Thursday, August 3, 2017

Digitization of Media Industries: Quantity and Quality

Digitization has revolutionized media industries. The equipment needed to produce a movie, television show, or musical album has gotten remarkably cheaper. The cost of distributing video, sound, or text has dropped dramatically, too, in some cases to nearly zero. In addition, the power of the "gatekeepers" who used to determine what content would be broadly distributed--producers and publishers--has been substantially diminished.

All revolutions, technological and otherwise, can lead to either sunny or gloomy predictions. For digitization of media industries, the gloomy prediction sounded like this: High-quality producers will see greatly diminished returns, as their work is pirated and redistributed. As they fade, consumers will find that they have greatly expanded access to cheap and low-quality producers, who will flood these market with drivel and trash. As a precursor of what might come, consider the decline in total value of shipments for the US music industry as revenues for the music industry after the Napster file-sharing service appeared circa 1999.

Joel Waldfogel makes the case for a  more positive view in "How Digitization Has Created a Golden Age of Music, Movies, Books, and Television," in the Summer 2017 issue of the Journal of Economic Perspectives (31:3, pp. 195-214). (Full disclosure: I've been Managing Editor of JEP since its inception in 1987, and thus may be predisposed to believe that the articles appearing there are worth reading! All articles in JEP, from the most recent issue back to the first, are freely available online compliments of its publisher, the American Economic Association.)

Digitization of media industries has increased output. For movies, Waldfogel writes: "[T]he number of new motion pictures produced in the United States rose from about 500 features in 1990 to 1,200 in 2000, and by 2010 had risen to nearly 3,000. Growth in US-origin documentaries is even larger, and the patterns for other countries are similar ..." Back in 1990, the big TV networks produced about 25 new shows per year; now that many consumers have access to 150 channels and more, the number of new TV shows is about 250 per year.  The number of new popular songs was about 50,000 per year in the 1980s, and is now headed toward 400,000 per year. The number of self-published books is skyrocketing, now approaching 500,000 per year.

Consumers can benefit from these changes in several ways. One is lower-cost access to the content that would have existed anyway, even without digitization. Another is the "long tail," which refers to the situation in which greater entry allows the production and availability of highly specialized content, so that consumers who like a certain specific niche of book or music or show have access to it. As Waldfogel writes: "The idea [of the long tail] is well-illustrated by a comparison between the welfare consumers derived from, say, the 50,000 titles available in their local book stores compared with the 1,000,000 titles available to them from a retailer like Amazon that effectively has infinite shelf space. While each of the additional 950,000 titles has low demand, the sum of the incremental welfare delivered by many small things may be large."

But Waldfogel emphasizes another factor that may be even  more important, which is based on the idea that the gatekeepers in traditional media industries had imperfect judgment. Year after year, lots of the content that they approved turned out not to be a hit, or in some cases not to be even remotely popular. Thus, it's not just that additional entry into media industries can cater to niche tastes: in a number of cases, the additional entry into media industries is leading the production and distribution of content that a number of consumers view as higher quality.

This argument is a delicate one to make in purely economic terms, because measuring the "quality" of what consumers prefer is a slippery business, but Waldfogel lines up a number of indicators which point in the direction of this conclusion. For example, he collects evidence from "best-of" lists produced by movie and music critics, as well as evidence from sites that tally popular opinion. He also looks at whether people are choosing to spend more of their money on movies and music from small-scale and independent producers, on whether more best-selling books are self-publishes, and so on. Here's a figure showing some of the patterns.

The overall theme that emerges is that new entry into media industries from digitization is not just a matter of a "long tail" of niche products. Instead, some proportion of the content that would have been screened out by the traditional media gatekeepers is finding a large and receptive audience. There's no doubt that as media output increases, a lot of crud get produced. But the options that people choose and prefer do not seem to be decreasing in quality, and may well be  increasing.

This argument further implies that consumers of media are not finding themselves especially overwhelmed by the range of new choices available. Herbert Simon wrote back in 1971: "What information consumes is rather obvious: it consumes the attention of its recipients. Hence, a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information resources that might consume it." But it turns out that online reviews and social media offer a gatekeepers for new media products--both for specialized niche products and for those aimed at a mass audience--in a way that lets consumers sort through the options. Indeed,  many consumers seem to find the sorting process through interactive social media to be fun in itself.