March 2005

It seems like each week brings another report of a major media breakup or divestiture. As I mentioned here and here in previous essays, various media firms have recently been considering, or are engaged in, major divorces or divestitures. In recent weeks or months, Viacom, Liberty Media, Sony, Time Warner, and Cablevision have all been pondering or carrying out major spin-offs or restructuring plans.

This week it’s Disney’s turn. After years of feuding with the Weinstein brothers over in their popular and critically acclaimed Miramax Films studio, the two are calling it quits and filing for divorce. (Can you blame the Weinstein brothers after Disney apparently told them to turn down the production rights for the “Lord of the Rings” movies?!?) Disney will be losing one of the most respected movie studios in the world once the divorce is finalized.

I know I’m starting to sound like a broken record on this issue, but I just have to ask once more: Where are all the media critics now? Whenever two media outlets propose a marriage, the critics lament the supposed coming death of diversity and democracy and all that jazz. But when we find ourselves in the midst of another wave of media DE-consolidation, these Chicken Littles are nowhere to be found.

The high-profile battle over the removal of Terri Schiavo’s feeding tube is about more than one woman’s life. It is the beginning of an important dialogue on American views about life while science and technology progress at rapid speed.

To read more, see my column here. This is an incredibly important issue for transhumanists and others who value somatic choice.

[[cross-posted from PFF Blog]]

Last week, I blogged about how the media industry is in the midst of a major shakeup and de-consolidation craze, but few seem to notice or care. I noted how even a whisper about a potential media merger or joint alliance garners front-page headlines, replete with numerous quotes from the Chicken Little media critic crowd about how the whole world is going to hell. But when the opposite is occurring, and firms are getting smaller or selling off assets, you don’t see or hear a word about it.

Today, however, the Washington Post’s Frank Ahrens, one of the best media beat reporters out there, proved to me that at least one person in the press is taking notice. In a fine piece entitled, “Media Firms Piece Together New Strategies,” Ahrens notes that: “After a decade of growth by acquisition, media conglomerates such as Viacom, Sony Corp. and Time Warner Inc. are beginning to reconfigure, pushed by new technologies and changing consumer habits. At the same time, the 1990s cookie-cutter model of a media giant–take one television network, add a movie studio, theme parks, music company and maybe a pro sports team–is falling from favor, as companies settle on their core identity, analysts say.”

In addition to the examples I cited in my post last week, Ahrens provides many other examples of media providers scrambling to come up with new strategies to meet the growing competition from new technologies and media outlets. In many cases, these old giants are shedding properties and taking a “back-to-basics” approach to meeting this challenge.

Again, as I asked last week: Where are all the media critics now?

P.S> Chapter 3 of my forthcoming book “Media Myths” contains an extensive discussion of how the media industry often goes in waves or cycles like this, with: (1) consolidation being in vogue for a few years as firms seek out “synergies,” but then many of those investments don’t pan out or the synergies never materialize, and then (3) a wave of divestitures ensues as firms scramble to get back-to-basics and focus on their core competencies. This is called the marketplace, folks. Media critics think it’s all some sort of grand conspiracy to destroy democracy or competition, but in the end, we end up with a ever-expanding universe of media options at our disposal. In sum, despite what the Chicken Littles predict, the sky never falls.

The radio industry is commonly cited by many media critics as a poster child for the supposed evils of media consolidation. While it is true that a large number of acquisitions took place in the radio market following relaxation of the radio ownership rules back in 1996, the reality is that the radio marketplace–properly defined–is very competitive and nowhere near being the “monopoly” that some critics claim.

Take, for example, all the hand-wringing over every media critic’s favorite villain: Clear Channel Communications. If you believed the rhetoric spouted by the critics, you’d guess that Clear Channel, which now owns over 1,200 stations nationwide, has a stranglehold on this marketplace. OK, now here’s a quick reality check: Clear Channel’s 1,200 stations represent less than 10 percent of all radio stations in the America. That’s right, less than 10 percent. Does that sound like a monopoly to you?

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“[T]he Scarcity Rationale for regulating traditional broadcasting is no longer valid.” So begins a stunning new white paper from the Federal Communications Commission. In the paper, “The Scarcity Rationale for Regulating Traditional Broadcasting: An Idea Whose Time Has Passed,” author John Beresford, an attorney with the FCC’s Media Bureau, lays out a devistating case against the Scarcity Rationale, which has governed spectrum & broadcast regulation in the United States for over seven decades.

Calling the Scarcity Rationale “outmoded” and “based on fundamental misunderstandings of physics and economics,” Beresford goes on to show why just about everything the FCC every justified on this basis was misguided and unjust. He points out what countless economists have concluded through the years, namely that:

(1) the scarcity the government complained of was “largely the result of decisions by government, not an unvoidable fact of nature.” In other words, the government’s licensing process created artificial scarcity.

(2) a system of exclusive rights would have ensured more efficient allocation of wireless resources.

(3) even if there ever was anything to the Scarcity Doctrine, there certainly isn’t today in our world of information abundance.

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Have you ever noticed how media critics claim the world is going to end whenever two media companies propose any sort of merger or partnership, but when the opposite is taking place these people are nowhere to be found? Indeed, we are in the midst of another wave of media DE-consolidation with numerous media companies exploring divestitures or break-ups, but few seem to notice or care.

Consider today’s announcement that media giant Viacom is preparing to split itself in two firms: the old broadcast radio and TV properties would go into one company; the cable and movie studio holdings into another. Viacom has spent the last decade amassing as many media properties as they could get their hands on, but like many companies these days, they have come to believe that it probably makes more sense to avoid spreading themselves too thin and instead are refocusing their efforts on doing just a few things very well.

Liberty Media is doing the same thing. John Malone’s continuing push to break apart the firm into smaller, independent media operations has generated little media attention, but there’s no doubt he’s on the way to breaking up his company into smaller units.

Same goes for Cablevision. In late 2003, the firm announced that it was spinning-off its satellite and national programming arm into an entirely new, distinct company, Rainbow Media Enterprises. And recently there’s be a move by the board to get rid of its “VOOM” high-def satellite service.

Isn’t is funny how you don’t hear much about this in the press, (unless you’re a nerd like me that relishes the business stories buried deep in the back pages of the Wall Street Journal and business magazines)? I guess this really isn’t all that surprising. As Ben Compaine, co-author of the brilliant Who Owns the Media?, correctly observes, “Break-ups and divestitures do not generally get front-page treatment.” Too true. By contrast, however, if Cablevision, Liberty, or Viacom were proposing acquisitions right now instead, we’d see front-page coverage in every paper complete with numerous quotes from the Chicken Little crowd about how the end times were near.

I love that title from this new article in the latest Economist. The article is refering to the growing influence that mobile phones are having on society. There seemingly isn’t anything a cell phone can’t do for you these days, which has led to others referring to them as the “Swiss Army Knife of consumer electronics.”

You can play games, download videos, surf the Net, type e-mails, take pictures, schedule meetings, and oh yeah… you can call people too! Regardless of what you want to call them, mobile devices are revolutionizing the world of communications and challenging all the traditional assumptions about this sector being a natural monopoly. It always kills me to watch members of Congress or FCC regulators standing at a podium delivering a speech about how nothing has changed in the world of communications and how some of the old wireline players are still poised to quash all the competition. And then you look down and affixed to their waistlines is a veritable Batman-belt full of wireless gadgets. I’m not kidding, nobody on this planet uses more wireless devices than a U.S. Congressman. If you took away their Blackberries for a day, they’d have to shut down the government. (Not a bad idea now that I think about it.)

Blocking Blockbuster

by on March 17, 2005

Today’s Wall Street Journal reports that the Federal Trade Commission is expected to file a lawsuit to block Blockbuster’s move to takeover Hollywood Entertainment, a competing video rental company.

Here again is a classic example of how backward looking antitrust officials can often be. I suppose an argument could have be made that this was anti-competitive five years ago, when everyone still drove down to the local video store to get their movies. But come on, the world has changed a lot since then! Certainly most antitrust officials must have heard of Netflix by now. Netflix alone is decimating the traditional movie rental business and has already forced it to change its business model by eliminating late fees and moving to adopt their own online services.

Meanwhile, on-demand, pay-per-view video offerings are flourishing. Turn on any cable or satellite service and start flipping through the pay-per-view channels. It’ll take you a short eternity to scan all the options at your disposal.

And then’s there’s Internet video. True, it’s still in its infancy, but for a couple of bucks you can already download and watch most your favorite movies on your PC via

Meanwhile, the costs of DVDs continue to fall to the point where if you plan on watching a movie more than once, you might as well just buy it for your personal collection. Heck, WalMart has giant bins of movies on sale every day for a couple of bucks.

So the net result of the FTC blocking a Blockbuster-Hollywood Video merger will just be to stop two dying dinosaurs from having a chance to survive this coming storm. Once again, antitrust officials got the relevant market wrong and failed to appreciate the rapid pace of technological change.

Can’t you just picture it, Dick Notebaert, CEO of Qwest, yelling “food fight” in the manner of Bluto Blutarsky (John Belushi) in Animal House. Building upon James’s recent entry about the MCI merger, a new group has entered the food fight between Verizon and Qwest over who should buy MCI. The CLEC carriers – XO Communications, Savvis Communications, Eschelon Telecom, Cbeyond Communications, Covad Communications and Broadwing Communications announced yesterday that they formed a working group to challenge the acquisitions of both MCI and AT&T by legacy Bell companies.

The group consists of antitrust lawyers and economists, so it is clear that they intend to build an antitrust case against these mergers. Here we go, back to the “market definition” question. Will antitrust regulators look to telecom law to define the market, even though everyone agrees it is outdated and doesn’t reflect the market? Will they poll customers and interview people within the industry, and use this as the failed basis for the market definition, as was the case in DOJ’s lawsuit against Oracle?

Qwest started this food fight with their rent seeking behavior, in trying to convince Congress that it is the preferable candidate to acquire MCI (the heck with what the MCI shareholders say!). And as James says in his blog: “firms have (rightly) fought for years to relax the grip regulators have had on the industry. But now they are inviting those regulators to come right back in. Its a strategy they – and their customers – will regret.”

Indeed, we need to break away from the thought of telecom as one big regulatory fraternity, or else telecom companies will continue to yelp “Thank you, sir! May I have another?”

[[cross-posted from PFF Blog ]]

Should “South Park” be censored? What about “Nip/Tuck?” How about “The Shield?” If some members of Congress have their way, these cable shows (or the stations that air them) might soon be subjected to the FCC’s indecency regime.

Recently, the respective chairmen of the Senate and House Commerce Committees, Sen. Ted Stevens (R-Alaska) and Rep. Joe Barton (R-TX), both reiterated their support for applying indecency regulations to at least cable and satellite channels on the basic tier.

In the last session of Congress, an attempt to impose indecency regs on basic cable was narrowly defeated by a 12-11 vote of the Senate Commerce Committee. Importantly, Sen. Stevens voted against the proposal then, but he’s obviously ready to switch his vote now. And FCC Commissioner Kevin Martin, the next likely chairman of the agency, has repeatedly expressed support for a “comprehensive solution” to this issue as more people migrate to cable and satellite TV. “I am sympathetic to the many people asking why our indecency regulations apply only to broadcast,” he told members of Congress during a hearing last year.

And, just yesterday, Sen. John Rockefeller (D-WV) and Sen. Kay Bailey Hutchison (R-TX) dropped a new bill, “The Indecent and Gratuitous and Excessively Violent Programming Control Act of 2005,” which says that “Broadcast television, cable television and video programming are uniquely pervasive presences in the lives of all American children; and readily available to all American children.” Their bill goes on to propose the application of traditional broadcast controls to subscription-based media and would also mandate FCC controls on “excessively violent programming” during the hours that children might constitute a substantial portion of the viewing audience. (No word yet on whether “video programming” would also include DVDs, the Internet, or mobile content).

So, it appears that Congress and the FCC are ready to open this regulatory Pandora’s Box and begin censoring subscription-based media. There are three things I find very troubling about all of this:

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