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2

THE NEW MEDIA GIANTS Changing Industry Structure

◆ David Croteau and William Hoynes

n September of 1999, Viacom announced its merger with CBS.1 IThe huge deal combined CBS’s television network, its 15 TV stations, more than 160 radio stations, and several Internet sites with Viacom’s well- known cable channels (e.g., MTV, Nickelodeon, Showtime, TNN), 19 television stations, movie and television production (Paramount Pictures, UPN), publishing (Simon & Schuster), theme parks, and more. The $38 billion merger was bigger than any previous deal between two media com- panies. In fact, it was almost double the size of the previous record. The 1995 record-setting deal in which Disney acquired Capital Cities/ABC had been worth $19 billion [$21.2 billion]. While the size of the Viacom/CBS deal was unprecedented, the basic dynamic underlying the merger was not. Since the mid-1980s, major media companies had been engaged in a feeding frenzy, swallowing up other media firms to form ever-larger conglomerates. Including the Viacom/CBS merger, the 1990s alone saw well over $300 billion in major media deals. So rather than being unique, the Viacom/CBS announcement was just

NOTE: From The Business of Media: Corporate Media and the Public Interest (pp. 71-107), by David Croteau and William Hoynes, 2001, Thousand Oaks, CA: Pine Forge. Copyright 2001. Reprinted by permission of Sage Publications, Inc.

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another example—and certainly not the facilitated by an increasingly lax regulatory last—of the mergers that transformed the environment, major media companies have industry toward the end of the 20th century. been buying and merging with other com- These deals not only changed the media panies to create ever-larger media conglom- industry playing field but also sometimes erates, all of which are now global in their made it difficult to figure out who, exactly, activities. A decade and a half of such merg- were the players. While media mergers and ers have rapidly transformed the organiza- acquisitions had been mostly between tional structure and ownership pattern of media companies, there were also non- the media industry. In the process, the media companies who ventured into the dilemmas associated with the market and lucrative media market. In 1985, manu- public sphere models of media have been facturing giant General Electric bought dramatically highlighted. RCA—owners of the NBC broadcast net- From a market perspective, industry work. Westinghouse—producer of every- changes such as the Viacom/CBS deal can thing from household appliances to be understood as the rational actions of components for nuclear reactors—bought media corporations attempting to maxi- CBS in 1995. Three years later, the com- mize sales, create efficiencies in production, bined company dropped the Westinghouse and position themselves strategically to face name in favor of CBS Corporation and then potential competitors. Despite the growth proceeded to sell off the manufacturing in media conglomerates, many observers parts of the conglomerate—in essence split- believe the profusion of media outlets made ting back into two companies. Seagram’s, possible by recent technological develop- best known for its alcoholic drinks and ments—especially cable and the Internet— Tropicana orange juice, became a major makes the threat of monopolistic media company, buying MCA in 1995 misbehavior by these media giants highly (now Universal Studios), Polygram records unlikely. How can we talk about monopo- in 1998, and others. Microsoft, the soft- lies, they ask, when we have moved from a ware behemoth, also began investing in tra- system of three television networks to one ditional media companies such as the cable that will soon boast 500+ channels? How company Comcast, as well as Internet sites, can a handful of companies monopolize the and entering into a vast number of other decentralized Internet? The media industry media deals. Most important, traditional as a whole has grown, they also note, and telecommunications firms also became cen- the larger media companies simply reflect tral media players. In fact, at the time of the the expansion of this field. Viacom/CBS merger, the only media deals But the public sphere perspective directs that had been larger were the ones in which us to a different set of concerns. Growth in phone company giant AT&T acquired two the number of media outlets, for example, cable companies, TCI (for $48 billion in does not necessarily ensure content that 1998) and MediaOne (for $54 billion in serves the public interest. Centralized cor- 1999); a sign of the coming integration of porate ownership of vast media holdings telephony, cable television, and Internet raises the possibility of stifling diverse access. expression and raises important questions about the powerful role of media in a democratic society. Even with new media ◆ Making Sense of Mergers outlets, it is still a handful of media giants who dominate what we see, hear, and read. The expansion of new media technologies At various points in history antimonopoly has only strengthened, not undermined, concerns have resulted in the dismantling of the power and influence of new media media conglomerates. In more recent years, conglomerates. . . . Dines02.qxd 7/26/02 2:33 PM Page 23

The New Media Giants ◆ 23

◆ Structural Trends in the adjusted for inflation, 1999’s $38 billion Viacom-CBS deal was more than 65 times Media Industry as big. This enormous growth in conglomera- tion was largely fueled by a belief in the var- The basic structural trends in the media ious benefits to be had from being big. industry have been characterized in recent Larger size meant more available capital to years by four broad developments. finance increasingly expensive media pro- jects and size was also associated with effi- 1. Growth. Mergers and buyouts have ciencies of scale. But most important, made media corporations bigger than integrated media conglomerates can exploit ever. the “synergy” created by having many out- 2. Integration. The new media giants lets in multiple media. Synergy refers to the have integrated either horizontally by dynamic where components of a company moving into multiple forms of media work together to produce benefits that such as film, publishing, radio, and so would be impossible for a single, separately on, or vertically by owning different operated unit of the company. In the cor- stages of production and distribution, porate dreams of media giants, synergy or both. occurs when, for example, a magazine writes about an author, whose book is con- 3. Globalization. To varying degrees, the verted into a movie (whose CD soundtrack major media conglomerates have is played on radio stations), which becomes become global entities, marketing their the basis of a television series, which has its wares worldwide. own Web site and computer games. 4. Concentration of ownership. As major Packaging a single idea across all these var- players acquire more media holdings, ious media allows corporations to generate the ownership of mainstream media multiple revenue streams from a single con- has become increasingly concentrated. cept. To do this, however, media companies had to expand to unprecedented size. Some of these phenomena are overlap- Ironically, as the scale of corporate ping or interrelated developments. growth increased, concern with regulating However, to describe the specifics of these potential media monopolies virtually dis- developments, we examine each separately. appeared from mainstream political dis- course. As a result, the big media players have—with sometimes stunning GROWTH frequency—been merging with or buying out other big media players. (See Exhibit The last decades of the 20th century will 2.1.) To better understand these mergers be remembered as ones of expansive media and acquisitions, it is informative to take a growth. Not only was the number of media closer look at one example, the Viacom/ outlets available to the public via cable, CBS deal mentioned earlier. satellite, and the Internet greater than ever, The Viacom/CBS Merger but the media companies themselves were growing at an unprecedented pace. In 1983, CBS was created in 1928 and has long the largest media merger to date had been been a major broadcaster with a strong when the Gannett newspaper chain bought radio and television presence. Through Combined Communications corporation— much of its history, it was popularly associ- owner of billboards, newspapers, and ated with its news programming, especially broadcast stations—for $340 million [$581 with Edward R. Murrow and Walter million]. Even when the value of that deal is Cronkite, who were among the preeminent

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24 ◆ A Cultural Studies Approach

Exhibit 2.1 Select Media Mergers and Acquisitions of $1 Billion (current) or More (1984-2000)

Value (in billions $)

Constant 2000 Year The Deal Current Dollars Dollars

1985 Rupert Murdoch’s News Corp. $1.6 $2.5 (newspapers, television in Australia, Britain, U.S.) buys Metromedia (six television stations) as the launching pad for his new Fox network

Turner Broadcasting buys 1.5 2.4 MGM/United Artists (keeping MGM’s library of 3,000 films but selling off the rest for $.8 billion)

General Electric buys RCA (owners 6.4 10.1 of NBC network)

Capital Cities (backed by investor 3.5 5.5 Warren Buffett) buys the much larger ABC television network

1986 National Amusements (movie 3.4 5.3 theaters) buys Viacom

1987 Sony buys CBS Records 2 3

1989 Time Inc. merges with Warner 14.1 19.4 Communications

Sony acquires control of Columbia 4.8 6.6 Pictures and TriStar movie studios

1990 Matsushita Electric Industrial Co. 6.6 8.6 buys MCA (Universal Studios, Geffen Records, Motown)

1993 US West buys a quarter share of 2.5 2.9 Time Warner

Viacom buys Paramount 8.3 9.8 Communications (Universal Studios, Geffen Records, New York Knicks, publishing)

Viacom buys Blockbuster 4.9 5.8 Dines02.qxd 7/26/02 2:33 PM Page 25

The New Media Giants ◆ 25

Value (in billions $)

Constant 2000 Year The Deal Current Dollars Dollars

TCI re-purchases Liberty Media, 3.5 4.1 which it has spun-off earlier (in prelude to failed Bell Atlantic takeover)

1994 Cox Cable buys Times Mirror Cable 2.3 2.6

US West buys Wometco and 1.2 1.4 Georgia Cable TV

1995 Telecommunications Act of 1996 introduced in Congress

Gannett buys Multimedia Inc. 2.3 2.6

Time Warner buys Houston 2.5 2.8 Industries

Time Warner buys Cablevision 2.7 3 Industries

Seagram’s (beverages) buys 80% of 5.7 6.4 MCA from Matsushita, renames it Universal Studios

MCI buys 10% share of News Corp 2 2.2

Westinghouse Corporation buys 5.4 6 CBS (three years later, Westinghouse changes the company name to CBS Corporation)

Walt Disney Co. buys Capital 19 21.2 Cities/ABC

Time Warner buys Turner 8.5 9.5 Communications

TCI buys Viacom’s cable TV system 2.3 2.6

1996 Telecommunications Act of 1996 passed

Westinghouse (CBS) buys Infinity 4.9 5.3 Broadcasting (radio stations) (Continued) Dines02.qxd 7/26/02 2:33 PM Page 26

26 ◆ A Cultural Studies Approach

Exhibit 2.1 continued

Value (in billions $)

Constant 2000 Year The Deal Current Dollars Dollars

News Corp. buys New World 3.6 3.9 Communications Group, Inc.

US West buys controlling interest in 10.8 11.7 Continental Cablevision

A. H. Belo Corporation buys 1.5 1.6 Providence Journal Company (16 TV stations plus major newspapers)

Tribune Company buys Renaissance 1.1 1.2 Communications (TV stations)

1997 Microsoft buys an 11.5% stake in 1 1.1 Comcast Corp

Reed Elsevier and Wolters Kluwer 7.8 8.3 merge (print/electronic publishing/databases; Lexis/Nexis)

News Corp buys international 1.9 2 Family Entertainment (Family Channel and MTM Entertainment TV production)

TCI buys one-third of Cablevision 1.1 1.2 Systems

Westinghouse-CBS buys American 2.6 2.8 Radio Systems

Westinghouse-CBS acquires 1.6 1.7 Gaylord, owners of Country Music TV and The Nashville Network

1998 AT&T buys TCI 53.6 56 (Tele-Communications, Inc)

Bertelsmann buys Random 1.3 1.4 House/Alfred a. Knopf/Crown Publishing

AOL (America Online) buys 4.2 4.4 Netscape (Internet browser)

Seagram buys Polygram (music) 15.1 15.8 Dines02.qxd 7/26/02 2:33 PM Page 27

The New Media Giants ◆ 27

Value (in billions $)

Constant 2000 Year The Deal Current Dollars Dollars

1999 DirectTV (Hughes Electronics) buys 1.8 1.8 PrimeStar

Charter Communications buys 3.1 3.2 Bresnan Communications (cable)

AT&T buys MediaOne 54 55.2

@Home Corp. buys Excite (Internet 6.7 6.8 company)

Columbia House (owned by Time 2 2 Warner and Sony) merges with online retailer CDNow

CBS buys King World (syndicated 2.5 2.6 television programs)

Yahoo! buys GeoCities Inc. (Internet 4.7 4.8 company)

Yahoo! buys broadcast.com 5.7 5.8

VNU (Dutch publisher) acquires 2.7 2.8 Nielsen Media Research

CBS (via subsidiary, Infinity 6.5 6.6 Broadcasting) buys Outdoor Systems (billboards)

Viacom announces merger with 38 38.9 CBS

Cox Communications buys cable 2.7 2.8 assets of Gannett Co.

Cox Communications buys TCA 3.3 3.4 Cable TV Inc.

Cox Communications buys Media 1.4 1.4 General Inc.

Clear Channel Communications 23 23.5 buys AMFM Inc. (Continued) Dines02.qxd 7/27/02 2:49 PM Page 28

28 ◆ A Cultural Studies Approach

Exhibit 2.1 continued

Value (in billions $) Constant 2000 Year The Deal Current Dollars Dollars

2000+ America Online (AOL) acquires Time 166 166 Warner in biggest media deal to date

Tribune Company buys Times 6.5 6.5 Mirror Company

Telefonica of Spain acquires Lycos, 12.5 12.5 the Internet portal; as part of deal, Telefonica establishes a partnership with Bertelsmann

Gannett acquires Central 2.6 2.6 Newspapers, owners of six dailies, including the Arizona Republic and the Indianapolis Star

Vivendi, a French pay-TV and 34 telecommunication company, buys 34 Seagram (Universal, Polygram)

News Corp (Fox) buys 10 television 5.4 5.4 stations from Chris-Craft Industries

SOURCE: Media accounts. NOTE: Most dates refer to the announcement of the deal. Many deals were not finalized until the following year. Constant dollar adjustments are based on the Bureau of Labor Statistics’ Consumer Price Index and were developed using the American Institute for Economic Research’s online cost-of- living calculator (www.aier.org/cgi-aier/colcalculator.cgi). Constant dollar values should be considered approximate.

journalists of their day. CBS dominated Viacom is a much younger company. In network broadcasting through much of the 1970, the FCC introduced new regulations 1960s. In 1963, CBS owned nine of the top requiring networks to purchase their pro- ten prime-time shows, and all ten of the top grams from independent producers. The ten daytime shows. In its heyday, it was rules meant that networks could not own known as the “Tiffany Network” because their new programs and could not sell the of what was seen as its quality program- right to air reruns of their old programs—a ming. In the mid-1980s, the network went process known as “syndication.” The goal, into decline after being taken over by according to the FCC, was “to limit net- Loew’s, which instituted cuts in the CBS work control over television programming news division as one way to increase prof- and thereby encourage the development of a its. Ten years after the Loew’s takeover, diversity of programs through diverse CBS was sold again, this time to the sources of program services.”2 This became Westinghouse Corporation, an electrical known as the “financial interest and syndi- hardware manufacturer that changed its cation” rules,” or “fin-syn” for short. name to CBS Corporation. Viacom was created in 1971 as a spin-off of Dines02.qxd 7/26/02 2:33 PM Page 29

The New Media Giants ◆ 29

CBS to comply with these new FCC regula- If television offered abundant choices, tions. In order to sell the syndication rights critics of regulation contended, then the to its old programs, such as I Love Lucy and Internet was virtually limitless in its offer- The Andy Griffith Show, CBS was required ings. In its early days, especially, the to create a new corporate entity, separate Internet was seen even by many critics of from the network. Thus, Viacom was born. mainstream media as an antidote to big In 1986, National Amusements, a movie media. Because of the apparently low cost theater chain headed by Sumner Redstone, of entry and virtually no-cost distribution, purchased Viacom for $3.4 billion [$5.3 it was thought to be a way to level the play- billion], keeping the name for the new com- ing field between large media conglomer- pany. Viacom grew quickly, purchasing ates and smaller independent producers. other media enterprises. Most notably, in This, too, was a part of the argument 1993, it bought Paramount for $8.3 billion against regulation of big media. [$9.8 billion] and Blockbuster Video for But while technology has undoubtedly $4.9 billion [$5.8 billion]. From a stepchild changed the face of mass media, some of of CBS, Viacom had become a media giant the changes amount to less than they first in its own right. In 1999, the circle was appear. For example, while changes in tele- completed as Viacom returned to purchase vision technology are ushering in the era its former parent, CBS, for $38 billion, of the 500-channel universe, these new creating a new Viacom that was estimated options—unlike traditional broadcast tele- to be worth over $70 billion. vision—are expensive alternatives that So what happened? Why was a much many Americans cannot afford. At the end smaller media company being broken up in of the century, nearly a third of American 1971 under the fear of monopoly, while a households had no cable service at all and much larger company was allowed to keep another third had only basic cable. growing in 1999? The equation was some- Expensive premium channels, pay-per-view thing like this: technology + politics = dereg- selections, and other options remain unaf- ulation. It was the combination of changing fordable to most families. communications technology, coupled with a Also, more channels have not necessarily conservative shift in national politics, that meant more diversity. Instead, many of the led to major deregulation of the media cable options simply air either reruns of industry. This deregulation, in turn, allowed broadcast programs or provide a certain media corporations to expand rapidly. type of previously existing programming (sports, music videos, etc.) 24 hours a day. More content does not necessarily mean Changing Technology different content. New technology is one key element facil- The Internet, too, has shown signs of itating industry changes. When CBS was becoming dominated by major media forced to spin off Viacom in 1971, tele- giants. For a short period of time, many vision viewer options were usually limited major media companies were not heavily to three national broadcast networks (ABC, involved in Internet ventures. As a result, CBS, and NBC), public television, and per- there was a brief window of opportunity for haps one or two local independent stations. new companies to get established. However, By the end of the century, there were six as this first stage of the industry passed, a national broadcast networks of varying size second stage of consolidation took place. (including Fox, WB, UPN), a virtually Two major types of players were driving countless number of cable channels, and this consolidation stage. First, as successful “direct TV” satellite options. Media corpo- new Internet companies saw the value of rations argued that many ownership regu- their stock rise, they often tried to solidify lations were no longer needed in this world that value by buying something tangible of proliferating media outlets. with the money—often other media firms. Dines02.qxd 7/26/02 2:33 PM Page 30

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That way, when stock prices on overvalued encouraging the in-house development and Internet companies fell—as they inevitably production of programs by Disney/ABC for did—these companies still had valuable, if broadcast on the ABC network.6 Such inte- more traditional, media assets. Second, gration would have been impossible with- after small ventures began showing how the out the change in fin-syn regulations. . . . Internet might be used for commerce, major The anti-regulatory sentiment in govern- media players stepped in either buying up ment that had escalated with the Republican smaller companies or forcing them to merge Reagan and Bush administrations continued in order to stay alive. Thus, established into Democrat Bill Clinton’s administra- companies used their resources to buy their tion. Nowhere was this more clear than in way into the expanding Internet market. the passage of the wide-ranging 1996 Tele- In the first half of 1999 alone, there were communications Act. The act had been over 650 Internet mergers and acquisitions heavily promoted by the media and telecom- valued at over $37 billion.3 This was more munications industries, leading even the than three times the number of deals made New York Times to editorialize, “Forty mil- in the first six months of 1998. lion dollars’ worth of lobbying bought The large-scale companies make it diffi- telecommunications companies a piece of cult for new companies to compete inde- Senate legislation they could relish. But con- pendently. The once relatively low startup sumers have less to celebrate.” The Times costs of running a significant World Wide went on to argue that the bill’s “anti-regula- Web site—once touted as a central reason tory zeal goes too far, endangering the very for the Internet’s revolutionary character— competition the bill is supposed to create.”7 now routinely exceeds $1 million.4 As a But antiregulation ruled the day and result, media companies with major capital among the many provisions of the act were to invest now dominate the most popular those that relaxed the regulations on the sites on the World Wide Web.5 number of media outlets a single company may own. (See Exhibit 2.2.) While the The Politics of Deregulation Telecommunications Act was promoted If technology provided the tracks upon using a market approach that emphasized which deregulation was able to ride, then more competition, the changes actually conservative pro-business politics was the helped to fuel a new wave of media mergers engine that propelled it along. The relax- and acquisitions. ation of key regulations was absolutely cen- Patricia Aufderheide notes that “in the tral to the rapid expansion of media months following the act, mergers and buy- conglomerates. . . . outs multiplied. In 1997 alone, $154 billion In 1993, a U.S. District Court ruled that [$163 billion] in media and telecommuni- broadcast networks should no longer be cation deals was recorded in the following subject to many of the fin-syn regulations. categories, according to Paul Kagan Previously, television networks acquired Associates research, telephone, $90 programming from outside producers who [b]illion; radio, $8.3 billion; TV station continued to own the programs. However, deals, $9.3 billion; and entertainment and with the elimination of “fin-syn” rules, net- media networks, $22 billion.”8 works were now free to air their own pro- One of the act’s provisions called for a gramming. Increased vertical integration of review of certain ownership restrictions production and exhibition resulted. For and, as a result, the FCC announced example, in the summer of 1999, Disney another round of deregulation in the sum- formalized its vertical integration in tele- mer of 1999. This time the FCC eased vision by merging its television production restrictions on the number of local radio studios with its ABC network operations. and television stations a single company The shift was aimed at controlling costs by can own. The FCC eliminated regulations Dines02.qxd 7/26/02 2:33 PM Page 31

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Exhibit 2.2 Select Ownership Rules Changes in the 1996 Telecommunications Act

The 1996 Telecommunications Act eased restrictions on media ownership, leading to larger media companies and more concentration of ownership. Previous Rules New Rule Changes

National television

A single entity: Can own up to 12 stations No limit on number of stations nationwide or Station reach increased to 35% of Can own stations reaching up to U.S. TV households 25% of U.S. TV households

Local television

A single entity: Can own only one station in a market Telecom Act called for review In 1999, FCC announced it would allow multiple station ownership in a single market under certain circumstances

National radio

A single entity: Can own up to 20 FM and No limit on station ownership 20 AM stations

Local radio

A single entity: Ownership adjusted by market size: Cannot own, operate, or control more In markets with 45+ stations, a single than 2 AM and 2 FM stations entity cannot own more than in a market 8 stations total and no more than 5 in Audience share of co-owned the same service (AM or FM) stations cannot exceed 25% . . . with 30-44 stations; 7 total, 5 same service . . . with 15-29 stations; 6 total, 3 same service (but no more than 50% of the stations in the market) . . . with 14 or fewer; 5 total, 3 same service (but no more than 50% of the stations in the market) Limits may be waived if the FCC rules it will increase the total number of stations in operation.

restricting companies to one local TV two stations is not among the market’s top station in a market. Now companies are four. Other conditions too, such as a fail- allowed to own two stations, as long as at ing station, can be used to justify multiple least eight other competitors are in the station ownership. In a reflection of the same market and one of the company’s convergence of media forms, another Dines02.qxd 7/26/02 2:33 PM Page 32

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regulatory change now allows for a single since the Reagan era, and the growth in company to own two TV stations and six the media industry’s lobbying clout, media radio stations in a market as long as there corporations have been relatively unencum- are at least 20 competitors among all bered in their desire to grow. media—cable, newspapers, and other Thus, as the 20th century came to a broadcast stations.9 close, a loose regulatory environment Consumer advocates bemoaned the allowed Viacom and CBS to create a new changes, arguing that they once again media giant. As announced, the 1999 would lead to more media outlets in fewer merger created a Viacom that hands. But media executives once again had something to cheer about. Lowell “Bud” ◆ was the nation’s largest owner of TV Paxon, owner of PAX TV, greeted the stations, changes by saying, “I can’t wait to have a ◆ was the nation’s largest owner of radio glass of champagne and toast the FCC!” stations, Barry Diller, chairman and CEO of USA Networks, observed, “This is a real signifi- ◆ controlled the nation’s largest cable net- cant step.... This is going to change work group, things.”10 ◆ controlled the nation’s largest billboard He was right. Less than a month after company, these new FCC regulatory changes, Viacom and CBS announced their plans to merge—a ◆ was the world’s largest seller of advertis- deal that would have been impossible ing with estimated sales of $11 billion— before the relaxation of FCC regulations. nearly twice that of second-place Even with the new rules, the new Viacom News Corp ($5.8 billion), and more would violate existing regulations. For than double its next two competitors example, its television stations could reach (Disney’s $5.1 billion and Time into 41% of American households, but the Warner’s $3.8 billion). FCC cap was 35%. In addition, it owned both the CBS network and had a 50% stake In an earlier era, such concentrated mar- in the UPN network, but FCC regulations ket power would likely have been met by prevent a network owner from having an regulatory roadblocks. In this new era of ownership interest in another network. deregulation, it is likely that the deal will be Finally, Viacom’s ownership of numerous followed in the coming years by further radio and television stations violated own- industry consolidation and even larger ership limitation rules in a half dozen mar- deals. . . . kets. Upon approval of the deal, the FCC gave Viacom time to comply with such INTEGRATION regulations.11 Some observers, though, believed that the FCC might change some Horizontal Integration of these limits by the time the compliance period expired. A media corporation that is horizontally So the growth in media conglomerates integrated owns many different types of has been fueled, in part, by the changing media products. Viacom is clearly a hori- regulatory environment. In the years when zontally integrated conglomerate because it public interest concerns about monopolies owns, among other things, properties in were preeminent, media companies were broadcast and cable television, film, radio, constrained in their ability to grow and the Internet—all different types of unchecked. However, with the rise of more media. . . . media outlets via new technology, the con- With the transformation of text, audio, servative shift toward business deregulation and visual media into digital data, the Dines02.qxd 7/26/02 2:33 PM Page 33

The New Media Giants ◆ 33

technological platforms that underlie become Internet companies. In fact, many different media forms have begun to con- media have embraced the Internet as a close verge, blurring the lines between once-dis- digital cousin of what they already do. The tinct media. music industry, to use another example, has One visible symbol of convergence is the responded to the proliferation of boot- compact disk. This single digital data stor- legged digital music files (MP3, Napster, age device can be used for text, audio, etc.) by developing its own systems to video, or all three simultaneously. Its intro- deliver music via the Web to consumers— duction—along with other types of digital for a fee, of course. data storage devices—has changed the Furthermore, convergence has eroded nature of media. The personal computer is the walls between what used to be three another symbol of change. It can be used to distinct industries: media, telecommunica- create and read text documents; show static tions, and computers. Recently, major and animated graphics; listen to audio CDs cable TV companies began entering the or digital music files; play CD computer phone service business and offering games that combine audio, video, and text; cabled-based Internet access. “Baby Bells” watch digital videos; access and print pho- and long-distance phone companies are getting tos taken with a digital camera; and surf the involved in video delivery and Internet access. Internet, among other things. All this is pos- Computer software firms are teaming up with sible because of the common digital foun- cable companies to create various “smart boxes” dation for various media. that facilitate delivery of cable-based media But the significance of digital data and communications services. Integration, extends way beyond CDs and computers. therefore, involves even companies outside Now, the digital platform encompasses all of the traditional media industry, making it forms of media. Television and radio more difficult than ever to mark clear broadcast signals are being digitized and boundaries. analog signals phased out. Newspapers exist in digital form on the Internet, and Vertical Integration their paper versions are often printed in plants that download the paper’s content in While horizontal integration involves digital form from satellites. This allows for owning and offering different types of simultaneous publication in many cities of media products, vertical integration national papers such as USA Today. involves owning assets that are involved in Filmless digital movie theaters are begin- the different steps in the production, distri- ning to appear, where movies, that were bution, exhibition, and sale of a single type digitally downloaded via the Internet, are of media product. In the media industry, shown with a sophisticated computerized vertical integration tends to be more limited projector. than horizontal integration, but it can still The convergence of media products has play a significant role. For some time, there meant that media businesses have also con- has been a widespread belief that “content verged. The common digital foundation to is king.” That is, the rise of the Internet and contemporary media has made it easier for cable television in particular has led to an companies to create products in different explosion in outlets available to deliver media. For example, it was a relatively media products. Consequently, owning the small step for newspapers—with content media content that is to be distributed via already produced on computers in digital these channels is widely believed to be form—to developed online World Wide more valuable than owning the channels Web sites and upload newspaper articles themselves. However, with the elimination to it. Thus, newspaper publishers have of most fin-syn rules, interest in vertical Dines02.qxd 7/26/02 2:33 PM Page 34

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integration has resurfaced, enabling GLOBALIZATION broadcast networks to once again produce and exhibit their own programs. Growth in the size and integration of Viacom’s vertical integration can be companies has been accompanied by seen, for example, in the fact that it owns another development: the globalization of film production and distribution companies media conglomerates. More and more, (e.g., Paramount Pictures) and multiple major media players are targeting the global venues to exhibit these films. These venues marketplace for the sale of their products. include theater chains to show first-run There are three basic reasons for this strat- films (e.g., Famous Players and United egy. First, domestic markets are saturated with Cinemas International theater chains) and media products so many media companies see a video store chain to distribute the movie international markets as the key to future once it is available on videotape for rental growth. Media corporations want to be well (Blockbuster Video). Viacom also owns positioned to tap these developing markets. premium cable channels (e.g., Showtime, Second, media giants are often in a posi- The Movie Channel), basic cable channels tion to effectively compete with—and even (e.g., Comedy Central), and a broadcast dominate—the local media in other coun- network (CBS), all to air a film after its tries. These corporations can draw on their rental life is over. Thus, when Viacom enormous capital resources to produce produces a movie, it is assured of multiple expensive media products, such as venues for exhibition. Hollywood blockbuster movies, that are . . . The numerous mergers that have left beyond the capability of local media. Media an industry dominated by larger companies giants can also adapt already successful have also produced an industry where the products for new markets, again reaping the major players are highly integrated. rewards of expanding markets in these areas. At first glance, the average person may Third, by distributing existing media be unaware of these trends that have products to foreign markets, media compa- reshaped the media industry. It is usually nies are able to tap a lucrative source of difficult to discern that apparently diverse revenue at virtually no additional cost. For media products are, in fact, all owned by a example, a movie shown in just one coun- single company. Take television, for exam- try costs the same to make as a movie ple. If you surf the television universe, you distributed globally. Once the tens of millions might come across a local CBS affiliate, of dollars involved in producing a major MTV, Comedy Central, Nickelodeon, motion picture are spent, successful foreign Showtime, a UPN affiliate, VH-1, The distribution of the resulting film can spell the Movie Channel, The Nashville Network, difference between profit and loss. As and your local team on Home Team a result, current decision making as to Sports. It is virtually impossible for the whether a script becomes a major film rou- casual viewer to realize that all of these are tinely includes considerations of its poten- actually owned—all or in part—by tial for success in foreign markets. Action Viacom. It is even less likely that they will and adventure films translate well, for connect the owners of all these stations example, because they have limited dia- with the owner of their local theme park, logue, simple plots, and rely heavily on spe- movie theater, and radio stations. But cial effects and action sequences. Sexy stars, again, one company could own them all: explosions, and violence travel easily to Viacom. However, Viacom is not unique in other cultures. Comedies, however, are this regard. The same phenomenon is true often risky because humor does not always of other collections of disparate media out- translate well across cultural boundaries. lets that are owned by the other media We can see examples of globalization giants. strategies in the case of Viacom. . . . For Dines02.qxd 7/26/02 2:33 PM Page 35

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example, MTV is a popular Viacom cable ◆ Publisher Simon & Schuster has channel reaching over 70 million U.S. house- international operations in both the holds.12 It originated as a venue for record United Kingdom and Australia and sells companies to show music videos to advertise books in dozens of countries. their artists’ latest releases. Over time, MTV ◆ Nickelodeon distributes its children’s has added a stable of regular series (e.g., The programming in more than 100 coun- Real World, Road Rules, Beavis and tries and, much like MTV, operates its Butthead), specials (e.g., MTV’s House of own cable channels across the globe. Style), and events (e.g., MTV Video Music These include Nickelodeon Latin Awards, MTV’s Spring Break), all aimed at America, Nickelodeon in the Nordic the lucrative teen and young adult market. Region, Nickelodeon Turkey, Nick- MTV describes itself in publicity elodeon U.K., Nickelodeon Australia, material as having an environment that is and the Nickelodeon Global Network. “unpredictable and irreverent, reflecting the Nickelodeon even has theme parks in cutting edge spirit of rock n’ roll that is the Australia and other locations. heart of its programming.” In reality, MTV is a well-developed commercial formula ◆ Viacom’s production companies license that Viacom has exported globally, by mak- and coproduce programs based on U.S. ing small adjustments to account for local hits to be sold in international markets. tastes. In fact, MTV is really a global col- These include Entertainment Tonight/ lection of MTV’s. Together, these MTV chan- China, a 50-minute Mandarin-language nels are available in over 300 million series produced in cooperation with the households in 82 territories that, Viacom Chinese government, and other national says, makes MTV the most widely distributed versions of the Entertainment Tonight network in the world. Over three-quarters series that appear in the United Kingdom, of households that receive MTV are outside Germany, and other countries. of the United States. Viacom’s global ventures do not end International revenues are making up an with MTV. Virtually every aspect of its increasingly large percentage of the income media business has a global component. of such companies as Viacom, Disney, Examples include the following specifics. Time Warner, and News Corp. As a result, all major media conglomerates are now ◆ Major motion pictures are routinely global players, representing a major shift in distributed internationally and many, industry structure. such as Paramount’s Forrest Gump and Mission Impossible, earn more money CONCENTRATION OF OWNERSHIP for Viacom internationally than they do in the United States. While individual media companies grow, ◆ Famous Players Theatres Canada oper- integrate, and pursue global strategies, ates more than 660 screens in more than ownership in the media industry as a whole 100 locations. United Cinemas becomes more concentrated in the hands of International—a joint venture with these new media giants. There is consider- Universal—operates more than 90 the- able debate about the significance of this aters in Asia, Europe, and South America. trend but the trend itself has been clear. . . . Ben Bagdikian is a researcher whose ◆ Paramount International Television dis- work on the ownership of media has tributes more than 2,600 series and revealed increased concentration. In the movies internationally. various editions of his The Media Mono- ◆ Blockbuster Video operates 6,000 stores poly, Bagdikian has tracked the number of in 27 different countries. firms that control the majority of all media Dines02.qxd 7/26/02 2:33 PM Page 36

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products. This number has been declining about these basic trends. However, the dramatically in the last 15 years. He notes significance of these trends is a subject of that in recent years, “a small number of the intense debate. Market advocates see these country’s largest industrial corporations structural changes as the normal evolution has acquired more public communications of a growing and maturing industry. But power—including ownership of the news— the public sphere framework reminds us than any private businesses have ever that media cannot be treated simply as before possessed in world history.” 13 In the any other industry. Furthermore, it raises fifth edition of his book, he reports that in serious questions about what these 1996, just 10 media companies dominated structural changes mean for diversity and the entire mass communication industry. independence in content and for the power With recent high-profile mergers, this figure of newly emerging media corporations. continues to decline. Within each sector of the industry, a THE MARKET PERSPECTIVE few large companies dominate smaller competitors. From the perspective of the market model, the media industry is one that has ◆ Two companies—Borders/Walden and enjoyed enormous growth in recent years. Barnes & Noble—make a third of all With that growth has come a repositioning 14 U.S. retail book sales. of major players, the introduction of some ◆ Five movie companies—Disney’s Buena significant new players, and an evolution Vista, News Corporation’s Fox, Time in the basic terrain of the industry. This Warner’s Warner Bros., Viacom’s perspective tends to see the growth of larger Paramount, and Sony—dominate that media companies as the logical outcome of industry, accounting for more than 75% an industry that has become more inte- of the domestic box office in the summer grated across media and more global in of 1998.15 scope. To operate effectively in such a new environment, media corporations must ◆ Five companies—Seagram’s Universal, develop new business strategies and draw Sony, Time Warner, Bertelsmann, and on the larger capital resources available EMI—distribute 95% of all music car- only to major global corporations. The ried by record stores in the United States. structural changes of growth, integration, ◆ Television continues to be dominated by and globalization are merely the signs of four major networks—Disney’s ABC, companies positioning themselves to oper- Viacom’s CBS, News Corporation’s ate in this new media world. The concen- Fox, and General Electric’s NBC. Several tration of media ownership, on the other new fledgling networks have entered the hand, is the natural by-product of a matur- field but are not yet major competitors— ing industry, as young start-ups and older, WB (Time Warner), UPN (Viacom), underperforming firms are consolidated USA, and PAX. . . . into the business plans of mature but inno- vative companies. The rapid growth in media outlets, the ◆ constant shifts in consumer tastes, and the Interpreting ever-changing terrain of the industry itself Structural Changes make any apparent domination of the indus- try by a few companies an illusion. No one can control such a vast and constantly evolv- The media industry, then, has been under- ing industry. Companies such as America going significant changes in recent decades Online (AOL), who have become major as companies have grown, integrated, and players in the industry, did not exist a few become global players. There is little debate years ago, while old media standards, such Dines02.qxd 7/26/02 2:33 PM Page 37

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as ABC, were long ago incorporated into DVDs, too, have entered the media newly consolidated media companies. landscape. Change is built into the market and no com- Radio was admittedly more diverse in pany can really dominate the marketplace. terms of regional preferences, but it is not Market advocates note that we should not clear whether a broader range of music was be nostalgic about the media era gone by. In readily available to listeners. Today, radio reality, as recently as the mid-1970s, the has become largely a chain-owned affair media landscape was much more sparsely with new standards of professionalism and populated than it is today and consumers had high production values. In addition, online far fewer choices, on the whole. Compared streaming offers the potential of greater with this earlier period, market advocates musical variety to listeners. point out, we have a cornucopia of media Most striking, 90% of the prime-time outlets and products available to us. television audience in the mid-1970s was It is true that more communities had watching just three television networks. competing daily newspapers than there are Cable television was not really an alterna- today, but often the quality of those smaller tive because it was still largely used to local papers was mediocre at best. In con- transmit the “big three” broadcast networks trast, today’s papers may be local monopo- to homes where reception was difficult. lies and part of larger chains, but by Satellite television, of course, was unheard drawing on the resources of their owners, of. Today, three new broadcast networks they are able to produce a higher-quality have joined the older “big three.” Nearly product. Also, consumers have many more three-quarters of U.S. homes have cable, options for news—especially cable televi- delivering an average of almost 60 chan- sion and the Internet—than they ever did in nels. Satellite television, with hundreds of the days of more competing daily papers, channels, is expanding and by 2000, was in making local newspaper monopolies less more than 10% of homes. significant. Finally, the vast universe of the Internet In the 1970s, many communities had is becoming available to more and more only small local bookstores with very lim- people at work and home, opening up ited inventory and choice. Today, more and unprecedented avenues for news, entertain- more communities have “superstore” ment, and commerce via the printed word booksellers with thousands of diverse selec- or streaming audio-video. tions of books and magazines. Rather than In light of these rapid changes, as we killing the old print medium, the Internet have seen, market advocates have called for has been a shot in the arm for book sales as more deregulation of the industry in order online retailers such as Amazon.com offer to spur increased competition. Because of hundreds of thousands of titles for sale at digitization, companies in fields that were the click of a mouse. This has made books previously separate can now compete with and other media products more widely each other if regulations are lifted. On the available than ever. delivery side, telephone companies, for In the 1970s, local movie theaters were example, can now offer Internet access as beginning to feature more multiscreen well, while cable companies can enter the offerings, but these were limited compared telephone and Internet business. On the to what is available today. Video rentals content side, companies that had tradition- were not readily available because VCRs ally been focused in one medium can now were still primitive in those days. Today, branch out to work in films, television, more multiplex theaters bring more print, Internet, and other media. All of this, options to moviegoers, while VCRs are in market advocates contended, means more 85% of homes and a wide array of videos choices and better media for the consumer; is readily available for low-cost renting. a regulatory system created in a far Dines02.qxd 7/26/02 2:33 PM Page 38

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different era is obsolete in this new dynamic sites proved to be very popular. While there media environment. may be more media outlets, we need to examine what these channels are delivering. A concern for the health of the public QUESTIONING THE MARKET: sphere leads us to argue that media outlets REVISITING THE are only truly beneficial if they serve the PUBLIC SPHERE APPROACH public interest by delivering content that is genuinely diverse and substantive. Early indi- Although the market approach may cations were that, to the contrary, much of celebrate the new media environment, there cable television was delivering more of the are questions that this focus on markets and same commercial fare that characterized profits effectively obscures. The public sphere broadcast television. Why couldn’t some of perspective suggests that the technological these many channels be used to deliver inno- change and growth in the number of media vative, diverse, and inclusive public affairs outlets should not be accepted as an programming? Or alternative visions from unequivocal benefit, especially if these out- independent filmmakers and other artists? Or lets are linked to a growing concentration programming that specifically spoke to the in media ownership. common challenges we face as a society? The introduction of new media has never Instead, the fragmentary nature of the cable ensured quality content. History has shown television world might even be exacerbating that the great potential of new media forms cultural divisions in the society, as segregated has often been subverted for purely commer- programming targeted separate demographic cial purposes. Both radio and television, at groups based on age, gender, class, and race. various points, were touted as having pro- The Internet, too, has been used by major found educational and civic potential. That media companies primarily to sell products potential was never reached. Cable television to consumers and to promote other media has, in many ways, simply reproduced the ventures, little of which added significantly to formats and formulas of broadcast television. a vibrant public sphere. Because it is not covered by the same content Finally, the blurring of boundaries rules that regulate broadcast television, cable between media coupled with calls for deregu- has had more leeway to air raunchy, violent, lation raise the specter of fully integrated, and sensationalistic entertainment. This type multinational media giants that can simulta- of entertainment could be seen in everything neously dominate multiple media. Old from adult-oriented cable movies to the monopoly criteria seem incapable of dealing funny, but foul-mouthed, animated pre- with this new market reality. Despite the fact pubescent offerings of South Park. Cable’s that it was promoted as a means of increas- vast wasteland was perhaps epitomized by its ing competition, the 1996 Telecommuni- most highly rated programs in the late 1990s: cations Act has resulted in renewed professional wrestling. The popularity of consolidation in the media industry. Despite such cable programming pressured broadcast this continuing consolidation, market advo- television to seek increasingly wild and cates continue to talk about the new “com- aggressive programs, leading many parents to petition,” and policymakers seem unwilling despair about the lack of appropriate enter- to examine the significance of an emerging tainment and educational television for their media monopoly by a few giant firms. . . . children. On the content side, market theory More wasted potential seems to have promised diversity from an unregulated mar- plagued the growth of the Internet. Early ket, but the reality seems to be quite different, discussion of the “information superhigh- as the same old media content is being sold in way” was quickly supplanted by a focus new packaging and underserved communi- on e-commerce. Here, too, adult-oriented ties continue to be marginalized. Little that is Dines02.qxd 7/26/02 2:33 PM Page 39

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fresh or independent seems to come from the Standard, online at: www.thestandard.com/ new media giants. This, coupled with the metrics/display/0,1283,899,00.html, accessed growth in the sheer size of these corporations, June 16, 1999; www.thestandard.com/research/ raises the disturbing specter of concentrated display/0,2799,9845,00.html, accessed August corporate power capable of stifling diverse 29, 2000. expression and exerting significant political 5. See, for example, the latest list of popu- power. . . . lar sites at: www.100hot.com. This particular service tracks a sample of more than 100,000 user to develop its listing. Other services, using ◆ Notes different methodologies, will have slightly differ- ent results. See, for example, the “Top Rank- 1. Details of the Viacom/CBS deal used ings” list at: www.mediametrix.com/home.jsp? throughout this chapter were obtained from language=us, or the top sites listed by PC Data company press releases and media accounts, Online at: www.pcdataonline.com/reports/tm including the following: Paul Farhi, “Viacom to SitesSingleFree.asp. Buy CBS, Uniting Multimedia Heavyweights, 6. Kyle Pope, “Disney to Merge Television “ Washington Post (September 8, 1999): A1; Studio With ABC Network,” Wall Street Sallie Hofmeister, “Viacom, CBS to Merge in Journal (July 9, 1999): B4. Record $37-Billion Deal,” Los Angeles Times 7. “A Flawed Communications Bill,” (September 8, 1999), online at: www.latimes. New York Times (June 20, 1995): A14. com, accessed September 9, 1999; Brian Lowry; 8. Patricia Aufderheide, Communications “What Effect? Only Prime Time Will Tell,” Los Policy and the Public Interest (New York: Angeles Times (September 8, 1999), online at: Guilford Press, 1999), p. 89. www.latimes.com, accessed September 9, 1999; 9. Bill Carter, “FCC Will Permit Owning Lawrie Mifflin, “Viacom Set to Acquire CBS in Stations in Big TV Markets,” New York Times Biggest Media Merger Ever,” New York Times (August 6, 1999): A1. (September 8, 1999), online at: www.nytimes. 10. John Schwartz, “FCC Opens Up Big TV com, accessed September 9, 1999; Lisa de Markets,” Washington Post (August 6, 1999): Moraes, “Can Fledgling UPN Fly to New E3. Viacom Nest?,” Washington Post (September 8, 11. Federal Communications Commission, 1999): C1; Judy Sarasohn, “Special Interests: A “FCC Approves Transfer of CBS to Viacom; Silence That May Not Be Golden,” Washington Gives Combined Company Time to Comply Post (September 9, 1999): A19; John Schwartz With Ownership Rules” (May 3, 2000 press and Paul Farhi, “Mel Karmazin’s Signal release), online at: www.fcc.gov, accessed May Achievement,” Washington Post (September 8, 8, 2000. 1999): E1. 12. MTV descriptive information is from 2. Federal Communications Commission. the Web sites of Viacom (www.viacom.com) “Comments Sought on November 1995 Expira- and MTV (www.mtv.com), and from Viacom’s tion of Fin-Syn Rules,” New Report No. DC95- “1998 Annual Report.” 54, April 5, 1995, online at: www.fcc.gov, 13. Ben Bagdikian, The Media Monopoly, accessed October 12, 1999. 5th ed. (Boston: Beacon, 1997), p. ix. 3. Noelle Knox, “Internet Mergers Up 14. Ben Bagdikian, The Media Monopoly, Sharply,” Richmond Times Dispatch (July 17, 5th ed. (Boston: Beacon, 1997), p. xxix. 1999): C1. 15. “Summer Market Share,” Variety 4. Maryann Jones Thompson, “Got a (September 14, 1998). Million Bucks? Get a Web Site,” The Industry