T C A Srinivasa-Raghavan: The economics of bad media

OKONOMOS

This article is a continuation of the one I wrote two weeks ago on the media (June 28). Before writing it, I tried to see if India's prolific economists had done any research on a multi-thousand crore business. Of course they hadn't. I know dozens of them who complain about the media but not one, at least to my knowledge, has conducted a systematic analysis. If someone knows of such research, please do let me know.

The need for such analysis is pressing because it has serious consequences for competition policy. Indeed, as I have written several times before, there can be situations where a monopoly delivers better outcomes for the consumer than competition does.

The example I am most fond of citing is of Indian railways, that is as big a monopoly as you can ever get. Yet, you have to be particularly cussed not to admit that it has done exactly what near-perfect competition would do, namely, reduce prices and expand output. In direct and stark contrast is the highly competitive airlines industry: it keeps raising prices and reducing output and service quality.

Economists (that is those with the equivalent of a driving licence called a Ph D) should have been able to see the similarities between what has happened in the media business and what has been happening in the railways and airlines businesses. Indeed, the theory of it is taught in first year economics honours, known as Economics 101 in the US.

What happens is that in a highly competitive situation, the need to maximise revenue results in a race to the fat bottom-end of the market. Everyone thus ends up providing not only the same content, but also ensuring that the content is the worst possible that you can get. Or, to say it differently, there is no possibility of intra-firm cross-subsidisation, especially when professional investors own the firm.

In a monopoly on the other hand, provided it is not run by people who expand bad content as Doordarshan (DD) and All India Radio (AIR) have done, the possibility of intra-firm cross-subsidisation means that it can develop niche markets. Theoretically, and indeed as the BBC has consistently shown in practice, you can have programmes for practically everyone because the marginal cost of providing a new channel on radio or TV is so little.

The questions that Indian economists should have asked, and have not so far, is why DD and AIR did not simply go on copying the BBC on whose public ownership model they were originally set up. You don't have to be very clever to be able to figure out that perhaps it was not ownership but management that made the difference. Even the setting up of Prasar Bharati failed to make any difference.

This is underlined even more heavily when one sees the difference better management has always made where the railways are concerned. Whether in the 1980s or since 2002, it is not ownership but management that has mattered in the matter of output levels, pricing and the overall efficiency of capital use.

So what am I suggesting? That we revert to a media monopoly? Not by a long chalk