Media Markets: Newspapers and Radio

• Pages: 155-202

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CHAPTER V

MEDIA MARKETS: NEWSPAPERS AND RADIO

A. Introduction

The media market includes many different industries. This chapter

considers newspapers and radio. These two media industries have been

the focus of a number of antitrust cases that raise market definition

issues.

One key factor affecting market definition in the newspaper and

radio industries is that they both involve two-sided platforms. Two-sided

markets in general are discussed more fully in Chapter XII, but a key

consideration is that suppliers in such markets must appeal to two

different groups of customers, and the value of their product to each

group depends on their ability to attract members of the other group. In

the cases of newspapers and radio, the two key groups of customers are

advertisers and users of content, either newspaper readers or radio

listeners. For the most part, antitrust cases in the newspaper and radio

industries have focused on the impact of practices or transactions on

advertisers, while noting that feedback effects regarding users of content

also affect market definition. Another key factor in both these industries

is regulation by the Federal Communications Commission (FCC), which

has affected market structures and performance.

Both of these industries have also been strongly affected by recent

technological changes in the delivery of information, such as the Internet,

cell phones, PDAs, tablets, and podcasts. Nevertheless, with the notable

exception of the XM-Sirius merger, the antitrust agencies and the courts

have tended to view the product markets for newspapers and radio fairly

narrowly, concluding that various types of media constitute separate

product markets. Similarly, the agencies and the courts have taken a

narrow view of the geographic markets, finding them to be limited to,

e.g., a single city or metropolitan statistical area (MSA). As will be

explained more fully below, a key factor leading to such findings is that

price discrimination can be exercised with respect to those advertisers

that are less able to substitute across media or geographic areas.

156 Market Definition in Antitrust

B. The Newspaper Industry

1. Industry Background

a. Historical Consolidation and Formatting Trends

One of the most prominent trends in the newspaper industry, and one

that forms the backdrop for much antitrust action, has been the overall

decline in newspapers’ circulation and readership. Despite the fact that

the population of the United States increased by 65 percent between

1960 and 2005, total readership of daily newspapers declined by

approximately nine percent from almost 59 million to approximately 53

million over that period.1 Moreover, the total number of daily

newspapers in circulation declined from over 1,700 to approximately

1,450 in the same time period.2 These declines appear to have continued

apace in more recent times. For example, according to a Pew survey, the

percentage of Americans that said they read a newspaper yesterday

declined from 43 to 39 percent between 1993 and 2008.3

These declines in circulation have also been reflected in increases in

concentration, with fewer and fewer cities having more than one daily

newspaper. In 1910, 58 percent of U.S. cities had more than one

competing daily newspaper.4 That number decreased to 21 percent by

1930, 8.4 percent by 1945, and just two percent by 1971.5 As of 2007,

1. See Newspaper Ass’n. of Am., The Source: Newspapers by the Numbers

24 (2006) [hereinafter Newspaper Ass’n of Am.].

2. Id.

3. See PEW RES. CTR., ONLINE PAPERS MODESTLY BOOST NEWSPAPER

READERSHIP (July 2006), availa ble at http://people-

press.org/report/282/online-papers-modestly-boost-newspaper-

readership; PEW RES. CTR., NEWSPAPERS FACE A CH ALLENGING

CALCULUS (Feb. 2009), a vailable a t

http://pewresearch.org/pubs/1133/decline-print-newspapers-increased-

online-news. These figures include readership of newspaper web sites

that are discussed further below.

4. See Report of the Assistant At torney Gen. in Char ge of the Antitrust Div.

at 1 7, E.W. Scripps Co., No. 44-03-24-15, (Sept. 8, 2000), availa ble at

http://www.justice.gov/atr/cases/f6500/6508.pdf [hereinafter Scripps

Application].

5. Id.

Media Markets: Newspapers and Radio 157

fewer than 20 American cities had two fully independent competitive

papers.6

Another prominent trend is that afternoon papers, which dominated

the local daily newspaper industry through the 1970s, have declined

precipitously. In 1950, 82 percent of all U.S. newspapers were evening

papers; by 2005, that number had fallen to 44 percent.7 Afternoon papers

appear to have been particularly hard hit because of the decline in factory

jobs that let out in mid-afternoon, the growing popularity of evening

television newscasts, and increasing traffic problems hampering evening

delivery.

Another change in the industry is that most newspapers now belong

to chains, whereas once most newspapers were independent.8 The

consolidation trends in the industry are partially attributable to scale

economies. The existence of scale economies in the production of

newspapers has been long recognized in the economic literature.9 Scale

economies primarily derive from two sources: “first-copy costs” and

economies in distribution. First-copy costs are the editorial and

newsgathering costs that must be incurred before a paper is even ready to

be printed. These costs are fixed irrespective of the number of copies

6. EDITOR & PUBLISHER, INTERNATIONAL YEAR BOOK xi (2007). An

interesting study which relies on detailed zip code level data on

circulation appea rs to refute the contention that most newspaper

publishers are monopolists. While based on the number of publishers in a

city, the markets may be consi dered monopolies, more than half of all zip

codes in the study’s dataset show subscriptions for at least two (local)

daily newspapers, with some having as many as 15. Ambarish Chandra,

Media Segmentation: The Role of Subscriber Characteristics in

Advertising Markets (Nov. 5, 2005) (unpublished mimeo, on file with

Northwestern University).

7. Newspaper Ass’n. of Am., supra note 1, at 22.

8. While 97% o f all daily newspapers were independent family -owned

enterprises in the early part of the century, by the 1990s, over 70% of

such papers were owned by chains. James N. Dertouzos & William

Trautman, Economic E ffects of Media Concentra tion: Estimates from a

Model of the Newspaper Fir m, 39 J. INDUS. ECON. 1, 3 (1990).

9. Early literature established the importance of fixed costs in ne wspaper

production, which led to declining average costs as more newspapers ar e

produced. See, e.g., James N. Rosse, Estimating Cost F unction

Par ameters Without Using Cost Data : Illustrated Methodology, 38

ECONOMETRICA 256 (1970); William Reddaway, The Economics of

Newspapers, 73 ECON. J. 201, 206 (1963).