Transcript Economics_2006 - Simon Fraser University

Economics of the
Cultural Industries
Examine changes in capitalism, and
especially cultural economics over time
Explore the nature of the cultural
commodity
Look at the nature of the cultural
production process
CMNS 230
1
Learning Objectives
Identify three main similarities and three
main differences between industrial
consumer good and cultural consumer good
production
Key Q: what is special about the cultural industries? (Hes:
pages 17-22)
Key Q: within the cultural industries, what are some key
differences?
CMNS 230
2
Part One: Changes in
Capitalism
CMNS 230
3
Review of Hesmondalgh
 Chapter 2 examined some of the basics in the issue of transition to
a new form of cultural capitalism, concurrent with the shift to the
so-called information economy
 Is there a radical shift?
 Chapter 3 highlights the reasons for the ‘shift’ thesis ( however
continuous and not discontinous)
 Especially impact of the big recession of the 70s ( starting what
Hesmondalgh calls the Long Downturn))
 Rise of neoliberal thinking: growth of world trade
 Accelerated with fall of communism in Eastern Europe around 1990
 Chapter 5 explores the complex professional capitalist form of
organization
CMNS 230
4
Decoding Hesmondalgh
-
Defines his approach
-
Political economy from a cultural industries perspective
Particularly likes the theories Miege ( page 22): why?
Notes what Cultural Studies Has to Offer ( page 38-41)
Starts from an epistemological position of realism
-
CMNS 230
Realism: the assumption that there is a material world
external to our cognitive one which is accessible to
understanding
5
Defining Hes’ Approach
-
NOT Neoclassical Economics
Wants to ask questions beyond what efficiently satisfies want
-
-
Determining human needs and social justice
NOT Liberal Pluralist
-
Does not posit a competitive universe of policy interests
Wants to look at power over time; structured forms of inequality
Not only procedural
- Hesmondalgh the Humanist:
-
CMNS 230
“we need to rethink how massive presence of entertainment in people’s lives
affects not only our notions of how democracy works, but also how we think about
other aspects of human life, including ourselves as feeling, emotional beings”
6
Defining Hes’ Approach
- Indebted to Raymond Williams
- Aligns with political economy which places a greater
emphasis on ethics and normative questions
- Aligns with critical political economy
- Characteristics:
-
Holistic
Historical
Look at the balance between private and public
Ask questions of justice equity and public good ( page 32)
-
An organic, historical thinker in the tradition of media historian John Thompson in Media and
Modernity
-
Note: he rejects the dichotomy of political economy versus cultural
studies ( page 41)
CMNS 230
7
Hesmondalgh on the
Cultural Industries
- Likes Miege and Garnham and others because they are better
dealing with:
- Contradiction between structure and agency and contradictions
within industrial segments
- Specificity
- Tensions between production and consumption
- The sociology of creation
- Popular contents like entertainment
- Historical variations in cultural production
CMNS 230
8
The Historical
Trajectory
 Like many historians, asking himself: what, if anything is unique about
contemporary capitalism and cultural production after 1980?
 Looks for patterns of continuity and change
 What is at issue:
 Discussions of fordism and post fordism
 Is there a radically different transformation of capitalism underway?
CMNS 230
9
Fordism and Post Fordism Compared
 Fordism
 Mass Production
 Unionized Labour
 Standardization
 Market aggregation
 Centralization
 Technology of
Production
 Concentration
CMNS 230
 Post Fordism
 Flexible Production
 Casual Labour
 Individualization/
 Niches/Segregation
 Decentralization
 Technology of
Consumption
 Coordination:
Networks
10
Historical Changes in
Capitalism
 Shift away from manufacturing and resource
sectors to service
 Rise in cultural employment
 Rise in advertising as a proportion of GDP
 Internationalisation
 Owners of business invest abroad to spread fixed costs,
and exploit lower labour in LDCs
 Removal of trade barriers
 Emergence of international networks
CMNS 230
11
Changes 2
 The Networked Economy
 New methods of interfirm networking, especially to lower
costs of R & D
 New strategic alliances
 Changing work: flexible, part time workers
 Implications of Cultural Industries
 Propagate neo liberalism
 Appeal to changing values, rising leisure
 Growing discretionary budgets
CMNS 230
12
Changes 3
Rise in demand for computer innovation
Implication of military, and transnational
corporations
Key innovations: miniaturization, mobility,
taping
CMNS 230
13
PostFordism Today
 Transition uneven
 Thesis of radical transformation disputed by many scholars
 Both continuity and change
CMNS 230
14
Hesmondalgh’s Bottom Line
Cannot ignore the broader economy
Cannot ignore continuity
Argues there is not, as yet radical change in the
modes of cultural production
Disputes myth of new technologies
Disputes power shake up of the Internet
CMNS 230
15
Mapping the Historical Trajectory:
Four Periods of Cultural Economic
Production
Once again, begins with Williams who
identified three historical moments or eras
in cultural production
Hesmondalgh introduces a fourth era
Patronage
Market Professional
Corporate Professional
Complex Professional
CMNS 230
16
Patronage ( 1400-1800)
Where rulers or aristocracy support the
artists
Prevalent from middle ages to 19th century
as the dominant form of social relations
between symbol creators and wider society
CMNS 230
17
Market Professional ( 18001940)
When works offered for sale,
creative production becomes a market,
offered through intermediaries which make more money
need middle class to emerge with both the time and money
to acquire cultural products
 Characterized by:
 More complex division of labour
 Small to medium size enterprises (SMEs)
 Mostly contained geographic markets
 Higher levels of competition
 Viable public studios




CMNS 230
18
Corporate Professional
(1950s -1980s)
 Increasing agglomeration into very large
companies
 Oligopoly power
 more creators become employees
 commissioning of works more professionalized
 New technologies, new techniques for marketing
 It is this period the Frankfurt school Critiques as
the emergence of the mass society
 Shift to commercial dominance/eclipse of public
sector
CMNS 230
19
Complex Professional
(1980s+)
 Defined by Increasing division of labour in
production of texts
 Hesmondalgh prefers this concept
 Features new relations of small, independent, and
large companies, together with free lance workers
CMNS 230
20
Historical Contrasts
 Before
 After
 Creative stage carried out by
individuals
 Now carried out by a project
team with various roles
 Creator/Owner simple diadic
relationship
 Craft/Creator;
Owner/Manager now
differentiated
 Large degree of autonomy
CMNS 230
 High degree of autonomy;
BUT control tightens in later
stages of cultural production

( source:
Hesmondalgh, 54)
21
Contrasts Continued
Before
 Regular wages
 Multiple, competitive
companies usually in one
industry
 Internationalisation of narrow
elite markets followed trade
flows/imperial centre
periphery relations
 Highly regulated( eg: role of
US state in film.. Page 52)
CMNS 230
After
 Royalties
 Concentration and oligopoly–
firms now in multiple
industries( conglomeration)
 Successive waves since 19th
century of:




Cultural forms
Technologies
Industries/Texts
Capital Intensification( H:63)
 Growing business selfregulation
22
Importance of the “Long
Downturn”
 50s to 70s
 Period of global economic boom
 Characterised by central role of the State ( welfare state)
 Twin Recessions (1974-1975; 1979-1982)
 OPEC energy crisis triggers economic stagnation
 High inflation
 Fiscal crisis of the state
 80s-90s Neo Liberal Economic Adjustment





Dismantle state monopolies
Seek to contain wage costs
Increase in mobile money/investment/labour substitution
Shift to service sector
Deregulation
 Effects: accelerates emergence of oligopoly; internationalisation
CMNS 230
23
Internationalization
 Waves of investment and trade in film, then sound recording,
then television
 After the 1970s the US dominates the complex professional
era in creative production
 US cultural industries benefit from:
 Large domestic market where cultural producers can recover
their costs at home, and lower costs abroad to gain price
advantage for entry to foreign markets
CMNS 230
24
Recurrent Historical
Continuities
 Miege:
 Creative labour is underpaid
 Tends to bear full costs of creative risk: foregoes secure work
 Why? Permanent oversupply of non-professional cultural workers in
reservoirs
 These ‘amateurs’ take other work to subsidise artistic activities
 Wages kept down by transferability from other cultural industries
 So, historically, successive job markets where most creative
workers are under employed to underpaid– limited penetration of
guilds, and where there are guilds, guilds tend to be technical
 BUT, complex professional/contemporary era is increasingly
characterised by several ‘vastly overpaid’ supernumeraries
CMNS 230
25
Recurrent: Cont’d
Creative workers and distributors struggle
to negotiate rewards via contract to set
royalties: now overseen by Copyright Law
which is increasingly international in focus
CMNS 230
26
The Bottom Line

Hesmondalgh downplays the proposition we are in a radical,
transformative shift in the cultural industries


1. Large size of cultural industries still does not approach the size of the world’s
largest corporations… not yet the new core
2. The distinctive feature of this period is the emergence of the cultural industry
networked economy:



-
CMNS 230
Large and small are increasingly interdependent and mutually entangled in complex
networks of licensing, financing,and distribution
But this a change in form, not power
3. There is greater challenge to the US in international markets ( Bollywood,
Latin America, Hong Kong) but these not new: Hollywood hegemony rises and
falls, but new production centres do not yet approach the size and power of the
US market control– significant inequality of access remains
4. Increasing rate of technological innovation, but Internet is increasingly
commercialized and a supplement to other media… thus WHAT IS THE AUTHOR’S
CONCLUSION?
27
Hesmondalgh’s
Conclusion:Less than
Radically Transformative?
- There is sufficient continuity to undermine the
suggestion that we have entered a new era of
cultural production.
- Rather, we should think of the last twenty years
as representing a new phase within the complex
professional era,
- Which is marked by greater
competition,balanced by oligopoly in complex
arrangements and greater centrality for the
cultural industries within advanced industrial
economies as a whole ( h: 260).
CMNS 230
28
Part 2 The Nature of
the Cultural
Commodity
CMNS 230
29
Why Cultural
Commodities are
Unlike Others
-
Nature of the Product
Nature of Labour
Nature of the Production Process
Anatomy of Marginal Cost
Substitutability
Nature of Demand
Nature of Pricing
Type of Consumption
Source: Peter S. Grant and Chris Wood, “Curious Economics” in Blockbusters and Trade Wars, 2004, p. 45.
CMNS 230
30
•Nature of Product
 An ordinary product is:
 A material thing
 serving a utilitarian function
 A cultural product is:
 An immaterial thing ( an idea)
 Serving a symbolic function
 If it is advertising supported: what is commodified in
trade is the audience, not the content
CMNS 230
31
Labour
An ordinary product:
To reduce/rationalize costs of production, a business will always seek a) to reduce
material and labour input costs and b) substitute technology for human labour
A cultural product
Cannot achieve ‘perfect’ substitution of technology for labour: always human labour
intensive
CMNS 230
32
Nature of Production Process
Ordinary Commodity
Assembly Line, Routinized
Each Unit Requires Significant Resources
Cultural Commodity
Expensive, One time Process
Craft Line, Non Routinized
Each Subsequent Unit Requires Trivial Resources
to replicate
CMNS 230
33
Marginal Cost of Unit of Production
Ordinary Commodity
Very High
Cultural Commodity
Very Low
CMNS 230
34
Substitutibility
Large Degree of Substitutibility Between Competing Brands
Limited Substitutibility: Copyright Law Protects Monopoly on Each Product
CMNS 230
35
Predictability of Demand
Demand Predictable: Amenable to Standard Curve Plotting ( Risk can be
quantified)
Demand Difficult to Predict: Limited Forecast Plotting ( Risk much harder to
quantify)
CMNS 230
36
Time Line of Demand
Demand for Product Continues until next product cycle: measured in years
Demand Drops Sharply after introduction until replaced: product cycle
measured in weeks or months
CMNS 230
37
Nature of Pricing
Ordinary Product:
-
-
subject to supply and demand
Assumes ‘perfect’ competition
Pricing tends to be non-discriminatory
Cultural Product
-
CMNS 230
Limited supply if using scarce technology: eg. spectrum, limited bandwidth
Assumes period of monopoly over intellectual property
Pricing tends to be discriminatory
38
Nature of Consumption
Ordinary Product
 Exclusive: destroyed/discounted in consumption
 Cultural Product:
 Non-Exclusive
 Original (book) may be consumed or read, but after it is available to others
 Attributes of a Semi-Public Good
CMNS 230
39
Who Determines Demand
 Ordinary Product
 Ultimate end consumer
 Cultural Product
 Books and Movies/DVDs: ultimate consumer
 Television and Magazines ( advertising supported): advertiser determines demand
( ie demand is intermediate/)
CMNS 230
40
Nature of the
Production Process
CMNS 230
41
What is the same about
Media Production as a
Factory Process?
 Fixed assets:
 Plant and machinery
 Daily Demand:
 Constant supply of raw materials, continuous production
 Distribution
 Stimulation of Demand
 Constant market research
 Advertising
 Similar to many forms of factory production
CMNS 230
42
What is so special about
the cultural industries?
- Risky: Offset Risk through Concentration, Integration
and co opting Publicity
- High Production/Low Reproduction Costs means a
cultural product is intrinsically Semi Public ( use does
not use up or diminish value):
- A Need to Create Artificial Scarcity
-
CMNS 230
Monopoly
Formatting
Tight control of reproduction
High investment in marketing and distribution
43
Distinct Features
Labour is not homogenous: skill, creative
judgement adds value
Price sharply varies
Production and Distribution not
geographically co- terminous
Limited shelf life
Advertisers( strong intermediate demand
factors) mitigate impact of end consumer
See Branston and Stafford, 219.
CMNS 230
44
Key Differentiators of the
Types of Processes
 Degree of ephemerality
 How long will the product last? Eg. News lasts half day or less; film and sound
recording longer shelf lives ( eg. Reissues, builds audiences over time: classic case
the Star Wars franchise, or how Disney manipulates releases of its key cartoon
series.)
 Degree of technology intensiveness
 Until 1990s, very distinct process of industrial production; different guilds
 Now, digital techniques are ‘deskilling’ or ‘reskilling’ modes of production
 As well, DVD capture means a cross over: TV series now sold/rented like films
 Degree of Structural Integration
 Are firms controlling all parts of the production/distribution cycle? ( vertical
integration)
 Are firms able to buy shares/in other companies/ to aggregate market share and
reduce competition? ( Oligopoly is a form of horizontal competition)
CMNS 230
45
Different Processes
 Newspapers and Live
Broadcasting
 Continuous production and
distribution necessitates steady
cash flow
 High fixed costs
 Recorded Music and Film
Production
 Sporadic Production; interrupted
revenue flows
 High proportion of revenue from
ads
 Wide, controlled distribution
 Output taken to be entertainment
and information
 Revenue from placement, rentals,
ancillaries
 Global distribution
 Output taken as entertainment
and ‘art’
CMNS 230
 Each project/production has a
separate budget ( lowers fixed
costs)
 Source: Branston and Stafford,
222.
46
Categories





CMNS 230
of Work and
Employment
Technical
Creative
Administration and Management
Professional Services
Support
47
General Notes on
Labour
 Technical unionised forces centre in camera fields,
 Slow battle for standards, certification
 but large scale de -unionisation underway
 Shift of labour abroad, eg. Animation…
 Creative management showing new divisions of labour, rise of agents
 Symbol creators
Characterised by long periods out of work
 Creative sector is very dependent upon social welfare policies
 Few make a lot of money
 Hesmondalgh: lots of competition from amateur sector; a buyers’ market
Characterised by casualisation:
 Most, free lance: precarious labour
 Work long hours, and trade financial reward and security for creative autonomy
CMNS 230
48
The Importance of Contracts
 Creators Rewards depend upon contracts they can negotiate;
 First, must protect “exclusivity” to the cultural expression of their
work through copyright
 Then, exercise control over “licensing” the use and distribution of
their work
 Self Interest dictates leveraging a share or “royalty” in subsequent
use
 Want to trap a share of every stage of the process after creation (
ie a share of distribution) and in some cases,create a vertically
integrated firm
 Where per unit production costs are high in the creation of the
master ( eg Film, TV) licensing or royalties are typically LOW
 Where unit costs are lower, royalties high: Some Music deals 50-50;
others much lower
CMNS 230
49
Anatomy of a TV
contract
 Develop Property:
 Copyright structures the pricing of a product.
 Copyright is based on time and space ( 70 years; definable geographic
territory; definable “window” of exhibition)
 Ie: in the creators’ interest to infinitely subdivide deal and negotiate each
stage
 Pitch to get Investors:




CMNS 230
Licence to Broadcasters for exhibition ( at home and abroad)
Raise money from the Bank ( personal loan)
Go to the State: if a public loan, tax incentive
Get artists to reduce their labour costs
50
TV Deal Continued
 Factors affecting terms of trade between broadcaster and
producer:




If buyers market ( ie: if more producers than buyers)
If sellers market ( scarcity of supply to buyers)
If separate or bundle ancillary rights
If there is a high degree of price competition
 To make DeGrassi High costs about a million to make
 But, the cost of an imported US show of the same youth soap type
costs about $50,000
CMNS 230
51
Independents/The David
and Goliath Story
 Use of the term independent is problematic
 All productions require collaboration between creative and technical
teams and an organisation
 Better to think of various levels of ‘dependencies’: Branston and
Stafford, page 245.
 Various rationales for how producers approach such dependencies
 The maverick
 The Artist
 The politically committed; the avant garde
 Each industry approaches alliances with independents differently:
 In global networks, film are much more highly centralized; sound recording
decentralized
 Majors are not monoliths
 Not integrated across all sectors evenly
 EG Disney in music is a fringe player
CMNS 230
52
Problems in Negotiating with
Power Asymmetries
 Unequal information
 Unequal bargaining
 Unequal risk
CMNS 230
53
Changes in the
Organization of Cultural
Work
 Most important change in transition from market professional era to
complex era is the growth in firm size and scope
 Part of a long term trend in mergers and acquisitions after the Long
Downturn, according to Hesmondalgh
 Two waves ( See Hesmondalgh, table 5.1)
 Late 90s boom
 Led to three tiers of cultural industry firms
 Big six ( AOL,TW;Disney, Viacom, Vevendi, Bertelsman, News)
 42 other companies with over I B a year
 Most based in North America and Europe ( several in Latin America)
CMNS 230
54
Trends in Global Business
 Lash and Urry, among others say such rapid growth and rise of
profits mean cultural industries are new core to global business
 Hesmondalgh rejects this claim since they still have a long way to
go
 Late 90s speculation of the dot com boom, inflated AOL Time
Warner value but still only one tenth of say, Exxon) ( see…
Hesmondalgh, page 139)
 Oil, car and retail businesses still dwarf them
 But still very remarkable growth with two strategies:
 Conglomeration
 Hardware and software ( Sony and Columbia Pictures)
 Led to failures
 Now mergers like AOL’s also being questioned
 Vertical Integration
CMNS 230
55
Measuring Market
Concentration: the
Goliath Side
 Market share
 eg.: 6 largest film studios control 90 % pf revs, 132 of 148 films
 Eg: 5 largest music firms control 87% music
 In EU high levels of concentration in print and TV
CMNS 230
56
Restraint on Goliath
 Hesmondalgh argues that rhetorical focus on statistics of market share
obscures the underlying dynamic of cultural production
 need to understand the continuing presence of small companies (149)
 Why?






CMNS 230
Conception stage of texts still small scale, autonomous and relatively inexpensive
Rise of leisure mature /decline of certain industries, , new entry
Discourses of entrepreneurialism
Disintegration of existing networks ( TV) outsourcing is rising
Emphasis on marketing
Ethical and aesthetic premium on independence higher in music, growing in film (
see H, page 151)
57
Why Joint Ventures
To avoid competition
To save money and share risks
To buy a seat on a rival’s board
To create a safety net
To make links with foreign companies, to
avoid punitive tax regulation
CMNS 230
58
Profile of a Media
Giant:Viacom
 Number Three behind AOL-Time Warner and Disney ( among the big
six)
 Created in 1971 when CBS had to spin off its cable and TV
interests(FCC order)
 Sumner Redstone (National Amusements/cinema Showcase/brand)
bought 68% share in 1987 for 3.2 b and still closely held
 Media darling and touted as the epitome of US values: self made, works
hard, ‘liberal democrat’ but less headline material than Rupert Murdock
 He argues: “Content is King”
 1994 bought Paramount Pictures ( originally one of the big 5) and
Blockbuster
 1999 bought CBS
 2000 bought Infinity: largest outdoor ad firm in US
CMNS 230
59
Viacom Brand Names:










SpongeBob SquarePants created by Stephen Hillenburg.
Simon Schuster
Famous Players ( Canada)
Theme Parks
Paramount Pictures and Home Video
DBS, UPN., Paramount TV
MTV, Nickelodeon, BET
Both Vertically and Horizontally Integrated
Weakness is lack of music label
Paramount’s strategy is to target mid range films & synergy with
teen market and MTV
CMNS 230
60
Viacom Synergy
 Nickelodeon and Jimmy Neutron ( 60 million, overshadowed
by Harry Potter)
 Involved Network, film and games interaction, books down
aged by Simon and Schuster ( see Branston and Stafford,
page 251)
 Cooperates with Time Warner and Comedy Central that
spawned South Park franchise
 Essentially a US company
 Leading the way on ‘containing’ celebrity inflation:
cancelling deal with Top Gun Tom Cruise
CMNS 230
61