AUSTRALIAN PUBLIC POLICY TITLE : The Economics of New Media

The rise of New Media associated with the Internet has radically changed many aspects of daily life, and enabled us to do things that would have seemed unimaginable even a few decades ago. The speed and volume of communications has increased by a factor of a million or more since the Internet first emerged in the 1990s, and there has been a corresponding proliferation of information. Yet the economic implications of New Media are hard to discern. The famous observation of Robert Solow (1987) that 'You can see the computer age everywhere but in the productivity statistics' is just as valid today as it was when he first made it more than twenty years ago. The age of new media has produced only a handful of profitable new companies (Amazon and Google are the most notable examples). At the same time, while old media (newspapers, TV, radio) have proved more resilient than many observers expected, their business models have been severely undermined. This chapter will discuss what economics can tell us about New Media. More interestingly, perhaps, at least to those concerned with the long-term impact of New Media, it will examine the implications of New Media for economics and economic organization, and offer some policy recommendations. What can economics tell us about new media? All media convey information. However, it is worth considering McLuhan's gnomic observation that 'the medium is the message'. For old media, and particularly broadcast mass media, information content is subordinate to the media product as a whole. As a result, economic analysis of old media can treat its outputs in much the same way as consumer goods, except for the fact, discussed below, that the provision of old media is typically financed by advertising rather than direct sale. By contrast, with new media the flow of information is overwhelmingly dominant. Considered as media products, the output of new media is commonly of lower quality than that of old media (compare YouTube to broadcast TV, or 3 blogs to glossy magazines). What makes them so appealing is the vast profusion of information of every possible kind. So, an economic analysis of new media must begin with the economics of information and, in particular, with the idea of information as a public good. Information as a public good The idea of a public good, due to Samuelson (1954), is central to modern economics. In the absence of …