size—would be expected to change media markets. In Section 1.3 we turn to “results,”
i.e., empirical evidence on the questions illuminated by the theoretical models. We dis-
cuss empirical results on entry and preference externalities that speak to the predictions,
we discuss the effects of technological change, and we suggest directions for future work.
1.2. FIXED COSTS AND HETEROGENEOUS PREFERE NCES
1.2.1 Fixed Costs
Media outlets, such as newspapers and radio and television stations, have cost structures
that are predominantly fixed. The cost of putting together a daily newspaper is based
mostly on the staff of reporters and editors, and this cost does not vary directly with
the number of copies produced (although a newspaper with more content might attract
more readers). To a varying degree across different sorts of media products, these fixed
costs are large, in the sense that markets can support few, or sometimes only one,
product(s). In the late 1990s the Columbus Dispatch, the major newspaper serving a met-
ropolitan area of roughly 3 million people, had 69 reporters and editors. At the same time,
the New York Times, serving the 22 million person metro area around New York, had
about 300 reporters and editors.
2
According to the Bureau of Labor Statistics, reporters
and editors earn an average of $44,000 per year.
3
Hence, the annual fixed cost of putting
together content at these two papers was roughly $3 million and $13 million respectively.
Radio stations have a similar cost structure, although their absolute level of fixed costs is
much lower than for newspapers. One cost estimate for a rudimentary religious radio
station puts the annual cost of operation at $142,000 per year.
4
Typical radio stations have
more employees, including at least six on-air personalities, as well as other managers, sales
staff, and engineers, bringing their costs of operation to about $650,000 per year accord-
ing to one estimate (without interest service on a license).
5
The budget of a public radio
station serving Garden City, Kansas (population 26,000) was reportedly $1 million in
2014.
6
The marginal cost of serving an additional listener to a radio station is, of
course, zero.
These estimates are of course rough, but they provide clear substantiation of high
fixed costs: it’s clear that the availability of these media products depends on many others
also wanting them.
2
See http://www.census.gov/population/cen2000/phc-t3/tab03.txt for 2000 population and Burrelle’s
Media Directory for information on newspaper staff size.
3
See http://www.bls.gov/oes/current/oes273022.htm.
4
http://www.christianradiohome.com/operating_costs.asp.
5
http://en.allexperts.com/q/Radio-Industry-2499/2008/10/radio-station-budget.htm.
6
Brad Cooper. “State Subsidy to Kansas Public Broadcasting Could Disappear.” Kansas City Star, April 29,
2014
http://www.kansascity.com/news/government-politics/article347706/State-subsidy-to-Kansas-
public-broadcasting-could-disappear.html.
6 Handbook of Media Economics