This paper argues that Industrial Organization theory is essential but not sufficient to understand the individual and collective performance of modern media organizations. Institutional economics is an important source of theory, too. Whereas Industrial organization emphasizes market structural conditions that stimulate strategic variety and product differentiation, institutional economics emphasizes institutional conditions that require companies to be similar. A discussion of the basic assumptions of industrial organization and institutional economics, followed by an extensive review of media performance studies in these traditions, substantiates and illustrates this claim. The paper concludes with a number of hypotheses for future media market performance research.

Regulating the new information intermediaries as gatekeepers of

doctor rerum politicarum

ABSTRACT: The relationship between the structure of a market and the diversity of its product offering has been extensively explored by theorists. We develop two measures of diversity and explore the content of local news for sixty stations and twenty DMAs in the United States. Using a relative station-level diversity metric, OLS estimates imply that relative diversity of local news content decreases as market concentration increases. This result is not, however, robust to an instrumental variables specification. Using a total market diversity metric, HHI is significant in OLS and robust to instrumental variable estimation. Since the total market diversity metric is arguably superior to the incremental metric as a measure of overall diversity, this result is useful – it suggests that the total diversity of local news content within a DMA is sensitive to the level of concentration.

This paper considers the application of ‘cultural quotas ’ to radio broadcasting: a requirement that a minimum percentage of broadcast content be of local origin. Using a Hotelling location model derived in Richardson (2004) we show that, while the laissez-faire solution involves less than (socially optimal) maximal differentiation, a quota reduces the differentiation between the stations even further. While a cultural quota may raise consumer welfare, the reduced station diversity and advertising levels monotonically lower overall social welfare. We consider two other policies – a limit on advertising and a publicly provided non-commercial station – and show that both also reduce diversity, compared to the laissez-faire solution. An advertising cap is not as effective as the quota in achieving greater airplay for local content for least welfare cost but a public station can be, depending on the magnitude of its associated fixed costs.

This paper develops a Hotelling location model in which two radio stations choose combinations of local and international content to play, given consumers with preferences distributed over those combinations. Station revenue derives from sales of advertising time, the demand for which depends negatively on the price and positively on the station’s market share and consumers get disutility from advertising and from a less-than-ideal broadcast mix of local and international content. In this setting we show that the laissez-faire solution involves less than (socially optimal) maximal differentiation.