MEDIA M&A AND INDUSTRY STRUCTURE
MEDIA M&A AND INDUSTRY STRUCTURE
The increased concentration of ownership resulting from the flurry of mergers and acquisitions during the past decade has dramatically changed the structure of the industry. This involves three relevant markets: local me- dia, the U.S. national market, and the global market. There have been dra- matic changes in each of these relevant markets.
3. STRUCTURE AND CHANGE
Local Ownership Concentration
The greatest change in the U.S. market resulted from the previously dis- cussed relaxation of ownership rules that were part of the Telecommunica- tions Act of 1996. Local radio and television stations have increasingly come under the same ownership. The result has been a dramatic increase in measurements of concentration.
In radio, depending on the market ranking, one owner can control be- tween five and eight stations in the same service area with between three and five being either AM or FM, respectively. Based on FCC Reports for March 2001 in the largest 50 markets, the largest owner garnered 36% of all radio station revenues and the largest four owners 87% of all revenues. The largest four owners revenue share for March 1996 was about 75%. This con- centration ratio increases in smaller markets so that in the largest 283 radio markets, the largest firm in each market accounted for an average of 45.8% of revenues and the largest four owners in each market accounted for 92.8% of revenues. As measured in terms of distinct owners present in each mar- ket, in March 2001, the average number of owners in each market was 10.3 as compared to 13.5 in March 1996 (Review of Radio Industry, 2001).
Relative to program diversity, the FCC found that the number of distinct radio formats in each market has been stable at about 10 during the 1996 to 2001 period. The data indicate that the number of formats has declined in the larger markets while they have increased in smaller markets (Review of Radio Industry, 2001).
Concentration of ownership is less critical in the television industry where rules are stricter than radio. As described earlier, in September 1999, the FCC introduced new duopoly rules relative to TV station ownership. (Local TV Ownership Rules, 1999). Among the rules is one that allows one owner to own two stations within one market as long as there are eight in- dependent TV “voices” after the merger. According to a filing with the FCC, this allowed for mergers in approximately 70 markets, and mergers have taken place in approximately 50 of these markets (Reply Comments of Con- sumer Union et al., 2002). These mergers aside, due to the fact that owners are limited to one or two television stations per market, concentration ratios based on revenues in a local market are not meaningful.
Cross-media ownership is a second issue in local market concentration. In recent years, the focus of the debate has shifted from defining relative product markets to an analysis of the “independent voices” or independ- ently owned media within a Designated Market Area (DMA; Local TV Ownership Rules, 1999).
In radio–television cross-ownership, within a DMA, one owner could hold one TV station (or two if allowed under the TV Duopoly Rules) and up to eight radio stations, depending on the number of independent voices re-
OZANICH AND WIRTH
maining after the merger. The FCC is currently reviewing its regulations lim- iting broadcast and newspaper cross-ownership (In the Matter of Crossownership, September 20, 2001). Arguably, if not for these limitations on cross-media ownership, local media concentration would be far greater. Critics have charged that even with the FCC’s focus on retaining “independ- ent voices,” most local markets are at best oligopolies and many smaller mar- kets are monopolies (Bagdikian, 2002; Consumers Union et al., 2002).
National Concentration
Whereas FCC policy has evolved to a focus on the number of “independent voices” present in a local market, aggregate or national ownership of media properties continues to be shaped by the FCC policy that caps national ownership of television stations to a reach of 35% of U.S. television house- holds as well as by antitrust policy in general. In spite of these policies, the trend toward consolidation has accelerated in recent years.
Although somewhat restricted by public policy, the aggregate concen- tration of ownership within specific media industries has increased. Ac- cording to the FCC, whereas the number of commercial radio stations has increased 7.1% since March 1996, the number of owners of radio stations has declined 25% (Review of Radio Industry, 2001).
Likewise, TV station ownership has bumped up against the limitations established by the FCC. A confounding factor is that broadcast station own- ership is a strategic concern in order to “efficiently reach large audiences, and thus serve as the basis of the major networks” (Compaine & Gomery, 2002, p. 222). Thus, the largest five group owners have television properties that reach between 27% to 35% of the U.S. population.
For nonbroadcast media, national concentration is more pronounced than broadcasting. The cable television industry has become increasingly concentrated, with the six largest MSO’s providing service to 60% of the ca- ble subscribers in the United States (Kagan World Media, 2002; SG Cowen Securities Corp., 2002). While stabilizing, there will likely be a continued trend toward cable concentration including mergers with traditional tele- communications companies.
Chain ownership of newspapers has been well documented (Busterna, 1986; Compaine & Gomery, 2000). The Newspaper Association of America (2002) indicated that 20 newspaper companies account for about 70% of the circulation of daily newspapers.
The film industry and music industry are subject to an even greater level of concentration. The 10 largest film distribution companies, owned by six conglomerates, accounted for 92% of theatrical box office revenue in 2000. The music industry is also dominated by five companies that accounted for 90% of all revenues in 2000 (Wall Street Journal, 2001). The music industry is
3. STRUCTURE AND CHANGE
further complicated by the fact that there are few profitable artists. Of the 6,455 new CD releases in 2001 only 114 showed a profit (Ordonez, 2002). The contractual control of these profitable artists dictate the structure of the industry.
Conglomeration
Clearly there is ample evidence of increased concentration within specific industries. More pronounced is the trend toward media conglomeration. The easy access to capital combined with the use of highly valued common stock to purchase media properties financed this trend toward conglomera- tion. Strategically driven by the concepts of synergy and convergence, in- vestments in new media, and a desire to control the leveraging of content over the largest number of distribution channels, media conglomerates have been on an M&A binge during the past decade as evidenced by the data provided in Table 3.1.
The degree of conglomeration is determined by examining ownership structures. Depending on the analysis and threshold measures for domina- tion, critics charge that the major media in the United States are owned by between 9 and 23 conglomerate companies (Bagdikian, 2002; Columbia Jour- nalism Review 2002; The Project on Media Ownership, 2002).
Globalization of Media Ownership
New distribution technologies, regulatory liberalization and the globaliza- tion of capital markets have allowed media conglomerates to expand transnationally. Of the major media conglomerates, two of them are non-U.S. companies, Bertelsmann (Germany), and Vivendi-Universal (France). The drive to expand transnationally is driven by the same factors that have driven expansion in the United States—a desire to leverage content products over as many distribution channels as possible, anticipation of convergence of distribution channels, a desire to develop new markets, and the financial attractiveness of the deals. Critics have charged that conglomerate domina- tion of media ownership on a global basis is resulting in both a financial and cultural domination of Western companies (Baker, 2002; Schiller, 1999). However, it is significant to note that most of these companies rely upon lo- cally produced content to some extent.