Copyright 2001 eMediaMillWorks, Inc.
(f/k/a Federal
Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
July 17, 2001, Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2091 words
COMMITTEE:
SENATE COMMERCE, SCIENCE AND TRANSPORTATION
HEADLINE: MEDIA CONSOLIDATION
TESTIMONY-BY: ELI M. NOAM, PROFESSOR
AFFILIATION: FINANCE AND ECONOMICS, COLUMBIA UNIVERSITY
BODY: July 17, 2001
Statement by Testimony
by Eli M. Noam
Professor of Finance and Economics, Columbia University,
Director,
Columbia Institute for Tele-Information; former Commissioner
of
Public Services, New York State
Chairman Hollings, Senator
McCain, members of the Commerce Committee, I am grateful to join you in
discussing the important topic of
media concentration and
ownership rules. Let's start by agreeing that we all share an intense desire not
to let the diversity of
media voices be strangled by a few big
companies. But the question is how to go about it.
There are many
elements of ownership rules. Caps,
cross- ownerships,
foreign-domestic, minority. Each raises different issues. I will focus here on
the national cap for TV broadcasters, though I'll be happy to address other
issues as well later. It would probably help us all if we first looked at the
extent of
media concentration, because that would take the edge
of alarm off.
Yes, there have been lots of mergers. Some are troubling,
some are not. Going beyond the specific deal, the more important question is, in
the aggregate, have American
media become more concentrated?
Despite the conventional wisdom, or books based on anecdotes rather than
data, the answer is not an obvious "yes." First, while the fish in the pond have
grown in size, the pond did grow, too, and faster. The growth of the information
industry has been 8% faster than inflation since 1987. Second, there have been a
lot of new fish. Giant Companies such as AOL, Microsoft, Viacom, Qwest, hardly
existed a few years ago. Foreign companies such as Bertelsmann and Vivendi are
contesting the American market. Third, there are new and rapidly growing ponds,
like the internet; and fourth, all these separate ponds are becoming more of a
large lake, as the technological and regulatory dikes between them fall.
When it comes to concentration, views are strong, but numbers are
scarce. Therefore, at one study at Columbia we collected market share numbers,
industry by industry, company by company, for 60
media and
information sub-industries from book publishing to film production to internet
service provision and consumer electronics, in order to trace the concentration
trends since the early 80s, after the ATT divestiture. This is probably the most
detailed study ever of
media concentration in America. It is
confirmed by another study, by Ben Compaine, formerly of Harvard. Unfortunately,
we did the study 3 years ago. I am updating it, but I had only 3 days since your
invitation, including the weekend. But I will provide you with them when we have
updated the work.
What did we find? Surprisingly, the overall
concentration of the entire information sector, defined to including also
telecommunications and the IT sector, did not increase, but declined somewhat in
the past two decades. Or rather, first it went down, then it rose, but not to
the level that existed before. If this surprises you, just remember that 20
years ago, there were 3 major TV companies, 1 computer company, and 1 telecom
company. The combined share of the top 10 companies in the US information
industry declined from 59% in 1987 to 39% in 1998, even as the total size of
most companies increased.
Of one looks at the classic mass
media industries alone, they did indeed increase in
concentration but remained unconcentrated by Justice Department standards. (I
should add that I do believe that for
media, antitrust
standards should be interpreted more stringently than for other industries
because of their special importance, and because of the undesirablility and
unconstitutionality of direct regulatory interventions). The weighted average of
4 firm market share for the mass
media industries was 33% in
1986. It then fell to 27.5 and rose to 40% again.
For the 3 networks, it
declined from 70 to 53 percent. For local TV stations, the top 4 firms share
rose nationally from 15 to 26%. For cable TV distribution, it rose from 37 to
60%. The main factors increasing the rise in the mass
media
concentration figures were cable television systems (accounting for half) and
home video (accounting for 20%). Concentration also increased in TV station
ownership and retail bookstores, and more than doubled in radio station
ownership and book publishing. There is one very large owner of radio stations.
But even it owns only 11% of all stations and accounts for 15 % of revenues. And
the number of radio stations grew by 800 in the past 3 years. The number of TV
stations increased since 1984 by 37%, or about 400 stations. The top four firms
still have only about quarter of these markets, as measured by revenue. In other
industries, concentration held relatively steady. Film production remained
fairly concentrated but steady, with the top four firms controlling 60%.
The national movie theater, newspaper and magazine markets remained
relatively unconcentrated, with the top four firms accounting for a quarter of
sales. Therefore, it cannot be said that US
media have become,
in general, more concentrated. Some segments have, others have become less
concentrated. Still, the next question then must be raised: even if a firm does
not dominate any specific market, could it not be overpowering by being a medium
sized firm in every market? The fear is that vertically integrated firms will
dominate by having their tentacles in each pie. But in economic terms, this can
only happen if a firm has real market power in at least one market, which it
then extends and leverages into other.
But where markets are
competitive, vertical integration makes little sense. Disney should not earmark
its best programs for ABC if other networks offer more money. Conversely, for
Disney to force its lemons on the ABC television network would only hurt the
company. Does this mean there is no concentration problem? No. But the real
problems in
media concentration are not national, but local,
98.5% of American cities -though less of a share of people-- have only one
newspaper. (But you rarely will find editorials castigating this concentratiuon.
. .) Most American homes have no choice in their cable provider, though DBS is
changing that. This is why a cap on cable ownership can be more easily justified
than for broadcasting, where no local power exists that in the aggregate could
exclude channels the way that the largest of cable companies could. Alternative
local residential phone service may be coming, but is not here yet. That's why
local interconnection is regulated. And the absence of competition in local
telecommunications might justify a higher cap on cable where it becomes an
active rival to telecom, as in ATT's original strategy. Local radio
concentration has increased considerably since the Telecommunications Act of
1996 relaxed local ownership ceilings, and may become more of a problem than
national radio concentration. On the other hand, the ownership of multiple radio
outlets in a community has also increased program diversity, because a firm that
buys an additional station in a market will target new audiences rather than
cannibalize its existing ones.
In broadcasting, we've had a set of rules
established when 2 and a half TV networks, all headquartered in Manhattan within
a few blocks, supplied the TV programming for most Americans. But the ownership
rules didn't really change that. What did create the change was the entry of
cable television that now provides almost 70% of Households with a menu of about
55 channels, on average. Satellite TV reaches another 15 percent or so of
households. Both of these
media can program scores of channels,
and can also charge subscription and per view fees, which gives them a much
stronger base than advertising revenues. Today, the top 4 networks have barely
50% of the audience and keep shrinking inexorably. There are over 200 cable
channels being offered. Thus, broadcasting is a pale shadow of its former self.
Only a small audience slice watches the classic over-the-air VHF TV. If one
additional Supreme Court justice changes his view and votes against broadcast
TV's must-carry rights, the industry will be going into a tailspin. Cable
operators will do separate deals with the major network and syndicators for
direct program feeds, bypassing local broadcasters, and will gradually create or
contract with local providers such as newspapers for the news programs. And as
that happens, broadcast stations' spectrum rights will be its most important
asset, not its broadcast operations.
And that's just today's challenge.
In the near future, with high speed internet rising in penetration; it will
become an additional medium for the distribution of mostly national and even
global programs, often of new and interactive kinds, which are not possible for
broadcasters. Broadcasting has now been given a second chance, through digital
TV with its multicasting potential. So far, this has been a total failure. But
the concept of broadcast TV as a multi-channel medium with each station
broadcasting half a dozen of programs may become the lifeline for that industry
as it competes against cable. It is also a high cost proposition that will
challenge the smaller firms.
The increasing fragmentation of audiences
through narrow casting also leads to a decline of localism. Local programming,
outside the news, was always more asserted than practiced, with some noteworthy
exceptions. The economics here are basic. Any professional TV program is
expensive to produce but cheap to reproduce. Therefore, national networking is
the economically logical way to go. It's been that way since early radio. And if
audiences get fragmented locally, they have to be aggregated nationally. So
there are fundamental and increasing incentives towards national electronic
media. Conversely, whatever local production or preemption or
syndication that draws audiences will be practiced by stations based on local
conditions, whatever the ownership is, since they have to contest nightly for
audiences.
So this is an industry in intense transition, much more in
trouble than it often recognizes itself, and this then leads to fundamental
restructuring as a response. You can constrain it, but then you might end up
with the electronic equivalent of the railroads and other rustbelt industries. I
am more concerned with the question of impact on minority ownership. But here,
even under the old system, minority ownership has been miniscule, and if one
wants to achieve it one should find other ways.
There are also costs to
this cap restriction. It prevents larger companies from seeking new licenses, or
acquiring weak UHF stations, because they count as part of aggregate ownership.
Just as
cross-ownership restrictions can reduce the number of
stations, as well as sometimes of second-tier newspapers. And this deprives
communities of additional stations and voices.
Much of what this fight
over ownership caps is about the relative bargaining strength between station
groups and networks. That's vital to the participants, but does not obviously an
issue of issue of protection of local content. It's ultimately an empirical
matter for study, whether local programming in a competitive local market is
affected by ownership or
cross- ownership at all. Since we have
various exceptions for every rule around the country, this can be determined. To
conclude, it seems to me that if you want to achieve local content, there are
approaches that are more direct than working through ownership, such as a
certain amount of local program production as a requirement of licensing, or an
open a time slot for local access to TV, or the licensing of additional
broadcasters such as LPTV, or the right to reply. The fact that most proponents
of localism do not advocate such direct policies towards localism tells me that
this fight isn't really about localism.
And if that's the case, you
should not become the arbiter between several industries, TV networks, station
groups, and Hollywood syndicators.
Media industries cherishing
their independence should not call for the government to regulate them. It's
asking for trouble. But if one can show clear and convincing public harm, that's
one thing. If one can show local
media power that permits its
vertical extension, then some protective rules may be in order. But in the
absence of such showing, I would not perpetuate old rules of national
broadcasting ownership caps in an environment of new
media.
Thank you very much for your kind attention
LOAD-DATE: July 18, 2001