Citizens Budget CommissionCitizens Budget Commission




MEDIA AND COMMUNICATIONS INDUSTRIES
IN NEW YORK CITY

FOREWORD

Founded in 1932, the Citizens Budget Commission (CBC) is a nonpartisan, nonprofit civic organization devoted to influencing constructive change in the finances and services of New York State and New York City governments. This report was prepared under the auspices of the CBC’s Economic and Community Development Committee. At the start of this research project the Committee was chaired by David Greenbaum; when he assumed other important responsibilities for the CBC, the Committee came under the leadership of co-chairs Peter Lund and Ira M. Millstein. The other members of the Committee are: Kenneth W. Bond, Deborah A. Buresh, Herman R. Charbonneau, Karen Daly, Bud H. Gibbs, Kenneth D. Gibbs, David R. Greenbaum, Harold R. Handler, Henry W. Haunss, Jr., Paul M. Hopkins, Brian T. Horey, Ellen Oran Kaden, Stephen D. Lemson, Richard A. Levine, Harold Levy, Emily Lloyd, Felix A. Orbe, Robert E. Poll, Hector P. Prud’homme, John T. Rose, Edward L. Sadowsky, David T. Schiff, Todd R. Stimmel, Robert W. Strickler, Robert V. Tishman, W. James Tozer, and Eric J. Zahler.

This report is the second undertaken by the Economic and Community Development Committee to analyze growth prospects, and especially employment growth prospects, of sectors of the New York City economy. A 1995 report considered financial and other professional business services. The media and communications industries were identified as another potential source of growth, but one that was not well understood. The Committee hopes that this report will provide guidance for realizing the potential gains to New York from these activities.

We are grateful to the following firms for their willingness to have senior officers interviewed by the CBC staff: America OnLine, CBS Inc., Chelsea Piers Management, Inc., Computer Associates International, Inc., Edelman Public Relations Worldwide, Gannett Co., Inc., IBM Corp., J. Walter Thompson, John Wiley & Sons, Inc., MCI Communications Corporation, News Corporation, Novell, Inc., Bell Atlantic, Playboy Enterprises, Inc., Post Perfect, Inc., Primedia, Silvercup Studios, Teleport Communications Group, The Interpublic Group of Companies Inc., Time Warner Inc., Tribune Company, Viacom Inc., and Young and Rubicam Inc.

The report was written by Charles Brecher, Executive Vice President and Director of Research for CBC; Elizabeth Roistacher, Professor of Economics at Queens College of the City University of New York, and Sheila Spiezio, CBC Research Consultant. They benefited from suggestions in the early stage of the work from Timothy Wendt of Columbia University and from research assistance provided by Matthew Lesieur. Nicolette Macdonald, Publications Coordinator, prepared the report for publication.

Lawrence B. Buttenwieser

December 7, 1998

HIGHLIGHTS

This is the second report from the Citizens Budget Commission analyzing the growth prospects of the local economy. The Commission’s concern for the future of the city’s economy is rooted in its budget oversight mission; the condition of the private economy is a significant determinant of the fiscal health of municipal government.

The first report, published in 1995, focused on professional business services comprised of financial, legal, accounting and consulting services. It concluded that this sector would not continue to be the engine of employment growth it had been during the 1980s; the report projected relatively stable employment in this sector combined with income growth due to higher productivity and earnings per employee. In the period since release of the report, trends have followed the projected course. Between 1994 and 1997, employment in these industries declined one-half of 1 percent, while inflation-adjusted earnings per employee rose sharply (25 percent). Although New York is fortunate to have a prospering professional business services sector, it cannot be relied upon to provide large numbers of new jobs.

Many observers suggest that the media and communications sector will be the next important source of employment growth for New York City. This report presents the results of the Commission’s analysis of this sector and its growth prospects.

The industries included in this sector are the print media, telephone, radio and television, motion pictures and recorded music, advertising and related services, computer-related services, and news syndicates. The analysis included examination of multiple data sources as well as detailed interviews with senior executives of 23 large firms in the sector. The analysis was supplemented by findings from the 2nd New York New Media Industry Survey prepared by Coopers & Lybrand, which was based on 470 surveys and interviews with firms (both large and small) engaged in new media activities.

Scale and Composition of the Sector

According to the latest available data (1997), the media and communications sector in New York City provided 233,444 jobs with a payroll of $15.5 billion. This represents about one of every twelve jobs in the local private sector.

Jobs in media and communications firms pay relatively well. Average annual pay of $66,395 is more than one-third higher than the average for the rest of the city’s private sector ($47,631).

Within the overall sector, the largest components in terms of employment are: advertising and related services (57,462); print media (56,680); motion pictures and recorded music (38,747); telephone services (33,930); radio and television (28,138); and other media, including primarily computer-related activities (18,487).

Activities in which New York is the National Center

Within the media and communications sector, New York is the nation’s leading urban center for book and magazine publishing, recorded music, television broadcasting, advertising and related services, and news syndicates. Together these activities account for over 116,000 jobs and $8.5 billion in earnings, or about one-half the sector’s total.

In each case, New York’s leading rival for these activities is either Chicago or Los Angeles, but New York is clearly dominating in the competition:

New York’s dominance in these fields can be attributed to four factors:

  1. History. In publishing, broadcasting and advertising New York became a center when the industry first emerged. The sunk investments and existing skilled labor supply provided the city a unique advantage that continues today.

  2. Agglomeration Benefits. Firms in the same industry derive benefits from being near each other and related activities. The positive connections among advertising firms, television networks and magazine publishers are particularly strong.

  3. The Talent Pool. New York’s size and concentration make it possible to attract a more talented labor pool than is available elsewhere. The city is particularly attractive to those with creative talent and those skilled in management.

  4. Cultural Attractions. Non-economic benefits attract leaders in the communications and media industries. New York offers unique connections to cultural and philanthropic institutions which play a part in the personal as well as professional lives of key figures in this sector.

New York as a Secondary Center

While New York dominates in some activities, it is in second place or lower in a few large media and communications industries:

New York is becoming more competitive in these "secondary center" activities. After a producer’s boycott in the early 1990s, labor costs in the movie industry became more competitive in the city. Some expansion in movie production facilities has taken place in New York recently, and more production space construction is planned. In the 1992-97 period employment in this industry grew more rapidly locally than nationally (15 versus 12 percent).

With respect to software and computer-related activities, New York is gaining a critical mass essential to improving its position. A recent survey of the "new media" found that jobs in New York City relating to digital interactive media grew from 27,300 to 55,973 in a recent 18-month period; slightly more than one-half these jobs were in traditional media industries such as advertising and publishing, while the remainder were in the "other media" industries such as prepackaged software. New York appears to be attracting a creative labor pool with talents that bridge technical skills and artistic imagination.

Locally Oriented Activities

More than one of every four media and communications jobs in New York City is in an industry that is primarily oriented to the local market. In these industries there is no major national center, and New York is not in a highly competitive situation.

The largely local market activities are:

Growth Prospects

The analysis points to prospects for significant employment growth in the media and communications industries in New York City. Depending on conditions in the national economy and on potential changes in the competitive position of New York, employment could grow between about 16,750 and 63,000 in an eight-year period.

Achieving the higher levels of employment growth will require continuation of a healthy national economy, continuation of New York’s pre-eminent position in some industries, and improvements in its competitive position for activities in which it is now a secondary center. The course of the national economy is beyond the scope of this study, but there is good reason to be optimistic with respect to the local factors. New York attracts a high-quality talent pool for these industries and offers significant agglomeration benefits and cultural attractions.

Continuing advances in technology and changes in the regulatory environment will further reshape and perhaps revolutionize media and communications activities. While it is difficult to predict exactly how information, entertainment, and communications services will be delivered in the future, the importance of global markets and the trend toward convergence of traditional and new media are both forces that are likely to give New York City a major role in that future.

State and City Policy Directions

The optimistic outlook for the media and communications industries is not contingent upon any special State or City policy initiatives. The strengths are inherent in the existing private economy; these industries and firms do not require any targeted subsidies or differential treatment from government. However, two public policy issues should be noted¾ improving tax policy and promoting New York’s higher education resources.

Tax policy

While the media and communications sector needs no special tax treatment, the overall tax structure affecting all firms in the city requires long-run reforms. The current State and local tax system is poorly designed and imposes high costs. A blueprint for a reformed system was presented in a previous Citizens Budget Commission report and includes the following elements: significant reductions in the State’s utility gross receipts tax, reducing the City’s personal income tax rate to one percent and lowering the State income tax, eliminating the City’s unincorporated business tax and other unique business taxes, and equalizing local real property tax rates among commercial and residential property. Some steps in these directions have been taken recently, but much more remains to be accomplished.

Higher education

Relative to its competitors such as the greater San Francisco and Boston areas, New York is commonly perceived as lacking a strong center of higher education for computer sciences and electrical engineering. This is believed to put the city at a competitive disadvantage in producing and attracting the talent needed for growth and innovation in the electronic media.

However, the facts belie the common perception. A dozen universities within New York City offer degrees in computer science or electrical engineering and their annual graduates (nearly 2,500) outnumber those in the San Francisco area (about 1,700) and the Boston area (about 1,400). The implication is that New York does not need a new engineering school, rather it needs leadership to coordinate its multiple higher education institutions to capitalize on the competitive edge they could collectively provide. Governmental leaders should join with business leaders and those in the universities to organize a coordinated effort to enhance the role that higher education plays in making New York a future center for the modern media and communications industries.




TABLE OF CONTENTS
LIST OF TABLES

HIGHLIGHTS

INTRODUCTION

Some Basics of Urban Economics
Methodology
AN OVERVIEW OF MEDIA AND COMMUNICATIONS ACTIVITIES

The Print Media
Telephone Services
Motion Pictures and Recorded Music
Radio and Television
Advertising and Related Services
Other Media
Media Convergence and Multimedia Firms
Globalization of Media and Communications

THE ROLE OF NEW YORK CITY

Fields of National Dominance
New York as a Secondary Center
Primarily Local Sector Industries
Prospects for the Future
Trends in National Demand
New York’s Competitive Position
Some Simple Projections
Dynamic Forces Influencing Projections
State and City Policy Issues
Appendix A: List of Firms Interviewed

Appendix B: Interview QuestionNaire


LIST OF TABLES

 Table 1: Employment, Payroll and Average Annual Wages in Communications and Media Industries, United States, 1996
Table 2: Utilization of Selected Media, United States, 1920 to 1996
Table 3: Largest 20 Newspaper Companies, 1997
Table 4: Largest 10 Magazine Publishing Companies, 1997
Table 5: Largest 20 U.S. Book Publishing Companies, 1997
Table 6: Long Distance Telephone Companies, 1997
Table 7: Local Telephone Companies, 1997
Table 8: Largest 20 U.S. Cable Companies, 1997
Table 9: Cable and Pay TV Networks, 1996
Table 10: Largest 25 Television Companies, 1997
Table 11: Largest 21 Radio Companies, 1998
Table 12: Largest 25 U.S. Advertising Agencies, 1997
Table 13: Largest 25 Public Relations Companies, 1997
Table 14: Largest 25 Marketing Research Companies, 1997
Table 15: Independent U.S. Personal Computer Software Firms, 1997
Table 16: Media Companies by Number of Media Activities, 1996
Table 17: Sources of Revenue for Multimedia Firms, 1996
Table 18: Media and Communications Industries in New York City, 1997
Table 19: Classification of Media and Communications Industries by New York City Role, 1997
Table 20: Indicators of Relative Importance of New York City for Selected Industries, 1996
Table 21: Employment in Selected "Other Media" Industries, New York and Other Cities, 1996
Table 22: Internet Domains in the United States, January 1998
Table 23: Location Quotients for Selected Industries in New York City and Other Cities, 1996
Table 24: Trends in Revenues and Employment of Media and Communications Industries
Table 25: Comparison of Employment Growth in New York City and United States
Table 26: Electrical Engineering and Computer Science Degrees, Selected Areas, Academic Year 1994-1995

 

INTRODUCTION

This report is the second by the Citizens Budget Commission (CBC) on prospects for the New York City economy. The CBC’s concern for the future of the city’s economy is rooted in its budget oversight mission; the condition of the private economy is a significant determinant of the fiscal health of municipal government. Private sector economic activity determines the size of the tax base from which the City of New York’s local revenues are derived. A well-performing economy can generate the revenues to improve public services and to reduce dependency as a result of unemployment and underemployment.

In 1995, the CBC published a report examining the growth prospects of professional business services.1 This part of the local economy¾ comprised of financial, legal, accounting and management consulting services¾ was the driving force behind the city’s economic growth in the 1980s. Although they accounted for only 13 percent of total employment in 1980, these industries produced 60 percent of the 212,000 private sector jobs created during the 1980-1987 period. When the private sector lost almost 300,000 jobs between 1987 and 1993, 23 percent of those losses came from the professional business services. Because the jobs in these industries tend to be high-wage positions, the professional business services are even more important in the ups and downs of the economy than employment figures suggest.

The 1995 report predicted that the long-term trend toward decentralization of these industries would continue, particularly at the international level. Employment was predicted to remain stable, or at best grow slowly, while productivity per employee and total revenues were both projected to have healthy growth; New York would remain a focal point of global business services, but it would be a relatively smaller nucleus within a larger network.

In the time since the issuance of that report these predictions have held true. Between 1994 and 1997 employment in the professional business services fell less than one-half of 1 percent, while average wages in constant dollars rose 25 percent.2 Employment in professional business services was 380,173 in 1997, 13.5 percent of the city’s total private employment, down from 14.2 percent in 1994, the last year included in the previous CBC study.

The findings of the 1995 report raised an important question: If significant employment growth is unlikely to come from these historic sources, then where should one look? The media and communications industries are identified by industry participants and outside observers as a potential source of significant growth. With the advent of advanced communications technologies and the Internet, entertainment and information are increasingly available in digital format. The term "new media" has been coined to identify those activities that merge content with advanced communications and other computer-based technology. Advertising, which has long been closely associated with the traditional media, is expected to become increasingly involved in developing the commercial potential of the Internet.

In addition, regulatory change, driven in part by technological change, is altering the competitive landscape. In telecommunications, recent federal legislation and regulations permit cable operators and telephone companies to enter one another’s markets. In the media, regulatory changes have permitted greater cross-ownership of newspapers and radio or television stations. One of the consequences of these changes has been the growth of multimedia conglomerates such as Time Warner Inc., Viacom Inc., and News Corporation.

Some Basics of Urban Economics

The analysis of the media and communications sector in this report is guided by an understanding of the forces that shape urban economic growth. It is useful to review this framework in order to set the stage for the detailed analysis that constitutes the body of this report.

Cities grow because they develop competitive advantages in producing certain goods and services. Competitive advantage has two initial sources. The first is the special character of a place, such as the presence of a good harbor (New York) or a particularly attractive climate (Los Angeles) or the availability of a skilled labor pool. The second is the achievement of scale economies in production; that is, higher levels of production that lead to lower unit costs. Most major cities have benefited from these two sources of competitive advantage.

As firms and workers cluster in one place, initial competitive advantages are enhanced by agglomeration economies¾ benefits that accrue because firms and workers are in close proximity. Agglomeration benefits accrue to firms in the same industry because these firms provide a sufficient market for suppliers to achieve economies of scale and thus provide inputs at a low cost. Similarly, customers are attracted to a location in which they have the opportunity to "shop" among a variety of competitors. New York’s garment district initially thrived because a concentration of clothing manufacturers supported common low-cost suppliers (buttons, zippers, cloth) and because buyers like to shop for merchandise where they have many choices.

The rivalry among competing firms in proximity to one another also spurs innovation as workers move between firms or as ideas and information are communicated in social settings. Such interchanges of ideas were extremely important to the emergence of Silicon Valley as an electronics and computer technology center.

The availability of a large, diverse labor pool is another important agglomeration benefit. Firms within a specific industry may find specialized workers. The CBC study of professional business services identified the importance of the availability of financial professionals, in particular traders, who often move from firm to firm. Most firms benefit from a large labor market offering a work force with a broad range of skills.

Cities specialize in the production of those goods and services in which they have a competitive advantage, consuming a portion of the production locally and "exporting" the rest to other markets, nationally or internationally. Exporting usually takes the form of the good or service being delivered to another location (a New York advertising agency develops a campaign for a manufacturer in the Mid-West). Sometimes, however, nonresidents come to the city for purchase of the item (a tourist consuming a meal or going to the theatre, or a Mid-Western businesswoman coming to New York to hire a financial advisor). In either case, the transaction brings "outside" income into the city.

In addition to the goods that constitute the city’s export base, many goods and services are produced solely for local consumption. While the local sector provides goods and services to the firms and the employees of the export sector, it does not directly attract income from outside the city. Hence, it is not as much an impetus to growth as the export sector.

The nature and extent of scale economies and agglomeration benefits, and the resulting competitive advantages of cities or regions, are subject to change over time as a result of technological progress in production, transportation, and communications. For example, early in its history, New York was a manufacturing capital, but because of many factors (shifting markets, changing transportation costs, changing methods of production, high labor costs), manufacturing has decentralized nationally and internationally.

One important point about the competitive position of a particular location is that high land costs and rents are primarily a reflection of the desirability of urban location, as many firms and households compete for limited space. It is the attractiveness of a location as a place to live or to do business that drives up rents. From the perspective of the firm (or household), it will tolerate the high cost of space as long as the net benefits from the location exceed that of other locations.

Methodology

The research for this report proceeded in two stages. The first involved compilation and analysis of the available data on the scale and scope of media and communications activities nationally and the extent to which they are concentrated in New York City. This statistical analysis indicates how these industries have changed over time and their relative importance in the national economy and the city economy. However, the recent past is not likely to be a reliable guide to the future. Given the rapid and broad character of technological and regulatory change in the media and communications industries, both the pace and location of economic growth are likely to change in ways that past data will not predict.

However, individuals working within these industries, especially those involved in planning, are likely to have a good understanding of what the future may bring. Following the model of the Professional Business Services report, the CBC research staff interviewed senior executives of media and communications firms to explore the sector’s future structure and location dynamics. Interviews with public companies were informed by prior examination of a firm’s annual report and filings to the SEC. The interviews sought information on what activities are expected to grow due to rising national and international demand, and how much of this new demand is likely to be met by employees based in New York. They further explored the reasons why specific functions are located in New York City now, whether alternatives to a New York location are being considered, and what firms project as the scale and nature of their New York operations in the next five to ten years.

Firms were selected for interviewing in order to provide a representation of multimedia firms as well as large firms in each of the media and communications sectors. Because of the availability of information provided by the 2nd New York New Media Industry Survey (1997), the CBC sample did not emphasize the smaller, "new media" firms.3 The list of firms interviewed appears as Appendix A, and a copy of the survey instrument which guided the interviews appears as Appendix B.

The remainder of this report is divided into four parts. The first provides an overview of the media and communications industries. The second examines the role New York City plays in these industries and the importance of these industries to the city’s economy. The third examines the prospects for these industries in New York City, and the final section discusses the potential for State and local policy initiatives to contribute to the growth of these industries.


AN OVERVIEW OF MEDIA AND COMMUNICATIONS ACTIVITIES

In 1996 the U.S. economy employed 99 million people; just under four million—or about 4 percent—worked in firms identified as part of the media and communications sector.4 The payrolls for employees in this sector totaled nearly $169 billion, nearly 6 percent of total national private sector payrolls.5 (See Table 1.) The sector’s national payroll share exceeds its employment share because of the relatively high average wages in this sector, $42,748 or 49 percent better than all private sector positions. These numbers, however, provide only a limited indication of the importance of this sector to the economy.

The contemporary importance of the media and communications sector also stems from its dynamic character; these industries are undergoing a profound organizational transformation driven by the rapid pace of technological innovation. This transformation is not over, and the future shape of this agglomeration of activities is not clear. The current situation is perhaps best understood by taking an historical perspective on the evolution of this previously distinct set of activities.

The Print Media

Print is the oldest of the media. Newspapers date from colonial times and have always been an important source of information for citizens. Improvements in printing technology and expanding literacy led to rapid growth of the newspaper industry in the late nineteenth and early twentieth centuries. Initially, papers remained largely local in character, covering local events and carrying advertisements from local retailers and merchants. Later, newspaper "giants" emerged; publishers acquired multiple papers, but retained their local orientation and marketing. These large-scale publishers could achieve economies by bulk-purchasing newsprint; in some cases, they expanded vertically by purchasing paper mills. More recent technological advances have made possible centralized editing of multiple editions of a paper and their distribution to dispersed printing plants via satellite, thereby permitting the emergence of true national newspapers such as USA Today, The Wall Street Journal, and The New York Times.

Nationally, the number of newspapers has been declining almost steadily since the first quarter of this century, due to their consolidation within metropolitan markets and the discontinuation of evening newspapers. (See Table 2.) Most large cities are now served by only one major daily newspaper. Readership or circulation, in contrast, grew steadily along with population until about 1970, when it exceeded 62 million. In the 1970s and 1980s circulation remained somewhat above 62 million, but from 1990 to 1996 circulation fell to about 57 million as a growing share of Americans relied exclusively on the electronic media for their news.

Book publishing also has a long and noble tradition. Publishers have been finding promising authors, editing their work, and printing and binding the resulting product since the early nineteenth century. The major changes have involved new printing technologies, which make it possible to separate editorial functions from the physical production and storage of books; for example, publishers in New York may have their books printed at low-cost plants in one area and distributed from warehouses in another. The growth of higher education has created large-scale demand for textbooks, which have emerged as a new market.

Between 1960 and 1970 the number of books published annually in the United States more than doubled from 15,012 to 36,071, and growth continued through 1989 when new books numbered 53,446. The recession of 1990 reduced book publication to 46,738 in that year, and after a modest revival in the early 1990s, the number of new books has grown recently, reaching 68,175 in 1996.6 In the last decade or so many previously independent book publishers have been acquired by media conglomerates, causing book publishing to become more profit-oriented with less investment in "high-end" fiction.

Magazines began as small enterprises supported primarily by subscription revenues. Their acceptance of advertising, technological advances in color printing, and a federal subsidy through the postal system led to their emergence as a national medium reaching large audiences. Magazine empires arose alongside newspapers, both individually and as part of combined publishing enterprises. The number of periodicals published nationally has grown during this century, and the number of consumer-oriented magazines mushroomed from 634 in 1950 to 2,716 in 1996.

Print media comprise the second largest component of the media and communications sector. Newspapers, periodicals, books and other publications together employ about 780,400 people at an average wage of nearly $33,900. Newspapers, with nearly 440,000 workers, are the largest print media employers. Nearly 1,520 daily newspapers are published in the United States. Several firms own multiple newspapers, including many with a broad circulation.

As shown in Table 3, the 20 largest newspaper companies own 480 newspapers with a combined circulation of nearly 35 million, or better than half the national daily circulation. These 20 firms include seven that are exclusively in the newspaper business, and another four that derive 80 percent of their revenues from newspapers. The rest are more diversified media firms with significant and even predominant shares of revenues from other activities. Newspapers’ revenues exceeded $51 billion in 1997 with about 80 percent from advertising and the rest from circulation sales.7

In terms of employment, periodical publishing and book publishing are of roughly equal size nationally, accounting for about 131,000 and 124,500 jobs, respectively. However, average pay is notably higher among periodical publishers ($46,400 versus $36,300 annually), leading the magazine publishers’ total payroll of just under $6.1 billion to be greater than the book publishers’ payroll of $4.5 billion. (Refer to Table 1.)

Approximately 11,400 different periodicals are published in the United States.8 The vast majority of these are relatively specialized trade publications with little or no advertising; the others are oriented to general consumers. Among the consumer magazines, Magazine Publishers of America monitors 181 that tend to be the largest in terms of circulation and revenues. These magazines had total revenues of $17.6 billion in 1996, of which $10.8 billion or 61 percent were from advertising and the rest from subscriptions.9 Magazine publishing expenses are about 41 percent payroll and the rest is the cost of materials.10

The nation’s ten largest magazine publishers are shown in Table 4. Together these ten firms published 194 magazines and had total advertising revenues in 1997 of nearly $9 billion. By far the single largest magazine publisher was the media conglomerate Time Warner Inc., whose 23 magazines earned nearly $2.9 billion. Five of the other nine large firms also are multimedia enterprises operating newspapers and/or radio and television stations as well as publishing magazines. However, four of the large firms¾ Condé Nast, Hachette Filipacchi, Parade, and Newsweek¾ are exclusively in the magazine field.

Book publishing revenues reached $21.4 billion in 1996.11 About 28 percent of sales were generated by trade books (those oriented to the general market), about one-quarter by books for educational markets, nearly one-fifth by professional books, and the rest divided among religious books, rack-sized paperbacks, and other types. About half the expenses incurred by book publishers are directly related to payroll and editorial operations. The other large expenses are paper, printing and binding (26 percent); promotion, including free copies (11 percent); plant costs (10 percent); and royalties (5 percent).12

Most of the book publishing activity is concentrated among a few large firms. As shown in Table 5, the 20 largest book publishers had 1997 revenues of over $19 billion. The major book publishers tend to be units of multimedia firms such as Viacom Inc.’s Simon & Schuster, The News Corporation’s HarperCollins, Time Warner Inc., Times Mirror, Bertelsmann, Inc. and Readers Digest. Bertelsmann, Inc. has announced its intention to acquire Random House, the sixth largest publisher, and in May 1998, Viacom Inc. agreed to sell Simon & Schuster’s educational, professional and reference divisions to Pearson P.L.C., making it the largest education publisher in the United States.13 A Dallas investment firm, Hicks, Muse, Tate & Furst, Inc., will buy the reference publishing division; Viacom Inc. will keep the consumer trade division.14

Telephone Services

Invented in 1877, the telephone became the first large-scale form of electronic communication. The desire to "wire" the nation for telephone communication led to a national policy of establishing the industry as a utility, that is, a regulated monopoly. Phone service became nearly universal during the middle of this century as the share of households with telephones grew from about one-third in 1920 to about two-fifths in 1940, more than three quarters in 1960, and over 93 percent since 1980. The American Telephone and Telegraph Company (AT&T) and its regional subsidiaries grew into an industrial giant and in the mid-1970s had more than one million employees and $150 billion in assets.15 Then new technology permitted the separation of local and long-distance service, and court action led to the separation in 1984 of AT&T’s long-distance division from local service and the divestiture of local subsidiaries into independent firms. New long-distance companies emerged and prospered in competition with AT&T.

Also in the 1980s, miniaturization and other technological advances freed the personal telephone from a network of wires. Cellular telephones were made available by the existing telephone companies and by new firms offering services in competition with the telephone companies. In 1996 cellular services accounted for nearly 12 percent of all telephone service revenues.16

Congress has also recognized the possibility of competition in local phone service. Legislation in 1996 permitted phone companies and cable television companies to compete for each other’s services. In March 1998 the FCC began auctioning new licenses for a wireless communications service called local multi-point distribution service (LMDS). This new technology would promote competition with cable and telephone services by allowing transmission of telephone, television, and data services which consumers will receive through a small receiver "dish" that can be placed in or near a window.17

The recent FCC auction also included new licenses for personal communication services, such as paging, messaging and wireless phone services. Telephone companies that already held a regional cellular license were excluded from the auction, opening competition to a number of entrepreneurs with financial backing. AT&T and Sprint also won a number of licenses in major U.S. cities. Cellular phone companies are responding to the new competition by switching to digital technology to allow for paging and messaging services via cellular phones.

Telephone companies had total employment of over 904,900, or nearly one-quarter of the combined sector’s total. Average wages were relatively high, nearly $49,000 annually, and telephone companies’ payrolls equaled 26 percent of the combined sector’s total. (Refer to Table 1.)

From the break-up of AT&T in 1984 through 1996, the telephone industry was divided between two types of companies¾ competing long-distance carriers and local companies that typically operated as a state-regulated local monopoly. Long-distance carriers earn their revenue almost exclusively from toll calls; their expenses consist primarily of maintaining necessary facilities, payroll, and fees paid to local carriers for connections from long-distance networks to local carriers’ access networks. In 1997 there were 32 major long-distance companies reporting to the FCC, and their revenues totaled over $82 billion. (See Table 6.) AT&T alone accounted for nearly half the total ($39 billion); the two largest competitors were MCI Communications Corporation ($17 billion) and Sprint ($8.6 billion). Together these three companies accounted for 79 percent of all long-distance revenues.

Local telephone companies consist of the five regional units formed from divisions of the former AT&T, 10 other independent, incumbent companies and new entrants known as competitive local exchange carriers (CLECs). (See Table 7.) The 1997 merger of NYNEX, the former AT&T unit serving the New York region, and Bell Atlantic created the largest local carrier. The incumbent companies’ revenues consist of charges to local service customers (49 percent of total revenues), access fees collected from long-distance carriers (30 percent), local toll service (10 percent) and other (11 percent).18

The CLECs earned an estimated $2.7 billion nationally in 1997, serving the 1 percent of the local market not covered by an incumbent carrier.19 Nine CLECs operate in New York City: Allegiance, e-spire Communications, Focal Communications, MCI Communications Corporation, WorldCom, Teleport Communications Group Inc. (TCG) (acquired by AT&T in 1998), Time Warner AxS, USN Communications, and WinStar. All except TCG (Staten Island) have headquarters outside New York. Although most provide local service to commercial customers in every major city in the country, New York has been a "testing ground" for many of the CLECs. They seek to gain a piece of the huge and highly profitable finance sector market.

Motion Pictures and Recorded Music

The first medium to compete with print for a major share of Americans’ leisure time was motion pictures. Filmmaking began in the 1890s. Thomas Edison and his assistant William Dickson are credited with developing the first "movie" using celluloid film. This early motion picture was viewed using a device called a Kinetoscope, which displayed a series of images in a cabinet. Edison’s laboratory and the world’s first movie studio, "Black Maria," were located in West Orange, New Jersey. The first Kinetoscope parlor, the precursor of the movie theatre, was opened in 1894 in New York City. Film production evolved through innovations in both the United States and Europe.

New York became the home of the fledgling movie industry, but Chicago also had some early movie production. The industry was initially controlled by the Motion Picture Patent Company, a trust incorporated in 1908 by ten production companies. The first permanent studio in Hollywood was opened in 1911, and the shift of the industry to the West Coast began, not only because the climate and scenery of California was attractive for production, but also because independent producers sought to be free of the power of the Motion Picture Patent Company, which was eventually dissolved by the courts in 1917.20

Movies were a popular feature at thousands of vaudeville theatres around the country. During the 1920s and 1930s sound was added and movie production was consolidated among several large studios based in California. They expanded into the operation of theatres, but in 1947 the government forced divestiture of the theatres by production studios. Subsequently, independent national chains of movie theatres developed. In 1997 there were 31,640 commercial movie screens in the country.21

As motion picture production matured, the trend was toward greater technical sophistication and more expensive productions. Fewer pictures were made each year, and distribution became worldwide, not just national. Since 1980 the number of new motion pictures released in the United States has ranged from between 235 and 458, with the number accounted for by major studios belonging to the Motion Picture Association of America (MPAA) generally accounting for less than half the total. Motion picture production studios also are used for the production of other media products discussed below, including broadcast and cable television programs and videocassettes.

At the same time that sound was added to movies, a separate recorded music industry emerged. Initially, live musicians were recorded at sound studios through the use of variable grooves in a wax disc. The master disc was used to mass-produce discs or "records" that could be played by consumers on home phonographs. Early records were made of a highly breakable shellac. Both the recording technology and the consumers’ audio equipment were improved significantly in subsequent decades. Shellac records were replaced by vinyl; magnetic tapes and laser discs replaced vinyl records; hi-fidelity and stereophonic sound reproduction were made possible through sophisticated mass-produced sound systems. Movie sound tracks became a popular recorded item, and some motion picture studios acquired music recording companies. In 1997 manufacturers shipped over 1.1 billion recorded units worldwide, including about 820 million compact discs (CDs) and about 215 million tape cassettes. Nearly 19 million music videos were shipped, while records fell to only a small fraction of industry output¾ just over 10 million units.22 The newest technology, digital video/versatile disks (DVDs), which are very similar to CD-ROMs but have significantly larger storage capacity, are expected by some analysts to render CDs as obsolete as vinyl records in the next few years.

Film, video and record production and distribution account for nearly 563,000 jobs nationwide. However, nearly half of these jobs are relatively low-wage positions in the retail activities of operating movie theatres and video rental stores. More significant economically are the motion picture and video production studios. They employ over 231,400 people with an average annual wage of nearly $52,400, bringing the total payroll to over $12.1 billion. (Refer to Table 1.)

Film production and distribution involve multiple organizations, and the operations of the industry have been changed by continuing mergers and restructurings. In the mid-1990s there were six "major" studios which earned this ranking by having a long-standing presence in the industry, a substantial library of previously produced films, and studio production facilities.23 They both produce and distribute their own films as well as distribute (and sometimes help finance) films produced by smaller companies. These "majors" are:

1. The Walt Disney Company. Formed from the previous Walt Disney Studios, Buena Vista, Touchstone, and Hollywood Pictures. It has a library of about 500 films. It has seven sound stages in Burbank, two of which opened in 1997; it has 700 acres of back lot.24 Walt Disney’s film and entertainment revenues in 1996 were over $10.5 billion.25

2. Warner Brothers. Owned by Time Warner Inc., it has a library of about 1,600 films. It has a total of 34 sound stages and 155 acres of back lot in Burbank and Hollywood with three new sound stages under development in Burbank. In 1996 Time Warner’s revenue from filmed entertainment exceeded $6.1 billion.

3. Universal. Acquired by the Seagram Company in 1996 from Matsushita Electric. It has a library of about 3,200 films, 32 sound stages and 415 acres of back lot in Burbank. In 1996 Seagram Company’s filmed entertainment revenues exceeded $5.4 billion.

4. Paramount Pictures. Owned by Viacom Inc., it has 32 sound stages in Hollywood and a library of about 900 films. Paramount has replicas of seven New York City intersections on five acres and a total back lot of 63 acres. Viacom’s revenues from filmed entertainment were nearly $3.5 billion in 1996.

5. Sony Pictures. Formed when Sony purchased Columbia Pictures, it also owns Tristar films. It has a library of about 2,400 films and owns the former MGM production studios. It has a total of 35 sound stages in Culver City but no back lot. Its 1996 revenues from filmed entertainment were over $3.0 billion.

6. Twentieth Century Fox. Owned by News Corporation, it has a library of about 1,600 films, 18 sound stages, and less than one acre of back lot. It has recently built sound stages in Mexico and Australia. News Corporation’s revenue from filmed entertainment exceeded $2.4 billion in 1996.

In addition to these major studios, other large producers are Metro-Goldwyn-Mayer, Inc., and New Line Cinema, owned by Time Warner Inc. as part of its acquisition of Turner Broadcasting. MGM sold its sound stages and now rents them when needed; it has no back lot. In July 1997 MGM purchased Orion Pictures from the Metromedia International Group, thus adding to its own film library of 4,300 films, Orion’s 2,200 feature films and television episodes.26 There also are smaller production companies that may rent the studios of the "majors" and may rely on a major studio to distribute their products.

Based on figures for 197 films produced by MPAA members in 1997, the average cost of a film is over $78 million. Of this total, just over $53 million is for the production of the film up to the point of having a full negative (this includes acquisition of story rights, pre-production work on the script, selecting crew and cast, production involving the artists, sound, photography, set construction, and post-production editing), about $3 million is for producing multiple prints, and over $22 million is for advertising.27

Revenues of the film companies come from multiple sources. In 1995 it is estimated that the major producers earned about $18 billion from motion pictures.28 Fully 40 percent came from selling home videos for purchase and rental. Sales for broadcasts on domestic and foreign television generated another 20 percent, and the production of films exclusively for television accounted for another 12 percent.

The full scale of the recorded music industry is not reflected in the figures in Table 1. National economic data reflect only the physical production of records, cassettes and compact discs as a distinct manufacturing industry; the arrangement of music, recording studios and record distribution are not distinguished in separate industrial classifications and are merged with a broader set of service industries.29

Annual total sales of recorded music in the United States were $12.2 billion in 1997; compact discs accounted for 83 percent of sales, while cassettes accounted for 14 percent, music videos accounted for 2.6 percent, and records accounted for about one half of one percent.30

Major media companies dominate the recorded music industry. Twelve distribution companies, which sign artists and record music, account for about 90 percent of U.S. industry revenues; their foreign sales bring total revenues to over $23 billion, nearly double the U.S. sales figure. Five of the 12 have recorded music revenues of $3.9 billion or more; revenues for the remaining seven range from $134 million to $26 million. The largest, Sony, which owns Columbia and Epic records, had $4.8 billion in revenues in 1996. The other four largest companies are Bertelsmann, Inc., which owns Arista and RCA and had $4.3 billion in revenues; Polygram N.V., which owns Motown and had $4.1 billion in revenues; Time Warner Inc., which owns 22 labels including Atlantic and Elektra and had $3.9 billion in revenues; and Thorn EMI, which owns Capital and Virgin and had $4.5 billion in revenues.31 On May 21, 1998, the Seagram Company announced its intention to acquire Polygram N.V., thus expanding its recorded music business beyond its current labels, Geffen Records, Interscope and MCA.32

Radio and Television

Modern radio is rooted in the wireless telegraph developed by Guglielmo Marconi. David Sarnoff, who originally worked for the American Marconi Company, formulated the idea of radio as a "household utility" in 1916, but his proposal was shelved by his superiors. Radio broadcasting was inaugurated in 1921 in Pittsburgh with the backing of Westinghouse Electric Corporation. Companies in New York City (among them AT&T and Radio Corporation of America or RCA) opened stations soon after. Additional stations followed in other markets.

Prior to the development of advertising as a means of financing radio, various techniques were proposed including contributions from listeners and foundation funding. The first commercial radio advertisement was broadcast in 1922 on WEAF (now WNBC) in New York City, promoting real estate development on Long Island. Radio soon began drawing advertising from newspapers and magazines. Radio also rendered "extra editions" of newspapers obsolete.

In 1926 RCA in cooperation with AT&T established the first radio network (NBC), and New York became established as the center of commercial radio. By the late 1930s radio had become the dominant source of amusement and information in the United States. Local stations multiplied and national networks emerged to carry the most popular programs. By 1940 radio receivers were in over 80 percent of American households.33

The first experimental television broadcasts were carried out by RCA in New York City (notably the opening of the 1939 World’s Fair). Regular commercial television broadcasts began in the late 1940s, and in the 1950s displaced radio as the most popular source of entertainment and information. With the dominance of television, radio became less oriented to the mass market and increasingly specialized.34

Initially television broadcasts were "live," but technological advances led to recording shows on film and then videotape. The networks developed new programs, but relied on older motion pictures as a major source of programming. Broadcast television was dominated by three national networks (NBC, CBS, and ABC) until the late 1980s, when a fourth network, Fox, successfully entered the competition. Two smaller networks, UPN and WB, have emerged in recent years.

The diversity of television programming expanded with the growth of "cable" television. Cable systems began as early as the 1950s as a means to improve reception of broadcast stations. In the 1970s, distribution of additional programs through these cable networks became feasible, and during the 1980s large cable distributors emerged. By 1990 cable television was installed in about 56 percent of American homes, and the figure rose to over 63 percent in 1996. The cable companies offered programs from the broadcast networks as well as new entertainment and news generated by specialized cable services, including those offering continuous motion pictures, news, sports, and music videos.

The development and mass marketing of home videocassette recorders and players (VCRs) began in the 1980s. By the mid-1990s, about four out of five U.S. households had at least one VCR. (Refer to Table 2.) This led to the development of another variant of the television industry. Motion pictures could be rented and sold in videocassette format, and studios also began producing lower cost motion pictures for distribution through cable television and as videocassettes. Retail outlets for the rental of videos multiplied and national chains of video stores emerged.

Decisions by the FCC in 1996 will lead to future changes in the nature and use of television. The FCC is requiring all television broadcasts to shift from analog transmission on current frequencies to an improved digital format called Digital Television (DTV), which will be broadcast on new channels. There will be simultaneous transmission in both modes and channels between 1998 and 2006, but in 2006 all television broadcasting will use the DTV system. In the coming years this will require all American households to acquire new receivers or converters, and the implications for programming, advertising content, and cable television systems remain unclear.

Also important to the future of television is the increased availability of direct broadcast satellite services (DBS). These services provide a variety of programs comparable to that offered by cable services, but through the air to small "dish" receivers which are sold or rented to customers. Currently Congress is considering a variety of regulatory issues concerning satellite broadcast.35

Radio and television together employ over 410,500 people with a payroll of over $15.8 billion. Cable television employs the greatest number (169,470), followed by broadcast television (128,100) and radio (113,000). Average wages are lowest in radio and highest in broadcast television, leading broadcast television to have a total payroll of $6.5 billion, larger than cable television ($6.0 billion).

Cable television firms include companies that "wire" homes and sell subscription services, firms that operate specific channels and produce programs which are distributed by the subscription services, and companies such as Time Warner Inc., which conduct both subscription and programming activities. Cable distribution systems are locally-franchised, and there are 11,220 systems across the country with about 61.7 million subscribers.36 However, many of the systems are owned by large firms known as multiple systems operators (MSOs). The two largest such firms are Tele-Communications Inc. (TCI) with over 13.3 million subscribers and Time Warner’s cable division with 7.3 million subscribers. (See Table 8.) Another twelve MSOs have between 1.1 million and 5 million subscribers, and together these 14 large firms account for about 51 million of the 56 million nationwide subscribers.

A second type of cable television activity is the production of programs for distribution over the cable systems. Most cable systems bring subscribers the locally-broadcast stations, but the subscription fees include access to other program services. The operators of these program services are separate firms that earn revenues in different ways. Some program services, the "basic" services, are distributed through the cable systems in return for the basic subscription fee. The owners of these program services earn their revenue by selling time to advertisers, and from fees paid by the cable operators to include their programs among the basic cable services. Other program services, the "premium" services, are made available only to subscribers who pay an extra fee. The fee is divided between the premium service firm and the cable system operator, and the premium program services typically have little or no advertising revenue. A third type of program service provides "pay-per-view" services; subscribers pay a fee for each program they watch.

There are over 100 different cable program services available to system operators, but several services are owned by the same firm. Table 9 identifies the largest cable program service companies. These 17 firms had combined revenues in 1996 of over $8.4 billion. Turner Broadcasting System, Inc., the largest firm prior to its acquisition by Time Warner Inc., had nearly $2.8 billion in revenues. Viacom Inc. had revenues of about $2.4 billion from its multiple program services, including Showtime, The Movie Channel, MTV, VH1, and Nickelodeon. Time Warner Inc., whose services include Cinemax and HBO as well as partial ownership of network enterprises such as Court TV, had revenues of nearly $1.8 billion.

In 1996 cable operators had revenues of nearly $38.5 billion. Fees for basic service were $18.6 billion or 48 percent, program revenues accounted for about 14 percent, premium services for 15 percent, and advertising for about 13 percent.37

Broadcast television is widely associated with four major national networks¾ NBC, CBS, ABC and Fox; however, it is important to realize that broadcast television is dependent on 1,576 local "stations" or separate broadcasting facilities located around the country.38 These stations can be divided into three general types. A few are truly independent in the sense that they are neither owned by nor affiliated with a major network. Most others are independently owned, but are affiliated with a network whose programs they carry. Finally, 58 stations concentrated in major metropolitan areas are directly owned and operated by the major networks. Many affiliated and some independent stations are owned by organizations other than networks that own more than one station, and several of these are multimedia enterprises also in the radio, newspaper, and/or cable television business. The 25 largest television station owners are identified in Table 10.

As Table 10 suggests, the dominant position of the four networks does not come from their role as station owners. Federal regulations are intended to prevent station owners from owning stations in markets that comprise more than 35 percent of all viewers, although the FCC discounts the coverage of UHF stations by 50 percent and does not count stations controlled under local marketing agreements. Each of the four major networks owns only between ten and 23 stations and could reach only between 24 percent and 40 percent of the nation’s homes without its affiliated stations. The networks’ influence and much of their revenues are dependent on their role as suppliers of programming to local stations. The networks bear the cost of producing programs and pay local stations to carry them; in return they sell advertising time to national sponsors of these programs. The local stations earn revenues from both the networks’ program fees and selling local advertising "spots" during time that has not been committed to the networks.

In 1996 television broadcasters had revenues of nearly $30 billion.39 Of this total over $15 billion or half was paid by advertisers to local stations, about $11.3 billion or nearly 40 percent was paid by advertisers to the national networks, and $550 million was paid by networks to local stations.

Radio broadcasting is relatively decentralized, with 12,276 commercial stations broadcasting on AM and FM bands across the country.40 However, as with television stations, ownership of stations, and especially stations in larger markets, is relatively concentrated; moreover, recent FCC rules have led to a trend toward greater concentration by permitting corporations to own up to four stations in the same market. Table 11 shows the largest radio station owners in 1998 in terms of audience. The ownership of radio stations is changing with great frequency, so such listings quickly become out-of-date. The 21 largest companies include Chancellor Media with 397 stations and 3.6 million listeners, CBS Inc. (including Group W and Infinity) with 178 stations reaching 3.2 million listeners, and Clear Channel Communications with 195 stations and 1.5 million listeners. Other large station-owners include Disney/ABC (also in television and other media businesses) with 72 stations and 720,500 listeners; and the Spanish Broadcasting System, which owns nine stations with nearly 340,000 listeners.

Radio station revenues totaled over $9.6 billion in 1996. Local advertising accounted for over 71 percent of this revenue, while national and regional advertising represented about 19 percent. The networks play a much smaller role in radio than in television; network time sales generated only about 5 percent of total radio revenues.41

Advertising and Related Services

Advertising arose initially as an adjunct to newspaper and magazine publishing. The first advertising agents simply sold space in newspapers, but beginning in the 1880s, they expanded to magazines. Hand illustrators were replaced by photographers, and the creation of professional advertisements became a craft.

Advertising boomed along with the growth of broadcast media. First radio jingles, and then sophisticated television commercials, became major products of the new, national advertising agencies. They coordinated print and broadcast campaigns, working closely with networks and publishers, and typically located where the media headquarters were concentrated.

Sophisticated advertising required a variety of specialized services that grew up along with large advertising firms. These included commercial art and photography studios as well as agencies supplying models and actors for commercial "shoots." To monitor and measure the size of radio and television audiences, a key factor in pricing advertising time, independent "rating services" emerged. Market research specialists created firms to provide specialized information and studies for advertising agencies. Advertising also took the form of direct mail campaigns, spawning direct mail services which maintained mailing lists and specially designed copy and artwork. Another significant activity related to advertising is public relations, a service now often performed by specialists in firms separate from advertising agencies.

Beginning in the late 1970s, American consumer product manufacturers, the major clients of advertising agencies, increasingly oriented themselves to international as well as domestic markets. Helping clients sell in overseas markets became a major challenge to advertising agencies, and the opening of several major European nations’ television industries to commercial broadcasting in the 1980s created additional foreign opportunities. In response, both U.S. and foreign advertising agencies sought to create international operations. During the 1980s many large American advertising firms became part of multinational firms either by acquiring firms elsewhere or by being acquired by foreign-based firms.

Advertising firms account for about 242,600 jobs nationally, with a payroll of $11.1 billion. When a variety of related activities are taken into account, the totals grow to over 581,700 jobs and $22.7 billion. These additional related activities include public relations, commercial artists and photographers that work primarily with advertisers, direct mail firms that often assist in carrying out advertising strategies, and commercial research firms that are primarily engaged in market and economic research and work closely with advertising agencies. (However, the latter group also includes some scientific and social science research which is unrelated to the media and communications industries; hence this segment’s role in the sector is overestimated in the figures in Table 1.)

As noted earlier, advertising has become an international activity, and the major firms operate almost worldwide. Table 12 shows the 25 largest firms operating in the United States, only two of which operated exclusively in the United States. For all the others except five, U.S. income was significantly less than half the firm’s total worldwide income.

The global scale of advertising has also led to the establishment of international holding companies which own one or more advertising agencies as well as, in some instances, one or more public relations firms and other related firms such as direct mailers. Holding companies provide some overhead services for their subsidiaries and occasionally help coordinate a client’s needs across agencies; for the most part the subsidiary agencies independently compete for business. The five largest holding companies as of 1997 were Omnicon Group, WPP Group, The Interpublic Group of Companies, Inc., Dentsu, and Young & Rubicam Inc. Among the advertising firms listed in Table 12, two (McCann-Erickson and Ammirati Puris Lintas) are owned by Interpublic, three (BBDO Worldwide, DDB Needham, and TBWA Chiat/Day) by Omnicom, and two (Ogilvy & Mather and J. Walter Thompson) by the WPP Group.

In a reversal of the trend toward consolidation of advertising agencies, Cordiant, which had been the sixth largest holding company in 1996, decided to split into two companies with its two main holdings (Saatchi and Saatchi Advertising Worldwide and Bates Worldwide) being the lead agencies in the new configuration. While consolidation continues within the advertising industry because of reputed scale economies, the rationale for the break-up of Cordiant is that separate management teams will create incentives to run the groups more profitably.42

Demand for advertising firms’ services is driven by the level of advertising expenditures. In 1996 advertising expenditures totaled $173.2 billion; newspaper and magazine advertising accounted for 28 percent of the total, broadcast television 21 percent, radio 7 percent, yellow pages 6 percent, cable television 2.5 percent, and direct mail 20 percent. The last two categories have been the fastest growing.43

Of course, all advertising expenditures do not translate into revenues for advertising agencies. Some expenditures are managed directly by producers of goods and services; other expenditures may be managed by an advertising firm but paid by the client to the media firm. Advertising industry revenues totaled $30.7 billion in 1996.44

Public relations activities were historically closely related to advertising, but now often are performed by separate, specialized firms. As shown in Table 13, five public relations firms had 1997 revenues of over $100 million, and another 20 had revenues ranging from $10.9 million to $96.6 million.

Several large public relations firms are owned by the same parent holding companies that own advertising agencies. Young & Rubicam owns an advertising firm of that name, as well as two large public relations firms (Cohn & Wolfe and Burson-Marsteller); the WPP Group owns Hill & Knowlton and Ogilvy PR Worldwide; and Omnicom owns Porter/Novelli and Ketchum Public Relations. In addition, the same company which owns the Bozell Worldwide advertising firm owns four public relations firms; D’Arcy Masius Benton & Bowles owns the Manning, Selvage & Lee public relations firm as well as its advertising agency; and Grey Advertising owns the GCI Group.

Among the other activities related to advertising, the most significant in terms of employment is market research. The nearly 123,000 jobs in this field are concentrated among several large firms. The largest such enterprise is IMS Health, with worldwide revenues of $980.5 million, including over $378 million in the United States. (See Table 14.) Another ten firms had U.S. revenues ranging between $106 million and $367 million, while the remainder earned between $33 million and $98 million.

Other Media

The introduction and refinement of personal computers added a new dimension to the media and communications industries. First marketed in the early 1980s, personal computers currently are estimated to be in about 42 percent of American households, and millions more such computers are in offices around the country. (See Table 2.)

Creating applications for these machines has become a major industry. While many applications are commercial, the field also has abundant consumer-oriented products. Both new specialized firms and long-established publishers have created electronic products that replicate and expand upon information previously available in print. In addition, the new technology permits more "interactive" products such as games and educational applications which are customized or used in unique ways by purchasers.

The Internet is a system for linking computers. Initially developed to permit exchange of data among scientific users based in universities and government agencies, it relies primarily upon telephone lines to connect large computer sites. However, the service has been made available to personal computer users in commercial and consumer markets through the growth of Internet service providers and commercial online services such as America OnLine. Homes, schools and commercial enterprises have all become part of the Internet; it is estimated that in 1997 approximately 100 million people were using the Internet worldwide, including about 62 million in the United States. 45

Broadened use of the Internet has led to new commercial enterprises. Firms compete in the design of programs to make access and communication simpler and speedier. Commercial firms have created "web pages" providing information about their products and services, and advertising agencies as well as specialized "web page designers" have taken on the task of creating and maintaining these new information sources. Government agencies also make information available through these electronic means as well as in more conventional printed form. In addition, new electronic publications with advertising are being produced on the Internet; they provide news and entertainment with potential for rapid updates.

The Internet is also becoming a major avenue of commerce. The combination of credit cards and "800" telephone lines have made consumer purchases common over voice telephone lines, and a similar process is growing rapidly on the Internet. Whereas online sales were initially somewhat limited to purchases of computer equipment by technically advanced consumers, online sales of more mainstream goods and services such as consumer books and airline tickets are growing quickly. For example, Amazon.com started selling books online in the summer of 1995, and by 1997 had sales of $148 million and over 1.5 million customers in 150 countries.46 In 1996 $276 million was spent online for travel services, 90 percent of which was for airline tickets. By 1997 online travel services sales increased three-fold to $827 million.47

Banking also seems promising as an online service. In 1997 about 4.5 million households were banking online, and 10 to 16 million households are expected to be banking online by the year 2000. Currently 24 of the largest 100 U.S. banks (and an additional 109 smaller banks) provide full services via the Internet, including reviewing balances, transferring funds and paying bills.48

The "other media" are not well delineated in the conventional industrial classifications used to collect nationwide economic data. The two most clearly defined segments are firms manufacturing prepackaged software and firms providing information retrieval services, which include some commercial Internet servers. Together these two industries had total employment of about 270,000 and a payroll of over $17 billion. Average wages are particularly high ($70,400 annually) in the prepackaged software field. (See Table 1.)

Prepackaged software is the larger of the two components with 200,000 jobs. It has two markets¾ personal computers and larger commercial systems. Little data are available about prepackaged software sales for the larger systems. The customizing of large installations of computer networks may involve the work of staff from firms specializing in programming or integrated systems designs as well as the use of prepackaged software.

More systematic data are available on sales of prepackaged software for personal computers. Microsoft is the largest and perhaps best known firm in the industry, with total revenues of about $13.1 billion in 1997. (See Table 15.) Adobe Systems was the second-largest firm with revenues of nearly $912 million. Another seven firms, each exclusively in the prepackaged software business, earned between $885 million and $531 million. Among the remaining 50 largest prepackaged software firms, 13 earned over $100 million.

Firms not primarily in the personal computer software business also record significant personal computer software revenues. For example, IBM is primarily in computer hardware and systems consulting. Their software revenues of $1.5 billion in 1995 accounted for just over 2 percent of IBM’s total revenues. Likewise, Oracle, which is primarily in the network software business, had software revenues of $322 million, accounting for about 9 percent of its total revenues. 49

Additional large "other media" activities identified in Table 1 are computer programming and computer integrated systems design. Little systematic data are available on these industry segments, but it is likely that these activities largely are oriented to serving commercial establishments and are not directly tied to communication or media functions. For example, programmers may work for financial institutions helping to design applications, and integrated systems design firms may specialize in helping manufacturing or other firms that acquire new computer equipment and software to customize the system to their needs. Thus, including these types of firms in Table 1 probably overstates the scale of the media and communications industries, although some significant part of these firms’ employment may be tied to electronic media.

The two smaller types of activities categorized as part of the "other media" in Table 1 are information retrieval services and news syndicates. Information retrieval services include the firms providing search services on the Internet, such as Yahoo!. Employment in these firms is relatively small, nearly 70,000 nationally.50 News syndicates are small employers, with about 12,200 jobs51 . Included in this category are news services such as the Associated Press (AP) and Reuters, which gather news and make reports available to newspapers and radio stations.

Media Convergence and Multimedia Firms

The growth of the Internet illustrates the impact that technology is having on the media and communications sector. The boundaries between traditionally different modes of content creation and dissemination (for instance, computer programming, book publishing and video production) have been blurred; standard industry classifications no longer accurately describe the activities of the businesses to which they apply. For example, telephone companies offer computer Internet access and electronic mail, and cable television companies are on the verge of doing the same; recorded music firms create multimedia interactive compact discs; book and newspaper publishers offer their products electronically and on recordings.

For most adults, activities that were separate for most of their lives are converging. The relevant technologies developed separately, and distinct industries grew up around them. In many of these industries, government policies were enacted to reinforce the boundaries among them. Newspapers were kept separate from radio and television stations; telephone and cable companies were obliged to build separate networks. That is now changing. The convergence of computer and communication technologies is eroding the boundaries, creating intersecting markets and overlapping industry structures. Government policies are being rewritten to dismantle the legal boundaries.

The businesses whose fundamental tasks are producing, manipulating or distributing media content¾ those that are the focus of this study¾ will be most directly affected. As the technologies converge, it makes little difference whether the content is text, images (still or motion), sound (voice or music) or data. Information can be delivered as print, recorded media (tape or disk), over wires, or over the air. In popular terms, the telephone, television and computer are converging.

For example, currently software firms such as Microsoft are negotiating with cable systems in the development of boxes that will increase the amount of digital and interactive communication delivered via television screen. Software companies also have the opportunity to create such alliances with telephone companies as an alternative means of reaching households. The possibilities of convergence are even greater as cable providers and telephone providers begin to compete directly with one another.52

This convergence brings previously distinct industries into competition with each other. These changes also affect the economic dynamics of the businesses, rearranging the competitive advantages of firms, skills and locales such as New York.

The convergence of the media has fostered the joining of firms active in different segments and the creation of large, multimedia firms. The trend dates from the merger of newspaper and magazine publishing activities as well as the ownership of radio and television stations by newspaper publishers, but has become more diverse and large-scale in the past decade. Currently, major firms are active worldwide in multiple media industries, including magazine and book publishing, broadcast and cable television, movie studios, and interactive software. The ownership of television networks by studios provides an important distribution outlet. In addition to these changes in the media, previous legal obstacles are being removed or limited, permitting cable television and telephone companies to compete in each other’s industry.

The creation of what one analyst has called the "transnational media corporation" is illustrated with five leading examples: Time Warner Inc., the Sony Corporation, Bertelsmann, Inc., The Walt Disney Company, and News Corporation.53 Time Warner Inc. was created in 1989 through the merger of Time Inc. and Warner Communications. Time was a publisher of magazines and books that also had entered the cable television business. Warner Communications was a service industry firm that at one time included many diverse services, but had specialized in entertainment and had owned motion picture production, recorded music, cable television and book publishing facilities. In 1996 Time Warner Inc. merged with Turner Broadcasting, a large firm in cable television, movie production, and sports businesses. Already the world’s largest multimedia firm, Time Warner Inc. grew even larger.

The Sony Corporation was established in Japan and grew after World War II as a manufacturer and innovator in the field of consumer electronics. However, after its Betamax VCR format lost to the rival VHS format, in part because of a paucity of videos produced in the Betamax format, Sony’s leadership began to emphasize the need for combining hardware and software in the future. In 1988 Sony acquired CBS Inc. records, and in 1989 it bought Columbia Pictures Entertainment, which included movie production studios and the Loews Theatre chain. While the Sony management has had difficulty integrating the movie production business into its corporate style, the firm appears committed for the long-run to being active in producing entertainment software products.

Bertelsmann, Inc. began as a revived family printing business in Germany after World War II. It expanded from printing into book publishing through the creation of a German version of the American "book of the month" club. In 1962 it began expanding into other European countries with similar book clubs and later added records and tapes to its monthly sales. In 1969 it began purchasing what became a controlling interest in a major German magazine publisher, Gruner & Jahr, which publishes about 70 newspapers and magazines in seven countries. Bertelsmann, Inc. invested in the United States with the purchase of Bantam Books in 1977, Arista Records from Columbia Pictures in 1978, and Doubleday Publishing and RCA Records in 1986. In 1992 Bertelsmann, Inc. bought a building in New York City. Its world headquarters remain in Gutersloh, Germany.

The Walt Disney Company traces its origins to the creation of the Disney Brothers Cartoon studio in 1923. It expanded from cartoons to animated films and then live films. In the 1950s Disney established Buena Vista as a film distribution company, opened its first theme amusement park, Disneyland, and began producing shows for television. Disney’s operations became highly profitable in the 1980s, and in 1995 the firm acquired Capital Cities/ABC for $19 billion. The acquired firm had network television marketing and programming capacity, and owned eight television and 21 radio stations. The new assets add a television outlet for Disney’s entertainment products.

News Corporation traces its origins to Adelaide, Australia, in 1923 when a private business was established to publish a local daily newspaper. An interest in the paper was bought by Sir Keith Murdoch, father of Rupert Murdoch, and the company went public in 1979. During the 1960s Rupert Murdoch expanded the family newspaper business by entering new and larger markets in Australia and acquiring radio and television broadcast licenses. In the 1970s Murdoch bought newspapers in Great Britain and in 1977 bought the New York Post in the United States. In 1985 the News Corporation bought Twentieth Century Fox studios and seven television stations from Metromedia. These stations were expanded into a major new national television network in the United States. In 1987 News Corporation bought Harper & Row Publishers (now HarperCollins) and, in 1988, Triangle Publications, which publishes the magazines TV Guide and The Weekly Standard. News Corporation is also a 40 percent owner of British Sky Broadcasting, a direct broadcast service in Europe.

These firms are five leading examples of a broader phenomenon, firms that operate in multiple media industries. The extent of such activity has been analyzed in a recent report from Veronis, Suhler & Associates. They examined 456 public companies operating in at least one of 15 segments of the communications sector (not including telephone services). They found 396 companies operating in only one segment, 38 in two segments, and 22 true multimedia firms operating in three or more segments. Of the 15 segments, only advertising was populated exclusively by firms limited to that activity. In contrast, "single segment" firms account for about one-quarter of the consumer magazine firms, ten of 30 newspaper publishers, and five of 12 recorded music firms. (See Table 16.)

The revenues of the 22 multimedia firms identified in the Veronis, Suhler study are shown in Table 17. The group includes four of the five firms described above: Time Warner Inc., Walt Disney Company, Bertelsmann, Inc., and News Corporation. Sony appears as a two-segment firm with revenues from film production and recorded music. Another multimedia giant is Viacom Inc. with $8.2 billion in communications revenue divided among film production, cable television operations, and book publishing. At least eight of the other firms on the list are rooted in the newspaper business, but have branched out into some form of television or other media.

Globalization of Media and Communications

The development of multimedia firms has a distinctively international component. The globalization of business is an increasingly important aspect of media and communications activities. This is seen in a variety of ways¾ the expansion of U.S. firms into foreign markets through branching, acquisitions of foreign companies, or simply sales of products or services abroad. Internationalization takes place in the reverse direction as foreign firms enter U.S. markets.

Advertising agencies have become increasingly international in their activities, either through acquisition or branching, initially as a consequence of their clients’ ventures into foreign markets. Advertising opportunities expanded significantly in Europe during the 1970s and 1980s as commercial television developed. By the late 1980s, 87 of the 100 largest advertisers in the United States were international firms.54

U.S.-based advertising firms earn a significant, if not a dominant share, of their revenues overseas. Among the 25 largest advertising agencies in the United States, only two operated exclusively domestically, but among the 23 others only five earned more than half their income in the United States. (See Table 12.) For the 25 largest marketing research firms, the figure for non-U.S. revenues in 1997 was over 57 percent. The 15 largest public relations firms earned 35.5 percent of their revenues overseas.55

While it was originally debated whether advertising is a product that has trouble moving across international boundaries because of cultural differences, the ability of U.S. firms to expand (although part of this is through acquisition of foreign units) is evidence of the extent to which cultural barriers continue to shrink as a result of the impact of television and film¾ and advertising itself. It is interesting, however, that as Japanese firms have moved into American markets, they have tended not to take their own advertising firms with them, but rather to turn to U.S. firms.56

Foreign ownership of U.S. companies is significant in book publishing. Ownership of U.S. publishers gives foreign companies access to the largest book market in the world and to a growing international English-language market. In 1996, the top ten foreign-based book publishers accounted for more than 35 percent of U.S. book sales. Bertelsmann’s pending acquisition of Random House would, if consummated, increase its share of the $21 billion U.S. book market from 6 percent to 10 percent. Bertelsmann, Inc. would become the largest foreign owner of U.S. publishing firms, and the share of the American market that is foreign-owned would rise to the range of 40 percent.57

Foreign ownership is also important in the magazine industry. Among the ten largest magazine publishing companies listed in Table 4, three are foreign-owned. Gruner & Jahr USA Publications Group is a subsidiary of German-based Gruner & Jahr, in which Bertelsmann, Inc. is a major stockholder; it publishes 29 magazines in the United States, including Woman’s Day, Car & Driver, the U.S. editions of Elle, George, Premier, Mirabella, and Metropolitan Home. Hachette Filipacchi, a French organization, has among its publications McCall’s, Family Circle, Parents’ Magazine, YM Magazine, and American Home Style & Garden. News America is a U.S. subsidiary of News Corporation, registered in Australia; it publishes TV Guide and The Weekly Standard.

U.S. publishers also are operating in international markets. Time, Inc. now operates throughout the world. International editions of Time are published in Canada, Latin America, and the South Pacific. There are several international editions of Fortune (Americas, Asia, Atlantic), and five other international titles (Asiaweek, Dancyu, President, Wallpaper, and Who). Time has entered into a licensing agreement to publish Fortune China in Chinese. Fortune is published in Japanese, and Dancyu (a men’s cooking magazine) is also published in Japanese.

Hearst publishes foreign editions of Cosmopolitan, Esquire, Harper’s Bazaar, and Good Housekeeping in the native languages of each of the countries it serves. These are published as joint ventures with foreign publishers. Hearst also publishes (as a joint venture) a magazine, Zest, which is not published in the U.S.; it is distributed in Poland, Australia, and the UK.

Condé Nast has a large international division. It currently publishes eleven foreign editions of Vogue, with publication of Vogue Nippon and Vogue Russia beginning in September 1998. It publishes close to 30 other foreign magazines, including international editions of AD-Architectural Digest (Italy and Germany), Glamour (Italy and Korea), and GQ (Spain, Japan, and Taiwan).

In the entertainment area, foreign markets are an increasingly important share of revenues. In 1996 the motion picture industry derived 43 percent of its nearly $20 billion in theatrical revenues outside the United States, up from 30 percent in 1986.58 For the record industry, about 50 percent of revenues were earned from sales outside the United States.59

Media convergence and globalization come together through the expansion of multimedia firms. U.S. companies buy up foreign businesses, or vice-versa, to help construct multimedia empires. The earlier discussion of News Corporation (originally an Australian company), Bertelsmann, Inc. (a German company), and Sony (a Japanese company) are major examples of the extent to which foreign firms have been entering the U.S. market. As for U.S. multimedia firms in foreign markets, the Walt Disney Company earned 20 percent of its 1997 revenues outside the United States; for Time Warner Inc. the 1996 figure is 25 percent.60

In the communications field, the simultaneous expansion of worldwide markets together with improvements in telecommunications technology lifted the international share of toll telephone revenues in the U.S. from 7.5 percent in 1985 to nearly 20 percent by 1995.61 The continuing growth of the Internet is likely to cut into toll revenues; however, the loss of toll telephone revenues (domestic and international) will tend to be offset by gains in Internet revenues as telephone companies expand their role as Internet service providers.

International revenues are significant in the computer software industry. While no industry-wide data are available, the activities of some of the major players are informative: Microsoft’s foreign revenues accounted for 40 percent of its total for 1997; Oracle’s international operations accounted for 57 percent of its revenues; for Novell the international share for 1995 was 47 percent; and, Computer Associates International, Inc. generated 50 percent of its 1996 revenues from sales outside of North America.62

THE ROLE OF NEW YORK CITY

The portrait of the media and communications sector paints a picture of industries being reshaped and expanding by changing technology, regulation, and globalization. The underlying concern of the CBC is how these dynamic forces will affect the scale and scope of these activities in New York City.

In 1997, the media and communications sector accounted for 233,444 jobs in New York City, or about 8.3 percent of all private sector employment in the city. The sector’s payrolls equaled $15.5 billion, or 11.6 percent of the city’s total private sector wages. (See Table 18.)

The sector’s relatively high payroll share indicates that the average wage in media and communications ($66,395) is higher than for other parts of the city’s economy ($47,631). The sector’s high wages reflect the talents and training of the workforce in many of these industries. While there is considerable variation within the sector, ranging from over $102,000 annually in the music industry to under $12,500 in video rental stores, the general point is that this sector provides many "good" jobs in New York City.

Within the overall sector, the largest component in terms of employment is advertising and related services. They represent over 57,000 jobs, or one of every four in the sector. The print media comprise another 56,680 jobs, also nearly one-quarter of the total. Motion pictures and recorded music provide nearly 39,000 jobs, with the vast majority in motion picture production. The telephone industry has nearly 34,000 jobs, and radio and television have over 28,000. The "other media" are the smallest segment with about 18,500 jobs, or about 8 percent.

Two important caveats should accompany this statistical portrait. First, the figures do not include the self-employed and those in firms with four or fewer employees. A reasonable estimate is that an additional 4.9 percent of New York City workers in the media and communications sector fall into this category, but there is significant variation among the specific industries with greater reliance on small firms and freelancers in new computer-related activities and in some publishing activities.63 These 11,439 jobs could be added to the sector’s total as shown in Table 18. However, it also should be kept in mind that workers in small firms in other industries also are omitted from the total private sector figure shown in Table 18. Reliable data on employment in small firms in all other industries are not available, but it is likely that the proportion is not significantly different from the estimated 4.9 percent for media and communications.64 Therefore, the previous statement that this sector represents over 8 percent of all employment in the City remains a reasonable estimate even after small firms are taken into account.

Second, the figures in Table 18 for the "other media" industries should not be equated to or compared with data reported elsewhere for the "new media." The 2nd New York New Media Industry Survey found that "new media" employment totaled nearly 56,000 with more than half the jobs created within the last 18 months.65 Of these jobs, 32,013 were full-time, 11,280 part-time, and 12,680 freelance. Average wages for full-time employees were estimated at $37,212 in 1996, just over half the "other media" average shown in Table 18.

The Survey’s definition of new media employment differs both conceptually and technically from the categories and numbers used in the tables in this report. The study defines a new media job as one requiring skills associated with programming for digital media. Persons with such skills are employed in a variety of settings spanning numerous industrial categories. In contrast, the "other media" jobs in Table 18 are jobs at an establishment whose principal activity is the indicated category. That is, all 18,487 jobs designated as "other media" in Table 18 are at firms with the indicated functions as their primary business; in contrast, the study found that over half (52 percent) of the "new media" establishments it identified were actually business units whose corporate parents’ main business was outside the "other media" industry categories. Examples of such "new media" jobs include software programmers working for book publishers or web page designers working for advertising agencies. While counted as "new media" employment in the Survey, these jobs are counted as book publishing or advertising agency employment in this report’s tables. In addition, the Survey counted jobs related to electronic commerce outside the media and communications sectors, such as new media workers at banks, but such positions are not included in this study. Technical differences include the Survey’s counting of freelance positions and jobs at very small (four or fewer employees) firms, neither of which are included in this report’s tables.

Perhaps the most significant point emerging from the different approaches that can be taken to gauge "new media" employment is that much of the "new media" work is taking place at firms historically part of the "old media" like print publishing and advertising.66 This suggests some of the growth in "new media" is actually the incorporation of these skills within "old media" industries; it may be a substitution of one type of worker for another rather than absolute growth in the economy. This highlights the importance of looking at the sector as a whole and viewing its growth prospects in an integrated way, as well as focusing exclusively on the rapidly growing and important new media jobs.

A final summary point about the media and communications sector in New York City is that its composition differs markedly from that of the sector nationwide. (See Figure 1.) Nationally, the telephone industry is the largest segment accounting for 23 percent of the jobs; in New York City, telephone communications is only the fourth largest segment accounting for 14 percent of jobs. The print media and advertising and related services are the two largest segments in New York City, representing nearly one-quarter of the total each; in contrast, these industries’ national shares are 20 and 15 percent, respectively. New York’s "other media" segment is proportionally much less significant than it is nationally¾ 8 percent versus 18 percent.

The different composition of the sector nationally and locally suggests that New York City has a distinctive role in different segments of the media and communications field. New York’s distinctive role can be understood best by dividing the specific industries into three groups: (1) industries in which New York specializes and is the dominant national center; (2) industries in which New York specializes, but is a secondary national center; and (3) industries which are predominantly local and for which there is no prominent national center.

Table 19 reformats the employment and payroll data from Table 18 into these groups. The nine specific industries in which New York specializes and is dominant represent 116,143 jobs or about half of the sector’s total; the industries in which New York specializes but is secondary represent 54,587 jobs or 23 percent; the local industries comprise 62,714 jobs or 27 percent.

Fields of National Dominance

The dominant position of New York in selected areas is illustrated in Table 20. It compares New York City employment in each industry to such employment in the nation’s second largest concentration. In each case New York’s closest rival is either Chicago or Los Angeles. But for seven of the nine industries, the contest is not even close.

For the largest industry, advertising, employment in New York is more than double the figure for second-place Chicago. Moreover, as was shown in Table 12, among the nation’s 25 largest advertising agencies, 18 are headquartered in New York; this group includes the two largest and nine of the top ten. Chicago houses the headquarters of only two, although one is the third largest.

Public relations is similar to advertising. New York’s leading competitor is Chicago, but it has less than half the employment of New York. Among the 25 largest public relations firms, New York has the headquarters of 11, including five of the top ten. Chicago is the headquarters of only three of the 25 largest. (See Table 13.)

For the two print media industries in which New York is dominant, Chicago is also the rival. However, employment in New York’s magazine industry is more than three times greater than in Chicago, and its book publishing industry is more than twice as large. As shown earlier in Table 4, nine of the nation’s ten largest magazine publishers are headquartered in New York; Chicago has none, although it is well-known for housing Playboy Enterprises, publisher of Playboy magazine. Among the 20 largest U.S. book publishers, nine are headquartered in New York, including six of the ten largest. In contrast, Chicago is home to just one of the top 20, seventeenth place Encyclopedia Britannica. (See Table 5.)

In the network television industry, New York has almost twice as many workers as its rival Los Angeles. The three historically dominant networks¾ NBC, CBS Inc. and ABC¾ are each headquartered in New York. The newer Fox network is headquartered in Los Angeles, but has a major news division in New York. However, the employment associated with network activity is relatively small; most of the employment in the broadcast television category is related to operating local broadcast stations, and this activity is spread throughout the nation. As shown earlier in Table 10, large station owners are found in a variety of places including Florida, Virginia and Texas. Moreover, as is discussed below, much of the production work for television programs is concentrated in Los Angeles and is reflected in the employment figures for motion picture and video production.

In another entertainment industry, recorded music, New York also dominates Los Angeles with nearly twice as many employees. However, this is a relatively small field; New York’s employment is 5,778 and Los Angeles’ is 3,170. Interestingly, other cities associated with the music industry have even smaller employment totals: Nashville is less than 700 and Detroit is less than 100.67

News syndicates and services are highly concentrated in New York. The city’s 3,650 workers far outnumber second place Chicago with 730. The Associated Press and Reuters America are headquartered in New York City. The UPI has offices in New York, but is headquartered in Washington, DC.

For the two remaining industries, commercial photography and commercial art and design, New York’s dominance is less firmly established. Employment in New York exceeds that of its second place rival by only a relatively small amount. The large advertising and publishing industries in Chicago appear to be accompanied by a substantial commercial photography presence, and Los Angeles is home to a large commercial art and design industry.

Another type of indicator, known as a location quotient, also helps reveal New York’s major specializations. The location quotient is the ratio of a city’s share of national employment in an industry to the city’s share of total national employment. Location quotients above 1.0 indicate some specialization; the higher the ratio the greater the degree of specialization. The location quotients displayed in Table 20 reflect extraordinary degrees of specialization in New York, ranging from 2.9 for commercial art and design to 10.7 for news syndicates.

The figures presented so far document New York’s specialization and dominance in these nine industries, but they do not explain it. Why is New York the prime national center for these activities? Four related factors can be identified¾ history, agglomeration benefits, cultural attractions, and the large talent pool.

History

New York’s dominance in network television is rooted in the industry’s history. The firms in radio broadcasting became the first television broadcasters, and radio started in New York. As noted earlier, much of the technological progress necessary for radio broadcasting was made in New York, and from an economic vantage it was the largest market. In 1930, when radio was king, New York was clearly the country’s largest city with 6.9 million people, compared to Chicago’s 3.4 million. In 1950, when the television industry was emerging, New York still was much larger than Chicago (7.9 million versus 3.6 million), and Los Angeles was still in its infancy (under 2.0 million).

The three original television networks remain based in New York largely because of their earlier investment in facilities, but they rely on Los Angeles for production of many shows. "Live" talk shows and news programs primarily broadcast from New York. The new Fox network is based in Los Angeles in large part because it relies on the parent company’s Twentieth Century Fox movie studios for program production, but also has a large news division in New York. If networks were able to start from scratch, however, New York would probably not be the primary choice because of the high cost of studio space. To keep network operations in the city, the municipal government granted them significant financial assistance.68 Between fiscal years 1991 and 1997, ABC received $5.0 million in tax breaks and seven subsidized loans totaling $37 million; between fiscal years 1993 and 1997, CBS Inc. received $24.4 million in tax breaks and two subsidized loans totaling $100 million. From fiscal years 1990 through 1997, NBC received $9.4 million in tax breaks and four subsidized loans totaling $160 million; in fiscal year 1997 News America (News Corporation’s U.S. operating subsidiary) began receiving incentives in part to keep its Fox news operations headquartered in New York, including a subsidized loan of $198 million and $234,000 in tax breaks.69

For advertising agencies the prime factor in location historically has been proximity to the client, with a secondary concern for proximity to the media outlets which carry the advertising. New York became the unchallenged capital of advertising as radio and television advertising exploded because New York was the home to the headquarters of many of the largest firms producing consumer products. In 1960 New York was home to 39 of the Fortune 100 largest manufacturing corporations, compared to 20 in 1997. Not surprisingly, New York has declined in terms of the concentration of advertising, with its share of the national total at just 14 percent in 1996. But it still remains the dominant center because many large clients are still based in New York and others use the New York office of worldwide advertising agencies to do some of their internationally focused campaigns. In addition, the pool of creative talent attracted to New York City helps to keep firms there.

Book and magazine publishing also have historic roots in New York City. In their early stages these publishing activities were closely tied by technology to the printing industry. Editors had to be close to the typesetters and other skilled workers who operated printing presses, and New York was initially the nation’s leading printer. In 1950 New York had nearly 120,000 workers in its printing industry, far more than any other city. But technological change permitted publishing and printing to separate locationally, and much printing moved to other parts of the country both to escape the high-wage unionized labor in New York and to make the new capital investments in modern equipment in locations where space costs were lower. In 1996 New York City remained the largest concentration of book and magazine publishing, but this dominance is increasingly threatened, especially as publishing is taken over by large international corporations that focus on profitability. New York’s remaining advantage for book publishing is in its local pool of writers and literary agents, but this is critical only in the segment of book publishing regarded as "serious" fiction and nonfiction. In magazine publishing the proximity to advertising agencies, which are a major revenue source, is an important attraction.

Agglomeration benefits

Urban economists have long recognized the benefits that accrue to a firm when related activities are located in the same place. These benefits are apparent in media industries concentrated in New York. The presence of both media and advertising firms in one place makes it easier for magazines and networks to sell ads, and for ad agencies to purchase space or time in publications and television broadcasts. The large advertising firms can draw on rich pools of commercial photography and commercial art talent because there is such a significant market for their services in the city.

Activities outside the media sector also provide advantages to a New York location. New York City has a major "live" entertainment industry including Broadway and modern and classical music. Talent from these areas, as well as writers promoting books, appear on television shows from New York; and the large tourist industry in New York helps provide television studio audiences. Also important, if not essential, for a New York location is the proximity to the financial community concentrated in the city. As media industries increasingly become dominated by large multinational conglomerates, the accessibility of financial expertise to help arrange acquisitions and other transactions becomes an important attraction.

Cultural attractions

For many senior executives in the media field, the attraction of New York extends beyond pure economic benefits. These individuals often have intellectual and related social lives that are centered in New York. They serve on the boards of cultural and philanthropic institutions, and they host dinners for colleagues and clients in the city’s world-class restaurants. This kind of personal commitment serves to further anchor these industries in New York. It is hard to determine the boundaries between business, cultural and social situations, but the interrelationships almost certainly lie behind the often expressed view of the executives that they like the New York life style. This commitment is more than just a personal preference; in the face of the high cost of doing business in New York, these difficult-to-quantify factors also have some economic value.

The talent pool

It is hard to separate cause from effect, but the large concentration of media activities in New York is accompanied by a broad pool of relevant talent seeking to work in the city. Literary talent is drawn to the well-established intellectual community and the life style of the city as well as to its large publishers; advertising professionals welcome the chance to work at¾ and move between¾ the many New York agencies.

New York’s ability to attract a highly talented labor force is reflected in the high wages that characterize its labor market. While high local living costs can drive up wages, in the long run an area’s firms can afford to pay higher wages only if the workers yield higher productivity. In this light, the data on wages in New York City point to a highly productive work force. Among the nine specific industries in which New York City is dominant, the average wage ranges from 14 percent above the national average (news syndicates) to more than double or 118 percent above (recorded music). Among the largest employment industries, the average wage is more than 50 percent above the national average for book and magazine publishing, 55 percent higher in advertising, and 69 percent higher in network television.70 In most areas these differentials cannot be attributed solely to local living costs; New York firms also are paying for a higher quality labor force.

New York as a Secondary Center

New Yorkers are accustomed to thinking of their city and themselves as national leaders; New York is the "Big Apple," and "if you can make it there, you can make it anywhere." Yet for several of the media and communications industries this is simply not the case. New York is, in some media activities, the nation’s "second city" or in the even less noble position of third or fourth place.

One of the largest segments in which New York is not dominant is motion picture production and distribution. Los Angeles is by far the nation’s capital, although New York is an important secondary center. Motion picture production and distribution together employ 131,740 people in Los Angeles, about five times the New York total of 27,209. While well behind Los