The Impact of Oligopoly on the Media Industry - Essay Example

RUNNING HEAD: Oligopoly in Media The Impact of Oligopoly on the Media Industry Introduction What is oligopoly? Oligopoly is a common term used in business education which was derived from the Greek word oligo meaning “few”. An oligopoly is a term widely known in the market wherein a certain market or industry is governed by a small number of merchandisers commonly regarded as oligopolists. In an industry where oligopoly is practiced, merchandisers involved in this type of industry do know their competitors very well. This means that the actions or promotions implied by one of the merchandiser greatly influence the other merchandisers. Now that the global economic status is unstable, some merchandisers within the same market merge in order to take a larger chunk of market sales. Most of these oligopolists do background check of their competitors. As part of these oligopolists’ marketing plan, they tend to be keen enough on each other’s strategic moves to lead the industry. These strategies lead to industry collusion. Collusion is a discreet agreement that lies between these oligopolists. Collusion is an unhealthy competition between merchandisers. Collusion places the industry into jeopardy because this strategy prohibits merchandisers from manifesting their legal rights through deception and swindling. This is where merchandisers come into an agreement of dividing market sales, commanding prices of their products or services, and controlling the amount of production (Sullivan and Sheffrin 2003). The main purpose of this paper is to present the effects of oligopoly in the industry of media which includes music and television networks. Empires of Sound In the quantitative approach of oligopoly, the most commonly used denomination is the four-firm concentration ratio. This means that in a particular industry, four major merchandisers or companies govern the market sales. These companies are the ones who predict global production within their type of industry. This situation is what actually happened in the global music industry last 2004. During that time, a new music monster company was born when globally renowned Sony Company merged with another huge company in the name of BMG. This new merger of companies then took 25.2% of market sales. With the merger, the leading music company Vivendi Universal felt the need for innovation to retain their spot as the world’s largest music company. Vivendi Universal governs the music industry taking a big chunk of 25.9% of market sales with their collection of record labels. Just with these two big music companies, they gathered more than half of market sales in the music industry leaving the other competitors with the other half. The other companies who are sharing 50% of market sales involve EMI and Warner taking 23.9% of market shares, while independent companies IFPI and Recording 4 taking up the remaining 25% (Bishop 2005). Because of the congestion of these companies within the music industry, these companies have established the international “empires of sound” (Millard 1996). Because of the rise of these companies within the industry of music, the length of copyright terms were constantly reviewed, evaluated, and amended which resulted to the delay of release to the public market. The copyright act of 1790 extended from 28 years of the life of the creator plus 70 years. This copyright law was established to demoralize the interests and concepts of monopolists over literary, artistic, and musical works by allowing restricted terms of monopolies. However, the length of term extensions resulted to the contraries of the law. With the birth of “consumer digital age”, the digital music production tools became a popular means among consumers. With these innovative means of technology being perceived as threat by these giant music companies, these companies used their influence to attract national and international policies to secure culture and manage creativity (Lessig 2004). Because of this situation, these music giants tend to protect their properties to stay in the game. The scenario of music industry in 2005, if you are going to evaluate it, despite the fact that in an environment of oligopoly, these companies are not working together as one in achieving common goal. What really happened during that time was the exact opposite; these companies rendered their attention in invading the market share. As one industry executive stated that the competition between these companies is growing stronger and more intense, these companies are not pursuing a single path (Alderman 2001). In terms of the music industry, it is said that the strategy for success is integration. This model means these companies should be able to manage as many things as they could in order to be on top of the industry. However, this is not what happened during that time. These giant companies chose to go their own separate ways. As stated on this paper, oligopoly is a market governed by a small number of merchandisers. This is the type of market is concentrated by few merchandisers. It is said that the “big four” of the music industry today was the result of the innovation and mergers of companies that existed during the past few years. The “big four” includes Vivendi/Universal, Sony BMG, AOL-Time Warner, and EMI. The model and structure practiced by these companies today is now known as oligonomy. Almost the same as oligopoly, oligopsony is a type of market where there are several merchandisers while there is a scarce of consumers or buyers. The structure of oligonomy is that the merchandisers practice both models of oligopoly and oligopsony. The market of oligopoly is manifested because of the number of merchandisers to the number of consumers or buyers. Oligopoly is made up of the merchandisers’ patriots. The market type of oligopsony, on the other hand, involves the songwriters and artists representing the name of their merchandisers. These songwriters and artists are facing the challenge of selling their compositions to a market where there is a scarce of interested buyers. Oligopsony is indicated by the number of buyers in the market. The market type of oligonomy is of advantage to the merchandisers because they contract their songwriters and artists in a minimum agreement then sell their compositions and works in higher costs. With this strategy, these merchandisers can save on their resources while they benefit from the market share. In the industry practicing oligonomy, these merchandisers act as sieves. They screen the type of music that would be released into the market (Frith 1987). In this kind of environment, the merchandisers have obtained and commanded the art of music as to how it should be perceived, accepted, conveyed, and performed by the mass public at any given situations (Bishop 2003.) This type of market (oligonomy) allows the merchandisers (the “big four”) to take advantage of the asymmetry of supply and demand chains of the industry. The main reason why these merchandisers practice or have chosen the model of oligonomy is to acquire quality compositions and highly talented songwriters and artists as their representatives. These companies tend to acquire these songwriters and artists as cheaply as possible. Once they have successfully completed this objective, these companies will then sell their compositions. After screening the content of the compositions, they will release these artworks to the public market in higher costs. This principal paved the way to the success of these merchandisers. Television Media Giants Television giants, obviously, control the largest portion of market shares today. A big chunk of 77.5% is governed by these television giants distributing the rest (22.5%) to independent television stations owner. The major broadcast networks in the United States of America are ABC, CBS, NBC, and Fox during the 1990’s. The industry of television broadcasting is governed by the Federal Communications Commission (FCC). The FCC implemented a law that would require television stations owner to promote variety of shows, national acceptance, and competition within the media industry. For the last 40 years, media companies have been more focused in providing entertainment today. These media companies do not focus only on media entertainment, they have also engaged to other business line to empower their resources. As an example, television media giants today do not only transmit programs through televisions, these media giants also own their own cable companies that allowed them to send their program signals to televisions at homes. Acquiring a cable company allowed these companies to save financial engagements because they do not need to pay for this service. Another advantage of acquiring cable companies is that these services provided the television media companies some financial benefits through the service they provide for those independent television station owners who cannot afford to have their own cable companies that would let them transmit their TV programs, instead they spend money to air their shows on TV. Like many industries, big media companies play essential roles in the success of the entertainment business, same as what small independent entrepreneurs do. Although these giant media companies tend to acquire small time television companies or sometimes push these smaller companies to give up the fight of acquiring shares of the market. However, this strategy has a big impact on the industry. If a small time television business will close and stop their productions, great ideas are also lost. Why? It is because small time television owners, mostly independent companies, produce their own programs. Since these small television station owners believe that they cannot compete head on against these television giants, they tend to think of something new to present to their viewers, they are thinkers. These small time television station owners think of something unique that the television giants do not have. They think of strategies that would keep them on the game. These are some ideas that are lost when a small time television company shuts down their production. These small time television station owners are more likely to take the risk by adapting new technologies and ideologies which push the television giants to develop new approaches. This philosophy of small time television station owners results to intense competition against television giants. With competition, there will be dynamic changes in the organization producing more jobs and more intriguing ideas. This is where capitalism comes into play. However, if the policies would be too lenient, the concept of capitalism could be abused leading to unhealthy oligopoly of business establishments. As what is the situation today, television giants are more focused on acquiring financial benefits rather compared to small time television station owners who thrive in taking risks just to keep their business afloat. Television giants tend to diminish local programming due to financial reasons and focus more on broadcasting national programs which cost them cheaper. Television giants do not care if their strategy steps on the values and interests of many as long as they keep on gaining financial benefits. The executives of these television giants are afraid of taking risks because their jobs would be in jeopardy if their strategies fail. Instead, these executives will let small time television station owners do their thing, and once they have succeed, these executives will make their move of offering these independent players so that they can purchase the programs or the station as a whole (Turner 2005). Conclusion As conclusion to this paper, in an industry where merchandisers practice oligopoly, their strategies, actions, and decisions to stay alive have always been questioned, evaluated, and contested throughout the years (Shapiro 1988 cited by Currah 2006). In fact, these merchandisers are rendered to have diverse behaviors: collusion, strategic interdependence, revenue-centered structure, and preservation of industry structure (Baumol 1958; Stigler 1964). This paper also showed that the effect of oligopoly within the music industry is somehow one-sided in favor of the “big four” or the industry leaders. They tend to take advantage of highly talented songwriters and artists that represent them into the vague market place. Same situation and scenario is happening today in the television industry. The television giants focus more on profit-acquiring strategies while leaving the small scale television station owners doing the dirty works of innovating and promoting uniqueness. Come the time the program hit the wave, they will acquire these small scale television stations together with their ideas. In short, in an oligopoly type of market, only the strong and wise succeed. References Alderman, J. (2001). Sonic Boom: Napster, MP3, and the New Pioneers of Music. Perseus Publishing, Cambridge, MA Baumol, W. J. (1958). On the theory of oligopoly. Economica, 25, 187-198. Bishop, J. (2003). What does world music sound like? Identity and authenticity in world beat. Pop Sounds: Klangtexturen in der Pop- und Rockmusik. Ed. Thomas Phelps and RaIf von Appen, 161-178 Bishop, J. (2005). Building international empires of sound: Concentrations of power and property in the global music market. Popular Music and Society, 28(4), 443 Currah, A. (2006). Hollywood versus the internet: The media and entertainment industries in a digital and networked economy. Journal of Economic Geography, 6, 439-468 Frith, S. (1987). The industrialization of music. Popular Music and Communication, 53-77 Lessig, L. (2004). Free Culture: How Big Media Uses Technology and the Law to Lock down Culture and Control Creativity, New York: Penguin Millard, A. (1996). America on Record: A History of Recorded Sound, New York: Cambridge UP Shapiro, C. (1988) Theories of oligopoly behaviour. In R. Schmalensee and R. D. Willig (eds). Handbook of Industrial Organization. 329–414 Stigler, G. J. (1964). A theory of oligopoly. Journal of Political Economy, 72, 44–61 Sullivan, A. & Sheffrin, S. M. (2003). Economics: Principles in action, Upper Saddle River, New Jersey. Pearson Prentice Hall. 171 Turner, T. (2005). My beef with big media: How government protects big media and shuts out upstarts like me. Federal Communications Law Journal, 57(2), 223 Read More