I. Media Economics:
In this section on Media Economics, you will learn to
- Define the term "oligopoly" and list the names of the big media oligopolies.
- Explain the implications of consolidation on the news and entertainment Americans receive from their media outlets.
- Discuss the role that the FCC has played in policing monopoly and oligopoly ownership of media outlets over the years.
- Assess the impact of the Telecommunications Act of 1996 on the media industry.
II. The Big Names in Oligopoly Ownership of the Media Industry:
If you had to list the names of the biggest companies in the media industry which ones would you cite? Think about it. Think about your favorite television program. Think about your favorite magazine. Think about your favorite movie. Think about your favorite book. We can usually name our favorite TV show, magazine, movie or book; however, it's much more difficult to name the company or companies that have produced these media products.
It may surprise you to know that the list of "major" media companies isn't very large. While you can find a list of the Top 10 Media Corporations on page 477 of your textbook, here are a few notables: Time Warner, Disney, Viacom, News Corporation, GE/NBC Universal, and Clear Channel Communication. When a handful of companies like this control an entire industry, it is referred to as an oligopoly structure. (See page 464 in your textbook for a more detailed explanation.) The media industry is an oligopoly and these companies are among its key players. I strongly recommend that you visit the Columbia Journalism Review's "Who Owns What" index and look to see what each one of these huge conglomerates own (http://www.cjr.org/resources/). Take note of what kind of media "products" are being produced by these oligopoly organizations. Also, take note of the delivery channels owned by each of these companies. Once you've visited this Web site and clicked on the link for each of these mega-corporations, I'd like you to reflect on the following bulleted items.
* Non-news companies, like Disney, own and operate news outlets. Disney owns ABC and ABC News. Some say that the news is just another line item on Disney's balance sheet. As such, it needs to be profitable and contribute to the bottom like revenue goals of the company. Put another way: if ABC News doesn't turn a profit for Disney, then the content of the stories and how they're being reported will be called into question. Disney will ask: Why aren't people watching? What would get them to watch ABC News? How can we win the evening news ratings war? Before you know it, critics of consolidation say, the stories that the public sees aren't ones that the public needs to know, but rather ones that market analysts say will reel in the most viewers. Furthermore, if Disney owns ABC, is it likely that ABC News will report critically on Disney? Say, for instance, there were safety issues with the rides at Disney Theme Parks. Would ABC News produce an expose warning the public? This point is being raised so you will see that when mega-corporations own news outlets, the journalists who work for them can no longer be "independent monitors of power," as stated in the Nine Principles of Journalism.
* The diversification of holdings within each of these oligopoly organizations is remarkable, isn't it? Look at Time Warner, for instance. (http://www.cjr.org/resources/) It owns book publishing companies, cable systems, film and TV companies and distribution networks, magazine titles, online services, consumer product outlets, theme parks, satellite operations, and even a sports team - the Atlanta Braves. As a "sender" of messages, Time Warner not only produces the content of the messages (ie, "Batman Returns" and "V for Vendetta"), but they also own the cable systems and TV Networks to distribute them. They can promote them online via their Web sites and sell branded merchanise like "Batman Returns" t-shirts and action figures in retail stores. So, this sender of messages controls the content that receivers listen to, read and watch. It also controls the media channels from which receivers get the information and entertainment. Should this make us uneasy? Some people say "yes." However, other people point out that because companies like Time Warner produce so many media products, they can capitalize on economies of scale. (See this concept explained on page 465 of your textbook.) In essence, think of economies of scale this way: Time Warner needs to purchase DVDs to burn and distribute its movie content. It purchases DVDs in bulk because it has so many distribution outlets to ship them to. Because Time Warner is buying those blank DVDs in bulk, there's a reduction in the unit price of each DVD. For instance, 100 DVDs may cost $1 each, 1,000 DVDs may cost 85 cents each, 10,000 may cost 70 cents each, and so on. When a company like Time Warner buys in bulk - say 1 million blank DVDs - they save a lot of money and that's a savings they can pass along to consumers. Proponents of media consolidation point to economies of scale and say that its an example of how the consumer/receiver benefits. Critics of media consolidation say that these mega-corporations do save money, but they don't pass it along to the public; rather, they pocket the savings.
* Big oligopoly companies can adapt to flexible markets. (See this concept explained on page 469 of your textbook.) As your textbook says, "80 to 90 percent of new consumer and media products typically fail" (p. 469). Can small companies sustain this loss? No. Mega-corporations can, however. Disney and Time Warner, for example, produce so many movies a year that they can afford for some of them to flop. As long as a motion picture or two makes it big and becomes a blockbuster, it offsets the failed movies that come out of its pipeline. Proponents of consolidation say that big corporations like Time Warner and Disney produce higher quality products because they have the big budgets to do so, and they can weather a big financial loss. Critics of consolidation claim that if there were more independent and smaller companies producing films, each film would be of top quality because they would know that its "do or die." Critics say movies like "Herbie the Love Bug" wouldn't get made, but something much more original and meaningful would be created...and the public would gain a better quality media product.
* With any merger or acquisition, there's a loss of jobs. A merger of two companies implies that there are now two Senior Vice Presidents of Research and Development instead of one, 10 marketing executives instead of 5, 50 writers instead of 25, etc. The newly-merged company doesn't need all these people; thus, layoffs ensue following a consolidation or buy-out. Critics of media consolidation say that the merger of companies has triggered a loss of jobs in the media industry. Proponents of media consolidation say that new jobs are created when companies merge. Mergers often occur in order for companies to innovate and create new products. New product creation requires that individuals with different skill sets get hired in order to produce innovative work. For instance, for every printer laid off, a web designer might be hired. Proponents of consolidation say it works out that the same number - or more - jobs are created as result of big mergers or acquisitions.
* Finally, when companies are as big as the media oligopoly players, the question becomes: Does any smaller compay stand a chance of establishing itself in the media industy, and can it grow in a market dominated by mega-corporations? If the answer is "no," then perhaps this is an anti-trust issue. Maybe the government needs to step in and break up the oligopolies in a way that allows for competition. So far, as your textbook states on pages 476 and 478, the major media corporations have gotten around these anti-trust laws by diversifying their holdings and not becoming monopolies in any one area of the Communication Process. This is shrewd, but is it ethical? Critics of consolidiation say that the government should step in and regulate the media industry so that smaller companies have a chance to compete. Proponents of consolidation disagree and say that in a free market economy, the best players win. They disagree with regulation.
III. The Federal Communication Commission & the Telecommunications Act of 1996
So, what government organization has the power to regulate the media industry anyway? The answer is the Federal Communication Commission (FCC). The FCC was born out of the Radio Act of 1927 (then called the Federal Radio Commission). At that time, radio station owners were jamming and over-riding signals of competiting stations. Stations needed to obtain a license in order to broadcast their radio programming; however, they did not need to stick to a certain frequency (ie, 102.1 FM). The Radio Act of 1927 changed that. The Federal Radio Commission was established and the government took control of the airwaves. It granted radio station operators licenses for a particular frequency on the radio dial in return for the operators' commitment that they would serve in the best interest of the public. Without getting too technical, radio frequencies exist within the electromagnetic spectrum of frequencies. There are frequencies that are reserved for military use, maritime use, radio use, television use, etc. The important fact to note is that the spectrum is a finite resource. As such, only so many licenses can be granted in order to utilize the resource. So, the government - the Federal Radio Commission, which became the Federal Communication Commission in 1934 - regulates the awarding of licenses and it polices license holders to ensure they serve in the best interest of the public with their programming.
Today, the FCC regulates radio, television, phone and satellite communication. You can get a broader overview of the FCC by clicking on its website: www.fcc.gov <http://www.fcc.gov/>. From the 1950s through the 1980s, the FCC strictly regulated the communication industry. It mandated that no one company can own more than 7 AM stations, 7 FM stations, and 7 TV stations nationally, plus only one radio station per market. Then, in the 1990s, a wave of deregulation ensued. The FCC - whose Commissioners are appointed by the President of the United States - relaxed restrictions on ownership with the Telecommunications Act of 1996. The TCOM Act of 1996 is extremely significant because it allowed for the consolidation of the media industry. Suddenly, with this act, there were no restrictions on what a company could own nationally. In addition, the TCOM Act relaxed restrictions on ownership of stations within a single market (like Philadelphia, for instance). As a result of this deregulatory act by the FCC, more than 50% of radio stations changed owners between 1996 and 2000, and the number of radio stations declined by 1,000 overall.
IV. The Outcomes of Deregulation: Clear Channel
The TCOM Act of 1996 paved the way for Clear Channel Communication to purchase and operate over 1,200 radio stations in the United States. In order to get a sense of how big Clear Channel really is, click here to be taken to a website detailing radio ownership and the market reach of the top owners. Notice that Clear Channel has a near-monopoly hold on the broadcast radio industry. Certainly, this growth and expansion under the TCOM Act is good for Clear Channel, but is it good for us? Many people say "no." They base their claims on the fact that Clear Channel supposedly charges high advertising rates to companies that want to promote themselves on any of these 1,200 stations. Clear Channel has also been blamed for the demise of new artists or obscure artists whose songs simply don't get played on the company's highly regulated playlists. As a big player in the radio industry, Clear Channel broadcasts syndicated programs (e.g., Rush Limbaugh, Carson Daley, etc.) rather than local programs. Critics ask, "Is Clear Channel really serving in the best interest of the public?" What do you think? To a great number of people, Clear Channel has become the poster organization for deregulation and consolidation gone bad.
V. "The Insider" and Its Lessons in Corporate Interests vs. Right to Know
And speaking of consolidation gone bad, there are plenty of lessons to be learned from the movie, "The Insider." As exhibited in the movie, Jeff Wigand, the former Vice President of Research and Development for Brown and Williamson Tobacco Company (B&W), had a story to tell about the unethical practices of big tobacco companies. Specifically, Wigand knew that B&W and other tobacco companies were using ammonia chemistry to spike cigarettes and increase their potency and addictive properties. Furthermore, the CEOs of these tobacco companies, when questioned by Congress about their knowledge of the addictive qualities of cigarettes, feigned ignorance. Wigand knew they committed perjury in their testimony. So, you see, Wigand had quite a big story to tell the American people.
Lowell Bergman, a producer with the famed 60 Minutes news magazine show, encouraged Wigand to go on national TV and expose this corruption. Wigand ultimately consents to do so and jeopardizes the health and well being of himself and his family to tell this important story. What happens? He sits for the interview, compromises his relationship with his wife and daughters, and 60 Minutes decides to scrap the interview. Why? Not because the story wasn't newsworthy - as Bergman points out - but because the executives at CBS said so. Why was the news magazine show and CBS News pressured by the corporate executives to nix the Wigand interview from the story? The answer: CBS corporate was on the block to be sold to Westinghouse Corporation. The executives at CBS feared that B&W could sue them for having Wigand tell his story (referred to in the movie as "tortious interference") and therefore, be embroiled in major lawsuit. The lawsuit would scare Westinghouse away from purchasing CBS, and the executives who stood to make millions of dollars as a result of the sale didn't want to compromise these fat pay-outs. Here we see corporate interests winning out and the public's right to know about this major health threat being trampled upon.
We know from the Nine Principles that "journalism's first loyalty is to citizens" and "journalists must serve as independent monitors of power." Well, when applied to the true story presented in the movie, "The Insider," CBS News was not an independent monitor of power because it was controlled by corporate interests. These corporate interests got in the way of the journalists at 60 Minutes being loyal to the American public and telling the story about the "spiking" of cigarettes. Consider the millions of people who smoke cigarettes in the United States - and the people who love them. We needed to know this information. We didn't get it because the watchdog press was muzzled by big corporate greed.
Click here for CJR's "Who Owns What" website: http://www.cjr.org/resources/ Click on the links for: Time Warner, Disney, Viacom, News Corporation, General Electric/NBC Universal, and Clear Channel.
Clear Channel Communications is reviled for its massive takeover of radio stations nationwide. What are the implications of a company like this getting so big? Find out by clicking here and reading Journalism.org's Radio Ownership overview. http://www.stateofthenewsmedia.org/narrative_radio_ownership.asp?cat=5&media=8
The media industry is a consolidated one. Just look at CJR's "Who Owns What" website and you'll understand the power and influence of these major media "senders" - meaning, the content producers and distributors. How did these companies grow to become so big? The political landscape and deregulatory measures such as the TCOM Act of 1996 fostered a "merger mania" that has redefined the media industry in the United States. Regardless of whether or not you aspire to seek a role in the field of communications in the future, you will always be a media consumer. So, let me ask you: Are you in favor of consolidation or against it? Offer arguments in favor of consolidation if you agree with it, or against consolidation if you disagree with the ever-merging media landscape. Once you have stated whether you are "for" or "against" consolidation and why, I'd like you to consider the government's role in consolidation. Specifically, what role should the government play in leveling the media playing field? Should it regulate against further consolidation? Should it relax restrictions on mergers and acquisitions further so as to encourage competition? Has consolidation affected our access to information and our right to know? Use Clear Channel Communications to illustrate the points in your reply to these questions. (To post your entry, click on "Create Message" and label it "Ownership - Your Name.")