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The Media Industry in the U.S.

09 Dec 2016Other Essays

Being one of the fastest-paced and highest-profile sectors in the world, the media industry has been in a whirlwind of change the past few decades. There has been an explosive boom and bust and, of late, boom again, of internet technology. This has dramatically influenced media delivery. Clampdowns on shady accounting practices, assets changing hands and a more discerning and demanding media audience have also ensured that changes in the industry occurred at break-neck speed. This is why global media giants, like Time Warner, Disney and News Corp had sought to embrace these challenges of the Information Age.

In front of the media arena, the average US citizen is confronted by more than 1,500 dailies, over 5,700 weekly newspapers, some 17,000 magazine titles, 10,000 commercial radio stations and more than 1,600 TV stations. Nielsen Media Research reported that as of January 2003, 98.2% of the over 100 million households own at least one TV set, with 69.8% of them hooked up to cable. The US also exports a massive amount of its media, which has become almost staple fare around the world. CNBC alone boasts a reach of 192 million households worldwide, with 82m of them in the US and Canada. The latest available GDP statistics from the US Bureau of Economic Analysis show that the radio and TV industry contributed $72.9 billion to the US GDP in 2001, up from $71.1 billion in 2000. Total US GDP for 2001 was $10,082 billion (Economist Intelligence Unit, 2006).

Fact remains that US is the world’s biggest media producer as well as consumer. Advertising is the main source of revenue, although some sectors also create revenues from subscriptions. Media concerns with entertainment arms have additional sources of income through takings from gaming, distribution rights, amusement park entrance fees and spin-off merchandise. Also, entertainment is one of America’s top exports. In 1999, in fact, film, television, music, radio, advertising, print publishing, and computer software together were the top export, almost $80 billion worth, and while software alone accounted for $50 billion of the total, some of that category also qualifies as entertainment—video games and pornography, for example. Hardly anyone is exempt from the force of American images and sounds. . . . American popular culture is the nemesis that hundreds of millions—perhaps billions—of people love, and love to hate (Amobi and Donald, 2006).

However, media availability is somewhat disproportionate to the time an average American has to consume information. But the industry is a lucrative one and media spinners are finding new ways to make the public continue to consume media and pay for it. In 2001, companies in the media industry recorded total revenues of $261.7 billion. Although this was a growth over 2000's $255.2 billion, operating income had been steadily falling since 1998. This can be attributed largely to the fact that cable and satellite providers experienced rising maintenance costs and were investing heavily in new technology. The decline in income is expected to ease over the next few years as investments on new delivery channels start to bear fruit (Euromonitor International, 1 May 2001).

The most significant changes in the media industry in the past decade have been in its adoption of the internet technology. The internet has evolved from being just a communications tool to becoming an important entertainment, business and marketplace platform. Catching up is the cable segment, which is embracing broadband technology in earnest and is rapidly overtaking the role of traditional dialup technology in supplying telephony and especially internet services to North American homes.

From 1996 through 2003, the US cable industry spent $75 billion in private capital on plant and equipment as well as infrastructure upgrades, according to NCTA. The cable industry in its totality is moving from analog to digital technology to compete with the high-quality, low-interruption signal transmission broadcast by DBS companies, which have been offering high quality, encrypted digital transmission almost since day one. The competition between cable and satTV is becoming more intense. Apart from normal TV programs and movie line-ups, both offer interactive (cable TV being a recent entrant) and internet technologies on their systems. Both are taking the TV experience to new heights.

Not only can the viewer play interactive games on TV but they can also interact with programs they are watching, for example responding to interactive surveys or making immediate purchases on shopping channels via the remote control. Latest technological advancements also allow viewers to record, pause, forward and reverse live programs or watch them in slow motion or instant replay using digital⁄personal video recording (DVR or PVR) and video on demand (VoD) devices for satTV and cable TV, respectively.

Another issue that bothered media executives is their loss of control over viewers. Viewers can replay scenes they like during a commercial break, thus effectively bypassing messages from advertisers, who happen to be program sponsors. This could force advertisers to see TV as a less effective advertising channel than it used to be and give them better leverage at commercial slot price negotiation or cause them to adopt other advertising media.

As viewers become more discerning, they are demanding greater viewing variety and higher quality programs. They are also getting hi-tech, seeking a greater, more interactive TV viewing experience much as they have come to expect from their personal computers. The FCC, the federal regulator for the media and telecommunications industry, is aware of this and is pushing the industry to hurry the digital transition. The FCC has mandated that all TV broadcast stations have High Definition TV (HDTV) broadcasting capability by 2006. This will mean a bigger outlay for broadcasters and cable companies in the coming few years: Broadcasters and program networks will have to invest in new cameras, titling and editing equipment and tape machines that support the digital TV (DTV) format and revamped rigs for DTV friendly TV vans.

Cable operators need to convert all their equipment and set-top boxes. However, for viewers with HDTVs, the set-top boxes are bypassed.

Time Warner had responded to this challenge through Warner Bros Entertainment, a subsidiary of the company when it tied up with CBS Corporation to form a new broadcast network. This new network, The CW, to be launched in late 2006, can significantly expand Time Warner's customer base. Time Warner's Cartoon Network channel entered into a joint venture with VIZ Media to form Toonami Jetstream, a new broadband service to provide streaming episodes of animation series. Toonami Jetstream will allow users to view episodes of Cartoon Network in their own time and also provide an alternative distribution vehicle for Time Warner. These alliances and joint ventures can provide Time Warner with a competitive advantage over its peers and enable it to enhance its revenue position. Expanding broadband market

Most players in the cable industry have begun the digital journey but consumers may still need to dig into their pockets to enjoy the digital experience and make the analog age a thing of the past. They have to either buy new set-top boxes, which convert digital signals to analog, or buy HDTV sets, which range between just under $1,000 to almost $10,000. Early in June 2003, when the FCC eased its decades-old restrictions on the size of media entities, controversy erupted. Large media companies hailed the move.

Consumer groups condemned the decision as bad news for democracy and local content. The new rule, which allowed media companies to have US penetration cap of 45% instead of the old 35%, was good news to media giants who were operating at close to the 35% limit. They had been lobbying hard for the lift, including Viacom, whose $40.6 billion purchase of CBS makes it the US' largest single operator of TV and radio stations, reaching 41% of the total national broadcasting market. The 45% rule looked set to open the floodgates for other media liberalization that would allow TV, radio and newspaper owners much more room for consolidation. If a large TV station acquired a small, one-paper town market, the community would be dominated by that entity.

This would threaten local content in the community’s media. However, the 45% rule was blocked by Congress in a massive 400 to 21 vote in July 2003. This was followed by a stay order by a federal court some few weeks later. Should the FCC fail to appeal to have the new cap reinstated, media giants who have exceeded the old limit will have to shave off their access assets and those nearing the demarcation point will need to strike out expansion as a way to increase income. Time Warner, which garners some revenues from films, should grow its studio profits well. It is releasing several DVDs of popular titles. Film profits generally sway on the timing of releases. Viacom, Disney, and Dreamworks Animation also have large stakes in the sector, which will likely move further towards home viewing via digital cable and the Internet.

Although the media market is already fraught with competitors, it is advisable that they persify they products to make them a formidable competitor. They should offer complimentary products and services to their clients. Like the Time Warner Company, which operates in print media, television, cinemas, internet, cables services and wired broadband segments, leveraging of operations in complimentary segments could reproduce the same content in various formats to generate additional sales. Time Warner had widened their product portfolio and allowed the company to offer superior bundles to the customers.

References

  • Economist Intelligence Unit. (2006). Country Profile. Retrieved December 14, 2006
  • Amobi, T.N. and Donald, W.H. (2006, September 21). Movies and Entertainment Survey. NY: Standard and Poor’s.
  • Euromonitor International. (2001, May. 1). Entertainment Media Global Report. UK: Global Market Information Database.

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