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Economics of Mass Media

Media Conglomerate or Monopoly?

In the late 19th century, Andrew Carnegie had a brilliant idea. Instead of buying materials and manufacturing steel, Carnegie bought up mines, railways, and all other aspects of the industry, pioneering a business model that later became known as vertical integration, in which a company owns both its suppliers and buyers. Gathering, manufacturing, and delivering raw materials and finished goods all under the control of a single corporation allowed Carnegie’s profits to soar by cutting out the middleman and allowing him to drive the competition out of certain markets. A century later, this same strategy still works; it may not drive industrialization, but its effects are just as powerful.

In late 2009, cable company Comcast announced a plan to purchase a controlling ownership stake in NBC Universal to allow Comcast to join with NBC.Tim Arango, “G.E. Makes It Official: NBC Will Go to Comcast,” New York Times, December 4, 2009,  http://www.nytimes.com/2009/12/04/business/media/04nbc.html. This multibillion-dollar deal would give Comcast a 51 percent stake in the company, with present owners General Electric (GE) retaining control of the other 49 percent. The proposed venture brought together all NBC Universal content—including Universal Pictures and Focus Features; Spanish-language network Telemundo and the cable networks USA, Bravo, CNBC, and MSNBC—with Comcast’s cable channels, which include E! Entertainment, the Golf Channel, and the sports network Versus. Already one of the nation’s largest cable and broadband Internet providers, Comcast would then conceivably have the power to restrict these hugely popular NBC-owned networks to its own cable service, thus forcing consumers to adopt Comcast in order to watch them, or to charge huge premiums to competitors’ cable subscribers for the channels, thereby making their own cable service more desirable.

The most concerning—or beneficial, for Comcast—aspect of this merger is how it may integrate online content with traditional cable media. NBC Universal cofounded Hulu, the second-largest online video channel in the United States. If Comcast sees ad-driven sites such as Hulu as a threat to its cable business, then ownership over the online video portal would allow Comcast to restrict the site and all of NBC’s online content to its own cable subscribers. In effect, Comcast would be allowed to create a subscription model for Internet content, just as it sells subscriptions for cable content. For years, viewers have been able to pick and choose from a wide variety of sources, selecting only the online content that they want; now, some fear that Comcast could bring the problems of a cable subscription—hundred of channels but only some worth watching—to the Internet.Alex Chasick, “Why a Comcast/NBC Merger Is Bad News,” Consumerist (blog), December 3, 2009,  http://consumerist.com/2009/12/why-a-comcastnbc-merger-is-bad-news.html.

This merger has the potential to reshape the way that mass media is produced and distributed to consumers. When most Internet users subscribed to America Online (AOL), the company set up its own site simply as a portal to other companies’ content. The proposed integration of content producers and service providers, however, allows for unprecedented control of Internet content. Net neutrality poses another problem; Comcast could potentially grant its own content channels— such as a subscription-only version of Hulu— privileges over competing channels. While this does not necessarily pose a problem when there is healthy competition, in many regions Comcast is the only provider of broadband Internet, thus raising concerns of a potential monopoly. No matter what happens with this particular merger, it seems that the economics of mass media are becoming even more tangled as the rapid rise of new technology threatens to transform or replace traditional media outlets.

13.3 Digital Divide in a Global Economy

More than just a tool for information transfer, the Internet has become a conduit for a globalized workforce. A corporation in New York can outsource electronically based work to a highly connected developing country like India without incurring the sort of shipping charges or communication delays that previously impeded such efforts. Internet access, particularly for business, has made development possible in remote areas, allowing corporations access to less expensive labor and allowing money to flow into developing countries. However, as the Internet has become integrated into daily business life, a digital divide has emerged: Some derive the benefits from Internet access, but many others do not.

Many U.S. and international leaders and nongovernmental organizations have identified the digital divide as an area of concern. A globalized workforce does not separate the world into easily divisible political territories but rather into those that have useful access to technology to reach a wider market and those that do not. As the 21st century develops, worldwide communication has become increasingly imperative for a healthy economy, creating a new challenge to make sure that rapid technological changes do not preclude economic success for less developed economies.

However, the problem extends beyond simple access or even competency. The 80/20 effect, under which 80 percent of profit is created for the most affluent 20 percent, exacerbates the digital divide. In other words, the Internet—created in large part by and for the rich—is practically useless for the poor, particularly in developing countries. Thus, bridging the digital divide is about helping those with little or no access to the digital world gain the ability to use technology in economically advantageous ways.

The Informational Shift

As information and media move online, those without ready access to the Internet are increasingly being left behind. Even in developed countries such as the United States, the digital divide is readily apparent. Often, older and less educated workers do not have computer skills or home Internet access. In June 2009, the Pew Research Center studied the demographic differences in broadband Internet adoption and found that 45 percent of those without Internet access were age 65 and over.John Horrigan, “Home Broadband Adoption 2009,”  Pew Internet & American Life Project, June 17, 2009,  http://www.pewinternet.org/Reports/2009/10-Home-Broadband-Adoption-2009.aspx . Even more significantly, a quarter of the unconnected were between the ages of 50 and 64. These workers are at a distinct disadvantage when it comes to finding and being hired for jobs.

As classified advertisements and job postings have left newspapers for the web, Internet access has become vital to even finding a job to apply for. In the previously mentioned Pew survey, 20 percent of respondents had incomes of less than $20,000 per year. However, these 20 percent made up a disproportionately high 48 percent of the survey’s non-Internet users; a full 64 percent of low-income survey participants did not have access to the Internet. These numbers drastically dropped as wages increased—while those making under $40,000 per year made up 80 percent of non-Internet users, those making over $50,000 made up 50 percent of high-speed Internet users. As the Internet is becoming an integral part of our daily lives, a lack of access among certain groups could severely hamper upward economic mobility.

Computer Skills and Older Workers

Access to the Internet is an essential aspect of many successful job hunts, but it is also important to consider computer skills themselves. Many older adults who grew up without the Internet lack the computer and technology skills that contemporary jobs require. MSNBC reported in October 2009 that unemployment rates for older workers were at a 60-year high, having doubled in the period between late 2007 and the fall of 2009.Alex Johnson, “Lack of Computer Skills Foils Many Job-Seekers,”  MSNBC, October 2, 2009,  http://www.msnbc.msn.com/id/33106445 . While the overall unemployment rate at that time had reached a 26-year high, older workers who lacked the skills of younger, computer-savvy adults were suffering disproportionately. Lack of computer skills can be a crippling impediment to job success, even if a person can find a job in difficult economic times.

In response to these challenges, libraries and other nonprofit groups have taken on the task of training older unemployed workers to effectively use the Internet for job-related needs. These training courses, beginning with turning on a computer and using the mouse and ranging into advanced office program use, seek to provide skills necessary to allow older workers to reenter the work force. These organizations also aim to show users that they can increase their quality of life by setting up email for communication with friends and family members.

The Digital Divide Abroad

While the digital divide in the United States is largely a matter of education, cost barrier, and lack of adoption of new technology, the digital divide in economically underdeveloped countries adds the complication of infrastructure. Internet service requires the existence of widespread stable networks to handle large computer centers, and electronic access to the outside world needs a constant data connection. Therefore, in many developing countries, practically no residents have access to computers and the Internet; this cuts them off not only from information but from the entire global economy.

Table 13.1 Internet Connectivity by Country

Country	Population (millions)	Internet users (millions)	Percent connected
China	1,330	298	22
India	1,173	81	7
United States	310	231	75
Indonesia	243	30	12
Brazil	201	65	32
Japan	127	91	72
Afghanistan	29	0.5	2
Mongolia	3.1	0.3	10

Source:  CIA World Factbook,  https://www.cia.gov/library/publications/the-world-factbook/  (accessed July 27, 2011).

The Digital Divide Institute has launched a campaign to integrate Indonesia into the global digital network as a representative solution to this problem. Indonesia is the world’s fourth-largest country in terms of population and already has wide cell-phone coverage—a significant advantage when it comes to rural information access.Digital Divide Institute, “Indonesia,” 2010,  http://www.digitaldivide.org/indonesia.html . The organization claims that by expanding these wireless communication networks to encompass 3G and high-speed Internet access, access to the Internet could rise so much that Indonesia could become a fully emerging market for global services. To put this in perspective, connecting 20 percent of Indonesians to the Internet brings the total connected population of Indonesia to 48 million users, equivalent to all of South Korea, one of the most connected countries in the world.Central Intelligence Agency, “Country Comparison: Population,”  World Factbook,  https://www.cia.gov/library/publications/the-world-factbook/rankorder/2119rank.html . The economic and political benefits of widespread Internet connectivity to nations like Indonesia are huge. The Digital Divide Institute points to Ireland as an example of how increasingly high-tech jobs can accompany the decline of terrorism—evidence that bridging the digital divide can be an issue of international security as well as global prosperity.

The Bottom Billion

One contentious issue in bridging the digital divide is which billion to focus on—of the 6.8 billion people in the world, only an estimated 1.6 billion are connected to the Internet.Central Intelligence Agency, “World,”  World Factbook,  https://www.cia.gov/library/publications/the-world-factbook/geos/xx.html . Therefore, the discussion of bridging the digital divide is quickly complicated by this question: To whom should we build the bridge? While some organizations such as the Digital Divide Institute suggest that the global “pyramid” should focus on the next billion—countries such as Indonesia with wide cell-phone coverage but little access to useful, global digital technology. Other organizations see it differently.

Figure 13.4

The One Laptop per Child project aims to put one of these XO computers in the hands of many children in developing countries.

Many believe that everyone in the world can benefit from technology if it is deployed properly. The organization One Laptop per Child (OLPC) seeks to achieve exactly what its name implies with a low-cost design that runs on free software and requires very little energy.One Laptop per Child Association, “One Laptop per Child (OLPC): Laptop.”  http://laptop.org/en/laptop/index.shtml . Central to OLPC’s goal is the idea that learning to use technology needs to be recalibrated toward learning through technology. Another crucial idea is the organization’s conception of networks as essentially localized with the potential to be expanded. OLPC’s XO laptop connects to its neighbors, creating many small networks through a fairly wide wireless range. In addition, its ability to access the Internet through this wide wireless range allows remote educational opportunities for children in developing countries. Although it may seem to leap directly from no communication access to wireless Internet video streaming, this program has shown that it may even be more cost effective than traditional connective technologies like phone lines.

Key Takeaways

· Digital communication allows workers in developing countries with adequate infrastructure to perform remote computer tasks.

· Those without Internet access are essentially left out of much of the new economy. A lack of computer skills or Internet access can make it very difficult to find jobs. Computer skills are required for many jobs, so a lack of those skills may restrict someone to low-paying work.

· The plan to close the digital divide for the next billion people unconnected to the Internet effectively capitalizes on existing resources; however, plans such as the One Laptop per Child project work to provide a comprehensive hardware and software solution for everyone who lacks Internet access.