The Economics of Media: Reviewing an Important Course

I’ve had a bit of free time over the past few hours, so I went through MRUniversity’s “Economics of the Media“. This might be the most relevant course on there right now. That’s saying a lot competing with a very thorough consideration of economic development and the upcoming intellectual history of economics.

The course does a fantastic job of exposing less experienced students to more nuanced aspects of microeconomic theory (multiple equilibria, network externalities, weak vs. strong natural monopolies, etc.) in the process of dissecting the functionality of media. They’re probably a bit light on the underlying mathematics, but deliver the intuition very, well… efficiently. This is an important point: the course runs all of five hours. And in the spirit of MarginalRevolution, it does a good job of sending us to interesting links on the subject. Most ironically, its biggest drawback is very little consideration given to blogging as a medium of information. More on that later.

The value of this course derives from the unquestionable importance of understanding how we get our information. We can listen to Noam Chomsky lament about Manufacturing Consent, but until we understand the economic motives of an organization, it’s tough to appreciate the complexity of mass media.

Given the market oriented propensities of Tabarrok and Cowen, there’s a rather subdued, but well done, attention to market failure. For example, I’d be much more interested in a discussion of economic rents earned by those who win a radio frequency auction first; and the long-run consequences thereof. Similarly, the treatment of some piracy as “economically optimal” is disconcerting to those (of us) who actually pay for everything: but that’s an argument for another day (and I’m not suggesting either are promoting piracy, but obscuring certain moral principles by speaking about it only in the form of consumer surplus).

For someone already familiar with basic economics – and doesn’t need to be guided through its immediate application to the media vis-a-vis theory of the firm – the most interesting section is definitely the last: “Media and Economic Development”. Here the foundations of the first part are solidly applied to understand the role media plays in human development.

This, ultimately, is its most important role. We learn about news in the context of food crises, women, and even diseases.

So this course has my highest recommendation, but there’s a big gap. And maybe it’s because it deserves a course of its own, I was surprised to find how little the economics of blogging was mentioned. This is a deeply relevant subject because, as I’m sure any “loyal MR reader” would tell you – the quality of information and debate is just far better on the blogosphere.

But talk of it “replacing” standard journalism (which, by itself, is another topic that deserved more time!) is just nonsense. Rarely do we see bloggers investigating human systems in the same way Steven Brill did with America’s healthcare, or Bob Woodward with Watergate.

But Cowen and Tabarrok talked a lot about payola, barriers to entry, network externalities, and operating costs in the context of cable news. These are each intimately connected with blogging, if not immediately apparent. To take this further, let’s see what a blogger wants:

  • An engaged audience
  • Influence (?)
  • Pageviews (either for influence or advertising revenue)
  • Links on other influential sites (eigenvector centrality, really, a la PageRank)

To this end, “payola” may not necessarily take the explicit form it does with a disk jockey. Rather, consistently linking to another blogger – I’m speculating – creates a set of expectations wherein the other blogger might feel obliged to link back. Of course, he won’t link back to crap, just like you can pay no reasonable amount to have a DJ play music everybody hates.

Just like classic payola, the art is in getting the readers (or listeners) to believe the link (or record) is something that is natural to the medium itself. If I can take my arbitrary speculations further, I’d expect this quid pro quo to be less pronounced among the more renowned bloggers where a greater readership isn’t really needed or, more likely, happens spontaneously.

But the more interesting comparison is simultaneously thinking about barriers to entry and network externalities. On the one hand, blogging is extremely cheap. Self-hosted domains come at dollars a month, and Blogger, Typepad, and WordPress offer highly affordable platforms. It’s much more like, using the analogy from the course, writing a poem than publishing a magazine.

On the other hand, to the extent readership and centrality is one’s goal, network externalities might make it difficult for new authors to gain traction. There is no “monopoly” in the sense of Facebook here. But there are a relatively small group of maybe 200 bloggers which approximate, graphically, a clique. Weighted by directed links, the group would be even smaller.

Part of this is on merit. These are obviously the most insightful, exciting, and engaging authors. But because they all have busy lives and are limited in time, they will prefer to read only those they credibly trust to be insightful. On par, this creates a graph that, within a certain bound, has an extremely high clustering coefficient, balanced by very low overall clustering (the latter defined precisely as the number of triangle-cliques existent divided by the total number of such cliques, or n choose 3).

In a “competitive” blogosphere, someone’s readership would be immediately determined by the absolute quality of his work. No questions asked. In the absence of any traditional barriers to entry, network effects have to play a role. To what extent does online debate approximate a Popperian “marketplace for ideas”?

These are all questions that I can’t answer in any confidence, only speculate. But after listening to “Economics and the Media” I would be excited to hear a series specifically understanding the economic dynamics of blogging.

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