Television Industry Research Paper

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The television industry, by the close of the twentieth century, had grown into an economic force generating mass media’s greatest revenues, costs, and profits. In the USA the production, distribution, and broadcasting of television (and later cablecasting and delivery directly by satellite) has long been dominated by a few vertically integrated networks, which produce much of their own programming, and often own broadcast stations, cable systems, and satellite-to-home divisions. While a variety of state-controlled or semi-independent publicly funded television systems have existed around the world, by the end of the twentieth century, more and more TV industries outside the USA were deregulated, that is privatized, and began to look increasingly like the American commercial television industry model.

1. The US Television Industry

From its innovation after World War Two to the middle 1980s, in the USA three national systems of interconnection or networks dominated the TV business. Then came cable TV’s 100-plus networks, and in the 1990s even more offerings through satellite-to-home delivered direct TV or DBS. This choice among hundreds of channels seemed to signal an open, competitive industry. Just the opposite was the case.

Seven corporations dominated. A seeming plethora of TV choices collapsed to seven conglomerates all built around organizations producing programming allied with other parts of the same company that determine the program scheduling. In most cases the entertainment programs were made in Hollywood in a deal with a studio such as Disney or Paramount. These corporations also own TV networks which broadcast, cablecast, or deliver shows via satellite to the home. Executives with the same company make programming decisions either aimed at mass audiences, the so-called traditional networks such as Disney’s American Broadcasting Company (ABC), or more and more to niche networks, such as Disney’s growing number of cable channels.

1.1 US Broadcast TV

The television industry in the USA started, like all others in the world, broadcasting signals over the air. From the late 1940s to the 1980s, three networks dominated American television—NBC, CBS, and ABC. In the 1990s came three more—United Paramount, the WB, and Fox. Five companies owned them as the twenty-first century commenced: Disney’s ABC, Viacom’s CBS and United Paramount Network, AOL Time Warner’s WB, News Corporation’s Fox, and General Electric’s NBC. These six networks—all parts of vast corporations—defined what most US watchers viewed. The actual local TV stations in the USA simply functioned as spigots, drawing their programming from these networks plus a smattering of syndicated fare, and three or four hours per day of locally produced news.

By the close of the twentieth century, all the networks—save NBC—were tied directly to Hollywood-based companies. Broadcast television became a classic case of vertical integration. The networks had long produced news and sports; by 2000 their Hollywood parents were creating all forms of programming, from comedies to dramas, from reality shows to news reports. They produced the show, distributed it through their own networks, and then showed it to much of the nation on their increasing number of owned and operated stations (by 2000 covering more than a third of all US households).

The Australian media baron Rupert Murdoch introduced the Hollywood vertically integrated TV network system when in 1985 he bought a studio (Twentieth Century Fox), then purchased Metromedia TV stations (for his owned and operated group), and then launched the first new TV network in 30 years—Fox. During the 1990s, Viacom followed Murdoch’s lead and fashioned its United Paramount Network (supplied by its Paramount studio), and Time Warner created the WB network. Disney underscored the importance of this new broadcast network economics when in 1995 it acquired ABC. In 1999, Viacom purchased CBS and so by 2000 owned two broadcast networks.

1.2 Cable TV

As late as 1980, most viewers in the USA watched solely broadcast TV, but then more and more households began to subscribe to cable television. As the twentieth century ended, about two-thirds of Americans paid monthly fees to a local cable monopoly. After the passage of the 1996 Telecommunications Act, cable franchises consolidated, and in 1998 AT&T acquired cable franchises representing about a third of all customers in the USA. AT&T’s CEO Michael Armstrong bet his corporation’s future on cable, based on two principles. First, cable was a legal monopoly, reminding Armstrong of the old phone company. Second, Armstrong saw that cable’s broadband wires could offer not only offer television but also Internet access.

At first glance there seemed to be a plethora of cable networks. There was BET for African Americans, TNN for fans of country music, and ESPN for sports fans, to name but three of an estimated 150 cable networks. Yet of all these choices, most were owned in part (or completely) and/or operated by one of the major TV media conglomerate companies noted above as controlling broadcast television. These companies desired to own networks so that their local franchises could be guaranteed popular programming. In 1999, AT&T controlled through its corporate partner, Liberty Media, the Discovery Channel, The Learning Channel, BET, and a half dozen others, while AOL Time Warner, the second-top owners of cable franchises, owned and operated Superstation TBS, the network piped into most cable homes, plus TNT, and three CNN services.

But not all cable networks were controlled by these vast, vertically integrated media conglomerates. An alternative tactic, reasoned a few Hollywood moguls, concluded that it was not necessary to spend billions of dollars to wire local cable franchises, but simply to produce desirable programming, and TV viewers would find and pay for those channels, regardless of who was their local monopoly cable franchise. Disney, Fox, and Viacom executives, for the three leading examples, concentrated in creating programming to feed cable networks such as ESPN, The Family Channel, and MTV, respectively. They did not vertically integrate.

In sum, cable networks add no dominant new owners to the list of TV powerhouses described above. As a consortium, these very media corporations financed C-SPAN as a public service, as well as to insure access to the US Congress. Indeed, only one of the top 20 cable networks could be called independent—Landmark’s Weather Channel. It is more efficient to think of the dozens of cable networks as simply outlets for Disney, Viacom, AOL Time Warner, The News Corporation, AT&T, and General Electric. Indeed, to think of separate broadcast TV and cable TV industries no longer makes sense from an ownership perspective. The aforementioned major companies all own sizable broadcast and cable television production studio properties. They also dominate pay-TV—Viacom’s Showtime and the Movie Channel, and Time Warner’s HBO and Cinemax—as well as the creation and distribution of movies on rented and sold video.

1.3 Satellite Delivered Television

The 1990s did introduce a whole new means of gaining access to television— direct broadcast satellite (DBS), that is, satellite-to-home direct delivery. After 1994, many new DBS entrants flooded in; one in ten of US television households signed up before the century ended. Paying more, DBS subscribers could access up to 200 channels, principally around the clock pay-per-view movies, and sports broadcasts from all regions of the USA and around the world. DBS pioneers took direct aim at TV’s junkies. Until the final month of 1999, however, DBS subscribers could not get local broadcasts; then the US Congress removed this restriction, and in most places in the USA subscribers to DBS were able to access all channels available on cable as well as a hundred more.

By the time the law was changed in November 1999, though, the world of DBS competitors had been winnowed to one dominant player. DirecTV, owned by Hughes Electronics, a division of General Motors, possessed more than 90 percent of the market, with tiny EchoStar and its DISH Network struggling to stay in business. In nearly all markets across the USA DirecTV alone was positioned as the alternative to the monopoly cable company.

DirecTV thus completed the list of the seven dominant TV companies in the USA, and indeed the seven major multinational TV industrial giants around the world. These seven dominant companies—General Electric, Viacom, Disney, News Corporation’s Fox, AOL Time Warner, AT&T, and DirecTV—defined TV’s oligopoly. The world of the TV industry in the USA had expanded from three broadcast networks to seven key corporations. The big change was that for cable-and satellite-delivered TV one had to pay. But the oligopolistic seven did not offer all forms of programming. Within each genre of TV programming, they picked their spots to compete. So for 24-hour news, for example, a customer had three choices: AOL Time Warner’s CNN, NBC’s MSNBC, or News Corporation’s Fox News. The other four conceded this genre, and concentrated on becoming the top player in other program categories.

2. The Rest Of The World

As the twenty-first century began, the major TV conglomerates relied more and more on exporting programming around the world. Yet Hollywood-made TV by no means monopolizes the world’s television. For example, in Latin America, Brazilian and Mexican TV industries were successful in regionally exporting TV programming. In Europe, French and German companies did the same thing. Still, overall Hollywood functioned as the leading maker and exporter of TV entertainment. Its influential trade association—the Motion Picture Association of America—smoothly paved the way for export by lobbying both the US Department of State and governments around the world to keep TV trade open and unrestricted. Foreign governments resented US pressure, and formally and informally struggled to protect their domestic TV industries.

While much of the TV industry outside the USA started as an extension of government, by the 1990s deregulation had eliminated most regulations, and the TV industries in wealthy nations in Europe, the Americas, and Asia looked more and more like miniversions of Hollywood. The TV industries of Japan, Brazil, France, and Canada, as typical examples, for the key variables of industrial analysis would include (a) geography, particularly land mass; (b) economic development, particularly following the collapse of the Soviet Union; and (c) long-term cultural differences, whereby some countries continue to see the TV business as having formidable externalities (i.e., benefits to the national state). In Canada, for example, the Canadian Broadcasting System is strongly supported by the nation–state to ward off the overwhelming of the Canadian culture by US interests. As the twentieth century closed, the differences among larger developed nations—save for the pressure from the Big Seven—had narrowed, as all adopted some amalgamation of advertising-based and pay television, delivered by broadcast, cable, and satellite.

Small countries—such as The Netherlands and Belgium, and any African state—even if economically well developed, more than ever needed strong state support and subsidy. Undeveloped nations—where TV was important, but feeding the nation far more vital—increasingly saw their native TV industries struggle against the vast multinational invasions. Indeed, throughout developed and underdeveloped Asia, Rupert Murdoch’s Star TV network brought in news coverage that shattered government monopolies, and introduced US and European cultural products into cultures that could offer only minimally financed alternatives.

European nations banded together as the European Community to challenge the multinational TV industry giants in order to preserve local and native culture. With the percentage of European households owning and using TV sets increasing dramatically as the twentieth century ended, no governmental monopoly could satisfy new channel demands, particularly once cable TV and DBS were introduced. With more TV use, and less national control, concern rose about foreign influences, and a united Europe struggled to set up quotas so Europeans could watch European made TV shows, not simply more and more from Disney, Viacom, and the other vast multinational TV conglomerates. This sort of nation–state collective action will continue as long as the structure of TV industries around the world insures that economies of scale result in the costs of Hollywood programming being less than costs of local programming.

Some nations have stakes in multinational success, such as the United Kingdom with its Pearson PLC, Germany with its Bertelsmann AG, Australia with its News Corporation, and Japan with its Sony. Spain and Italy have tried following the same model, but with less success. The big unanswered question of this assistance to multinationals comes from emerging national powers such as India, Indonesia, and China, all with vast populations, but all still emerging from colonialism or communism and still finding a place for domestic industries in the face of the world’s multinational companies. For all TV industries outside the USA, change will remain the order of the day as media conglomerates merge and states seek the resources to protect their native cultures.

3. Analytical Perspectives On The TV Industry

There are several leading approaches to the analysis of television as an industry. Critics on the left have long seen the television industry as an increasingly influential cultural industry no different from other industries in monopoly capitalism. For example, Edward Herman and Robert McChesney (1997) focus on the inevitable rise and continuation of giant corporations, and the lack of true TV alternatives that challenge the dominant political–economic structure. Even with the increasing number of cable channels, one strains to find any progressive alternatives to corporate voices that sing largely in unison. The dominant TV powers have continuously increased their power as they fashion a global media presence. In particular, the innovation of space satellites as the dominant means of distribution—replacing coaxial cables and microwave relays—enables the images and sounds of television to flow easily from anywhere to anywhere else. Critics such as Herman and McChesney argue that the dream of TV as a means of mass education and democratic enlightenment has turned into a system devoted almost wholly to selling products and avoiding controversial presentations which would inform citizens.

Conservative neoclassical industry analysts, in contrast, deny the cultural homogeneity of which leftwing critics complain. Such analysts as Benjamin Compaine insist that TV shows face competition from many sources of popular culture. Defenders of the status quo, like Bruce Owen and Steven Wildman (1992) agree with TV executives who claim they face a highly contested domain with ever-changing forces of supply and demand. They stress that no global television producer or network can force anyone to tune in. With more channels being offered by cable and directly by satellite, one can hardly argue there exists little diversity or choice in the current configuration of the TV industry. Genres of TV fare—from docudramas to science fiction, from news magazines to news reports 24-hours a day—see their ratings rise and fall. With the rise of new TV technologies like the VCR and DVD, for example, the TV fan can take charge of their set, and program their own favorite shows. As profit-seeking companies making up the TV industry add more and more channels, viewers will continue to be better and better off, argue neoclassical economists and industry owners.

Both camps come to their studies with predetermined assumptions. Leftists know the system does not work; neoclassicists know it does. A third group, industrial organization economists, perhaps start from a less ideological base. They instead seek to show how different industry structures lead to different forms of firm and industry conduct. As Gomery (1993) has pointed out, TV industries are not all the same, nor are their social and political effects either uniformly good or uniformly bad for the public welfare. The industrial organization economists describe and analyze the structure, conduct, and performance of each industry—stating up-front, not simply assuming what values might constitute good or bad performance. If the refusal of industrial organization economists to begin with a normative orientation is a strength, it weakens their grounds to promote particular public policy recommendations, apart from accepting the terms or performance criteria that policy makers themselves bring to the table. Industrial organizational analysts can bring alternative policy recommendations to the table, but cannot argue that they have the best solution to industrial problems critics might raise. They can offer only fixes on the margin, accepting (indeed assuming) that capitalism rarely offers the best media policy left unfettered, and a radical alternative to capitalism seems not to promote a more enlightened, educated citizenry.

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