Lack of Media Diversity is a Market Failure - An Economist's Perspective

          

What is the point of Ofcom?

This is not a rhetorical question but one we should keep at the forefront of our minds when we are discussing diversity in the UK media industry.

First of all, Ofcom is the  “government-approved regulatory and  competition authority for the broadcasting, telecommunications and postal industries of the United Kingdom”. Its’ job is not to try and make people “nicer” or to make sure people are “kinder” to each other. 

It is a market regulator in the same way Ofwat (Water Services Regulation Authority) regulates the water industry or Ofgem (Office of Gas and Electricity Markets) regulates the UK’s gas and electricity networks. Sometimes because television is a creative industry, full of creative artistic people we seem to forget this cold reality. The regulators are there to address market failures which left to their own devices would disadvantage the UK population.

Market not personal failure

This is how we must see the television industry’s lack of diversity. We must see it as a market failure. Too often when we discuss media diversity we frame it in terms of the personal failings of a few executives or commissioners. For example, I frequently hear people saying if we could only increase the diversity of the gatekeepers we could solve diversity. For me this is akin to saying; if we could only get nice liberal people to run our energy companies we would not have to worry about regulating them properly.      

If the lack of diversity is a market failure and Ofcom’s job is to address market failures, then the first thing we need to acknowledge, however hard, is that Ofcom has failed the television industry so far when it comes to diversity. Statistics suggest that diversity in the industry has barely kept pace with the demographic changes of the UK, and in some areas has even gone backwards

Why? And is it really Ofcom’s fault? To understand how Ofcom currently does versus how it should regulate television diversity one means is to examine other  (accepted) market failures in the television industry and how Ofcom addresses these.

Tv is full of market failures-how to solve them.

The television industry is actually full of market failures. For instance, television broadcasters left to their own devices will not produce enough quality news and current affairs programmes, favouring entertainment programmes instead with larger audiences and more revenue.. 

Unregulated, broadcasters will not produce enough high-quality children’s programmes as certain types of advertising targeting them is prohibited and it is a small audience nationally, so it doesn’t make “market” sense to target them. Another example is the production of programmes outside of London     , it often makes “market” sense to have all producers in the same place. 

To solve these types of market failures the regulator has to step in and actually shape the market setting quotas and issuing license requirements. Specifically for all the above examples, Ofcom insists that broadcasters produce a set quota of news and current affairs programmes, Childrens’ programmes and programmes outside of London.

Importantly what Ofcom does not do is insist that producers of Children’s programmes receive more training in the hope that they will be able to compete with cheaper light entertainment programmes. 

Ofcom also does not produce reports on the lack of Out of London     or Childrens’ programmes arguing that “sunlight is the best disinfectant” and more information will help broadcasters realise the error of their ways and commission more programmes.

     

Last but not least, Ofcom does not ask broadcasters to implement “unconscious bias training” for senior managers to commission more Welsh or Scottish programmes - as if somehow the lack of out of London programmes is due to some inbuilt prejudice. 

Will these ‘solutions’ work for OFCOM?

Now I mention all these “solutions” in a slightly tongue-in-cheek manner, but I have a serious point. These are all solutions that I have heard Ofcom as a body, or individual members of Ofcom, support explicitly or implicitly when trying to address television’s lack of diversity.

But they are not the right – nor usual – set of solutions for a regulator to focus on. When it comes to addressing genre and regional diversity the regulator has realised that it needs to focus on the market failures inherent in how the industry operates, not on the individuals working in the market. No number of Ofcom diversity reports or diversity schemes will solve the problem of low numbers of Black Asian and Minority Ethnic (BAME), disabled people and women in the industry.

So why hasn’t this happened so far, specifically for diversity, while it has happened for the other market failures in the industry?

The problem with the lack of diversity market failure is that there is an even bigger market failure that lies behind it, which Ofcom has yet to acknowledge, at least in public as being the core reason for the lack of diversity-that the UK television industry effectively being a “monopsony”.

What is a “monopsony” you ask?

Well, most people have heard of a monopoly – and no I don’t mean the board game! A monopoly – as a concept – is when you have a large number of buyers of a certain product or service but only one seller of the product or service.

The real examples of monopoly that most people come across are railway companies or electricity companies. A few companies can dictate how much people pay for the product, provide a bad service and have other negative effects for the consumer, but still increase their profits. The negatives of monopolies are well-known and governments often have to intervene to try and either break them up or legislate against their worst actions. Indeed, the kinds of regulators I mentioned right at the beginning of this piece – the Ofwats and the Ofgems – are often created to regulate these “monopolistic” industries.

A monopsony has similarly negative consequences but it is like a monopoly in reverse. A monopsony is when you have lots of sellers of a product but only one buyer.

In these circumstances it is the buyers who can dictate the price and how the market works.  It is a classic case of market failure.

And increasingly that is precisely what many economists think we have in the television industry. Strictly speaking it is an oligopsony – as they are just a few buyers in this market, but let’s keep it simple for now.

The fact is, most freelancers and independent companies might not have heard of monopsony theory but whenever I talk to friends in the industry they quickly recognize the situation of competing with hundreds of other companies (sellers) but only having a handful of broadcasters (buyers) they can pitch their ideas to whom to sell their programmes.

Increasingly monopsony theory is being used by economists to explain why diversity problems exists in various industries. It is no coincidence that both the tech and television industries seem to suffer from a lack of diversity and both have the problem of a few large companies dominating their industries.

Economics at bed time?

Now I love economics - I studied economics at university, I am currently a financial journalist, and I am married to one of the leading economists in China Africa relations. Just the other day I was talking to her about Neo-paleo-Keynesian Phillips Curves. And bedroom pillow talk can sometimes stray into subjects such as Friedrich List’s theories on infant industry protection.

But I realise other people might not similarly love the dismal science so here’s the warning; as L’Oreal used to say - concentrate because here comes the science bit:

Monopsony theory goes a long way to explaining the entrenched diversity problems in the UK TV and film industry, such as only 3 percent of people working behind the camera in the film industry being from a BAME background or that number falling to 0.3 percent when it comes to disabled people.

Two sides of the same coin?

While there will always be competition for the very best talent, say the top one percent, the vast majority of us are somewhere in the middle. What monopsony theory tells us is that while the companies might fight over a very few people (actually inflating their wages) there is less competition by companies to battle it out for the other workers. Monopsony theory can explain why broadcasters will fight over the talents of Steve McQueen and Micheala Cole while the rest of the industry can remain remarkably un-diverse.

These two things are not contradictory; they are in fact two sides of the same coin.  The market failures associated with monopsonies mean that companies will more likely hire their friends, promote people that look like them and retain people that they like rather than people who might be the best person for the job. In a free market if you did this you would quickly be punished.

In a monopsony (or oligopsony) you will hardly feel the consequences of your actions - at least in the short to medium-term.

So what does this mean for those of us who want to increase diversity in the film and television industry? Should we all just give up because we are working in a monopsony?

No! We definitely should not give up.

But monopsony theory does teach us that we need to look at different types of solutions as opposed to the usual ones people in the industry often mention. It also teaches us that it is unrealistic to think market participants (the broadcasters) can solve market failures irrespective of their best intentions. It would literally go against all conventional economic theory – and their fundamental interests as ologopsonists (!) - to do so. 

It must be up to the regulator.

Dealing with monopoly – and in this case monopsony is precisely what regulators like Ofcom exist to do. 

Ofcom should not be, and is normally not about trying to get individual people to act better. Yet this is how it has been with regards to diversity so far. 

Ofcom is an industry regulator established to address market failures. 

The lack of diversity is a market failure. As a result, there is only one way the lack of diversity will be solved. Regulation. In this respect, all roads lead to Ofcom, doing what it does for other market failures. I look forward to it taking up this crucial role.

(This piece was originally published in "What's the Point of Ofcom" an anthology of essays on the purpose of the media regulator and its future)