Media consolidation, reloaded

In early June 2003, the Federal Communications Commission voted to loosen restrictions on media ownership in the United States. To recap and to summarize the new rules as stated in a 257-page document released by the FCC in early July:

• A single company may now own print and broadcast outlets in the same markets, in areas with nine or more TV stations, although such cross-ownership is not allowed in markets with three or less.

• A single broadcast company can now reach up to 45% of the national audience, up from 35% (a limit that had been in place since the 1940s). Fox and Viacom had already exceeded the 35% limit.

• A single company cannot own two of the top four stations in a market (unchanged from previous rules).

• The same limits exist with respect to radio ownership and with respect to mergers between the top four networks.

Although a number of powerful legislators, including Sen. John McCain, R- Ariz., as well as several Congressional committees, are looking at ways to contest the FCC decisions; many consolidation actions already underway are probably not at risk. 

But let's take a few steps back for a global perspective. When I speak with US-based people around the industry, I am struck that so many in the U.S. don't realize the media consolidation phenomenon is worldwide. 

As one example, media ownership proceedings in the U.K. seem to echo the struggle currently underway between the FCC, Congress and commercial interests in the U.S. In early July, for instance, the U.K.-based Advanced Television newsletter reported a flurry of deal-making surrounding a new communications bill, in attempts to strike a balance between foreign ownership of U.K. interactive TV channels, while retaining "quality and independence of British programming." This sounds familiar to anyone following the media ownership debate in the US.

As for the specific commercial media players, let's use Rupert Murdoch's News Corp. as an example. News Corp. is one of fewer than a dozen media conglomerates worldwide. In the U.S., News' bid to acquire Hughes Electronics and the 12 million subscriber DirecTV satellite TV service from General Motors has garnered hundreds of news headlines (many from outlets and publications owned by News Corp. competitors, I might add).

But an acquisition of DirecTV would simply parallel what News Corp. has already accomplished Europe, Asia, Oceania and elsewhere in the Americas. In addition to its bid for DirecTV in the U.S., News Corp. holds stakes in BSkyB (U.K.), Foxtel (Australia), Sky Brazil and Sky Mexico in Latin America, Sky Italia (Italy), and SkyPerfectTV in Japan.

Taken as a whole, News Corp. is a real powerhouse, with content holdings such as Fox News and Fox Television. And the last time you saw the Twentieth Century Fox intro at the movies (the one with the searchlights swinging over Hollywood), did you notice the words "A News Corporation Company" along the bottom of the screen? News Corp. also owns thirty-five television stations, a number of TV networks and production houses, Harper Collins Books, and holds ownership stakes in newspapers in the U.S. U.K. and Australia, and in sports franchises that include the New York Knicks basketball team and Los Angeles Dodgers baseball team. All of this certainly qualifies News Corp. as a top global media force.

The company continues in its momentum; this year its Sky Italia satellite service will launch a full-time news channel, called SkyTG24. And Independent Newspapers of New Zealand, 45% owned by News Corp., is considering buying the remaining 34% of the New Zealand Sky satellite TV service (it already owns the other 66%).

What else makes News Corp. so powerful? One factor is its competitors' contention that it can conduct a strategy of "vertical foreclosure," which, in a recent statement issued to the FCC, they have contended is anti-competitive. They say that one result will be that Fox-produced programming and retransmission rights would be granted only under less-favorable business terms than those given to News Corp.'s own satellite services and stations owned and operated by Fox.

Predictably, News Corp. dismisses accusations of undue power as folly, saying that "... the commenters (sic) fear is not that News Corp. and Hughes will act anti-competitively, but rather that they will compete more effectively."  As for vertical foreclosure, News Corp. says that they would not have "sufficient market power to engage in" such a practice. Somehow, this reminds me of confirmation testimonies by so many candidates for government appointment, saying that they would never advocate or engage in (or practice, or support) a particular practice or position. Then, once appointed, they turn around and do exactly what they said they wouldn't do - knowing that the opponents would have a difficult time countermanding the newly empowered.

If News Corp.'s competitors' contentions are true, it would affect you, since telecommunications carriers introducing video services would certainly fall within the category of service providers and stations not owned or operated by Fox or News Corp. It would affect you because a higher programming cost would inevitably have to be passed on your subscribers, "somehow." In turn, if your programming packages are priced higher than your satellite or cable competitors... You can get the picture (even if that picture costs more...).

Another example of News Corp.'s potential power stems from its somewhat ideological editorial slant.  To the extent that Fox-News Corp. becomes the major source of information for large groups of subscribers, this will have the effect of shutting out competing views - or at least making them less accessible.  Whether you agree with Fox's editorial slant or not, you have to admit that a diminishment of alternate voices would be harmful to those who rely upon the media for their news and to validate their views of the world. Consumer groups commenting to the FCC agree, adding that News Corp.'s ownership of other types of media, such as magazines and local broadcasters could result in some Fox-only markets.

Oh yes, they also have technology holdings. Media service providers dealing in video services are bound to come across NDS, the News Corp.-owned software infrastructure supplier whose products protect content from theft. In the "telco video" world, its Synamedia product is sold to telecommunications carriers having DSL and fiber access to their subscribers; it offers parallel products to cable and satellite carriers. So talk about vertical integration: in News Corp.'s case, it extends from content-creation all the way to the set-top box!

I realize that a majority of readers of this publication are located in North America, but that at least some of you have professional connections elsewhere in the world.  Just as US and Canada-based telecom carriers should consider media consolidation to be a threat, whether from powerhouses like News Corp. or from one of the others, so should those elsewhere in the world. And when it comes to your position as a telecommunications service provider offering media services, I would join many others in encouraging you to remain vigilant.

I hope you're having a great summer! Next month, I'll return to my theme of service providers.

Steve Hawley is principal consulting analyst of Advanced Media Strategies.  He may be reached via his Web site, http://www.tvstrategies.com.