The Essential Economic Problem of the Media: Working Between Market Failure and Cross-Financing

Abstract

The principle economic problem of the media in general is neither recognized nor analyzed in detail. This is because literature on media economics mostly focuses upon the peculiarity of specific media industries, ignoring common characteristics and not discovering the common economic environment. Due to the specific cost conditions corresponding to those of a natural monopoly, media "makers" operate between two extremely different situations-between market failure and economic techniques altering market imperfections into workable markets by using what here is termed as "cross-financing." This economic principle, quite different from "cross-subsidization," constitutes the main issue of the following considerations. This analysis provides a theoretical and empirical framework to discuss three aspects: a) the emergence of latent market-failure situations, b) the conditions for adequate strategies of the media, and c) the abundance of cross-financing techniques. The empirical data concerning cost and financial accounting represent case studies. The theoretical approach takes a closer look at the industrial organization, especially of the periodical print media on a microeconomic, that is, socioeconomic level.

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