I was just digging through some old files and came across a quote that I found entertaining. Back in 2003, when he was still president and chief operating officer of Viacom, Mel Karmazin said with reference to Microsoft, AOL-Time Warner, and Comcast: “I can’t imagine being a competitor with any of these guys.” At the time, some media worrywarts made great hay of Mel’s quip and claimed, as Gene Kimmelman of Consumers Union argued at the time, that it proved how “Media moguls themselves admit their desire to avoid real competition within their industry.”
Utter rubbish. In fact, just six years after Karmazin spoke those words, Microsoft finds itself in a heated war with Google on all fronts, AOL-Time Warner has crumbled (even Time Warner Cable and Time Warner Entertainment got divorced!), and Comcast is now squaring off against telco and online video competitors that were unfathomable at the time (not to mention traditional satellite TV competitors.) In the meanwhile, Karmazin abandoned Viacom and today, as CEO of Sirius XM, is struggling to find a way to make the satellite radio universe survive the ongoing digital music bloodbath thanks to unforeseen competition from online music services and a little thing called the iPod!
It’s proof positive that media markets and digital technologies always evolve faster than most people — even smart industry titans like Karmazin — anticipate.
From the satirical Book Titles if They Were Written Today:
Then: The Wealth of Nations
Now: Invisible Hands: The Mysterious Market Forces That Control Our Lives and How to Profit from Them
Funny how empowering consumers to choose for themselves is “manipulative.” Oh, right, I forgot: people are stupid and/or lazy, so so elites should chose for them!
One of the reasons that so many of us here take issue with proposals to expand regulation of communications, broadband, and media markets is because we have studied the horrendous inefficiencies of economic regulation in practice. We oppose regulatory proposals not because of a “blind faith” in free markets, but because we understand that even when markets stumble they correct themselves quicker and more efficiently than regulatory systems do. One can profess the supposed theoretical benefits of enlightened “public interest” regulation all they want, but the facts are the facts. And the facts do not support the proposition that government regulation generally enhances consumer welfare.
In that regard, Tim Lee’s new Net neutrality report for Cato does a nice job of surveying some of the past unintended consequences of regulation. Also, even though it is now 10 years old, I highly recommend “Economic Deregulation and Customer Choice” by Jerry Ellig and Robert Crandall. It’s an outstanding overview of why economic regulation of various industries failed consumers so miserably in the past.
But if you want even more shocking proof of how horrendously inefficient communications regulation can be in practice, then you must read my PFF colleague Barbara Esbin’s two essays this week on the Universal Service Fund (USF): “The High Cost of USF Support,” and “More FCC Support Fund Follies.” In these two essays, Esbin walks the reader through various grim reports and statistics that have been released recently documenting the failures of the USF.
Continue reading →
Information Week has an article in its September 29th issue that illustrates why regulatory interventions to temper Google’s dominance are folly – things like antitrust scrutiny of the Yahoo! deal. But it takes a little understanding of how markets work.
The article lists all kinds of innovative startups that plan to challenge Google and take the field of search in all kinds of new directions. “The burst of activity over the past 12 months is more befitting a land rush than a market dominated by one powerhouse,” it says. Read it. There’s lots of interesting stuff going on.
But it’s not going just because. It’s going on because there’s a dominant player in the market. It’s going on because venture capitalists, innovators, and entrepreneurs can see the large profit that Google is making, and they want a piece of it. Excess profits act as an invitation and a spur to others, bringing new businesses and business ideas to that market.
If profits are “managed” and “brought under control” by curtailing a company’s ability to make deals (like Google would make with Yahoo!), that signal – that there is money to be made here – dissipates. Fewer innovators come to the market.
A second signal also goes out: “If you come up with something truly revolutionary in this field, we’re going to reward you with a haircut.” That dissuades investors – telling them that high profits will not come to them if they produce something great.
It’s a shame that the federal government is working to stanch the flow of innovation coming to search by going after Google.
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Posted in: Antitrust & Competition Policy, Media Regulation 
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