Introduction
From a speech given by the former BBC director general to a journalism symposium at Goldsmiths College, University of London , Greg Dyke said,”We are even more shocked to discover that the same group (Fox)wants to become a big player in the UK when UK radio is deregulated this year.” He warned the British media: “In the area of impartiality, as in many other areas, we must ensure that we don't become Americanised.”
But actually commercial pressures have tempted others to follow the American formula.No comment on politics,we are discussing this issue in media economics.Media economics is not so often researched compared with more research of media politics and culture.The economies of broadcasting focuses not only the nature of broadcasting markets but also the nature of government involvement in broadcasting markets.We are using in media economies terms to discuss what the British broadcasters can learn from the US television industry.
I think it is at least in four areas of broadcasting economies that the UK broadcasting industry with its smaller and deregulating broadcasting economies should learn from the US.
Networks
The television industry benefits a lot from natural economies of scale and scope. The logic of exploiting economies of scale creates an incentive to expand product sales into secondary external or overseas market. As market structures have been freed up and have become more competitive and international in outlook, the opportunities to exploit economies of scale and economies of scope have increased (Doyle, 2002:22).
Networking is a kind of economic structure for broadcasting service. A network is an arrangement whereby a number of local or regional television or radio stations are linked together for the purpose of creating and exploiting mutual benefits(Owen and Wildman,1992:206).In the US networks make some programming and control some local stations as well as distributing programmes to many more.
There is one network in the UK named as ITV while in the US there are four major networks,ABC,CBS,NBC,and Fox.Networking is also a critical concept in media industry in a fast-paced world in which cost and time pressures make it difficult for every firm to do everything well and to accept every job that it is offered.For some small regions,franchisees are not available to produce all programmes on their schedule,and can not make it as customers hope or need.
In economics term,there is economy of scale to prove that networking is a good way to structure media and make it work well for audience. Affiliated broadcasting(networks) can reach more viewers with more regional television stations and earn greater revenue,also can produce more expensive programming,while costing less per viewer.By this way, Television companies optimise their resource, gain economies of scale and enhance their control on programs and distribution channels but also reduce transaction cost and investment risks as well as improve efficiency. In this sense,the US television is better than the UK broadcasters.Economies of scope are generally defined as the economies available to firms ‘large enough to engage efficiently in multi-product production and associated large-scale distribution, advertising and purchasing’ (Lipsey and Chrystal, 1995:880).
In the US, networks have some features such as the following: Firstly, in physical implementation, there is series of individual broadcast stations which hold spectrum sharing by geographic licensing. Secondly, in economics, for those common broadcasters, the marginal cost of delivering “public good”(uniformity of time and channels) is equal to $0.It is a kind of economies of scale. The common broadcasters also gain better negotiating power with advertisers as well as spreading the risk of programming failure. Thirdly, under regulations, a network also faces government control. In the US, the controller is the Federal Communications Commission (FCC).
In the US, network retains most advertising spots while revenue sharing with affiliate (called “clearance”), and leaving station spots (adjacencies) on longer programs in schedule. Network affiliates gain some $600 million annually in return for carrying prime-time programmes supplied by the networks and they are allowed opportunities to sell some commercial airtime of their own to both national and local advertisers. (Dolye, 2002:71) This facilitates high profit margins for most local affiliates (Gapper, 1998:22)
Networks have a distribution monopoly. If they also had a production monopoly, then they could inhibit independent production，which in turn inhibits growth of new networks. By controlling program acquisition by affiliates, Networks would dry up supply of non-network programming. The FCC imposes limits on vertical integration of networks and program suppliers, also on amount of network programming affiliates can show, and limits how independent stations show syndicated network programming
As there is only one network in the UK, ITV, we need introduce one more or some national networks even European network to work for the competition of UK TV industry. It is the most important structure that the British broadcasters should learn from their US counterparts.
Advertisers Funded Broadcasting
Public service broadcasting in UK is facing challenge.
EVERYTHING is changing in British television: Public service broadcasters in UK are faced with declining budgets, audience fragmentation, and debate over their proper role, all at a time of rapid technological advance in distribution technology. In a short time the whole television system will switch from analogue to digital in Britain. Public service broadcasting in UK is facing challenge.
The public service broadcasting concept is to "inform, educate and entertain”. Although there is no standard definition of what public service broadcasting is exactly.
In the UK, the BBC is wholly funded by licence fee, and the ITV get some advertising time granted by the IBA to over a dozen commercial franchisees. Channel 4 has its own licence and the right to sell its own advertising time.
From the following chart, An Ofcom, Britain's new media regulator, investigation shows that less than 50% of the audience are willing to pay a licence fee, mostly are young generation and middle classes. As time passes, more and more of the audience will reject to paying licence fees in future.
Chart 1:Support of the general idea of the licence fee in UK.Source:Ofcom
The programming and scheduling offered by the public service broadcasting in UK has “dumped down” gradually to some extent. If everything broadcast by a public service broadcaster can no longer necessarily be considered as public service broadcasting a policy regime which privileges public service broadcasters is more and more likely to come into question.
On July 17, 2003, the Communications Act became the law in UK. The key contents of the 2003 UK Communications Act include: Foreign companies to acquire British broadcasters, paves the way for a single ITV company; revised plans for ownership regulations for the radio industry and the creation of the Ofcom, the new super-regulator set to replace the existing five watchdogs for the media and telecom industries. Those are the means of the de-regulation on media ownership.
An evolving concept of ‘public service broadcasting’ will not reject commercially funded channels, but will ensure that the regulation which restrains them is powerful and backed up by dynamic support for a diverse system.
Ofcom said in a report on public-service broadcasting that because of digital technology there will be less need in the future for television to be subsidised because the market will provide an ever wider variety of programming. The UK’s public service broadcasting is facing an economics issue of challenge of funding.
Advertising Models
Advertising is ubiquitous. In the 1990s,international deregulation of telecommunications brought about a great upsurge in advertising expenditure within this sector as new rivals emerged to compete with long-standing incumbents in the UK, across Europe and elsewhere. (Doyle, 2002:50)
The source of funds for broadcasting could be government subsidy, private advertising, or donations by the viewing public. Most of television, in the United States relies on people to watch commercials. Advertising pounds only come if you build the audience and that is happening less and less.
The special feature of advertiser supported television is that programmes are made available “free” to audiences, while those audiences are then sold on a “wholesale “basis to advertisers, from whom stations derive revenue. The whole process thus involves advertisers standing in an intermediate relation between consumers and television channels. This introduces a special system of incentives. (Cave, 1989:19)
Advertising funded broadcasting seeks audience size. The medium becomes a vehicle for business purposes, so the audience's needs are only tangential. An advertising-driven media is a commercialised media. The station likely to take in consideration only audience size in choosing its programs.
In the first place there is the serious possibility that television's share of advertising in the UK is becoming less dynamic and losing something of its dominant position in the advertiser's world-view. One long-term advertising expenditure forecast, reported in the Financial Times, suggested that television's share of advertising expenditure could drop from the 27.9% it took in 2001 to 24.5% in 2014. Some leading figures in the industry are predicting a serious shift in advertiser behaviour away from television.
But at the mean while, for everywhere licence fee funding is likely to decline relative to the volumes of advertising and subscription revenues arise with commercial broadcasters. The consultancy, Zenithmedia, estimated that European television advertising finance will rise by 50% in the decade between 1994 and 2004, and subscription finance is estimated to rise by a factor of 6 in the same period, that is, by 600%. No one expects licence fee finance to rise by such a proportion! Moreover, public service broadcasters' share of broadcasting advertising expenditure has declined from 44% in 1990 to 28% in 1994. (Zenithmedia, 1995).
A slowing growth in overall TV advertising revenues could be combined with a declining share of these revenues for the public service broadcasters as the competition from new channels increases. ITV's loss of both share of audience and share of commercial revenue in recent years has been startling. Its share of audience has dropped from 33% in 1997 to 24% last year, and its share of TV advertising from 65% to 54% in the same period.
Advertiser-funding broadcasting has operated very well since the birth of broadcasting in the US.Today,the US advertisers support the broadcasting to make high quality programmes to meet the audience need.Advertiser-funding is proved to be the most successful experience which most of countries are willing to learn from the US in de-regulation years,especially in European countries like Germany and France.In facing the challenge of Public Service Broadcasting,people are arguing about the future funding of BBC and other broadcasters in the UK.In the report of the independent review panel “The Future Funding of the BBC”(1999),researchers worried that how programmes quality will be ensured by the free market.I will discuss it in following part in which we can learn from US.
“Deficit-financing”
In the UK, broadcasters tend to pay all production costs, so that producers are not exposed to any financial risk, but in return broadcasters retain the majority of secondary rights (Dolye, 2002:82). Under the UK system, broadcasters who commission programmes from independent producers are prepared to cover the production budget in full and also to pay the programme-makers small up-front production fee or profit, usually of around 10 per cent of the total production budget. However, in return, the broadcaster acquires not only the primary rights (or first right to transmit the programme) but also, generally, the majority of secondary rights (e.g. for additional transmissions on domestic television, video distribution and overseas sales). (Doyle, 2002:82)
The deficit-financing model in the US contrasts sharply with the cost plus system, which prevails in the UK. The term deficit financing describes a system, prevalent in the US, where programme-makers share a portion of the financial risks involved in production in return for ownership of secondary and tertiary rights to their programmes (Litman, 1998:140)
"Deficit Financing" and "Syndication" are intrinsically related. Without syndication dollars, there is no deficit financing. The system works by production companies pitching their ideas for development to the networks. When a project is given the green light, the studio puts up some, but not all, of the money for the number of episodes it orders. In exchange, the network receives the exclusive right to air that show for a period of time. After that time, the production company is free to shop the show around elsewhere. They MUST be able to sell the show for future airings because they have not even made enough money from the network to cover their costs. The gap between what the network pays and what it cost for production is the deficit.
The vertical supply chain in the television industry involves program production, then programs sold to service packagers to assemble television schedules and finally the packages are distributed onwards to television viewers by broadcasters. Broadcaster themselves are service packagers, but separate intermediaries, such as networks also act as service packagers including major US networks. The distribution phase for broadcast television can sometimes be broken into more than one stage (Doyle, 2002b: 74).
Therefore, one advantage of deficit financing is to maximise revenues, manage capacity more efficiently and gaining more control over the television market, especially the important upstream (content production) and downstream phases (distribution) in the vertical supply chain. Meanwhile, the television content producers can achieve the goal of reducing the per-viewer production costs by selling their programs to as many audiences as possible through vertical integration with more distribution channels (broadcasters) as to secondary and tertiary market.
UK television production needs such ways to fund their production and distribution as deficit financing, but with precondition of network of television industry structure.
International Trade of Programmes
Television has always been traded. It would be fair to say, however, that for a good part of the history of television there was what Nordenstreng and Varis called 'a one-way street' in television exports - from the United States and to a lesser extent the Great Britain, to the rest of the world.
Obviously, the US producers in international audiovisual trade are in predominant position in global markets. The US suppliers also occupy a leading position as exporters of regular television content. (Doyle, 2002:90) Now the audio and visual products are the second sales of the United States in its world trade. Also the reason for its “one way street” trade can be explained in three aspects: for the reason of its domestic market is nearly saturation. As mean while a worldwide television product market merged for the popular of television in most countries. And last reason is that US television producers benefit from the fact that English is an international language.
International dumping further complicates the analysis, for that is the effect of foreign producers selling their programs at prices far below their costs of production - at marginal costs rather than average costs.
Because audiences tend to prefer television programs with larger amounts of production investment (Waterman, 1988), it is less likely that programs produced in the smaller markets with lower investments in audiovisual production will flow into the larger ones.
But actually the reason for the international market of the US television industry is that market reconstructing. Every reconstruction of networks will bring much more development of its international marketing. It also proves that the UK needs much more reform of its industry structure to meet the more profit of international audio and visual market with strong accent of English language.
Conclusion:
In the coming changing years, with the impact of technology and deregulation, the UK television industry should find its new model to develop and serve the audience better. In 2006,the UK should have new a funding charter for the BBC.In 2015;the UK will enter into a wholly digital television era. With these changes learning more lessons from the US is a great thinking angle-modelling in media economics is an efficient way of doing this. Economy of scale and scope, and good allocation of the resources of television media is what we have discussed in this paper.
The “Networks structure” of broadcasting is a fundamental challenge for the UK’s nearly hundred years old tradition of public service. It is also a precondition for the UK to learn much more of the mechanism of television broadcasting, producing and distribution in its vertical supply chain within the UK.
The advertiser-funded broadcasting system is seen as a declining way for media companies to collect money but it is still very health mechanism for coming decades despite of challenge of Pay TV as the audience are likely to welcome the system which is “free” for them.
Deficit-financing in television production and international trade in programmes are also main issues that the UK can learn from the US television industry.
References:
Curran, J and Seaton, J. (1991) Power Without Responsibility, 4th Edition, Routledge: London
Cave, Martin (1989)”An Introduction to television economics”, in Gordon Hughes, David Vines, (eds), Deregulation and the Future of Commercial Television, Aberdeen University Press, Aberdeen, pp9-37
Doyle, Gillian, (2002), Understanding Media Economics, and SAGE: London
Gaper ,J. (1998),”America’s networks take a stern look at prospects”, Financial Times, 6 April: 22
Jensen, Klaus Bruhn and Jankowsky, Nicholas W. (1991) A Handbook of Qualitative Methodologies for Mass Communication Research, Routledge: London
Litman, B. (1998)”The economics of television networks: new dimensions and new alliances”, in A. Alexander et al. (eds), Media Economics: Theory and Practice, 2nd edn, Mahwah, NJ: Lawrence Erlaum Associates.pp.131-50.
Owen, B and Wildman, S. (1992), Video Economics, Cambridge, MA: Harvard University Press.
Waterman, D. (1988). World television trade. Telecommunications Policy, 12(2), 131-151.
http://foi.missouri.edu/jourwarcoverage/wemustnot.html
Trackback: http://tb.donews.net/TrackBack.aspx?PostId=280994