration in America: Trends, Drivers, and Lessons

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1 Media Concentration in America: Trends, Drivers, and Lessons Eli M. Noam Professor of Finance and Economics Columbia University Graduate School of Business, New York Director, Columbia Institute for Tele Information 1 Eli M. Noam, Feburary 29

2 Outline 1. The Question 2. Data analysis 3. Interpretation 2

3 Answer not an obvious yes Yes: Firms are getting bigger No: New entrants, growing industry, convergence of industries, globalization, and new types of media, especially the Internet 3

4 Concentration Measures : 1. Herfindahl-Hirschman Index (HHI) f HHI = S 2 i i= 1 American Antitrust enforcement guidelines classify markets HHI < 1, Unconcentrated Market 1, < HHI, Moderately Concentrated Market 1,8 < HHI, Highly Concentrated Market 4

5 2. C4 Index 5

6 Weighted Aggregate HHI WAHHI = Where: j = an industry n m j= 1 j i= 1 j m m = total revenue of an industry j S = each firm s market share of an industry i n = number of industries f = number of firms in an industry f S 2 ij 6

7 A New Index for Media Concentration It composes as follows: The sum of squared market shares divided by the square root of the number of voices pp

8 Information Industries weighted average Total Weighted Average C1: Mass Media Information Technology Telecom Internet Total Information Sector

9 35 Concentration Trends of Sub-Sectors (HHI) Mass Media Telecom IT Cybermedia 1

10 Local Media Concentration LOCAL RADIO LOCAL TELEVISION LOCAL NEWSPAPERS LOCAL M AGAZINES LOCAL M ULTICHANNEL Total Aggregation 11

11 TV Broadcast Network: Concentration( ) C4 HHI

12 Cable TV Programming: Concentration( ) C4 HHI

13 Top Company Shares (over 6%) of their market Dominant Firm Share Rival Microcomputer Operating Software Microsoft 95% Linux (growing) Mainframe Hardware and Software IBM 92% Networked small computers (growing) Cable Music Channels Viacom 84% No direct rival, but MP3 downloads are growing CISC Microprocessors Intel 8% AMD (growing) MP3 Players Apple 74% CE industry Search Engines Google 7% Yahoo (declining) 15

14 Concentration of all Regulated vs. Unregulated Communications Industries Graph 4: HH Index of Regulated vs. Unregulated Information Industries 35 HHI /5 16

15 News Media Newspapers Trade & Paperback Books Magazines Radio Stations Radio Networks TV Stations TV Networks Cable TV Channels Weighted Agg 17

16 Graph: Aggregate Total Mass Media Sector, 3 Weighted Average HHI Aggregate Total Mass Media Sector MM Distr MM Prog Film Print Music 18

17 4 Foreign Market Share in U.S. Video Channel Network Industries (%) /6 Video Content Networks 19

18 Summing Up: Overall Foreign Shares in U.S. Media & IT Markets (%) /6 Foreign Shares of U.S. Media & IT Market 2

19 Radio Group Market Shares by revenue ( ) C4 HHI Source: Noam, Eli. "Media Concentration and Ownership in America," Oxford University Press, Forthcoming, 29.

20 DBS Providers Concentration ( ) C2/4 HHI

21 Daily Newspapers: Concentration ( ) C4 HHI

22 US Book Publishing: Concentration ( ) C4 HHI

23 Local Telecom Service ( ) C4 (%) C4 HHI

24 Mobile Telephony ( ) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% C4 HHI %

25 Internet Search Engines: Concentration ( ) C4 HHI

26 Information Sector Share of Top 1 and Top 5 Information Sector Firms: Aggregate Sector Share of Top 5 Co's Aggregate Sector Share of Top 1 Co's

27 Pay TV Channel Market Concentration C4 HHI

28 Market Concentration for Pooled Video Network Industries (TV Networks, TV Syndicators, Cable Channels, Pay-TV) C4 HHI

29 Film Production and Distribution: Concentration Trends ( ) C4 C6 HHI 5

30 Prime-Time TV Production: Concentration Trend ( ) C4 C6 HHI 5

31 Film Production and Retail Distribution: Concentration Trend Film & TV Production/Wholesale Distribution Retail Distribution

32 Information Sector Share for Companies ranked 1 1 and 11 5 ( ) SSI for companies ranked 1-1 in information industry SSI for companies ranked 11-5 in information sector

33 SHARE OF TOP MASS MEDIA COMPANIES IN OVERALL INFORMATION INDUSTRY Share of Top 5 Mass Media Companies of Total Information Industry Share of Top 25 Mass Media Companies of Total Information Industry Share of Top 1 Mass Media Companies of Total Information Industry Source: Noam, Eli. "Media Concentration and Ownership in America," Oxford University Press, Forthcoming, 29.

34 SHARE OF LARGEST MASS MEDIA COMPANIES IN MASS MEDIA SECTOR SSI Companies 1-5 Companies Year 6-1 Companies Source: Noam, Eli. "Media Concentration and Ownership in America," Oxford University Press, Forthcoming, 29.

35 AGGREGATE COMPANY POWER INDEX OF TOP 1 AND TOP 5 TOTAL INFOR- MATION SECTOR FIRMS ( ) Company Power Index Top 1 CPI Source: Noam, Eli. "Media Concentration and Ownership in America," Oxford University Press, Forthcoming, 29.

36 AGGREGATE COMPANY POWER INDEX OF TOP 5,1, AND 25 MASS MEDIA COMPANIES IN THE TOTAL INFORMATION SECTOR ( ) Company Power Index Top 1-5 Mass Media Companies Company Power Index Top 6-1 Mass Media Companies Company Power Index Top Mass Media Companies Source: Noam, Eli. "Media Concentration and Ownership in America," Oxford University Press, Forthcoming, 29.

37 Pooled TV/Video Programming Networks (Concentration Trend) Pooled HHI Pooled Average C4 Pooled Average C6

38 Local Telecom & Cellular Local Telecom Local Cellular Weighted Average

39 Content Media (Weighted Average Concentration) FIGURE 13-1 CONSUMER ELECTRONICS SECTOR INDUSTRIES (HHI CONCENTRATION) Weighted Average C4 Weighted Average HHI

40 News Media: Average Concentration News Media Average Concentration, Using Revenues News Media Concentration, Using Pew News Weight

41 Insider Ownership % of Mass Media and IT/Telecom

42 Institutional and Insider Ownership of Publicly Traded Information Sector Companies Average Media Insiders % Average IT/Telecom Insiders % Average Media Institutions % Average IT/Telecom Institutions %

43 Outline 1. The Question 2. Data analysis 3. Interpretation 45

44 3 forces of media concentration: 1. The growth in economies of scale in information sector operations. 2. The lowering of entry barriers. 3. Digital convergence. 46

45 Average Cost A B ECONOMIES OF SCALE AND ENTRY BARRIERS State 1 State 3 State 2 Quantity Produced 47

46 Concentration Trend: Impact of Scale Economies and Entry Barriers Scale Economies Rising Declining Rising Higher Concentration Inverted U Concentration Trend Entry Barriers Decli ning U shaped Concentration Trend Lower Concentration 48

47 CYCLES OF CONCENTRATION R 2 Industry Concentration R 1 Competitive Entry Stage Instability Stage Time t Consolidation Stage 49

48 CONCENTRATION TRENDS, WITH CONTINUOUSLY RISING SCALE ECONOMIES AND DECLINING ENTRY BARRIERS C E Concentration A B C D Concentration Trend Schematic Time 5

49 CONVERGENCE OF CONCENTRATION OF OVERALL INFORMATION SECTOR AND MASS MEDIA SECTOR Concentration A Information Sector C D B Mass Media Sector Time 51

50 END OF LECTURE

51 OUTTAKES

52 Share of Top Mass Media Companies in Overall Mass Media Sector Share of Top 5 Mass Media Companies in Total Mass Media Sector Share of Top 25 Mass Media Companies of Total Mass Media Sector Share of Top 1 Mass Media Companies of Total Mass Media Sector 54

53 Share of Top Mass Media Companies in Overall Mass Media Sector Share of Top 1-5 MM Co's in Total MM Sector Share of Top MM Co's in Total MM Sector Share of Top 6-1 MM Co's in Total MM Sector 55

54 Mass Media Programming (HHI) Radio Networks TV Networks TV Syndication Cable TV Channels Pay TV Channels Weighted Average HHI Video Networks -- Pooled Revenues 56

55 Technological advances in transmission Distribution Cost per Sec Overall Media (in $cent) Telephone (188) 35mm B/W (191) Radio (192) Analog Terrestrial TV (1945) 35mm color (195) Cable TV (197) VHS (198) Digital Satellite TV (198) Dial up (199) IMAX (199) DVD (2) Standard Broadband (23) HD TV (2) Blueray (28) Ultra Broadband (215) Book (145) Theater

56 Technological advances in transmission Consumption cost per sec/cap Overall Media (in $cent) Book (145) Telephone (188) 35mm B/W (191) Radio (192) Analog Terrestrial TV (1945) 35mm color (195) Cable TV (197) VHS (198) Digital Satellite TV (198) Dial up (199) IMAX (199) DVD (2) Standard Broadband (23) HD TV (2) Blueray (28) Ultra Broadband (215) 58 Theater

57 Trade and Paperbook Book Publishing: Concentration ( ) C4 HHI

58 Multichannel (Cable and DBS) C4 HHI

59 Weighted Average of Market Concentrations in 35 TV and Radio Network Industries Weighted Average TV Syndication Radio Networks Cable TV Channels TV Networks Pay TV Channels

60 Electronic Mass Media Programming Concentration Radio Networks TV Networks TV Syndication Cable TV Channels Pay TV Channels Weighted Average HHI Video Networks -- Pooled Revenues

61 Pooled TV/Video Programming and Distribution /6 C4 HHI

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