Tuesday, August 15, 2006

Not good enough, Sir! It's still illogical

So, apparently the government listens. But the response is far from good. Again, we can't rely on The Jakarta Post web technology, so let me sum up:

Says The Jakarta Post:
The government is unlikely to press ahead with a proposal to force TV
stations with national coverage to merge as there are signs that some of them
are already on the verge of merging to boost efficiency.... [T]he government would not issue any directive requiring TV firms to merge in the foreseeable future

Right on. Even though, you don't even need the qualifier that some TV stations do want to merge. It's not your business. And what's with that "in the foreseeable future"? You still want to do it, don't you? My goodness.

And here goes the best part:

Because of the tight competition, [Minister Djalil] added, most of the stations were being forced to produce cheap, low-quality programs, such as soap operas, supernatural shows, gossip shows and crime programs... If there were fewer TV stations, each of them would be able to secure better advertising revenue. This would eventually enable them to improve their programs...

Alright now I'm confused. Crappy programs are reflection of lack of competition, Sir. You need to open up. Let Discovery Channel, National Geographic, Animal Planet and others reach the general public.1 Translate if you like. That, trust me, will make all those craps, including the stupid-but-addictive infotainments, on TV driven out. We don't even need a fatwa, yes?

And you say fewer TV stations would enable programs improvement? Oh, I wonder why can't we just go back to the monopoly, TVRI then? Or, why in the world in countries with good programs there are 50 channels, including education programs?

1 OK, some people start screaming at me. Am I saying we should let any station accessible by everybody -- kids? Well, let the family decide.


Arya said...

Aco: I am not 100% sure that the statement that "less stations might improve program quality" illogical in an increasing return world of (networked) television broadcasting.

It's similar to the reasoning in the banking industry, where less is more. By consolidating its capital in a small number of banks, banks will be more able to manage risks, allowing itself to fund riskier projects while maintaining the less-risky alternatives. A lot of small banks can't invest in risky projects.

Similarly, by consolidating in a smaller number of (national) TV stations might be able to invest in riskier projects (instead of only producing "sure-win programs" that revolve around infotainment, mystical, and religious programs). I think this is, somewhat, the idea behind Baumol's "Free-Market Innovation Machine" on the innovation effecta of oligopolistic competition.

No, we shouldn't go back to the monopoly era. But in industries where there is increasing return, more isn't always better.

Aco said...

Arya, then a valid research question would be: is our TV industry in the state of increasing returns? This is indeed interesting. As usual, thanks for the insight!

Anonymous said...

Hm smart comment, and smart response. I wonder if our minister Djalil (or at least his advisory staff, should be experts shouldn't they?)would share the same insights. Anyway, are our banks really allowing themselves to involve in riskier projects, significantly (not for PR purposes)? After all, they are banks, and riskier projects wont simply do. While for our TV industry, if copycat programs still work, does it mean that increasing return still exist?
Do enlighten me gentlemen..

Aco said...

Anon, as finance people like to say: "the riskier the yummier". Risky assests promise better returns -- at least theoretically. To hedge against the risk, banks merge -- that's one way: to share the potential loss.

As for our TV story, we can't really conclude that the industry is enjoying increasing returns just by looking at the number of copycat programs. We need to establish a condition where the average cost of production decreases while the number of units produced increases.Things become more complicated in our TV story, because it's the quality that we're -- or the minister for that matter is -- interested in, not the quantity. Of course, a trick to get around this problem is to define a standard quality of which the quantity measurement can be imposed.

Again, this is getting more interesting. Thanks.

Arya said...

Apparently, the question of how program quality will be affected by the number of firms is still up in the air. From this NBER paper from 2000, the authors concluded that one topic in need for further research is:

"[Does] the [competitive] market provide programs of the right quality and how is this quality impacted by the number of channels providing programming? It is common to hear that the proliferation in the US television market has led in a decline in programming quality (emphasis added)"

Yes, it's interesting (and, in fact, not obvious) to figure out the welfare effects of varying the number of firms in this market. Aco, a potential research topic, yes?

rizal said...
This comment has been removed by a blog administrator.
rizal said...

Arya, if that's the case, allow me to play devil's advocate here by asking question "why don't we, I mean the government, just subsidize production houses, or perhaps TV stations, to deliver programs deemed as "qualitatively good", or set a minimum airing time of such programs; instead of following your line of argument that implicitly assume TV stations are responsive to risk and not joining a race to the bottom by producing collectively crap programs?

Arya said...

Rizal: The market structure in the broadcast industry, I suspect, approaches that of an oligopolistic competition with high barriers to entry .

Note that the "competition" element is still important to ensure that competing firms do not totally abandon consumer inputs altogether.

At the same time, if the market's spread too thin, the pressure is to find sure fires (mass-produced small-margin copycat products) rather than invest in the fixed costs to ensure higher brand recognition and much higher final returns.

By reducing risks (while maintaining a high level of competition), the oligopolistic firms will work to find the one creative blockbuster series that might finance the five flops.

Your question: Why not a race to the bottom? Because the reward of winning is high. The reward will increase further with increasing consumer spending power.

Next question: Why not collude? Answer: Indeed, why not -- that's why KPI (and KPPU) are important institutions to guard oligopolistic competition.

Other than history, this last one explains, in part, how the government subsidy in BBC can still result in such good programs -- because of British's good independent oversight culture. Another reason: Local competition.

rizal said...

Arya, but why don't we just subsidize the making of "good" programs*, or, if the money is not available, set minimum regulation of airing time for such programs? Both are reducing the risk faced by the TV station, eh?

*yet, a severe problem remains: what is "good" program, anyway? and who's the jury? they, I, you? :-)

Arya said...

Rizal: I implicitly answered your question above. I wrote:
"the 'competition' element is still important to ensure that competing firms do not totally abandon consumer inputs altogether." Consumers should determine quality.

And here is where the whole point about risk comes to play. We don't want to reduce the risk faced by firms: We want to encourage broadcast companies to take more risk -- to experiment with various types of programs to figure out a wider spectrum of consumer preference. The HBO way... ;-)