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CHAPTER 1

U.S. MEDIA AT THE DAWN OF THE TWENTY-FIRST CENTURY

The United States is in the midst of an almost dizzying transformation of its media system. In this chapter 1 address the main trends, the real trends, in U.S. media at the dawn of the twenty-first century. These are corporate concentration, conglomeration, and hypercommercialism. I argue that the U.S. media system is an integral part of the capitalist political economy, and that this relationship has important and troubling implications for democracy. I then discuss the flip side of hypercommercialism, which is the decline, if not elimination, of notions of public service in our media culture. In particular, I concentrate upon the corruption and degradation of journalism, to the point where it is scarcely a democratic force. Moreover, I analyze the undemocratic and corrupt manner in which the core laws and codes regulating communication, most notably the Telecommunications Act of 1996, have been enacted. The system I describe does not exist as a result of popular will, nor is it by any means a "natural" occurrence. The media system exists as it does because powerful interests have constructed it so that citizens will not be involved in the key policy decisions that have shaped it. In chapters 2 and 3 I extend the discussion to the globalization of the commercial media market in the 1990s, and then to the rise of the Internet and digital communication networks. In those chapters I ask what is the relationship of globalization and the Internet to the trends toward concentration, conglomeration, and hypercommercialism.

The Corporate Media Cartel

The striking structural features of the U.S. media system in the 1990s are concentration and conglomeration. It may seem ironic that these are the dominant structural features when, to the casual observer, the truth can appear quite the opposite. We seem inundated in different media from magazines and radio stations to cable television channels and, now, websites. But, in fact, to no small extent, the astonishing degree of concentrated corporate control over the media is a response to the rapid increase in channels wrought by cable, satellite TV, and digital media. Media firms press to get larger to deal with the uncertainty of the changing terrain wrought by new media technologies. "If you look at the entire chain of entities — studios, networks, stations, cable channels, cable operations, international distribution — you want to be as strong in as many of those as you can," News Corporation president Peter Chernin stated in 1998. "That way, regardless of where the profits move to, you're in a position to gain." Yet, any explanation of media concentration and conglomeration must go beyond media technologies. They also result from changes in laws and regulations that now permit greater concentration in media ownership. But the bottom line, so to speak, is that concentrated media markets tend to be vastly less risky and more profitable for the firms that dominate them.

In fact, media concentration is not a new phenomenon. Classically, it has assumed the form of horizontal integration, where a firm attempted to control as much of the output in its particular field as possible. The ultimate form of horizontal integration, therefore, is monopoly. Horizontal integration has two great benefits for firms. First, as firms get a bigger share of the market it permits them to have lower overhead and to have more bargaining power with suppliers. Seagram, for example, estimates cost savings of $300 million for its music division from its purchase of PolyGram in 1998. Second, as a firm gets a larger share of a specific market, it gains more control over the prices it can charge for its products. Firms operating in oligopolies — meaning markets dominated by a handful of firms each with significant market share — tend to do what monopolists do: they cut back on output so they can charge higher prices and earn greater profits. Hence, when Bertelsmann bought Random House for $1.4 billion in 1998 to become the dominant U.S. book publisher, fears of canceled authors contracts spread throughout the literary community. Stable oligopolies are very desirable for large firms, because despite their potential for profits, it can be quite difficult for a new player to enter an oligopolistic market. All of this not only drives the firms to use mergers and acquisitions to get bigger and more powerful but it also drives them to lobby for ownership deregulation and to generate new technologies that make concentration more feasible.

The U.S. mass media industries have been operated along noncompetitive oligopolistic lines for much of the twentieth century. In the 1940s, for example, broadcasting, film production, motion picture theaters, book publishing, newspaper publishing, magazine publishing, and recorded music were all distinct national oligopolistic markets, each of them dominated by anywhere from a few to a dozen or more firms. In general, these were different firms dominating each of these industries, with only a few exceptions. Throughout the twentieth century there have been pressing concerns that these concentrated markets would inhibit the flow and range of ideas necessary for a meaningful democracy. For a variety of reasons, however, these concerns rarely spilled over into public debate. In particular, the rise of the notion of professional journalism in the early twentieth century — which became widespread, even dominant, by mid-century — attempted to disconnect the editorial process from the explicit supervision of the owners and advertisers of the mass media, thus making the editorial product seem more credible as a "public service." To the extent that this process was seen as successful, the corporate commercial domination of the media seemed a less pressing, perhaps even insignificant, matter.

Concentration has proceeded in specific media markets throughout the 1990s, with the proportion of the markets controlled by a small number of firms increasing, sometimes marginally and at other times dramatically. The U.S. film production industry has been a tight-knit club effectively controlled by six or seven studios since the 1930s. That remains the case today; the six largest U.S. firms accounted for over 90 percent of U.S. theater revenues in 1997. All but sixteen of Hollywood's 148 widely distributed (six hundred or more theaters) films in 1997 were produced by these six firms, and many of those sixteen were produced by companies that had distribution deals with one of the six majors. The newspaper industry underwent a spectacular consolidation from the 1960s to the 1980s, leaving a half-dozen major chains ruling the roost. The emerging consolidation trend in the newspaper industry is that of "clustering," whereby metropolitan monopoly daily newspapers purchase or otherwise link up with all the smaller dailies in the suburbs and surrounding region. Clustering permits newspapers to establish regional and/or broadly metropolitan newspaper monopolies and is quite lucrative. In 1997 it accounted for 25 percent of the record $6.2 billion in U.S. newspaper transactions. Two major 1998 deals further concentrated U.S. book publishing and music production. With Bertelsmann's purchase of Random House, the U.S. book publishing industry is now dominated by seven firms. And with Seagram's $10.4 billion purchase of PolyGram, the five largest music groups account for over 87 percent of the U.S. market.

Media sectors that were once more competitive and open have seen the most dramatic consolidation in the past decade. In cable television systems, six firms now possess effective monopolistic control over more than 80 percent of the nation, and seven firms control nearly 75 percent of cable channels and programming. As Time Warner's Ted Turner puts it, "We do have just a few people controlling all the cable companies in this country." Variety notes that "mergers and consolidations have transformed the cable-network marketplace into a walled-off community controlled by a handful of media monoliths." Radio station ownership, which I return to at the end of this chapter, has gone through a stunning transformation in the late 1990s, leaving four newly created giants with one-third of the industry's annual revenues of $13.6 billion. With no small amount of irony, even the "alternative" weekly newspaper market — which was established to provide a dissident check on corporate media and journalism — has come to be dominated by a few chains.

Concentration arguably has been most dramatic in the 1990s at the retail end of the media food chain. In motion picture theaters, for example, the era of the independent or even small chain theater company has gone the way of the passenger pigeon. In 1985 the twelve largest U.S. theater companies controlled 25 percent of the screens; by 1998 that figure was at 61 percent and climbing rapidly. The largest chain, co-owned by the leveraged-buyout firms Kohlberg, Kravis, Roberts and Co. and Hicks, Muse, Tate and Furst, controls around 20 percent of the nation's movie screens. U.S. book retailing has undergone a revolution to such a degree that more than 80 percent of books are sold by a few huge national chains like Borders and Barnes & Noble. The share of books sold by independent book dealers fell from 42 percent to 20 percent from 1992 to 1998.

But concentrating upon specific media sectors fails to convey the extent of concentrated corporate control. The dominant trend since the 1970s or 1980s, which has accelerated in the 1990s, is the conglomeration of media ownership. This is the process whereby media firms began to have major holdings in two or more distinct sectors of the media, such as book publishing, recorded music, and broadcasting. So it is that each of the six main Hollywood studios are the hubs of vast media conglomerates. Each of the six owns some combination of television networks, TV show production, television stations, music companies, cable channels, cable TV systems, magazines, newspapers, book publishing firms, and other media enterprises. The vast majority of the dominant firms in each of the major media sectors are owned outright or in part by a small handful of conglomerates. And this has all come about seemingly overnight. Published in 1983, Ben Bagdikian's seminal, even shocking, The Media Monopoly chronicled how some fifty media conglomerates dominated the entirety of U.S. mass media, ranging from newspapers, books, and magazines to film, radio, television, cable, and recorded music. Today that world appears to have been downright competitive, even populist. After the massive wave of media mergers and acquisitions since 1983, Bagdikian has reduced the number of dominant firms, until the most recent edition of The Media Monopoly in 1997 put the figure at around ten, with another dozen or so firms rounding out the system.

The "first tier" of media conglomerates includes Time Warner, Disney, Viacom, Seagram, Rupert Murdoch's News Corporation, and Sony, all connected to the big six film studios. The remaining first-tier media giants include General Electric, owner of NBC, and AT&T, which in 1998 purchased TCI, the cable powerhouse with vast holdings in scores of other media enterprises. GE (1998 sales: $100 billion), AT&T-TCI (1997 sales: $58 billion), and Sony (1997 sales: $51 billion) all are enormous firms, among the largest in the world. Their media holdings constitute a distinct minority of their assets.

These media empires have been constructed largely in the 1990s, with a rate of growth in annual revenues that is staggering. In 1988 Disney was a $2.9 billion per year amusement park and cartoon company; in 1998 Disney had $25 billion in sales. In 1988 Time was a $4.2 billion publishing company and Warner Communications was a $3.4 billion media conglomerate; in 1998 Time Warner did $28 billion in business. In 1988 Viacom was a measly $600 million syndication and cable outfit; in 1998 Viacom did $14.5 billion worth of business. The figures are similar for the other giants. In chapter 2 I provide a detailed list of the media holdings of News Corp., Time Warner, and Disney, the most important media conglomerates in the world. For present purposes, consider the holdings of Viacom to get a sense of how one of these giants looks. Viacom owns Paramount Pictures, Simon and Schuster book publishers, Spelling Entertainment, MTV cable network, VH1 cable network, Nickelodeon cable network, TV Land cable network, Showtime cable network, eighteen U.S. television stations, the UPN network, the Blockbuster video rental chain, five theme parks, retail stores, and a vast movie theater empire outside of the United States.

The "second tier" of U.S. media giants includes the great newspaper-based conglomerates like Gannett, Knight-Ridder, and the New York Times Company, cable-based powerhouses like Comcast and Cox Enterprises, as well as broadcast-based powers like CBS. These fifteen or so "second-tier" firms are all conglomerates, but they are smaller than the first-tier firms, with annual sales ranging from $2 billion to $7 billion. They also all tend to lack the film, TV, and music production capacities of the first-tier giants. These second-tier firms have all grown quickly over the past decade and they, too, have been swallowing up smaller firms.

It is unclear how much more upheaval will occur in the U.S. media system, but there is no reason to think that more major mergers and acquisitions are not on the horizon. AT&T's purchase of TCI left its subsidiary Liberty Media in former TCI CEO John Malone's hands, with Malone in complete control and flush with up to $20 billion in liquidity. "When the smoke clears," Malone said when announcing the TCI sale to AT&T, "Liberty is going to have tons of cash." By most accounts, Liberty Media will aggressively move to structure a new media empire in the near future. At any rate, all of the media firms are actively juggling assets to improve market power, even if only a minority will engage in major mergers. As one media analyst puts it, "consolidation among distribution and content players rages on." What is clear is that the option of being a small or middle-sized media firm barely exists any longer: a firm either gets larger through mergers and acquisitions or it gets swallowed by a more aggressive competitor.

Why is that the case? To some extent this trend has been fueled by a desire to create an extremely lucrative vertical integration, meaning that media firms would not only produce content but would also own the distribution channels that would guarantee places to display and market their wares. For decades U.S. laws and regulations forbade film studios from owning movie theaters and television networks from producing their own entertainment programs because it was well understood that this sort of vertical integration would effectively prohibit newcomers from entering the film or television production industries. Such restrictions have been relaxed or eliminated in these deregulatory times, and some of the merger pandemonium can be attributed to the race by producers and distribution networks to link up with each other formally rather than be squeezed out by their competitors. Hence Disney owns ABC while News Corp. owns Fox. Viacom and Time Warner have launched their own U.S. television networks as well, the UPN and WB networks respectively. The vast majority of the fifty leading cable television channels, too, are owned outright or in part by the first-tier conglomerates, and the rest are all affiliated with a few of the second tier of media giants. Sony has moved aggressively into U.S. movie theater ownership while Viacom owns Blockbuster video rentals.

These vertically integrated media conglomerates have not necessarily established exclusive arrangements such that their films only appear on their own TV stations and networks, or that their films get first crack in their movie theaters or movie rental stores. For the most part the largest conglomerates are increasingly interdependent, competing in some markets while they are customers for each other in other markets. But when vertical integration can be applied effectively, it is logical to expect media conglomerates to keep production directed to their own distribution outlets.

The first market where full vertical integration looks plausible is with the production of television shows for the TV networks. Television show production had already become increasingly concentrated in the hands of the big six Hollywood studios by the mid-1990s. According to one report, they accounted for thirty-seven of the forty-six new primetime shows on network TV in fall 1998. The four studios which also own TV networks produced twenty-nine of the programs. Fox supplied over 40 percent of its 1998 programs whereas CBS had a stake in 57 percent of its prime-time lineup, a 20 percent increase over 1997. What is new is the demand by the six TV networks — the four affiliated with Hollywood studios plus NBC and CBS — to own a piece of shows that appeared on their networks. "Each and every one of these networks," one studio executive stated in 1998, "are going to endeavor to own and control as much content as they possibly can." CBS, for example, produced or coproduced six of its seven new shows in 1998.

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Excerpted from "Rich Media, Poor Democracy"
by .
Copyright © 1999 Board of Trustees of the University of Illinois.
Excerpted by permission of The New Press.
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