End of the media oligopoly?
Media companies, which consolidated so rapidly in the last dozen years, have been showing the opposite trend over the past few years. Yes, there is still the Murdoch empire buying the Wall Street Journal, but in most other cases, the media giants are downsizing and retreating from earlier expansions. This is especially true in the hard-hit newspaper industry, where a decline in readership to cracking up recently won press empires. But it's happening elsewhere as well.
That's pointed out in a recent article by the always perceptive Jack Shafer on Salte.com ("Big Media Octopuses, Cutting Off Tentacles." 11/16/07). As Shafer puts it: "deconsolidation isn't driven by politics, media "reformista" activism, or government regulation. It's all about business. In the long run, entrepreneurs tend to have a very hard time making media conglomeration pay off."
Among the downsizing activities noted in the article are:
- the proposed breakup of E.W, Scripps into a newspaper and TV stations company and a cable TV and Internet shopping company
- the proposed breakup of Belo Corp. into a newspaper company and a TV station company
- the rumored breakup, in a similar way, of the Gannett newspaper/TV station chain
- last year's sales by the New York Times Co. to private equity of its nine TV stations, along with pressure to split up the remaining company
- the expected breakup, asset by asset, of the Tribune Company, which recently bought the Los Angeles Times
- the 2005 split-up of Viacom into separate CBS and Viacom companies
- the 2004 sale by Time-Warner of its music division and 2006 sale of its book division
- the ongoing sale by News Corp. of the DirecTV satellite service.
- The proposed sale of a number of US TV stations by News Corp.
While consolidation is progressive (even with the downsizing, most media are led by big, dominant companies), it is also cyclical. For a while, the steady accumulation of properties is seen as a boon to a company, adding value to holding ("synergy"), and boosting stock price. At a later point, the synergy falls far short of what was advertised, and there is a call for the company to "unlock value" by selling off the pieces.
The Slate article notes that the biggest media oligopolies -- "Time Warner, Viacom, News Corp., Clear Channel, and Comcast-lost 52 percent of their value (in terms of market capitalization) over a five-year period at the beginning of this century."
As one economist is quoted as saying "In large conglomerates, size and complexity is the enemy…Often, executives can't focus carefully on each of the businesses, so they don't run as well."
It all falls into the growth imperative and the myth of perpetual growth. In the end, the insiders (executives, consultants, equity funds, expert investors) make money on both the build-up and the build-down of a big company. The ls0oers (customers, employees, small investors) don't usually fare so well on the way up or the way down.
All big companies seem to be perpetually buying and selling, what we call the gin game. What is behind the failure of so much effort> I have to agree with Shafer when he writes "Conglomeration works until it doesn't."
