Behind The Mergers
May 23, 2002Media
Editor's Note: CJR Editor Neil Hickey interviews himself on the dangerous effects of media consolidation.
HICKEY: Is this court ruling as important as people say? Media consolidation has been going on for decades.
Yes, because, among other things, it's one more clear signal that many judges, regulators, and politicians want to roll back most of the remaining rules that traditionally have assured us a robust marketplace of ideas. Too few companies controlling the flow of news, information, and even entertainment is unhealthy. Big isn't necessarily bad, but big contains the seeds of mischief that can hurt a republic like ours. Back in 1945, the Supreme Court, in a case called Associated Press v. U.S., wrote that "the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public." That's still the guiding principle underlying this whole discussion.
HICKEY: Specifically, what's wrong with a company - any of the major broadcast networks, for example - owning a TV station and a cable system in the same market?
From their point of view, everything is right with it. They could create all-news local cable channels and then combine those newsrooms with the ones in the TV stations, increase revenue by selling commercials on both channels, reduce the news staff, maybe eventually shift the whole news operation to cable and use that valuable local airtime for shows like Wheel of Fortune, Entertainment Tonight, and Jeopardy. On a more cosmic level: AOL Time Warner, the world's biggest media company - which up until now has been prevented from owning TV stations in cities where it also owns cable systems - could go out and buy NBC, which owns a string of TV stations in major cities. In the deal, it would also pick up MSNBC and CNBC. That would make AOL Time Warner - already the world's largest media company - more gargantuan than it already is, even though its stock market value has plunged.
HICKEY: Why NBC?
Because NBC is the only network that's not already owned by a big media conglomerate. Viacom owns CBS, and Disney owns ABC. But GE, which owns NBC, is an industrial company, and there have been hints for years that it would unload NBC if the time and the price were right.
HICKEY: What about the other court ruling - the one that sends the FCC back to the drawing board to justify its 35 percent limit on the number of households any network or station group can reach?
That's big stuff. For one thing, it means that ABC, CBS, NBC, and Fox will have a whole new lease on life. They could go on shopping sprees, buying up many of the independently owned stations that are now their affiliates, thus increasing profitability and negotiating power with program suppliers. Don't forget, the broadcast networks used to control 95 percent of the TV audience, and it's now less than 50 percent because so many viewers have drifted away to cable and the Internet. So those networks want to find new revenue sources, and a potentially big one is owning a lot of television stations - particularly now that all TV stations are going digital and will be able to broadcast on several channels simultaneously.
HICKEY: But suppose the FCC goes back to the drawing board and decides that the best and fairest policy is to keep the 35 percent cap?
Forget it. Michael Powell, the Republican FCC chairman, is allergic to regulations. His stated mantra is "validate or eliminate," by which he means: get rid of rules that block media companies from achieving their full growth potential. [See cjr, July/August 2001] Even before he became chairman, he blistered his fellow commissioners for their "stubborn refusal to fully consider the competitive landscape" when they voted to retain the rule a few years ago. Another time, he said that limits on ownership of media properties are as outdated as the 1950s TV series The Lone Ranger. He aims to reduce media regulations to the bare minimum. The only question is, Will he favor raising that 35 percent figure significantly or junking limits altogether?
HICKEY: Either way, the networks win big?
The more stations a network owns, the bigger its profits. Many stations have profit margins over 50 percent. At Rupert Murdoch's News Corporation, for example, his thirty-three television stations produce more cash flow than any of his other divisions, including Fox News Channel and the Fox TV network. The top ten companies that own stations increased their share of the industry's $20 billion annual revenues from 41 percent in 1995 to 54 percent today. But besides that, networks want more stations so they can reach more viewers with promotional announcements for their evening newscasts, their newsmagazines, their morning shows, and their entertainment schedule. That builds audiences, which translates into higher ad rates. So you see the synergy. Some station owners are eager to sell out to the networks and grab those high sale prices. Others will be fighting to retain their independence.
HICKEY: If a network actually owns a station - instead of just having it as an affiliate - it completely controls what that station puts on the air?
Right. An affiliate, on the other hand, is free to perform public service, if it wants to, by preempting the network's prime-time schedule of sitcoms and cop shows for news and documentaries on matters of importance to the community. But don't hold your breath. TV stations have a vested, selfish interest in carrying their networks' regular schedule, no matter how banal the programs are, because that's what most people want to watch. The number of hours of network preemption for coverage of local issues could fit in the navel of a gnat.
HICKEY: What about ownership of a newspaper and TV station in the same market? Where does that stand?
The FCC is still mulling it over. But the handwriting is on the wall. That ban appears doomed. Newspaper owners and broadcasters both are against it, and they wield a lot of influence. The Newspaper Association of America, for example, says that forbidding such cross-ownership is "outdated and unnecessary in today's diverse mass media marketplace." A major coalition of consumer advocates, however, claims that lifting the ban would trigger an avalanche of mergers that would hurt journalism. "Hundreds of newspapers would quickly merge with TV stations," says their filing to the FCC, "and by the time the dust settled, the number of independent owners of major local news media would be slashed by almost one-half." And besides that, the activists say, newspapers would become lapdogs instead of watchdogs because they'd self-censor themselves to protect their bosses' interests.
HICKEY: Whatever happened to that rule preventing one company from owning two TV stations in the same city?
That so-called "duopoly" rule got shot down in 1999. It's now okay to own two stations as long as the market still has a reasonable number of competing voices. One month after the FCC changed the rule, Viacom bought CBS in a major media merger. Their overlapping ownership of stations no longer prevented the deal. On April 2, that "competing voices" restriction was declared "arbitrary and capricious" by the same federal court that overturned the 35 percent cap, and the judges ordered the FCC to either justify the rule or abolish it.
HICKEY: Any other deregulatory actions we should know about?
A year ago, the court abolished a 30 percent cap on the number of U.S. households a cable company could reach. That was big. And watch for this one: it may yet be possible for a major broadcast network to buy one of the other major networks. ABC buys CBS, for example, or NBC buys ABC.
HICKEY: Are there any strong voices out there fighting this deregulatory trend?
Yes, and ironically they cross party lines. Democrats usually favor retaining regulations and Republicans don't. But Senator Trent Lott, the Republican Senate minority leader, agrees with Senator Ernest F. Hollings, Democratic chairman of the Senate Commerce Committee, that the 35 percent cap should remain. So does William Safire, the conservative columnist on The New York Times, who calls Michael Powell a "roundheeled" pushover for the big media companies, and claims the chairman is steering the FCC toward "terminal fecklessness." The National Association of Broadcasters - not known for liberal policies - also is campaigning to retain the cap, and has expressed disappointment that the cable/broadcast cross-ownership rule was vacated. Three networks - CBS, NBC, and Fox - have quit the NAB in protest over the association's support of the 35 percent cap.
HICKEY: Isn't there any upside to abolishing a lot of old regulations?
Sure, there can be. A newspaper buying a TV station, for example, might impose more rigorous, higher journalistic standards on the TV newsroom and help create better newscasts. A rich media company buying up small stations in the boondocks might easily invest a lot of money in those stations to improve their news programs. Also, major media companies are better able to fight nuisance lawsuits against their properties, where local independents might just fold and settle to save legal fees. "You can't be journalistically vigorous if you aren't economically strong," Michael Gartner, a former president of NBC News, wrote recently in USA Today. That sometimes means accepting the embrace of a distant media giant.
HICKEY: If this subject is so important, how come the general public knows so little about it?
Because broadcast and cable news people practically never cover it. Many of them say it's too complicated, too boring, too hard a story to tell in TV terms. A skeptic might say they lay off it because TV news organizations are owned by the very companies that stand to reap the rewards of deregulation if nobody wakes citizens up to the realization that these issues affect them personally in important ways.
HICKEY: How do newspapers handle the story?
The great majority bury it in the business pages, if they treat it at all. Don't forget, many big newspaper companies own television stations and stand to benefit from deregulation. News Corporation owns thirty-three stations, for example; Tribune Company has twenty-three; Gannett owns twenty-two; The New York Times Company, eight; Post-Newsweek, six. Some newspaper companies may decide to buy up many more television stations. Or they might be seen as attractive takeover targets themselves by AOL Time Warner, GE, Disney, whomever.
HICKEY: Is the correct position in all this that, ideally, we should try to restore all the rules that the courts and the FCC have struck down?
No, because that's not realistic. The deregulatory trend has proceeded so far in the last half-dozen years - since passage of the 1996 Telecommunications Act - that it's irreversible. The goal, however, is: don't throw out the baby with the bathwater. Reasonable people on both sides can agree on minimum, necessary rules to preserve a diversity of news and opinion. Many ownership regulations are decades old, when sources of news were a lot scarcer. Now, there's a superfluity of news outlets rather than a scarcity, but they are owned by fewer and fewer companies.
HICKEY: What should we think of Chairman Powell?
He's very intelligent, very quick, like his father, the secretary of state, and an eloquent spokesman for deregulation. In March, on CNBC's Capital Report, he put it succinctly: "My concern has been, rather than slavishly defending the rules because they're associated with worthy goals, that someone has got to be courageous enough to [find] a more reasonable way to regulate in the context of the modern media marketplace." He wants to "recalibrate" media rules, he says, in light of the "extraordinary changes" in the media landscape. On other occasions, he has said we don't need a lot of regulations because antitrust laws are sufficient to prevent dangerous media monopolies.
HICKEY: But hasn't the Bush administration reorganized antitrust procedures to give the Justice Department sole oversight of mass-media mergers, ending the system whereby the Federal Trade Commission also has jurisdiction in these deals?
Yes, and some insiders see that change as a subtle tactic to expedite mergers. The FTC is an independent, bipartisan agency, but the Justice Department is part of the executive branch and run by presidential appointees who obviously get their marching orders from the White House. Senator Hollings was very unhappy with the new arrangement, saying it raises conflict-of-interest issues, and he demanded to know which outside consultants and lobbyists were in on the decision.
HICKEY: What's the worst-case scenario in all this?
That some transnational company that knows little and cares less about your community, and whose main allegiance is to its stockholders and advertisers, will own your local daily and weekly newspapers, all your television and radio stations, the cable system, the Internet service provider, several of the national networks that serve you, your local video stores and movie houses, many of the magazines and books you read, and all of the sports teams in your area. That would allow endless cross-promotions of the owner's interests, and probably very little hard news about anything having negative impact on advertisers or on the company itself. Everything you read or see, every opinion, every image, and every jot of information would arrive through one corporate filter.
HICKEY: Is this court ruling as important as people say? Media consolidation has been going on for decades.
Yes, because, among other things, it's one more clear signal that many judges, regulators, and politicians want to roll back most of the remaining rules that traditionally have assured us a robust marketplace of ideas. Too few companies controlling the flow of news, information, and even entertainment is unhealthy. Big isn't necessarily bad, but big contains the seeds of mischief that can hurt a republic like ours. Back in 1945, the Supreme Court, in a case called Associated Press v. U.S., wrote that "the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public." That's still the guiding principle underlying this whole discussion.
HICKEY: Specifically, what's wrong with a company - any of the major broadcast networks, for example - owning a TV station and a cable system in the same market?
From their point of view, everything is right with it. They could create all-news local cable channels and then combine those newsrooms with the ones in the TV stations, increase revenue by selling commercials on both channels, reduce the news staff, maybe eventually shift the whole news operation to cable and use that valuable local airtime for shows like Wheel of Fortune, Entertainment Tonight, and Jeopardy. On a more cosmic level: AOL Time Warner, the world's biggest media company - which up until now has been prevented from owning TV stations in cities where it also owns cable systems - could go out and buy NBC, which owns a string of TV stations in major cities. In the deal, it would also pick up MSNBC and CNBC. That would make AOL Time Warner - already the world's largest media company - more gargantuan than it already is, even though its stock market value has plunged.
HICKEY: Why NBC?
Because NBC is the only network that's not already owned by a big media conglomerate. Viacom owns CBS, and Disney owns ABC. But GE, which owns NBC, is an industrial company, and there have been hints for years that it would unload NBC if the time and the price were right.
HICKEY: What about the other court ruling - the one that sends the FCC back to the drawing board to justify its 35 percent limit on the number of households any network or station group can reach?
That's big stuff. For one thing, it means that ABC, CBS, NBC, and Fox will have a whole new lease on life. They could go on shopping sprees, buying up many of the independently owned stations that are now their affiliates, thus increasing profitability and negotiating power with program suppliers. Don't forget, the broadcast networks used to control 95 percent of the TV audience, and it's now less than 50 percent because so many viewers have drifted away to cable and the Internet. So those networks want to find new revenue sources, and a potentially big one is owning a lot of television stations - particularly now that all TV stations are going digital and will be able to broadcast on several channels simultaneously.
HICKEY: But suppose the FCC goes back to the drawing board and decides that the best and fairest policy is to keep the 35 percent cap?
Forget it. Michael Powell, the Republican FCC chairman, is allergic to regulations. His stated mantra is "validate or eliminate," by which he means: get rid of rules that block media companies from achieving their full growth potential. [See cjr, July/August 2001] Even before he became chairman, he blistered his fellow commissioners for their "stubborn refusal to fully consider the competitive landscape" when they voted to retain the rule a few years ago. Another time, he said that limits on ownership of media properties are as outdated as the 1950s TV series The Lone Ranger. He aims to reduce media regulations to the bare minimum. The only question is, Will he favor raising that 35 percent figure significantly or junking limits altogether?
HICKEY: Either way, the networks win big?
The more stations a network owns, the bigger its profits. Many stations have profit margins over 50 percent. At Rupert Murdoch's News Corporation, for example, his thirty-three television stations produce more cash flow than any of his other divisions, including Fox News Channel and the Fox TV network. The top ten companies that own stations increased their share of the industry's $20 billion annual revenues from 41 percent in 1995 to 54 percent today. But besides that, networks want more stations so they can reach more viewers with promotional announcements for their evening newscasts, their newsmagazines, their morning shows, and their entertainment schedule. That builds audiences, which translates into higher ad rates. So you see the synergy. Some station owners are eager to sell out to the networks and grab those high sale prices. Others will be fighting to retain their independence.
HICKEY: If a network actually owns a station - instead of just having it as an affiliate - it completely controls what that station puts on the air?
Right. An affiliate, on the other hand, is free to perform public service, if it wants to, by preempting the network's prime-time schedule of sitcoms and cop shows for news and documentaries on matters of importance to the community. But don't hold your breath. TV stations have a vested, selfish interest in carrying their networks' regular schedule, no matter how banal the programs are, because that's what most people want to watch. The number of hours of network preemption for coverage of local issues could fit in the navel of a gnat.
HICKEY: What about ownership of a newspaper and TV station in the same market? Where does that stand?
The FCC is still mulling it over. But the handwriting is on the wall. That ban appears doomed. Newspaper owners and broadcasters both are against it, and they wield a lot of influence. The Newspaper Association of America, for example, says that forbidding such cross-ownership is "outdated and unnecessary in today's diverse mass media marketplace." A major coalition of consumer advocates, however, claims that lifting the ban would trigger an avalanche of mergers that would hurt journalism. "Hundreds of newspapers would quickly merge with TV stations," says their filing to the FCC, "and by the time the dust settled, the number of independent owners of major local news media would be slashed by almost one-half." And besides that, the activists say, newspapers would become lapdogs instead of watchdogs because they'd self-censor themselves to protect their bosses' interests.
HICKEY: Whatever happened to that rule preventing one company from owning two TV stations in the same city?
That so-called "duopoly" rule got shot down in 1999. It's now okay to own two stations as long as the market still has a reasonable number of competing voices. One month after the FCC changed the rule, Viacom bought CBS in a major media merger. Their overlapping ownership of stations no longer prevented the deal. On April 2, that "competing voices" restriction was declared "arbitrary and capricious" by the same federal court that overturned the 35 percent cap, and the judges ordered the FCC to either justify the rule or abolish it.
HICKEY: Any other deregulatory actions we should know about?
A year ago, the court abolished a 30 percent cap on the number of U.S. households a cable company could reach. That was big. And watch for this one: it may yet be possible for a major broadcast network to buy one of the other major networks. ABC buys CBS, for example, or NBC buys ABC.
HICKEY: Are there any strong voices out there fighting this deregulatory trend?
Yes, and ironically they cross party lines. Democrats usually favor retaining regulations and Republicans don't. But Senator Trent Lott, the Republican Senate minority leader, agrees with Senator Ernest F. Hollings, Democratic chairman of the Senate Commerce Committee, that the 35 percent cap should remain. So does William Safire, the conservative columnist on The New York Times, who calls Michael Powell a "roundheeled" pushover for the big media companies, and claims the chairman is steering the FCC toward "terminal fecklessness." The National Association of Broadcasters - not known for liberal policies - also is campaigning to retain the cap, and has expressed disappointment that the cable/broadcast cross-ownership rule was vacated. Three networks - CBS, NBC, and Fox - have quit the NAB in protest over the association's support of the 35 percent cap.
HICKEY: Isn't there any upside to abolishing a lot of old regulations?
Sure, there can be. A newspaper buying a TV station, for example, might impose more rigorous, higher journalistic standards on the TV newsroom and help create better newscasts. A rich media company buying up small stations in the boondocks might easily invest a lot of money in those stations to improve their news programs. Also, major media companies are better able to fight nuisance lawsuits against their properties, where local independents might just fold and settle to save legal fees. "You can't be journalistically vigorous if you aren't economically strong," Michael Gartner, a former president of NBC News, wrote recently in USA Today. That sometimes means accepting the embrace of a distant media giant.
HICKEY: If this subject is so important, how come the general public knows so little about it?
Because broadcast and cable news people practically never cover it. Many of them say it's too complicated, too boring, too hard a story to tell in TV terms. A skeptic might say they lay off it because TV news organizations are owned by the very companies that stand to reap the rewards of deregulation if nobody wakes citizens up to the realization that these issues affect them personally in important ways.
HICKEY: How do newspapers handle the story?
The great majority bury it in the business pages, if they treat it at all. Don't forget, many big newspaper companies own television stations and stand to benefit from deregulation. News Corporation owns thirty-three stations, for example; Tribune Company has twenty-three; Gannett owns twenty-two; The New York Times Company, eight; Post-Newsweek, six. Some newspaper companies may decide to buy up many more television stations. Or they might be seen as attractive takeover targets themselves by AOL Time Warner, GE, Disney, whomever.
HICKEY: Is the correct position in all this that, ideally, we should try to restore all the rules that the courts and the FCC have struck down?
No, because that's not realistic. The deregulatory trend has proceeded so far in the last half-dozen years - since passage of the 1996 Telecommunications Act - that it's irreversible. The goal, however, is: don't throw out the baby with the bathwater. Reasonable people on both sides can agree on minimum, necessary rules to preserve a diversity of news and opinion. Many ownership regulations are decades old, when sources of news were a lot scarcer. Now, there's a superfluity of news outlets rather than a scarcity, but they are owned by fewer and fewer companies.
HICKEY: What should we think of Chairman Powell?
He's very intelligent, very quick, like his father, the secretary of state, and an eloquent spokesman for deregulation. In March, on CNBC's Capital Report, he put it succinctly: "My concern has been, rather than slavishly defending the rules because they're associated with worthy goals, that someone has got to be courageous enough to [find] a more reasonable way to regulate in the context of the modern media marketplace." He wants to "recalibrate" media rules, he says, in light of the "extraordinary changes" in the media landscape. On other occasions, he has said we don't need a lot of regulations because antitrust laws are sufficient to prevent dangerous media monopolies.
HICKEY: But hasn't the Bush administration reorganized antitrust procedures to give the Justice Department sole oversight of mass-media mergers, ending the system whereby the Federal Trade Commission also has jurisdiction in these deals?
Yes, and some insiders see that change as a subtle tactic to expedite mergers. The FTC is an independent, bipartisan agency, but the Justice Department is part of the executive branch and run by presidential appointees who obviously get their marching orders from the White House. Senator Hollings was very unhappy with the new arrangement, saying it raises conflict-of-interest issues, and he demanded to know which outside consultants and lobbyists were in on the decision.
HICKEY: What's the worst-case scenario in all this?
That some transnational company that knows little and cares less about your community, and whose main allegiance is to its stockholders and advertisers, will own your local daily and weekly newspapers, all your television and radio stations, the cable system, the Internet service provider, several of the national networks that serve you, your local video stores and movie houses, many of the magazines and books you read, and all of the sports teams in your area. That would allow endless cross-promotions of the owner's interests, and probably very little hard news about anything having negative impact on advertisers or on the company itself. Everything you read or see, every opinion, every image, and every jot of information would arrive through one corporate filter.
