Committee Of Correspondence

Are Media Conglomerates Bad for Us?

Walter Isaacson
7:56 a.m.  Monday  10/21/96 

       I’d like to begin by challenging a widespread but shallow notion that media conglomeration inevitably leads to compromises in editorial integrity. Quite the contrary. Those of us who work for publications that are owned by big parent companies–SLATE and Time magazine, for example–can sometimes be cozily insulated from editorial meddling (and even financial fluctuations) either because the companies have a heritage of valuing creativity or because they have a pragmatic realization that screwing around with what we write is likely to backfire noisily and be more hassle than it’s worth.
       Ask my friend Kurt Andersen, who seems to be part of this panel, whether Henry Kravis or the corporate folks at Time Warner seemed more menacing and meddlesome during his tenures at New York magazine (owned by Kravis’s K-III firm) and Time magazine. Ask Mike Kinsley: Is Bill Gates or The New Republic owner Marty Peretz more likely to push an editorial line?
       This last week, one of our business writers at Time covered the merger of Time Warner and Turner, and he breezily called TW stock “among the biggest dogs in media since Lassie” (which is true) and noted that Ted Turner “has a tendency to employ his mouth and brain sequentially” (also true). Let us hypothesize that, perchance, the first statement might also apply to K-III stock and the latter to Peretz’s mouth and mind. Would they likely have found their way into New York and The New Republic? Perhaps.
       But the fact that Time and SLATE are owned by conglomerates does not necessarily make it harder for those of us who work at such places to write honestly. Christopher Byron
9:09 a.m.  Monday  10/21/96 

       There can be no doubt that the trend of the last ten years involving concentration in the media is an unhealthy and unwelcome development. It is suffocating free expression, distorting the marketplace for new products and ideas, and grossly misallocating America’s capital resources. All of this is self-evident and obvious from even a quick and casual look at the current media scene in America.
       In just the last 10 years, three companies–Time Warner, Inc., Viacom, and News Corp.–have raised and invested an absolutely unheard-of $40 billion to finance the conglomeratization of their respective businesses. There is nothing to show for this investment beyond the fact that these companies are now vastly larger than they were a decade ago. Their ability to generate profits has been destroyed, thousands of workers have lost their jobs, their stock prices have been devastated, and not one of these companies has produced a single new product or service other than through the independent activities of one or another of the businesses it acquired.
       The business-school rationale for the conglomeratization of the media has been “synergy.” But synergy has proved to be an illusion, and its single most stalwart champion–Gerald Levin of Time Warner–has now publicly disavowed the notion and divorced himself from it.
       This has now left the media with no rationale whatsoever to justify the strategy of conglomerate growth. As a result, we confront the unique situation of America’s most important business–the business of collecting and distributing information–pursuing a course that boils down to getting ever bigger for the sake of getting ever bigger.
       The cost to the American people is climbing higher by the day. With just three companies in the Hollywood “dream industry”–Walt Disney/Cap Cities, Viacom, and Time Warner, Inc.–now controlling large segments of the publishing, cable television, and broadcast network television industries, the media now routinely turns its own publicity into ersatz “news.”
       By contrast, real news goes underreported or ignored altogether. The broadcast networks have increasingly abandoned hard news for soft, socially oriented fluff-stories that don’t cost a lot to develop, and can be produced in advance, and banked for future use later on. Many TV stations (some of them owned and operated by the networks) now routinely pick up free-of-charge taped satellite feeds from public relations firms that are cleverly scripted to look like actual news footage. Time magazine now routinely hoaxes its readers each week with a masthead that pretends to have major functioning bureaus around the world when in fact many of them have been reduced to one-man-band type operations involving stringers. This is news gathering on the ultra cheap.
       News about the media industry itself often does not get reported at all. You can search the national media in vain for any in-depth account of the implications of a class-action suit that is now underway in Hollywood to break apart the price-fixing monopoly of the studios involving “net profit contracts” for their employees. There are many other examples along this line.
       By contrast, when one or the other of these conglomerates seeks a business advantage over a rival, they show no compunction whatsoever in trying to leverage their information distribution system in the fight. In recent days, I personally was approached with an offer to write a book critical of Gerald Levin of Time Warner, to be published by HarperCollins, a subsidiary of Rupert Murdoch’s News Corp. News Corp. and Time Warner are now involved in a fight over cable access in the New York media market, and the purpose of the book was nothing other than to embarrass Mr. Levin, distract him, and make it more difficult for him to fight against Murdoch.
       Meanwhile, genuinely worthwhile ideas are strangled in their cradle. The American pop-music scene today is full of derivative garbage, just as is broadcast television’s prime-time programming, and the annual output of the Hollywood film studios. Contrast that to 40 years ago, when all of these businesses were separately owned and controlled. In that earlier era, there were literally hundreds of independent record labels, and they spawned an unprecedented explosion in popular music. The same was true in Hollywood, where independent directors, like Elia Kazan, flourished. Ditto for network television.
       The homogenization of the ideas and products in these industries can all be directly traced to the stifling conglomeratization of the entire media mega-business. When was the last time Hollywood made a movie like Wuthering Heights, or A Streetcar Named Desire, or On the Waterfront? Instead, the movies of the last decade and more tend to begin as derivative products from either earlier hits (the Rocky series) or previous TV shows (Mission Impossible, The Flintstones, The Brady Bunch). Nor is any high-production-value movie likely to be green-lighted without an element in it that can be spun off into a theme park ride for a place like Universal Studios or Disney World.
       The grimmest news of all is that this process is now irreversible. So much money has been poured into the conglomeratization of the American media that the process now simply has to run its course, and as the great economist Schumpeter observed, the winds of creative destruction are going to have to blow apart many of these businesses for the process to begin anew. Andrew Schwartzman
9:19 a.m.  Monday  10/21/96 

       Is the Internet an antidote to the multi-media conglomerate oligopoly?
       The Internet will surely generate narrowcasts of specialized small-scale publications serving communities of interests (chess players, jazz aficionados, Yankee fans).
       But even if today’s cable/broadcast networks and mass-circulation print publications move to electronic distribution, I doubt that the Internet will significantly alter the fundamental characteristics of these mass media.
 SLATE’s Michael Kinsley says, “Microsoft is bound and determined to become a media company.” He believes that “once you establish the principle that this kind of venture can be successful, it means that others can start similar magazines.”
       While Bill Gates and I have the same right to sleep under cyberbridges, the economics of achieving wide circulation on the Internet may not be much different than other media. Yes, the Internet’s start-up costs are dramatically reduced, and it shifts most distribution costs to the reader. But the problem of promotion is greater. How can “readers” select you from among hundreds of competitors? Financial and corporate clout will still prevail:

  • If advertising for “readers” succeeds on the Internet, it will be expensive. (So far, it doesn’t work, and it’s already expensive.)
  • Instead of muscling distributors to put your magazine on newsstands, you will depend on “readers” to find you via search engines and on on-line service menus. But even now, you have to purchase that placement.
  • The Internet is no more or less democratic than other media. Just this week, Yahoo refused to accept ads supporting a ballot measure which arouses Silicon Valley’s most paranoid fantasies about trial lawyers.
       Another theme I hope to address later is the inadequacy of traditional economic analysis of media power. It overlooks social value (e.g., having a well-informed and literate electorate). It also ignores political influence unique to the product; Malone, Murdoch, and Levin would be powerful even if their companies were less profitable, and made fewer political contributions.
       Finally, I hope our discussion moves out of the New York/Washington/Los Angeles/Redmond axis. The impact of media concentration is far worse in small communities where a few dominant newspapers and broadcasters have a stranglehold on local politics. And it is increasingly an international issue, as when Rupert Murdoch’s STAR-TV axed the BBC in Asia to please the Chinese government. W. Russell Neuman
9:25 a.m.  Monday  10/21/96 

       Tired of OJ? Not convinced that Job One at the CIA is importing cocaine to South Central Los Angeles? OK. Now you can be the first on your block to worry about Mega-Media. It is the latest insidious plot of the large corporations. This time they plan to buy up every production house and media outlet in order to control large chunks of the information/entertainment landscape.
       Why? Good question. The media moguls are not as articulate as you’d expect in explaining all this hoopla over building the bigger and better multinational conglomerate. They assert that it is all a result of simple economic incentives–things like economies of scale and scope. You see, if Time Warner can combine its newsgathering talent pool from some of their publishing and video units and then plug them into the CNN news flow it’s a better product, produced more efficiently, thus higher profits. Same with the integration of Turner’s Hanna Barbera cartoon library and the Warner Brothers’ Looney Tunes archive. They make a more powerful unit combined. That’s called clout in the entertainment business, very important to successful negotiations.
       Bad timing? Good point. Yes, the frenzy has pushed up the prices of even such mundane media outlets as AM radio stations to record levels. So these conglomerates end up paying top dollar to satisfy their cravings for clout and strategic advantage.
       Bad public policy? Should we call in the feds? The concern about the concentration of media power in too few hands is a legitimate one. But if there were a call for special corrective legislation of some sort, I expect the cure would be much worse than the disease. The legislative process would no doubt be taken over by competing lobbyists trying to tilt the regulations to advantage their client group, much like the 150-page Telecommunications Act of 1996, which tilts in a different direction on each page. The 1996 Act is a most curious piece of legislation. It describes itself as a major step toward deregulation yet sets up over 80 new regulatory activities for the FCC, an awkward mix of a slow-moving bureaucracy and a fast-moving marketplace.
       The notion of one or two Mega-Media Conglomerates owning everything is a very scary thought. But it is not going to happen. Wall Street is paying close attention. The capacity of the conglomerates to outbid everybody else in an open marketplace for media properties is limited, as it should be. The Street waits for convincing evidence of the long-promised synergies and economies of scale and scope. The media marketplace is too vibrant and fast-moving for an oligopoly to succeed. And we have the traditional tools of antitrust. No need for special legislation in the media marketplace.
       At the beginning of this century, as the gigantic and dominating railroad corporations started to sense that the technologies of transportation and the transportation marketplace were moving beyond them, they got nervous. They started to buy each other up in a frenzied attempt at self-defense–bigger must be more secure, right?
       We’ll see. Herb Stein
1:59 p.m.  Monday  10/21/96 

       What strikes me is that we have two questions going. One is whether the media are independent of the corporations that own them. Isaacson says that contrary to the usual expectation–as applied, for example, to politicians getting campaign contributions–they are independent, and Byron says they are not. I suppose we will have more argument and evidence about that. At the same time there is a question of whether the conglomerates are financially successful, which would be some sign of their ability to generate efficiencies. On this question there does not seem to be disagreement. They are not, or have not yet been, sources of efficiency. So one might ask whether, if they are not sources of efficiency, there is the need to accept the risk of loss of integrity and independence that is involved in the conglomeration. Is that a sensible question?
       Then there is the question of what should be done if the present situation is worrisome. There is a natural aversion to more government regulation. But some of the “problem,” if there is one, is itself due to government action. For example, local cable franchises are given by local governments, which do not have to award them–or renew them–to media conglomerates. Jack Shafer
2:43 p.m.  Monday  10/21/96 

       Before we entertain the question of how to encourage more competition in the media, let’s reconsider the half century of knuckleheaded telecommunications policy that distributed everything from Baltic Avenue to Boardwalk to the government’s favorite broadcast capitalists. After this little history lesson, let’s ask ourselves why the broadcasters act like monopolists.
       In the late ‘40s, when the federal government allocated the television spectrum, it could have offered 82 VHF and UHF channels to broadcasters. Instead, it dispensed just 12 channels of VHF to broadcasters, a measly allocation that limited the number of viable stations in major metro markets to five–sometimes six. (Radio interference prevents adjoining channels–say Channels 8 and 9–from being broadcast in the same area..)
       By releasing so few TV frequencies, the feds not only deterred local TV competition but prevented the establishment of more than three or four nationwide networks. The more plentiful UHF bandwidth was freed up in the late ‘60s and early ‘70s, but it took nearly two decades for these stations to mature to the point that new networks (Fox, UPN, and WB) could be created from them to challenge the entrenched networks. Likewise, the government’s decision to hoard FM frequencies until the ‘60s limited the number of broadcast voices, much to the delight of AM-station owners, who didn’t want to compete for listeners or advertisers.
       Nowhere has the government’s telecommunications policy been more anti-competitive than in cable television. In all but a few communities, local jurisdictions grant exclusive franchise rights–hell, call them monopoly rights–to cable operators. (The local jurisdictions share in the monopolistic plunder in the form of “franchise fees,” i.e., special taxes.) By conglomerating enough of these government-created monopolies, telecommunications titans like TCI and Time Warner have gained a fist-tight grip of cable content. It’s almost impossible to start a new cable channel without securing TCI or Time Warner’s thumbs up–just ask Rupert Murdoch. When his fledgling Fox News Channel asked for a spot on the dial in Manhattan, where Time Warner enjoys the local, government-sanctioned cable monopoly, they turned him down. Why? Because Time Warner wants to shield its own 24-hour news channel, CNN, from competition.
       This little history lesson suggests that less government oversight and control is preferable to more, a lesson that we should heed as the Internet and other new media come online.