Freeman

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Why Mass Media Mergers Are Meaningless

The Old Media Empires Are Modern-Day Dinosaurs Headed for Extinction

JANUARY 01, 1996 by ADAM THIERER

Mr. Thierer is the Walker Fellow in Economic Policy with The Heritage Foundation in Washington, D.C., and author of the series, “A Policy Maker’s Guide to Deregulating Telecommunications.”

Time Warner Inc.’s $8 billion acquisition of Turner Broadcasting System Inc., along with other recently announced alliances of media giants—Walt Disney and Capital Cities/ABC Inc., Westinghouse Electric Co. and CBS Inc.—has observers of all political stripes wondering whether an already mediocre television programming menu is about to become even less appetizing.

While one can argue the merits or demerits of the mergers on program quality, more disturbing arguments are being put forward that such mergers and alliances should not be allowed to go forward in the first place. The Department of Justice has already said it may challenge elements of the Time Warner-Turner deal and is now looking into the Disney-ABC merger.

This would be a mistake. Prohibiting such alliances from occurring would be anti-competitive and an utter waste of regulators’ time. There simply is no credible evidence that these mergers will hurt consumers. The old days of mass-media monopolies and shovel-fed couch-potato fare are over. These corporations will compete in a radically modernized media marketplace that is eroding their traditional advantages while forcing them to further improve the quality of their own offerings.

Today’s communications, entertainment, and computer markets are becoming increasingly demand-driven. That is, consumers are now, more than ever, being provided with the tools to tailor-make programming to meet their own tastes. A critical juncture is about to be reached in the history of these three distinct sectors as they merge into one new larger industry: the information sector. The digitalization of information—its coding and distribution in a more efficient and cost-effective fashion—has facilitated this process. As it continues, the costs of information processing, storage, and distribution will continue to fall rapidly. Consequently, countless new sources of information and entertainment will make their way into American homes and workplaces, especially via the computer.

It’s already happening. Internet surveyists Matrix Information and Directory Services (MIDS) estimate that roughly 13.5 million people currently use the Internet, and that the number is doubling every year. If Internet access continued to grow at that rate (as it has for the past six years), everyone in the world would be wired by 2003! Of course, that won’t happen, but such remarkable growth bodes unfavorably for the older media moguls, whose idea of viewer empowerment is a remote control with more buttons.

No Uncompetitive Advantage

The merging media giants may gain some programming advantages in the short run via their combined pool of investment capital. But, they certainly will have no uncompetitive advantages since they will be just one of many providers consumers can request service from in the near future. With consumers calling the shots, the idea that programmers like ABC, CBS, Turner, Time Warner, and Disney will have a serious advantage over all other information-entertainment providers is unrealistic.

Indeed, one must wonder if the television itself will survive the digital storm. Technological visionaries like George Gilder and Nicholas Negroponte warn of the impending death of TV and its eventual overthrow by the more intelligent, programmable personal computer along with its many on-line, consumer-driven services. If the Internet revolution continues apace, they may be right. No wonder the broadcast industry is currently begging Congress to give them additional broadcast licenses free of charge to make their transition into the digital world.

This is the real meaning behind the new mergers. Older firms are looking to merge as the world around them becomes less certain. In reality, Americans should feel somewhat sorry for these firms that feel they must “merge or die,” so to speak. In essence, their actions are a signal to the world that the old media empires are modern-day dinosaurs headed for extinction. Scholars like Harvard Business School professor Michael Porter have noted that alliances “proliferate in industries undergoing structural change or escalating competition, where managers fear they cannot cope. They are a response to uncertainty, and provide comfort that the firm is taking action.” In other words, the merger or alliance is often the last refuge of a desperate corporation, a lifeboat to grab hold of while the bigger ship is sinking. For America’s mass-media firms looking to buy competitive advantages both upstream and downstream, they have to hope this strategy works. Meanwhile, pesky information-age entrepreneurs will continue to chip away at the broadcast empire by continuing to offer more innovative services.

But regardless of whether these media merger experiments succeed in the long run, there is no need for policy-makers to intervene and micromanage their transitional efforts. As Negroponte notes: “The combined forces of technology and human nature will ultimately take a stronger hand in plurality than any laws Congress can invent.” Being that this is undoubtedly already the case, legislators and regulators can rest easier knowing Disney’s Mickey Mouse and his new broadcast buddies won’t be monopolists any time soon.

ASSOCIATED ISSUE

January 1996

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