Forbes, May 8, 2008
By Louis Hau

When it comes to debates about media consolidation, it's hard not to get the sense that the horse has long since bolted from the barn.

Take a look around. Giants dominate the landscape. Five companies--Walt Disney, Time Warner and General Electric's NBC Universal--control all four leading broadcast TV networks in the U.S., both 24-hour cable news channels, the largest cable sports network, nine of last year's 10 highest-rated cable TV channels in prime time (or all 10 if you include Disney's 50% ownership of Lifetime), seven of the 10 largest film studios by market share, the largest circulation newsweekly and the largest Internet social network. We could go on, but you get the picture.

Meanwhile, according to figures compiled by Consumers Union, the Consumer Federation of America and the Free Press, the number of unique U.S. newspaper owners has plunged by two-thirds since 1975, while the number of radio station owners has tumbled by a third since 1996.

Given this concentration of power in the hands of so few, shouldn't it have been "game over" for media consolidation for some time already?

Hardly. Capitol Hill is gearing up for yet another battle after the U.S. Senate's Commerce Committee unanimously approved a "resolution of disapproval" in April aimed at overturning a controversial Federal Communications Commission decision last December to loosen restrictions on the ownership of a newspaper and a broadcast station in the same market. The bill will now go to the full Senate, where it enjoys the support of Democratic presidential candidates Hillary Clinton and Barack Obama. A companion bill is pending in the House of Representatives.

This isn't simply an example of a Democratic Congress getting in the face of a Republican White House. There's strong bipartisan support to repeal the FCC rule, which critics warn would extend the reach of big media companies while diminishing local news and the diversity of voices heard through local media.

The broad-based support aligned against further media deregulation is a reaction to the FCC's easing of limits on media ownership during the past quarter-century, which opened the door to a startling level of consolidation, including the rise of Time Warner, News Corp. and Viacom/CBS as media behemoths, as well as the emergence of Clear Channel as a name synonymous with the consolidation of the radio industry.

Those in favor of media deregulation like to point out that the rules on the books today were drafted back when traditional media outlets like newspapers, radio and broadcast TV were the primary purveyors of news and information. But today, this line of thinking goes, media competition is stronger, thanks to the fact that consumers have a dizzying array of new choices to turn to, including greatly expanded cable-TV offerings and Internet-based news and entertainment options.

But the "more choices than ever" argument comes off as a tad naive when you take a closer look at how all of this is playing out. For instance, it's true that broadcast TV has been losing some of its audience to greater competition from cable. But who owns those cable networks? That's right--big media companies, often the same companies that own the broadcast networks and the studios that produce most broadcast prime-time TV shows and many of the hit series on cable.

What of the myriad choices found on the Web? Surely all those independently owned Web sites, blogs and online entertainment start-ups are providing an effective counterweight to the dominance of the Disneys and Time Warners of the world, right?

Well, not really. Consumers do have more places to go online than they ever could in the physical world. But having a presence on the Web means little unless you can reach consumers. And Internet properties with significant reach are often owned by traditional media conglomerates. Enterprising entrepreneurs are always coming up with new online businesses, but without the resources of their big media competitors, not many can break through to a large audience. And those that have often get bought out by big media companies.

Of course, there's no denying the Internet's enormous impact on traditional media. The three companies with the most U.S. Web traffic--Yahoo!, Google and Microsoft -- have existed or been on the Web only since the mid- to late 1990s.

YouTube, later acquired by Google, gave TV networks and film studios a crash course in Internet video. Online social networks like Facebook are taking up some of the time that kids used to spend watching TV. And Craigslist has taken away a large chunk of the classified advertising that had long been a critical revenue generator for the newspaper industry.

But even on the Web, traditional media companies remain the source of the most popular news and entertainment programming. Despite all the excitement over user-generated content, it's professionally produced big media content that attracts the most eyeballs and ad dollars.

Ironically, some media conglomerates have been under pressure from Wall Street to sell off some of their operations to boost shareholder value and to free them from underperforming businesses that have been a drag on earnings growth.

Viacom and CBS split into separate companies two years ago, although Executive Chairman Sumner Redstone retains control of both. Time Warner plans to spin off its cable business and is mulling strategic alternatives for AOL. Belo, publisher of The Dallas Morning News and other newspapers, completed the spinoff of its newspaper business in February while holding on to its more lucrative TV station business. E.W. Scripps is on track to separate its cable-TV networks and online operations from its newspaper business during the second quarter.

Even Rupert Murdoch is facing pressure from analysts to justify News Corp.'s expanding investments in the troubled newspaper industry, including the December acquisition of Wall Street Journal parent Dow Jones and the company's reported bid for Tribune's Newsday.

But none of these developments is likely to assuage critics of the FCC and of media consolidation. Nor do they do anything to fundamentally alter the environment that IAC/InterActiveCorp Chairman and Chief Executive Barry Diller addressed during a 2003 speech he delivered to the National Association of Broadcasters.

As a former senior executive at ABC and the ex-head of Paramount Pictures and Fox, Diller had been an entrenched big media veteran. And yet there he was railing against the perils of consolidation, arguing that media conglomerates had their fingers in so many pies that the chances were "nonexistent" for someone to launch an independent TV network the way Fox did nearly 20 years earlier.

"The conglomerates are like the Rothschilds funding both sides in the Napoleonic wars,'' Diller said. "They are on both sides of virtually every transaction."

It's the kind of talk you'll hear more of in the coming years.

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