Conglomeration and media monopolies
Conglomeration poses a range of issues for citizens and consumers. Does the presence of prominent news outlets in multinational conglomerates infl uence the coverage of contentious social and political issues? What eff ect does industry concentration have on media content—motion pictures, television programs, music, and so on? Does the loss of diversity in ownership result in the replication of money-making formulas that promote a corporate ethos at the expense of original ideas? Overall, does consolidation make it impossible or at least improbable for independent voices and viewpoints to reach citizens and consumers? These are just a few of the questions that surround the ownership controversy.
The focal point in the battle over media conglomeration is the concentration of prominent news and entertainment firms in a handful of corporations. Free market advocates argue that centralized ownership is necessary if companies are to remain profitable. They point to the explosion in the number of programming outlets, arguing that consolidation has not restricted the variety of media content. But opponents contend that conglomeration eliminates alternative viewpoints and empowers corporate media to promote dominant ideas and frame public discussion and debate.
Conglomeration is the process through which distinct companies come under common ownership within a single corporation. There are two diff erent models of conglomeration, and prominent media firms fall within each of them. The traditional definition of conglomeration involves the grouping of wide-ranging, unrelated businesses from various industrial sectors. This model involves unrelated diversification, which is the expansion into industries that are not related to the core business of a conglomerate. The General Electric acquisition of NBC in 1986 is a classic example of this type. A second model of conglomeration builds through related diversification, which involves the acquisition of firms that are connected to the core business in critical areas. The evolution of Viacom is an example of this form. Cable television was Viacom’s core business in the 1980s, with ownership of MTV, Nickelodeon, and Showtime, before it expanded into motion pictures and broadcast television with the acquisitions of Paramount Pictures in 1994 and CBS in 2000.
Conglomeration is one factor that leads to concentration, and ultimate consolidation results in monopolies. That structure exists when there is just a single seller of a given product in a market. True monopolies have traditionally been most common in the newspaper business. Countless cities have just one daily, like Atlanta’s Journal-Constitution. More recently, cable systems operators have been subject to similar criticism. Far more common, however, are media markets that are oligopolies, which feature a few giant sellers of a product with each having a significant share of the market. In the mid- 2000s, for example, four global giants—Universal Music, Sony BMG, Warner Music, and EMI Group—accounted for over 80 percent of music sales in the United States and worldwide. Some use the phrase media monopolies to describe the small collection of corporations that are dominant in various media markets.
CONGLOMERATION AND THE LOSS OF LOCALISM
The headlines about conglomeration are often written when studios and networks combine, but less discussed is the potential impact at the local level. Local ownership of newspapers was once common, but as newspaper chains expanded, local ownership became rare and the number of cities with multiple dailies declined. The nature of local television and radio ownership also changed, as Congress and the Federal Communications Commission (FCC) relaxed one-to-a-market rules and allowed groups to reach a higher percentage of households nationwide. These changes transformed the marketplace with massive station groups and less local ownership, and more appear to be on the horizon. In 2003, the FCC voted to relax its prohibition on the cross-ownership of newspapers and television stations in the same market. The justification was the numerical increase in the number of available outlets, including the Internet. The firestorm that followed made clear that there was not universal agreement, and courts blocked their implementation, but the FCC started down a similar path in 2006. By the end of the decade, corporate control of multiple media outlets within local markets had generally increased, raising questions about information democracy. In a few cases, for example, complaints were made regarding cable companies that were allegedly blocking ads by their competitors. Such disputes (for example, between Verizon and Cablevision in 2009), usually faded after the company named in the complaint publicly denounced the practice and demonstrated access to its medium or services by competitors.
Issues of Ownership and Control
One of the battle lines in the debate over conglomeration is whether ownership and control matters. From a free market perspective, ownership of a firm is not a concern unless combinations create market structures that lead to anticompetitive conditions. The Sherman Antitrust Act was enacted in 1890 to address such behavior in the United States, and it has shaped media markets. In 1938, the federal government launched a decade-long legal battle with the Hollywood studios, accusing the majors of “combining and conspiring” to “monopolize the production, distribution and exhibition of motion pictures.” When the same corporation owns production studios as well as the theaters that show the movies it makes, the control of production, distribution, and exhibition could eff ectively close out competition. The so-called Paramount consent decrees, a series of agreements between the government and studios, prohibited anticompetitive behavior and forced the “divorcement” of production and distribution from exhibition. Free market advocates argue that this is as far as the government should delve into the marketplace.
The question is whether the nature of media products raises more significant concerns and demands additional government action. The attention to such issues has shifted over time as new ideas and ideologies come to the fore. In 1966, International Telephone and Telegraph (ITT) attempted to acquire the ABC television network, and despite claims that the network would remain independent, the Department of Justice and others questioned the impact ITT’s international operations might have on ABC News and blocked the merger. Two decades later, the regulatory climate was altogether diff erent, and there was little opposition to the combination of General Electric and NBC, although the issues were very similar. Much the same could be said of the 2007 purchase of Dow Jones, publisher of the Wall Street Journal, by News Corp., owner of the Fox Broadcasting Company. There was a vocal minority opposed to the sale, but the transaction went through unhindered.
The focus on ownership and control hinges, in part, on the potential impact of media content. Mark Fowler, chair of the Federal Communications Commission (FCC) in the 1980s, once stated that a television is nothing more than a “toaster with pictures.” This, in turn, meant that the government could treat television the same as other industries. Scholar Douglas Kellner, however, argues that television assumes a critical role in the “structuring of contemporary identity and shaping thought and behavior.” In his view, television has undertaken functions once ascribed to “myth and ritual,” including “integrating individuals into the social order, celebrating dominant values,” and “off ering models of thought, behavior, and gender for imitation.” From this perspective, media play a significant role in society and conglomeration becomes a far more serious issue.
Types of Conglomeration
There are multiple incentives for conglomeration. The expansion into diversified businesses creates opportunities for growth and allows a conglomerate to cushion the impact of downturns in core business sectors. General Electric is often cited as the model of a diversified conglomerate, and its collection of businesses makes it, among other things, a military contractor and designer of nuclear power plants. For much of its life under General Electric, NBC Universal has contributed less than 10 percent of the total revenue of the parent company. Yet, with a number of news outlets, NBC might be thought of as more important to the parent company in helping shape public debate over contentious issues, such as militarism and energy production, through NBC News, MSNBC, and CNBC. In 1987, for example, less than a year after the meltdown of the nuclear reactor in Chernobyl, NBC News aired an hour-long show titled “Nuclear Power: In France It Works.”
Even so, in a weak economy, business is business—which is perhaps why General Electric decided to sell a controlling interest (51 percent) in NBC to the Comcast cable company in 2009. The latter sale raises a host of additional questions concerning media consolidation, such as: What is the potential for loss of free network television content? What is the likelihood of price hikes for consumers of cable services? Does the sale foster or further limit media competition? And what of the matter of “information democracy”?
As the NBC sale demonstrates, the practice of related diversification is increasingly common in media industries. This practice allows a conglomerate to build upon a strong business through the diversification into areas that are close to the core. This can create synergies that enable it to increase revenues and decrease costs through the common management of multiple businesses. This is evident in the conglomeration of media assets in corporations such as the Walt Disney Company, Time Warner Inc., and News Corp. motion picture production and distribution remain important contributors to the Disney bottom line, for example, but the most successful unit in Disney is the Media Networks division, which includes both ABC and ESPN. Disney’s corporate expansion into related fields proved to be quite lucrative.
Horizontal and vertical integration are defining characteristics in media consolidation since the 1980s. With horizontal integration, firms acquire additional business units at the same level of production, distribution, or exhibition. Such consolidation enables conglomerates to extend their control and maximize economies of scale through the use of shared resources. With vertical integration, firms acquire additional business units at diff erent points in the process. This allows them to control the supply and cost of essential materials and enables them to rationalize production and increase their control over the market.
THE CONGLOMERATION OF MICKEY MOUSE
The transformation of the Walt Disney Company from a struggling studio operating in the shadow of its related theme parks into a sprawling corporation provides one of the clearest examples of conglomeration. The first step was the creation of production units to develop a diversified slate of films. In 1983, combined domestic and foreign box office receipts for its motion pictures totaled $82.5 million. A decade later, the filmed entertainment division of Disney generated $3.67 billion in revenue. The diversification into related businesses was the next and most significant step. The biggest headlines came in 1996 with the acquisition of Capital Cities/ABC Inc. This created vertical integration between ABC and the production units within Disney, links that were most evident a decade later when three shows from Touchstone Television, Lost, Desperate Housewives, and Grey’s Anatomy, fueled a resurgence of the network. That merger also included ESPN, which became the most lucrative unit in the Disney empire. In 2004, the diversified conglomerate generated over $30 billion in revenue, 20 times what it did in 1984. Two years later, it purchased Pixar Animation Studios, and in 2009 it bought Marvel enterprises, bringing the likes of Spiderman and the Fantastic Four under the Disney umbrella.
Using vertical and horizontal integration, media conglomerates gain far greater control over the marketplace, but such economic strategies limit market access for independent producers and distributors. This is most evident in the motion picture and television industries. Independent film distributors were prominent in the late 1980s, but a decade later the major conglomerates had swallowed most of these firms and large theater chains had overtaken small movie houses. By 1997, six corporations accounted for over 92 percent of box office revenue, and the blockbuster and the multiplex came to define the American moviegoing experience. The same pattern is evident with prime-time television. As networks exerted greater control over television production, fewer programs originated from outside of conglomerates focused on financial control and less-risky programs became appealing. Numerous versions of profitable formulas multiply in seemingly endless spin-off s, as the dearth of original, innovative television productions become more evident.
These practices extend to foreign markets as well, and the impact of Hollywood on indigenous production is a long-standing concern. The U.S. government promotes the export of media products across borders, and one of the justifications for the relaxation of ownership restrictions at home is the argument that the media conglomerates need to be massive to succeed overseas. This contributes to a general mindset that firms that do not grow through mergers and acquisitions will be swallowed. Ted Turner’s pursuit of both broadcast networks and motion picture studios before Turner Broadcasting became part of Time Warner in 1996 is testament to this way of thinking. Turner summarized the goal in simple terms: “The only way for media companies to survive is to own everything up and down the media chain. . . . Big media today wants to own the faucet, pipeline, water, and the reservoir. The rain clouds come next.”
Changes in the Nature of Conglomeration
The change in the corporate control of the three major broadcast networks—ABC, CBS, and NBC—illustrates how conglomeration transformed media assets since the 1980s. In 1985, two of the networks were still linked to the individuals who created them—ABC and Leonard Goldenson and CBS and William Paley—while NBC remained in the hands of the corporation that launched its radio network in the 1920s, RCA. At that time, the networks remained the core businesses of their corporate parents, and the news divisions supported the public interest mandate that came with broadcast licenses. In 2005, all three shared ownership with a major motion picture studio—ABC and Walt Disney, CBS and Paramount Pictures, and NBC and Universal Pictures—and the news divisions were important revenue centers. (CBS and Paramount later became separate.) These combinations raise various concerns, not the least of which is the coverage of the conglomerates themselves. Michael Eisner once put it in simple terms: he did not want ABC News covering developments at Disney.
Not all combinations prove to be successful, and some argue that modern conglomerates are too unwieldy to react to changes in the marketplace. The most notable failure is the merger of America Online and Time Warner in 2001. The melding of old media and new media did not reap the promised rewards, and AOL was dropped from the corporate letterhead in 2003. But it was not just the size of Time Warner that was its undoing, as pundits point to various problems. And some changes are more cosmetic. In 2006, Viacom split its assets into two corporations, Viacom Inc. and CBS Corp., but Sumner Redstone remained in control of both of them, so ownership and control did not change hands. The rationale for the split was not the size of the conglomerate but the price of Viacom stock, with Redstone and others contending that the true value of the motion picture and cable television assets would be realized after the split from the slower-growing broadcast interests.
Conglomeration: Multiplicity or Diversity
When Ben Bagdikian published the first edition of The Media Monopoly in 1983, he estimated that ownership of most of the major media was consolidated in 50 national and multinational conglomerates. When he published The New Media Monopoly two decades later, Bagdikian concluded that the number had dwindled to just five. The degree of conglomeration in media industries is evident across the board. In 1985, there were six major motion picture studios and three major broadcast television networks, and nine diff erent conglomerates controlled one of each. In 2005, the number of broadcast networks had doubled with the addition of Fox, The WB, and UPN, but the number of corporations that owned a studio or network had dwindled to just six. Those corporations— Disney, NBC Universal, News Corp., Sony, Time Warner, and Viacom—also held an ownership interest in over 75 percent of the cable and satellite channels with over 60 million subscribers, as well as the most prominent premium movie channels, HBO and Showtime.
Therein rests an important battleground in this debate. Since the 1980s, Congress and the FCC relaxed ownership rules based on the argument that increases in outlets rendered such regulations needless interference in the marketplace. When the FCC announced the relaxation of various rules in 2003, chair Michael Powell argued that the “explosion of new media outlets” demanded change so the commission did not “perpetuate the graying rules of a bygone black and white era.” There is little question that the number of outlets has increased. Less certain is whether this growth resulted in more independent voices and diverse viewpoints. The FCC under President Barack Obama has not made any significant departures from prior practice.
Central to this debate is the distinction between multiplicity and diversity, since it is possible to increase the number of available outlets without a parallel expansion in the range of ideas and values in the public commons. The rise of cable news services, for example, diluted the infl uence of the broadcast network news divisions and created the impression of abundance. This could be quite significant, since the dissemination of news and information from diverse and antagonistic sources is considered a pillar of self-government in democratic societies. When one traces the ownership and control of the cable news services, however, the promised excess is nowhere to be found. The five prominent cable news services—CNN, HLN (formerly CNN Headline News), CNBC, MSNBC, and Fox News Channel—are all part of major media conglomerates, as are the broadcast networks. These are far from diverse and antagonistic sources of news and information, although Fox has emerged as sympathetic to the conservative political viewpoint, and MSNBC has emerged as sympathetic to the liberal point of view. As a pair of opposites of sorts, the two organizations raise the question of objectivity in the news—or, to put it diff erently, of media bias. Thus does the debate on media conglomeration continue to rage and likely will do so in the foreseeable future.
William M. Kunz
See also Intellectual Property Rights; Interest Groups and Lobbying
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