April 18, 2005
Remember all that outrage a year ago about the deepening concentration of control over the media? How more and more news and entertainment channels were falling into fewer and fewer hands, and how regulatory changes would enfeeble the already limp safeguards against media monopoly?
Well, never mind all that. Everything’s fine now. The media are actually trimming back.
“Big media seem to be shrinking,” is one Wall Street Journal headline. “Small is beautiful, again,” goes another. “Big biz in spinoff zone,” says the Hollywood Reporter. “Breaking up is easy to do,” says BusinessWeek. And from London’s Guardian newspaper: “For years, consumer groups have been watching with alarm the creeping consolidation of the American media. They might no longer need to worry.”
True, a mini-wave of divestiture is rumbling through the media. Some of the more bloated conglomerates are selling off holdings. Number 3 Viacom is looking to split in half, with balding CBS atop one division and green-haired MTV and associated spawn heading up another. Disney may downsize, ditto Time Warner (possibly shedding AOL), Liberty Media wants to unload its Discovery franchise.
So media consolidation is over? Are we heading toward nimbler, dispersed ownership under diversified control, responsive to a broader range of popular concerns, free from backroom conspiracies and Wall Street machinations?
Not quite. To be sure, the efficiencies sought from unified ownership — those synergies — have remained elusive. Time Warner can’t turn $200 million squandered on some bad movie into a gold strike by force-feeding the stinkeroo onto HBO and getting People to tout it on its cover. Disney can’t have Tinker Bell host beach volleyball on ESPN2 or put Ted Koppel on Space Mountain.
But it’s not operational disappointments that are derailing the media bigness train. This isn’t about rational management, or even about monopoly. It’s about making money. It’s about Wall Street.
U.S. industry buys and sells itself cyclically, puffing up and blowing out. The economic rationale is as predictable as a moonrise: When everybody’s bulking up it’s to profit from synergies and scale; when everybody’s selling it’s to rededicate to their core business and unlock shareholder value (meaning goose the stock price.)
The economics is often bogus. Most mergers don’t work, and most divestitures are mere preludes to other mergers. But the economics doesn’t matter, because the finances are unfathomably lucrative. One estimate is that splitting Viacom will cost $200 million — that’s $200 million in fees, commissions and premiums for covens of advisers, lawyers, middlemen, plus mention the executives themselves, who will anoint their heads with moola beyond imagining.
And standing behind those transaction artists is the private world of investment capital. There, rich people — we call them high net-worth individuals — weary of the soporific S&P, hunger for the next piping-hot media plays, once the high-growth glamour units are unshackled from their stolid conglomerate cousins. Who wants shares in CBS when you can invest in MTV, which made $527 million last year on revenue of $1.09 billion — margins unheard of outside the crack trade.
Big money wants in, and will pay top dollar. Advance indications are that AdMedia Partner’s forthcoming annual outlook survey will find deep-pocket investors more eager than ever to pay higher prices than ever for media properties.
So is the danger of concentrated media control gone? Of course not. First, the problem was never one of mere bigness. In the early days of movie-making a relatively small cartel, The Edison Trust, controlled the industry by squatting on the critical film processing patents. Much later the broadcast networks had tyrannical sway over every stage of TV programming, from production to distribution to post-broadcast syndication. The issue is control, not size.
Besides, media companies won’t get smaller. Don’t mistake a reconfiguration for a radical change in scale. Just because joining unlike units into clunky conglomerates didn’t make sense doesn’t mean we won’t now see them realigned into vast companies that do.
The era of big media is far from over. The advantages of being able to control both the companies you buy from and the ones you sell to haven’t been repealed. We’re about to learn once more the most important truth about the transformation of our media into pure financial assets: Providing news and cultural programming that actually corresponds to, amuses, ennobles and betters our community isn’t something media owners oppose; it just isn’t what they do for a living.