Old Media Policy Failures, New Media Policy Challenges

This paper deals with two related subjects. The first is the past failure of economic analysis to trigger elimination of welfare-reducing public policies affecting the older mass media technologies, such as broadcasting. The second is some speculation about future policy issues that may continue or arise from the technical characteristics of the new broadband media, combined with advances in social psychology, neuroscience and behavioral economics. I draw two principal conclusions. First, the failure of economic analysis to stimulate fundamental reform of media regulation is due largely to the fact that policy makers have greater incentives to focus on the allocation of economic rents among interest groups than to promote consumer welfare. Second, it is clear that IP-based technology is replacing old media such as newspapers and broadcast stations. The technology has the potential to greatly enhance competition and diversity, and to reduce the cost of access by consumers and suppliers to each other. However, regulation is not likely to be reduced, because a whole new rationale for media regulation is being developed. The new rational will be a market failure, based on the adverse welfare effects of competitive media content that is responsive to consumers’ cognitive impairments. This paper was first presented at a 2009 University of Bayreuth conference on the future of public broadcasting in Germany. While my point of reference is media structure and policy in the United States, I believe that most of what I have to say is also applicable to other countries, including Germany and other members of the European Union. For example, new media technology is challenging the highly concentrated “public” structure of German television, and will continue to do so unless policymakers intervene. The externality rational for public television in Germany is of fading importance, but the argument for public control might be strengthened in the future by welfare-reducing market imperfections in commercial media content