Wednesday, December 14, 2005

Family Friendly cable package? Not so voluntary and not good policy

Can an action be "voluntary" if one is coerced into taking the action? Adam Thierer has an insightful take on volunteerism as it applies to the recent announcement by the cable industry that it will offer so-called "family friendly" packages, or tier. I urge you to read his entire post. In brief:

  • How voluntary is this action when Congress is making regulatory noises and the FCC is holding Time Warner and Comcast hostage in awaiting overdue approval for their purchase of pieces of the bankrupt Adelphia Cable?

  • There isn't any evidence to suggest there is much of a demand for such a package. DirecTV offered a 10 channel package a few years ago for $5 per month and had so few takers it eliminated it.

  • The cable operators have less latitude than we think. Often it is the program suppliers who insist on contracts requiring that the cable operators include their small networks as a condition for carrying their more popular networks. That makes cherry picking networks for a tier problematic.

  • Who is going to determine what is "family friendly?" Adam suspects "Cable operators are setting themselves up for a major catfight with many programmers who will insist on being part of the new tier. 'Hey, my channel is family-friendly too!' many programmers will exclaim.'"

I agree with Adam that if there was a consumer demand for such a package the cable folks-- who after all are always looking for another opportunity to squeeze a few more dollars from their fixed cost network-- would have found a way to offer this truly by choice. Cable subscribers who don't want to expose themselves or their kids to any programming already have the tools to lock out such channels, creating their own individualized "my family friendly" menu. That's even better than Comcast or Charter trying to decide what should be there.

It's not surprising why the politicians love this issue: It plays well with their constituents even if they don't really find it helpful. And it has no budget consequences. Doesn't get much sweeter. A pity it's poor economics and even worse policy.

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Monday, December 05, 2005

A la carte pricing for cable? A bad idea for diversity.

It’s clearly silly season at the FCC. Among other things, they are chatting up unbundled pricing for the cable industry. A very bad idea. Who says so? Well. Steve Yelvington, for one, who is no lackey of the cable industry. And not just because it would undo the industry’s business model with little gain for consumers. No, the bigger issue is with the notion of diversity that the same self-styled consumerists that are pushing a la carte pricing also hold dearly.

Here is why it’s a bad idea for consumers to be able to pick which cable channels they want to subscribe to. It’s called serendipity. It’s one of the remaining strengths of the print newspaper. That is, we don’t always know what we want until we see it. Some of you may not generally read the movie reviews in your newspaper. But once in a while your eye catches a front page teaser for a review about a movie that you might have a special interest in. Maybe you know someone who is wheel-chair bound. And you see something about the movie "Murderball." Or perhaps you tend not to follow international news, but in flipping the pages catch a reference to a town in Spain where you lived with a family your junior year in college.

What am I saying here? If we only bought the types of information we know we like, then we don’t get exposed to much variety. We can’t be forced to buy a book we don’t want or a magazine that has no interest (for me, Golf Digest—a good read ruined). But the technology and nature of the newspaper, of the Internet—and cable—makes it reasonably economical to bundle diverse types of content together. And we benefit from that.

It is generally true that each of us only views a core of five to 10 television networks, though for each of us there is some variety in what those are. I, for example, rarely watch anything on ESPN and thus tend to bristle that so much of my cable bill goes towards having access to that channel. Neither I nor anyone in my family typically watch Discovery, History, or Biography channels. And yet there have been times that I have seen a promotion for something on one of these and, because I had them, I watched them. And, honestly, in scanning through my channels I have, on occasion, stopped at something that caught my eye in that brief two second “evaluation.” And I’m glad I did: a bio of McDonald’s franchisor Ray Kroc or a piece on the history of the development of the aircraft carrier. Only recently my wife stumbled on the re-runs of the "Law & Order" series on USA Network and now watches them regularly. (Note: They were not re-runs to her, as she had never seen them before). Under a la carte we would not have had these channels to be exposed to them in the first place.

I admit there is a certain initial attractiveness to the notion of a la carte. But think about its logical extension: Why not apply it to the newspaper, which comes in readily identifiable sections in larger cities. If you don’t read the Business and Lifestyle sections, so why pay for them? Maybe at the newsstand they could have separate piles for the News section, Sports, Lifestyle, Arts, Business, Want Ads, Preprints. Pick only the sections you want (free preprints with any purchase!). But that defeats the social value of the newspapers—the diversity it provides in a bundle whose cost of production—and therefore price—would be little different if disaggregated.

Which brings me to a practical—read economic—side of the a la carte proposal. Factoring in the capital cost of cable systems, it is not a highly profitable industry (great cash flow, but high investments up front). If the average cable bill today is, say, $50 and the cable system has 1 million subscribers, that’s $50 million a month in revenue. Could that business survive if, through a la carte pricing, the average customer paid $30 per month? In short, no. So what will happen? The menu for channels will reflect what often happens with disaggregation: the sum of the parts will be greater than the whole. ESPN—the most popular cable networks-- might be offered for $10 per month. You want CNN, that’s $5. Disney Channel for the kids? How about another $5? MTV for the teenagers? Another $5. USA Network for popular off network programs? Yet another $5. Add $10 for the base of the broadcast networks and “connectivity" and you’re up to $40. So you save $10—and have access to only five channels plus the broadcast networks.

True, on demand technology might cushion some of the effects. If you don’t subscribe to the History Channel but want to watch a particular show, perhaps for $1 you could access that. Still, research suggests that most people are more comfortable paying a known fixed price for unlimited usage than variable “per use” charges, even if they would be financially better off with the latter. (Years ago researchers at the old Bell Labs found that phone customers preferred flat rate residential service even if they could be shown that based on their usage they would pay less most months with per-minute measured service. I wish I could find the citation for that study).

This was also tried—and failed--in magazine publishing. The Saturday Review was a high brow weekly magazine whose circulation was falling in the 1960s. So in 1971 two entrepreneurs, Nicholas Charney and John Veronis, bought the magazine and disaggregated it into four monthlies: one week it was Saturday Review Arts. Another week it was Saturday Review Books and so on. Subscribers could continue to subscribe, at say $40 annually. to all editions or just subscribe to one version, as a monthly, for perhaps $20. The experiment ended in bankruptcy in two years.

Oh, did I mention this unintended possible consequence: That this could also accelerate consolidation in the industry, as the remaining smaller operators who would like to stay independent might find that they cannot afford to finance their debt with reduced income, while the larger companies will find purchasing them more attractive given lower valuation.

One could also question the notion behind a la chart pricing on a philosophical basis, as did Adam Thierer. Asks Adam, Is there “An Inalienable Right to Video Programming? The unstated assumption underlying the drive for a la carte regulation and 'family-friendly' tiering mandates is that government can somehow magically create a “right” to video programming.”

Cable is a case where the social benefit of bundling is congruent with the economics. The ability of niche cable networks such as Oxygen or BBC America to have access to tens of millions of homes is largely subsidized by the bundled price of the more popular networks. There is no free lunch. A la carte would only result in less diversity and fewer choices for viewers with at best a net savings of maybe a few dollars a month. It’s a bad trade-off.

(Full disclosure: I have some personal investments in cable securities, with a total value of under $5000).

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Sunday, October 30, 2005

Consolidation in Newspaper Industry is Inevitable, as Owners Make Strategic Decisions

Earlier this month journalism professor and former Knight-Ridder journalist Phil Meyer published a column headlined “Newspapers can't maintain monopoly profits because they've lost their monopolies.” In it he voiced skepticism that attracting “young readers” is a viable resuscitation strategy for traditional newspapers. His compelling evidence went beyond the usual table that shows that 20-somethings don’t read the newspaper. No, Prof. Meyer, the creator of the term and author of the landmark book Precision Journalism makes an even more compelling case with this graph:

readership graph

It's a fine example of a picture having value of a thousand words. But just for emphasis, the import of the data is that the pre-radio generation had and maintains a higher level of newspaper readership than the pre-television generation, which in turn is higher than the boomers who were raised with TV and radio. And the post-boomers, having had VCRs, DVDs, gazillion channel cable and, of course, the Internet, distracted by more media choices than ever, not surprisingly has the least need for-- or at least the least time for-- traditional newspapers.

Meyer does see a sliver of a silver lining, reminding us that "new media never completely replaces old media. They just drive the old media into more specialized niches. Newspapers will survive, but in radically different form, many less than daily." Certainly true for the intermediate future. But it will also eventually result in changes of ownership, as some of today's owners decide they don't want to be in the lower volume, specialized niche business.

The prototype may have been the Harte-Hanks newspaper group, headed by a smart CEO named Robert Marbut. About 10 years ago they decided that the value of their newspapers was high and the future was dull, so they sold their papers-- mostly in Texas-- and redeployed assets into the direct mail business, which indeed has been more robust than newspapers. Direct mail has actually increased its share of advertising expenditures as newspaper share continue to fall. Today more advertising dollars are spent on direct mail than in newspapers. Harte-Hanks may not have foreseen the impact of the Internet when it made its strategic decisions, but it was aware of the move to digital and it understood the long term implications for newspapers. While Harte-Hanks still uses print, it is essentially a data base business.

Harte-Hanks was ahead of its time. I suspect over the next decade the CEO or the Board at some of the larger media companies that own newspapers will also make a strategic decision to start to sell them, channeling the proceeds into online or digital ventures of some sort. At the same time a smaller number of today’s publishers—or perhaps a few new players altogether—will make a strategic decision to specialize in low circulation, higher priced printed dailies and less than dailies. Thus, as print newspapers become a smaller part of the media universe their ownership will consolidate even further. But this might be not only natural but beneficial for the shrinking audience of advertisers and consumers who will want a traditionally printed product. The usual suspects will miss the bigger picture and will criticize and protest about media concentration. But the direction is as sure as water flows downhill.

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Thursday, October 06, 2005

Look for me at the Rebuilding Media blog

Why so few entries to this blog lately? Thanks for asking.

I've been asked to contribute to the Rebuilding Media blog I discovered a few months ago and wrote about here. That forum allows me to address a greater range of research and industry developments than does Who Owns the Media.

I will continue to post here when I have some fresh data or some relevant observations. But if you are interested in a broader spectrum of where media economics, journalism and infomation technology intersect, look for me and my colleagues Vin Crosbie, Bob Cauthorn and Dorian Benkoil at Rebuilding Media.

Tuesday, September 27, 2005

Academic Research Confirms--and Undercuts-- FCC Media Regulation, Deregulation

I spent last weekend at the Research Conference on Communication, Information and Internet Policy (better known by its organizer’s initials, TPRC) held at George Mason University Law School outside Washington. It was kicked off with a session featuring a rather heated discussion between two former FCC chairmen, Richard Wiley (from the Nixon era) and Reed Hundt (appointed by Pres. Clinton). Despite some substantial differences, they both agreed on Hundt’s major point, that voice telephone calling could or should be free or near free, as just one of many services available via broadband. As VoIP proliferates, that could happen. Thus the focus of policy and regulation should be on broadband, rather than on old school regulation that focused on voice or data or Life Line rates for universal service.

There were several empirical research papers relevant to media ownership regulation. Jun-Seok Kang, a graduate student at Indiana University, was the top of the class in the student paper competition with “Reciprocal Carriage of Vertically Integrated Cable Networks.” His work was specifically addressing the FCC requirement that cable system owners are restricted to systems covering 30 percent of the national market. This was designed to limit their power over unaffiliated cable network providers who might be competing with the cable operator’s own cable networks offering similar programming. For example, his model says that an integrated cable operator A will take cable operator B’s news channels in the “hope” that cable operator B will carry cable operator A’s sports channel. His conclusion, rather overwhelming me in mathematical notation that made my eyes glaze, “suggests” (as they say in academia) that there may be something to the premise that vertically integrated cable operators are more likely to get their new cable networks picked up by other large MSOs than a similar independent network. Kang had to make many assumptions and simplify the real world to make his model work, so it doesn’t resolve anything by itself, but it does provide some empirical evidence that supports the FCC’s ownership limits.

A team of researchers from the University of Michigan also presented an empirical analysis, “Duopoly Ownership and Local Informational Programming on Television.” This study showed that in markets where one broadcast company owns two stations (usually one affiliated with a major broadcast network combined with one affiliated with a small, minor network or an independent station) the combined stations aired “significantly less local news programming than their same market non-duopoly counterparts.” The measurements were taken in 1997 and 2003. This study is important for policy because one of the arguments of the broadcasters who favored the change in FCC rules allowing duopoly was that the combination of stations would allow more resources to go to news and information. In fact there was more news in such combinations in 2003 than in 1997—but less of an increase than on the stations that were not part of duopolies. Moreover, almost all the increase was on only one of the two stations—the “major” station.

Putting aside what the broadcasters promised would happen to convince the FCC to allow duopolies, from both a business and audience perspective this would not only make sense but could be consumer friendly. Just as there is no need for three networks to simultaneously broadcast a speech by the President these days (let those who want to watch it go to CNN and let those who don’t watch their regular programs), why not beef up one station for people who like the news while freeing up the other to reach a different market niche? This could be the Steiner effect: In a 1954 economics dissertation, Peter Steiner held that a single monopolist would maximize product diversity and economic welfare in a broadcast market, because the monopolist would want to capture every single viewer, and would therefore not duplicate programming. Social welfare is therefore higher under monopoly—in this case, a duopoly-- because more viewers receive their preferred programming. But that’s a hard sell for public policy, so this Michigan study ultimately does not help the broadcasters’ arguments for allowing greater in-market mergers.

Though not by themselves proving anything, these two studies, coming as they do from non-stakeholders, do “suggest” that media industry regulation will continue to be needed, so long as it is well supported by empirical data.

(Full disclosure: I served on the Board of TPRC, Inc. – a nonprofit corporation—from 2000 to 2004 and was its chairman from 2001-2003.)

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Thursday, September 15, 2005

Advertising Trends Not Favorable for Old Media

I wrote here last month about the battle for consumers’ attention among old media and new media. That’s only part of the problem.

Ther battle for advertising dollars is more intense than ever, as an expanding menu of media forms and players vie for what is essentially a fixed pool of advertiser expenditures. Lots of folks are counting on advertising for survival, if not generous profits. Broadcasters have always had this single revenue stream. Daily newspapers get about 80% of revenue from advertising and the hot print properties, such as the give-away Metro dailies, depend about 100% on advertising. Now much of the Web is counting on advertising: Google, Yahoo! and increasingly AOL to name just a few of the biggies. News Corp. just shelled out $600 million for, which has no real revenue except advertising.

Diane Mermigas at the Hollywood trumpets “Convergence fulfilled: A fleet new class of corporate entrepreneurs invents the future.” The article covers a broad territory but essentially paints a positive future for the established media players, with this caveat: their “ business models, revenue streams, creative dynamics and key relations with global advertisers, consumers and competitors will be dramatically different…” That’s for sure, and here’s why.

Mermigas quotes many of the usual suspects: Forrester Research, the investment banking analysts (who were so wise in their analysis in the late nineties—not), and consultant prognosticators. For years I’ve been threatening to do a study of the old “predictions” made by all these folks and match them up with actual results. My hypothesis is that the rate of accuracy will be no better than a coin toss.

But one thing jumped out at me in this piece—and others I have seen. Mermigas cites these sources for her contention that “Ad revenue will grow impressively as advertising takes on new forms.” She says that Internet-based advertising will grow most dramatically, but even traditional media will see growth of 4.3% annually.

Can’t happen. The reality is that over time advertising cannot grow—or at least has not grown—faster than the economy. Over the past 70 years—-that’s a long trend -- advertising expenditures has varied within a rather narrow range of 2.00% to 2.50% of GDP. And for most of that time it has been closer to 2.20%-2.30%. This has held true through recession and boom times. It had held true even as new media forms joined the fray—television, cable, now the Internet. In 1990, advertising expenditures were 2.28% of GDP. In 2003 it was 2.27%.

Of course, there have been winners and losers. Newspaper publishers had 45% of the pie until radio came along, which quickly stole share as newspapers fell into the 30% range. In the 1950s and 1960s television’s impact on newspapers was far less than it was on radio. One of the most robust segments of advertising has been direct mail, which has actually increased slightly in recent years and never really dipped as did newspapers, radio and magazines. It now accounts for about 20% of advertising, considerably more than do newspapers.

In good times the U.S. economy can grow about 4% annually. This constancy in advertising as a proportion of the economy means that if any media segment grows faster than 4%-- such as Internet advertising has been—then other sectors must grow slower—like newspapers. So when Forrester Research predicts that Internet advertising will be 8% of the total by 2010,-- an average of almost 50% annually, then it is hard to buy in to Morgan Stanley’s prediction that traditional media will still grow an average of 4.3% unless the economy is on a real rip.

Although I’m generally not a betting man, my money says that Forrester’s guess aout the Internet will be more accurate than Morgan Stanley’s about traditional media. If that’s the case, the outlook for traditional media players is at best one of treading water. That’s why companies like News Corp. need investments.

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Tuesday, September 06, 2005

Media Monopoly? Investors Don't Think So. Yet More Evidence of a Competitive Industry

For anyone who still maintains there is anything even approaching a media monopoly among U.S. media, Adam Thierer and colleague Dan English put another notch in the empirical arsenal that blows away any such assertions. Taking yet another approach (beyond concentration ratios, audience market share, etc. etc.) Thierer and English examine the value that investors give the largest media companies.

In "Testing 'Media Monopoly' Claims: A Look at What Markets Say", the authors find that the five so-called media titans-- Time Warner, News Corp., Clear Channel, Comcast, and Viacom-- have lost 52% of their value over the past five years. Market capitalization is computed by multiplying the number of shares these firms have outstanding times the price per share. The price per share can be affected by many variables, especially over the short term. But in the longer term—as over five years—it is largely a function of current and anticipated profit. The bigger picture, the entire Dow Jones U.S. Broadcasting & Entertainment Index, is down almost 45 percent below where it stood in 2000, according to their study.

In the case of Time Warner much of that decline may be due to the erosion of value from of AOL, with whom they merged at the peak of the dot com boom. But Thierer and English shows that all five of the biggest players have taken substantial hits. This is not the outcome one would expect of a “monopolist” which by definition is in a position to charge above market prices and reap extraordinary profits. Rather, the findings support the model of a highly competitive industry, where overall profit margins are kept modest by the actions or fear of entry of players with similar products or those that can substitute for some products (think DSL for cable modem service and other technologies in the wings). Although some pieces of these media companies may be very profitable (e.g., local broadcast station in large markets), the broader picture is quite a variance from the expectation of a monopoly (or technically, oligopoly when referring to a small number of dominating players).

Of course, economic monopoly is not what the folks who advocate for democracy in the media really care about. As Thierer and English remind us “In large part, the critics’ case against modern media is a case against commercialism or capitalism in general.” That is, they want a media industry—and indeed an economic structure in general—that would have more rules and programming that could only be imposed from above, rather than the media industry that is essentially responsive to the vast audiences’ needs, wants and choices as it is more than ever today.

For the rest of us, those who may even get frustrated with what the media do and say sometimes but recognize that any alternative structure would be far less honest and responsive, “Testing 'Media Monopoly' Claims” is another piece of evidence supporting the case for a highly competitive media landscape.

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Tuesday, August 23, 2005

Even Largest Media Companies Could Disappear if they Don’t Adapt to Changing Consumer Usage. Does Anyone Remember Korevtte's? Bradlees? W.T. Grants?

That the make-up and competitiveness of television has changed dramatically since the 1980s can be gleaned in the following list of the ten programs with the highest rating since Nielsen began measuring audiences. Only one of the ten is from the time since the start of the fourth network (Fox) in 1986 and that single event was part of the Winter Olympics from early 1994. Four of the 10 were from the 1970s. Since then, not a single Super Bowl, Word Series game or last episode of a popular series could muster an audience to rival the days of limited choice.

Although I haven’t put together the numbers, I would venture that not one network owner would break into the top 10 even if we added together all their corporate-owned programming-- i.e., broadcast and cable networks -- available at any given hour.

Other data I’ve presented shows that the five largest providers of television programming networks (Viacom, Disney, NBC, Time Warner and News Corp) account for a smaller proportion of television viewership than only three owners of three networks regularly aggregated in the 1960s into the 1980s. This undercuts the notion that fewer owners are controlling what more of us choose to watch, certainly if the comparison point is some supposed “Golden Age” of television a decade or more in the past.

Even though they continue to be profitable despite smaller and smaller audiences, the large media companies know that they need to change and adjust to the changing media mix if they are to survive. That could happen if they didn’t morph as they have been. News Corp, for example, recently announced it was buying and some related Web sites for something close to $600 million. I can’t predict whether that is going to be a good investment or not (I would say “not” unless News Corp has some strategy to keep MySpace from being the hot site du jour, only to be replaced by fickle surfers next year).

But it is possible that if today’s media companies simply try to circle the wagons their future is not guaranteed. I recently was leading graduate students in a Strategic Planning class on a case study (by purchase) of Wal-Mart. Here’s a sobering lesson from that case:

“Of the top 10 discounters operating in 1962 – the year Wal*Mart opened for business—not one remained in 1993.”

Korvette’s, W.T. Grant, Woolco, Zayre, Two Guys, among others had been at the top and were gone. More recently, established chains such as Bradlees, Caldor and Ames have closed their doors, usually not voluntarily. Wal-Mart has learned from their mistakes.

We shouldn’t expect to see media companies—no matter how large or seemingly entrenched—stand pat as the technologies change around them, as consumer behavior adjusts to the choices and broader range of technologies available, and as advertisers follow their customers.

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Thursday, August 18, 2005

"Rebuilding Media" Blog a Welcome Addition as a Forum for Discussing News Media Structure and Mission

I want to call you attention to a new blog has been created at the Corante site called Rebuilding Media. It was organized by two journalists with impressive news and online credentials. Vin Crosbie, a fifth generation news man, was the first director of online publishing at News Corp. Robert Cauthorn is a former vice president of digital media at the San Francisco Chronicle and was the third recipient of the Newspaper Association of America's prestigious Digital Pioneer Award.

As might be expected with the solid journalism background of the co-founders, the emphasis of Rebuilding Media is on the news media-- a subset of the larger media landscape but at the top of the list of types of content for which we are so concerned when we discuss the state of the media industry. While it's certainly important that the First Amendment places few restrictions on broadcasting fluff content, such as the personal live of celebrities, the reason there is such contentiousness about media ownership is that news and information is needed for a democracy to best function, for the civil discourse that so many Americans often take for granted.

The mission statement of the blog holds that
The news media has lost touch with people's needs and interests during the past 30 years, as demonstrated by rapidly declining readership of newspapers and audiences of broadcast news. How we rebuild news media appropriate to the 21st Century from the growing rubble of this industry is the subject of this group weblog.
In a recent entry asking "Are Metro Papers Outdated?, for example, Bob Cathourn writes "that the scale of the metro newspaper has become a central liability of today's press." He continues:
As our cities have grown, metro newspapers evolved with them. That brought a necessary giantism -- giant presses, giant distribution mechanisms, giant staffs. And because of the size of the enterprise, metros require giant advertising revenues to stay afloat.... Perhaps we should now begin asking whether there is a maximum size that a newspaper can achieve before it outgrows its ecosystem and begins to fail its community.
His ideal remedy:

Clearly the lame efforts at zoned editions at metro papers haven't succeeded. Zoning was always more about revenues than coverage anyway.

Let's talk about real structural change instead: partition the giants. Maybe the LA Times should actually be broken into three or four or five distinct papers to better cover the market one giant lumbers across today. If you did it smartly, you could still retain many of the economic benefits of large scale while gaining the focus of smaller organizations.

He doesn't really think that is likely to happen (nor do I think it even adviseable), but he does expect challenges -- and I would add, opportunities-- to the metro papers:
Instead, we should keep our eyes open as multiple, small upstarts -- ala the [San Francisco] Examiner -- arrive to do the local job the metro daily refuses to complete. Add citizen journalism to that mix and you get a spectrum of media that is downright hopeful.
The future of the newspaper is very much on my mind these days. In October I will be making a presentation on the topic to a small group of publishers from around the world and I'm trying to hone my message. Long term trends are very negative, as circulation continues to fall along with advertising lineage. More localism may hold opportunity for some form of media product or service. But it won't reverse the decline of the metro newspaper as we know it.

We need the kind of discussion that is taking place at Rebuilding Media.

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Thursday, August 11, 2005

FCC's DSL Ruling Will Help Spur Competition for Broadband "Last Mile"

There’s been much ink and many bits written about the FCC’s unanimous decision last week largely freeing the telcos to wholesale their DSL service on their own terms—including not at all. This puts them on a level playing field with the cable operators, who were ruled to be freed of such wholesale requirements in the recent Brand X Supreme Court decision.

Those who disagreed with the decision were unusually muted, though still out with their statements. They knew that the outcome was probably inevitable once the Supreme Court had spoken. The non-telco ISPs were predictably displeased, but there was no talk of litigation to overturn the ruling at this point. Earthlink, among the largest resellers of both broadband cable and DSL, at least publicly was nonplused, stating , “…We are confident that we will extend our existing commercial agreements with the Bells so that we can continue to deliver DSL services” and adding, significantly, they will “explore next generation broadband alternatives to give consumers competitive alternatives for their high-speed Internet service.”

The self-styled consumerists were likewise less shrill than I would have expected. (I always call them “self-styled” or “self-appointed” because they rarely seem to be speaking about my self-interest as a consumer and I suspect their positions are rarely, if ever, favorable to the interests of all consumers. I never appointed them to represent me. Nor perhaps you). Andrew Jay Schwartzman, the oft quoted President and CEO of the Media Access Project, a very nice guy with whom I rarely agree on policy, typically lambasted the FCC’s ruling, but added, “Even so, it could have been worse. By asserting its authority to stop the most flagrant kinds of abuse, the FCC has made it somewhat harder to block or impede access to information.”

Indeed, Schwartzman picked up on a generally underreported piece of the FCC’s August 5 Report and Order. Concurrent with the ruling they released a policy statement “New Principles Preserve and Promote the Open and Interconnected Nature of Public Internet,” which states:
(1) consumers are entitled to access the lawful Internet content of their choice; (2) consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; (3) consumers are entitled to connect their choice of legal devices that do not harm the network; and (4) consumers are entitled to competition among network providers, application and service providers, and content providers.
This addresses the fear expressed by some advocates, as over reported in a Wall Street Journal front page piece (subscription required) on Monday, that “Technology has evolved allowing the broadband companies to block Web sites from their customers.” The industry pooh-poohs that scenario, insisting, they won't ever block access to competitors' Web sites because customers wouldn't stand for it. Regulation freaks (and others with a self-interest) are pushing for Congressional legislation for so-called net-neutrality. Some even acknowledge there isn't a problem now, but say there might be. "The temptation is always there by the owner to favor his own content," the WSJ quotes Rep. Rick Boucher, a Virginia Democrat.

A strong response to this paranoia is in a thoughtful piece by David Berlind, at the Between the Lines Zdnet blog. After first admitting that his initial impulse was to be concerned about an apparent telco-cable duopoly in broadband, Berlind notes:

Recent history is beginning to prove that that technopolies aren't very sustainable and that innovation somehow has a way of breaking them down (although maybe not as rapidly as we'd like). In some ways, trying to keep technopolies at bay through regulation turns out to be a crutch that can only slow innovation down. The innovators are much better off with a less complex labyrinth to deconstruct.
Just recall: In the early 1990s AOL developed what seemed to be an unassailable position as the largest proprietary online service. In 1994 Microsoft launched its competitive MSN. I was part of an active Listserv, On-line News. The preponderance of participants (traditional journalists and new online journalists) agreed that with Microsoft’s hegemony in the PC world that they would quickly overwhelm AOL. Just then the World Wide Web made the Internet an unstoppable force. Despite its near monopoly on the desktop, MSN never got traction as a proprietary service, quickly converting to a free Web service, plus an ISP model that AOL quickly adopted. AOL continued to grow, to the point that it could acquire Time Warner. But with the demise of dial-up service, AOL has been losing subscribers by the millions. Its name was removed from the corporate title, which is again Time Warner.

Similarly, innovators are in the labs and in the field with technologies to compete with the telco and cable guys’ only real competitive barrier—the last mile. Berlind points out that “one big fat digital backhaul to your neighborhood and a wireless mesh can take over from there providing voice (VoIP voice) and data, completely disintermediating the cable/DSL guys in the process.” Entrepreneurs can following the lead of Philadelphia in promoting the build out of city-wide Wi-Fi or use WiMax (though hopefully not as city-owned enterprises). The FCC ruling should give new momentum to the long-running potential of using electric power lines for the last mile.

Both the Brand X decision and the FCC’s rule-making on DSL will likely do more to further broadband competition than a mandatory access ruling ever could have. That would have maintained a cozy two-technology backend duopoly even if many players were doing the marketing on the front end. These decisions are the right ones to encourage truly new technologies that will lead to real competition. Win-win.

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Wednesday, August 03, 2005

And the Largest National Radio Programming Network is....?

Quick: What’s the largest group of uniformly programmed radio stations in the U.S.? Did you say Clear Channel? Wrong. Infinity? Wrong. The answer is….National Public Radio--NPR.

Non-commercial radio has become a major media force. Primarily on the FM band, it has grown faster than the number of radio stations overall. Accounting for 6% of all stations in 1970, public radio stations multiplied in number 560% by 2000 and more significantly more than tripled in proportion to over 20% of all radio stations. Non-commercial radio stations are often affiliated with higher education, municipalities or public television stations.

Their growth has been accompanied by the emergence of National Public Radio as a programming network that rivals the reach of the largest commercial owners. NPR’s most well known programming includes “Morning Edition,” “Fresh Air” and “All Things Considered.” The role of NPR is important in the context of radio competition.

· NPR provides content for much of the programming day on a national basis for the 780 public radio stations it serves.
· Its reach is so pervasive it claims “Just about anywhere you find yourself, you’ll find NPR.” According to NPR’s Web site, “Morning Edition” is the leading morning radio news program in the United States and is the second most listened to radio show nationally. (“All Thing Considered” is number three).
· NPR reaches 26 million listeners on a typical week, double the number of 10 years previously. In the 1980s it claimed an audience of about 2 million weekly.
· Public radio listeners outnumber the combined circulation of the top 35 U.S. daily newspapers.

For comparison, the nationally syndicated talk show of political commentator Rush Limbaugh has a weekly audience of between 15.5 and 20 million on about 600 stations.

With 99% of the U.S. in range of one or more NPR stations, virtually all Americans have a very differentiated choice should they seek an alternative to the music, talk, news, religious or other programming choices in their area.

What’s curious (well, not really-- I’m not surprised) is that media industry critics do not seem to complain about the common programming that emanates from NPR’s Washington, DC headquarters. Whether in Minot, ND or Los Angeles or Baton Rouge or Bangor, there is little local news or information being transmitted during the highest listening times of the day on NPR-affiliated radio stations. Whether broadcasting “Car Talk” or “World Cafe,” it is the same programming everywhere.

Don’t get me wrong here—NPR has some quality programming. I think it’s great that it’s available nationally. My point is that when the high decibel critics take on a commercial radio chains for programming out of some central facility for many of their stations around the country (which is far less common than they suggest) but don’t criticize the NPR-affiliated public station network, they expose their real bias. And that is that they just don’t like the programming that the commercial stations provide. If Infinity produced the NPR schedule I suspect they would have to be silent. When you look beyond the rhetoric on media ownership structure, what many of the angriest and most active of the self-styled media reformers really want is media that will provide content they think the audience “should” have: NPR for everyone, all the time. What we have now is choice—to listen to Rush or Neal, Al or Bill.

Works for me—and most others as well.

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(Note: In the original version of this entry I included "A Prairie Home Companion" as being an NPR program. Rather it is a program of American Public Media, the other major national programming service for public stations, with primary headquarters in Minneapolis.)

Tuesday, July 26, 2005

Media Content is Becoming More Complex, More Socially Involving

So much of what critics of media industry structure harp on is how the big media players dumb down the media. They’re only interested in earnings, goes the litany, so they pander to the lowest common denominator. We are becoming a nation of couch potatoes. Video games teach violence and take kids away from what they should be doing after school—homework and watching C-Span.

Now along comes a book, from an author with solid credentials and no obvious political agenda, that turns these arguments on their head. The best of television today is far more engaging, complex, and brain exercising than television has ever been before. Even the lower rungs of programming are better than the their equivalents 10 or more years ago. The best selling video games, it turns out, are those that stimulate the most thinking and involvement. The Internet augments and magnifies the richness of other media. In essence “Everything Bad is Good for You: How Today's Popular Culture is Actually Making Us Smarter,” the title of Steven Johnson's latest book.

As you are among a small self-selected audience that is reading this Blog, you may already be of a predisposition to have read Johnson’s book. If not, you will be at a huge disadvantage in any discussion of media ownership and structure. Because one of Johnson’s central tenets is that the content of the mass media has risen to new highs in narrative structure, in sophistication and intellectual development because of the increase in competition among the media. He makes a convincing argument that the marketplace—economics—is one of the major forces driving the change (the changing neurology of the brain and changing technology platforms are the other two).

Johnson develops his themes through 210 fast paced pages, so I cannot do them justice in this brief entry. But here are a few of his assertions—all backed by substantive exposition:

• He has dubbed his most central argument The Sleeper Curve—after the 1973 movie in which Woody Allen’s character in Sleeper awakes 100 years in the future where he finds chocolate has been determined to be a health food. In similar fashion, Johnson holds that today’s most debased forms of mass culture—video games, television drama and sitcoms—turn out to be “nutritional after all.”

For decades, we’ve worked under the assumption that mass culture follows a steadily declining path toward lowest-common-denominator standards, presumably…because big media companies want to give the masses what they want. But in fact, the exact opposite is happening: the culture is getting more intellectually demanding, not less.

• Johnson compares television's popular dramas of the 1970s and 1980s, such as Dallas and the groundbreaking Hill Street Blues and St. Elsewhere, with today’s dramas, such as The West Wing, The Sopranos and 24. The latter group have substantially more multithreaded plots, a larger number of regular characters, more sophisticated relations among the characters and fewer obvious “flashing arrows” to tell viewers what’s important and what’s ephemeral. Viewers have to deal with far more ambiguity and fill in many more blanks around the plots than in the old narratives. In short, they have to think far more as they watch and after each episode ends.

The reason that these newer narrative forms are so attractive to the producers is that, like a good book, they reveal themselves further with repeated viewings. Viewers of Seinfeld, the successful situation comedy, find nuance, references to long ago plots and similar discoveries on second and third viewings. Thus, producers have found that the syndication value of these programs is enhanced because repeated viewing is actually sought after by the audience. Moreover, DVD sales of these programs are a new source of revenue precisely because they stand up to repeated viewing. Johnson calls this model MRP—Most Repeatable Programming. This replaces the old model from the days of only three networks, LOP—Least Objectionable Programming. Which stands up better to repeated viewing, Happy Days or Friends?

Even the programming that is often derided as crass, such as the reality shows, has redeeming qualities far in excess of the programming of yore, such as The Price is Right. "The Apprentice may not be the smartest show in the history of television, but it nonetheless forces you to think while you watch it, to work through the social logic of the universe it creates….” People actually discuss the strategies used by contestants on the reality shows. “You don’t zone out in front of shows like The Apprentice. You play along.” Apple’s Steve Jobs calls this type of media “sit foward,” rather than the "leaning back" media that characterized most television programming in the past.

Johnson’s conclusion is that “dumbing down” is not the natural state for popular culture. It is just the opposite. Like the overlooked trend of increased media competition rather than less, in media-mediated culture far more trends are pointing up. It’s a state of affairs that even a cultural elitist should support.

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Wednesday, July 13, 2005

U.S. Has Most Diverse Media "in the World" Concludes Canadian Research Scholar in Harvard Study

In most industries the central concern about the degree of competition is economic: the degree of pricing power that the players have. For the most part, the agenda behind the contentious issue of media ownership policies centers not on prices but around diversity of content. Except for the occasional mention of allegedly unchecked cable rates, we don’t hear people complaining about the pricing of newspapers, magazines, or, heavens knows, Internet access or content.

No, media ownership debates are at heart a surrogate for the degree of choice that viewers and readers and listeners have. That is why the F.C.C. made a valiant, if controversial, attempt to construct a “diversity index” as a piece of its supporting documentation for its ownership regulation policies.

As the debate over the F.C.C.’s index reminded us, the quantification of “diversity” does not lend itself to easy metrics. Is it measured by different formats (print, audio, online)? Different genres (comedies, news, documentaries, dramas)? Languages (available in English, Spanish, Serbo-Croatian)? By “voices” (number of different owners)? Does audience size matter? If there are 1000 equally accessible voices but 80% of the audience at any moment or any day chooses to watch/read/listen to 1% of them, does that mean there is less diversity than if the audience was equally divided among all 1000 voices/owners?

In my media myths study (see link at right) I address this to a point, citing in particular research by Mara Einstein, who found by one approach to diversity that under the F.C.C. network rules in the 1970s and 1980s, designed to promote diversity, actually lessened it. But that looks at only one piece of the elephant.

Now along comes a new study conducted at Harvard's Kennedy School, “Measuring Media Diversity: Problems and Prospects” that, as its title promises, quite successfully lays out the problems involved in grappling with a definition of media content diversity. This is a concept that its author, Richard Schultz, characterizes as a “conceptual bog.” One intriguing aspect of this study is that it was compiled by a Canadian who is a senior member of the faculty of Montreal’s McGill University. Thus, the perspective is a bit less incestuous than an American who has been immersed in the U.S.-centric debates for years. And it is from this perch that he can make this initial observation:
No country arguably has had a more explicit commitment to the promotion and preservation of media diversity than the United States. Some scholars date the adoption of diversity as a goal of public policy in the United States to the 1879 Postal Act which provided for subsidized postal rates for magazines.
Schultz’s paper explores the “meaning of media diversity and the complications that conceptualizing media diversity pose for developing a non-contestable, if such is possible, measurement system.” He parses the controversy around the F.C.C.’s attempt to develop its Diversity Index. But in my entry today I will skip down to his findings and conclusions.

First, he summarizes that “the United States today already has one of, if not the most diverse media universes, perhaps galaxies is the better word, in the world. Those who argue the opposite simply have not shown ‘the beef’.” Then he nails the real issue:
The critics are more concerned about the quality, or lack thereof, in American media and the fact that for the most part it is commercial and market-driven… In part the issue is not diversity per se or even diversity of owners but rather diversity of types of owners. The critics just don’t like corporate domination of the media….
Clearly I agree with Schultz. But here is someone who is looking at the issue from the outside and sees without blinders the implications of what the media ownership critics really want: not more choice but less. They want owners who will not give us the choice of the "O’Reilly Factor," "C-Span" or "60 Minutes," but three channels of C-Span. Their choices for films would not be “Batman Begins” “Chocolat” or “Dumb and Dumber” but ten flavors of Michael Moore. What they seem to want is not our choices but their choices.

Democracy is not just about politics and government. It is about voting -- choosing -- in our daily lives. Democracy can be and has been sloppy: we have not always made the most enlightened choices. But they are our choices. The same holds for the choices we make about what media-provided content we consume. I recommend Richard Schultz’ analysis for your open-minded consideration.

Schultz expects that his paper will be available online soon. I will provide a link when it is.

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Wednesday, July 06, 2005

Penn State Study Finds Media Diversity Fostered by Vigorous Media Entrepreneurship

A new body of research just being developed appears to support the contention that the media industry is being driven by upstart entrepreneurs rather than by the staid big media companies. The research is in a formative stage. But if further work supports the findings to date it would bode well for the diversity and quality of the media.

The research has been lead by Anne Hoag at the School of Communications at Penn State (and a colleague during my brief stay there). She teaches a course called Entrepreneurship in the Information Age. She recently presented a paper, “Media Entrepreneurship: Definition, Theory and Context,”at Babson College's entrepreneurship conference.

Hoag found that “media entrepreneurship appears to be relatively dynamic and healthy compared to all U.S. industries – on average the media industry was more turbulent during the 1990s and had more nascent entrepreneurship at the turn of the 21st century.” Turbulence is considered healthy in the entrepreneurship literature, as it suggest vibrancy—new entrants coming in, others closing down. This stands in contrast to the 1950s through the early 1990s, when trends in organizations per capita showed that media entrepreneurship overall was rather stable.

Her research did not find that media entrepreneurship was equal in all segments. As might be expected, the older, mature publishing sector showed the least activity. Activities associated with visual productions—theatrical film, television production and the like -- were the most active.

Prof. Hoag’s paper opens with a general observation:

Recent scholarship has shown that new and small firm growth and a corresponding decline in conglomeration and concentration starting in the 1970s has shifted the source of economic growth and innovation toward the entrepreneurship and small business sector. In fact, new firms have been shown as the main source of net job growth.

Then she asks:

Does the evidence support such a claim when applied to media industries? In particular, does it hold up when the term “innovation” is translated into media industry performance concepts like diversity (in content and voices), access (to the media and communication networks for the public), quality (in both content and access technologies) and new processes with democratizing effects.

This line of inquiry is important because it can add empirical data to the work that already shows the ferment in the media industry. The headlines announcing any big media merger sticks in the minds of viewers and readers, seeming to support the perspective of big media getting more powerful. The reality is just the opposite, as can be seen in articles and research here, here and here.

Hoag has opened a useful line of inquiry. You can follow her reserach at her new blog.

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Wednesday, June 29, 2005

Analysis: Winners and Losers in the Supreme Court's ISP Broadband Ruling

You’ve seen the basics of the Brand X case: Cable companies are not required to sell access to competing ISPs if that’s what the FCC so rules. And it is highly likely that the FCC will now level the playing field for DSL facilities of the telecos.

So what does that mean? Who are the winners and losers?

It’s not as obvious as it may at first seem.

The self-styled consumerists are already complaining. Consumers Union jumped right in: "We believe consumers remain in a substantial risk of paying bloated prices to cable companies.” The consumers groups seemed to have had a statement ready: “The court's ruling also threatens to cement the cozy duopoly of cable modem and DSL service that has made a mockery of competition in American broadband markets." (Hmm, then what is it again that is driving DSL rates down to below the level of what dial-ups were charging a few months ago?).

Cable companies should be pleased, as would be telcos—a rare alignment of interests. But these are short run victories. In the longer term, The Brand X decision may be a huge win for consumers, a loss for the telcos, and a mixed bag for the cable folks.

Good for Consumers

Here’s why. Major stakeholders in the outcome of Brand X were EarthLink and other ISPs who resell telco DSL and hoped to resell cable broadband. While their participation in the market gives the appearance of greater competition, it is only half a glass. As resellers, they still must depend on the suppliers-- telcos or cable providers-- for wholesale pricing. This sets a floor for their own pricing. It's an easy way into the market—little capital expense. But it does not really add to the broadband infrastructure and create real competition.

With the Brand X decision, these ISPs must now fend for themselves. The good news is they have some very realistic options: multiple wireless broadband technologies. They can do what Philadelphia and various other municipalities are building—city-wide wireless. They can use Wi-Fi. They can use the developing Wi-Max. There are several flavors of fixed wireless technologies.

"We think wireless has a lot of promise and we're very aggressively pursuing that," a spokesman for EarthLink told The Wall Street Journal. The Journal also noted that: “In Philadelphia, for example, EarthLink has put in a bid to provide wireless Web service across the city, and is testing wireless technology in Northern California markets. And in Madison, Wis., AOL plans to test this year a high-speed wireless network to gain direct access to customers.”

My prediction is that, with the easy and cheap option eliminated, competition will be encouraged in new directions. (There is always talk about using electric utility wires, but so far it’s been years of talk, little action. I remain an agnostic on this as an option).

Loss for Telcos

The telcos may gain full control over DSL, but they lose a potential political ally in what may be another high stakes battle: video. As the telcos roll out cable-like video services over their new fiber networks, they are running into the same local franchise barriers that stalled the cable providers in the early 1980s. As it now stands, in most states they will need to go town by town to get permission to be in the “cable” business. Having lost a major state battle (in Texas) to get a pass around this expensive and time consuming barrier, the telcos had hoped to get a competition-oriented Congress to revise the Telecommunications Act of 1996 to provide a federal law overriding the states. If the Supreme Court had ruled in favor of Brand X, the cable companies would likely have also turned to Congress to overrule the FCC. Thus, two major industries would have joined to promote a change.

But the cable industry now sees no need for immediate legislative action, leaving the telcos all alone. That makes the possibility of getting Congress to act far less likely.

Mixed Bag for Cable

The cable industry is the big short term winner. They got the ISPs off their backs. They will not need to engage in an expensive lobby effort with Congress. Their telco competition is mired down in franchise battles and a lonely lobbying effort. (Come to think of it, perhaps the consumerists would want to align themselves with the telcos to persuade Congress to speed up competition for video programming services. I’m serious!) But down the road, cable interests will face the same enhanced competition as the telcos should the concerted efforts of the EarthLinks forge a viable third broadband option in the form of wireless. And, sooner or later, the telcos will be encroaching on their video bailiwick, just as they are moving along with switched telephone offerings in the telco space.

Brand X resolved a battle. But the war of competition and lower prices and/or more bang for the buck—and usually both of these—rages.

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Friday, June 24, 2005

Demythification: The Urban Legend of Clear Channel's KCJB, Minot, ND

This entry is a bit lengthy because I want to again address the need to employ fact and understanding to trump selective perception and social agenda mongering in determining media structure policy.

I have no need or interest to come to the defense of any media company, large or small. They can carry their own water.

But I do enjoy deflating urban legends. And much of what passes for “fact” or “evidence” of how big media is somehow lessening democracy or diversity or culture or localism is indeed myth or distortion. Some of it is repeated knowingly, by those with ideological agendas. In many cases, trusting innocents pass it along, much as they do those serious sounding viral emails about pleading for help for an ill daughter of a Wal-Mart manager in Idaho or some such contrivance. At least in those cases one learns to go to or where you can learn the facts. Here is my small step to demythifying an urban legend that involves Clear Channel Communications.

On page 40 of my Media Monopoly Myth study I mention an incident from 2002 as reported by the Washington Post in May 2003:

…Clear Channel owns all six commercial stations in Minot, ND. When a train derailment in the middle of the night released a frightening cloud of anhydrous ammonia, Minot police sought to notify the citizenry of the crisis. They called KCJB, the station designated as the local emergency broadcaster, but no one was home; the station was being run by computer, automatically passing along Clear Channel programming from another city.

The last sentence from a press release announcing availability of my study said:

There is no support for the contention that media ownership by chains or conglomerates leads to any consistent pattern of lowered standards, content, or performance when compared with media owned by families or small companies.

Within hours of the release of my study, an entry that cut and pasted part of the press release appeared on the Take Back the Media Web site from an anonymous poster who went by Stranger. To which Stranger responded: “'No lowered standards? The fine folks at NMRC [the organization that commissioned the study] are obviously not familiar with what happened a few years back in Minot, SD” followed by his recounting of the event. (Note that Stranger also placed Minot in South Dakota, even though the cut and paste he used to tell the story accurately places Minot in ND).

Typical of folks who already know the “truth,” if anything was obvious was that Stranger (and others who commented afterward) did not bother to read the study itself, feeling that reading the one page press release was close enough.

More critically, what Stranger and other Clear Channel bashers skipped, including North Dakota’s Sen. Dorgan, was first learning the facts behind the Minot incident. In a letter to Sen. Dorgan on February 12, 2003, Clear Channels’ CEO Lowry Mays laid out what in fact happened:

  • Station KCJB is staffed 24/7 with an on-duty announcer.
  • The local police tried to notify the station using an outdated emergency response hotline rather than the automated system had had been put in place in 1997. The obsolete hot line thus called into the station’s switchboard, which was also being flooded by calls from local residents seeking information.
  • Off-duty station personnel started coming into the station on their own as word of the derailment got out. They tried calling their police contacts, but the police phones lines were also inundated with callers, so the station personnel could not get through.
  • In the post-mortem after the incident, the KCJB engineer discovered that the Minot police had changed the emergency broadcast frequency they used without notifying the station, thus making the system incompatible.

In his letter Mays was too diplomatic to come out and say that the crisis had more to do with screw-ups by the local authorities than the result of programming on the station.

Half of Air America’s Outlets are Clear Channel Stations

Clear Channel was viewed as the Dark Force as well by a correspondent I quoted in my study on page 43. She had written me:

Clear Channel pulled Howard Stern from the air [from the six of their 1200 stations]. I am outraged. I am disgusted. I am affected because Clear Channel owns--thousands?--of radio stations throughout the country. And Clear Channel is conservative, and Clear Channel is TAKING AWAY MY RIGHT TO CHOOSE. Consolidation is not an issue we should be concerned about? … Clear Channel is a sticking point in my side because of its political affiliations (read: Bush administration) and clear dominance in the industry. They use their stations to support their own agenda (I'm talking specifically of the many pro-war rallies Clear Channel sponsored via radio stations--I believe Clear Channel helped create the cultural climate of "If you are against the war, you are against America”).

Again, some facts will provide perspective. According to Clear Channel’s Robert Fisher:

Clear Channel has no political agenda. Our local market managers decide what programming is aired. People assume that because we syndicate Rush Limbaugh, Glen Beck, Dr. Laura and that we are headquartered in Texas that we are a Republican company. What people fail to realize is that profits trump politics. If our listeners are demanding certain programming, then we put it on the air. Take for example the new popularity of the progressive talk format (Air America). Clear Channel accounts for half of the Air America affiliates in the U.S. Local market managers started to recognize the popularity and demand for this format and made the local decision to flip the format of their stations. So regardless of some of the hyperbole from those with conspiracy theories that Clear Channel makes corporate decisions on programming, the fact is that local managers are making programming decisions based on the input from the communities they serve.

Once again we see that media companies, like other for-profit organizations, thrive only when they are responsive to some segment of consumer needs and wants. As I conclude in my study (and elsewhere):

Restricting their coverage, their range of films or magazine titles or news shows is not what the big companies are about. They seek to reach the mass market when they can and niche markets when they spot them. Given the vast diversity of interests in a nation the size of the United States there is potential profit in reaching the right wing as well as the left wing, in programming for Spanish speakers a well as English, in publishing books for escapism and for self help, in investigative reporting that is critical of government as well as editorials that may be supportive. And if the big guys don’t provide it, some small publisher or producer will.

Let me know of other urban legends in the media ownership relam, or anecdotes that need to be tested for accuracy.

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Wednesday, June 22, 2005

Major Internet Portals Shaping Up as True Competitors for "Television" Advertisers and Audiences

Competition in television continues to heat up. Not only are the phone companies like Verizon busy implanting fiber optic cable to residences and lining up programming in their assault on the cable and DBS providers, but the Internet is building its video muscle as well. AOL, Microsoft and Yahoo, among others, are becoming serious media players. Although AOL is part of the largest of the traditional media companies, Microsoft and Yahoo are new additions to the media world.

This week AOL (part of Time Warner, as you know) officially announced that it was essentially taking all its content outside its walled garden and making it freely available. Recognizing that well over half of all Internet users access it via broadband, AOL's new strategy places an emphasis on video. As reported at, "Many of the bells and whistles will be based at AOL's Video Hub, which will focus on not only entertainment, but also news." "Visitors will be able to watch music videos, exclusive concerts and a Web-only reality show..."

Indeed, AOL is giving its users two options for a customized home page, one with the usual picture and text links, the other focusing on video highlights. This Video Hub lets users personalize their Internet TV. Initially it will be choices of movie trailers, TV previews, music videos or highlights of news, sports and entertainment. But that is expected to expand over time.

Competition in radio is also getting hotter with AOL's partnership with XM Satellite Radio. This will provide 20 free XM radio stations free at AOL, in addition to the 130 radio channels that AOL had previously made available only for its subscribers.

Yahoo, the most accessed of all Web sites, is moving into video big time. With 75% of its visitors on broadband, Yahoo is actively pursuing ventures with producers and creative talent to provide more video through its portal. Aggregating a worldwide audience of an estimated 300 million visitors, one analyst ventures "Those are numbers that are sufficient to make the likes of Rupert Murdoch salivate and turn green with envy." That is, as Yahoo moves further into content, it is a formidable competitor for both advertising dollars and consumer time to the traditional media companies.

MSN is also video intensive. At the moment it is heavy with news and information clips from NBC's "Today" show, Fox Sports and CNBC for business news. But it is also an outlet for smaller features, such as a video horoscope from However, if MSN wants to differentiate itself and attract a regular audience, they--as well as AOL, Yahoo and Google for that matter -- will inevitably have to deliver more of their own exclusive content – entertainment or information that cannot be found anywhere else on the Internet. All indication is that is exactly where they are heading.

Internet advertising is booming-- a sign that the Internet is indeed becoming an entrenched vehicle for media and commerce. According to Robert Coen, a senior vice president at ad agency Universal McCann, Internet advertising could hit $8.8 billion in 2005, a 25% increase over last year. This would actually be more than 50% as much as the combined ad revenue of the four largest broadcast networks, ABC, CBS, Fox and NBC. Those institutions are forecast to see only a 2% increase in ad revenue this year, to $16.8 billion.

Competition is coming from all directions: the old established players are trying to diversify, even at the risk of cannibalizing their older properties. They are facing entrants who are taking advantage of the growing penetration of always-on high speed Internet connections. The winners are us-- consumers-- who have more variety in what we can access, where we access it and when we can access it.

(Speaking of Internet advertising, you can help support this otherwise pro bono site by clicking through on one or two of the Google-placed text ads to the right. A few cents here, a few cents there.... Thanks).

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Monday, June 20, 2005

The Day the Courts Throw Out all FCC Ownership Regulations

The Supreme Court announced last week that it would not review an Appeals Court ruling that instructed the FCC to come up with stronger justification for its media ownership rules. When the Third Circuit told the FCC to go back to the drawing board there was much crowing among those who favor 1950s regulation for a 21st century information landscape. This despite the fact that the Appeals Court did not actually rule on the merits of the FCC's proposals, which modestly moved parts of the old media industry into the new media environment. And in the end, by at least one possible scenario, the "anti" forces may have achieved only a pyrrhic victory. Here's my reasoning:

The Appeals Court rejected the FCC's ownership policies on a procedural issue: It ruled that the Commission did not provide solid justification for its specific limits. For example, why is 45% the correct number for a cap on national audience for any owner of television broadcast stations? In effect, why not 41.79% or 48.119%?

But that question begs the issue, and one of these days a judge or a panel of judges will understand. There is no national cap on the audience that can be reached by The Wall Street Journal, The New York Times, USA Today, Newsweek or any book published by Random House. There is no national cap on Sirius or XM satellite radio stations. There is no cap on NPR.

The proposed FCC rules say that in markets with five or more broadcast stations, one entity could own two stations but only one of those may be affiliated with one of the four largest networks. Why shouldn't this be limited to six or more stations? Or ownership of three stations? Where do these limits come from? After all, in Philadelphia there are only two daily newspapers, both owned by the same entity. There is only one newspaper in nearby Camden. One in Atlantic City. One in Wilmington. But residents in any of those cities can receive the nine Philadelphia broadcast stations, from eight owners, including two public television stations. And, assuming the Philadelphia area is like most of the country, somewhere between 85% and 90% of households have chosen to get their television via cable or satellite. Many of those viewers no longer have any idea what is a broadcast stations and what, like Bravo or The Food Channel, is "cable." So why are there no limits on newspaper ownership but even under the FCC's proposals strict limits on broadcasters?

Of course we think we know the answer. Broadcasters use the public airwaves. But even if that made sense 50 years ago it is beyond time to re-evaluate that justification. The public responsibilities imposed on commercial television broadcasters today have gone from little to almost none. Perhaps the most obvious is that broadcast television does not have the latitude for language and violence that is otherwise permissible under First Amendment standards for video that does not travel over the terrestrial airwaves within the UHF and VHF portion of the spectrum. Satellite signals, of course, come to Earth via spectrum. That it is not considered broadcasting only highlights the absurdity of the distinction of what slice of the spectrum is used. Cell phones use electromagnetic spectrum. Heaven knows there is no limit on the content -- voice or SMS or an other form of bits-- that goes between towers and handsets.

Now I suppose one could turn my reasoning around: instead of removing regulation on broadcasters we should impose more on satellite providers and anything else that uses the airwaves.

But then there's those 45 pesky words called the First Amendment. The ones that include "Congress shall make no law ... abridging the freedom of speech, or of the press."

So my scenario is this: an enlightened judge is going to be assigned the case with the next version of the FCC's ownership regulations. He or she is going to reject those, too. But the ruling will be more specific: There is no longer justification for limiting broadcasters with restrictions any greater than those imposed on any other media or other industry segment. Television is television. It can longer longer be a second class citizen under the First Amendment.

The so-called consumerists and media reformers will howl at the termerity of applying the First Amendment to this media technology. Congresspersons will grandstand. But it would be the right decision. The Supreme Court will uphold the Appeals Court.

By the way, current broadcast license holders might not like the implications of this either. First, the implication is that they, like anyone else who gets spectrum, will have to pay for it. They should have been required to bid on digital spectrum. Maybe it's not too late. Another consequence of being treated like any other video provider would be the end of the "must carry" rule. Whereas nonbroadcast cable networks must bargain with cable and satellite operators for channel space, broadcasters get a free ride. That too could end.

It could be -- and should be-- the end to one of the longest running free -- and very profitable-- lunches of all time.

(For a good discussion with a wealth of citations covering the First Amendment and media access issue, click here and go to chapter six of Adam Thierer's new book, Media Myths).

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Wednesday, June 15, 2005

Love and Marriage: Viacom's Divorce is a Natural Part of Media Industry Evolution

One of the wonderful things about documentation (whether text, aural or visual) is that it's akin to leaving a trail of breadcrumbs to find your way back to where you started. For those of us in the research and analysis business, it's a method for keeping score: what did you say, when did you say it and how accurate were you? However, most of the time it is too daunting to go back into volumes of records to compare then and now, though digital storage and improved search engines are changing that dynamic.

To get to my point: Richard Siklos, in London's Daily Telegraph, is just one of several who have commented of late on the momentum for divestiture in the media industry. He wrote (see the entire column here):

Media giants have been assembling and disassembling themselves for years. Remember when John Malone split his cable and programming assets from the old Tele-Communications, forming Liberty Media, then sold the cable business altogether? Or the whole Seagram-Universal-Vivendi debacle? Time Warner has only just unwound Time Warner Entertainment, a strange construct it created years ago to house some of its best assets in partnership with outside investors.

Adam Thierer has been chronicling the slew of announcements here and here (and more).

This is preface to a bit of personal gratification I found in yesterday's announcement that Viacom's Board voted to deconsolidate itself into two pieces, as the most recent development in this series of announcements of media company divestitures. I've held for many years that many media mergers were bad news. Not because they were a sign of any sort of economic or thought-control monopoly, nor as speculation that they endangered journalism or civic discourse. I thought they were bad news because they were simply (but expensively) bad business decisions. As such they drain resources from the content they could create or the distribution they could provide. In my strategic view many did not make sense. CEOs talked about synergies that I just did not see as being realistic. The technologies did not mesh nor did the business models. The Time Warner-AOL merger was the high water mark of ill-advised combinations.

Fortunately I documented my (in hindsight) right-on analysis. In the 3rd edition of my book, Who Owns the Media? (on page 566) I wrote that vertical combinations in particular were ill-advised. The perpetrators would need to "undo them years later." And so they are. I continued:

In the real world of business, sometimes what looks like monopoly power from the outside can drag down profits, development and growth when looked at from the inside. Eventually, savvy managers divest as well as acquire.

And so it is coming to pass. And for just the reasoning I suggested. (Hear my horn tooting?) Following is a five year chart of the stock performance of Viacom, News Corp., Disney and Time Warner, the four largest publicly owned media conglomerates, compared with the Dow Jones Industrial Average. (A two year chart would look much the same). Viacom performed the poorest. But every one is trading well below what they were worth in 2000, while the Dow ended on Tuesday roughly where it started.

What this says is that investors-- mostly institutions and similar aggregators of yours and my 501k and pension funds-- have come to the conclusion that big is not always better. Having more and more Web pages indexed in Google's data servers is better -- and profitable. A merger between Google and eBay, for example, would be neither.

Given the dramatic changes in the information industry over the past few decades and into the foreseeable future, it would be ludicrous for incumbent players not to be looking for new opportunities, including mergers and acquisitions. A newspaper company today that restricted its investment to new presses or adding journalists would be signaling its own downward spiral to death or selling out. The recent acquisition by The New York Times Co. of makes sense strategically -- though I might question if the $410 million cash price paid was too dear.

When Viacom's chairman, Sumner Redstone, announced the acquisition of CBS in 1999 he said, "This partnership seems almost dictated by destiny." Like many marriages, the match made in heaven may end with divorce when the incompatibilities that could have been spotted initially were papered over by infatuation. Corporate mergers seem to be no different -- they are created by men and (less often) women who are prone to mistaking the excitement of the deal for the rationale underlying business logic. The Viacom separation is just the latest and most dramatic of the natural ebb and flow of the media industry's dynamism.

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Monday, June 13, 2005

More Than 1000 New Periodicals Started in 2004 Indicates Robustness of Old Media

With so much attention focused on electronic media and the Internet, we may lose sight of the robustness of older media, in particular magazine publishing. When last I checked for the 3rd edition of Who Owns the Media? there were nearly 12,000 different titles, ranging from mass circulation titles like Reader’s Digest to small political titles like The Nation and thousands of titles aimed at hobbyists, all manners of professions, trades and hundreds of special interest.

Before the Internet, starting a new periodical was perhaps the easiest of the mass media to launch, despite the short odds on their success. Whether started with the deep pockets of an established media company of by entrepreneurs, only about 20% of new titles survived for at least five years.

So given the low cost and ease of entry to the Web world, what’s been happening with magazine start-ups? According to Samir Husni, a journalism professor at the University of Mississippi who has been tracking magazines start-ups for decades, new magazine titles are on the rebound from the turndown of a few years ago. Last year he counted 1006 launches, up from 953 the previous year. In the first quarter of this year he found 236 launches, an increase of 11% from 2004.

Prof. Husni does not provide details on who started these magazines. But if history is a guide, about two thirds would be the initiative of individuals or small publishers.

Do large publishers dominate what we read? If they do it’s only because of what we choose to read. Reader’s Digest has a larger readership than, say, the literary Utne Magazine because the former publishes general interest articles while Utne republishes articles from “2000 alternative media sources.” By definition the sources are “alternative” because they are not mainstream!

The data shows that from the 1950s through the 1990s the percentage of all periodical industry revenue accounted for by the four, eight and even 50 largest publishers was eadily declining. In the late 1990s it ticked upward. Nonetheless, in 2002 the largest periodical publishers accounted for about the same proportion of sales as they did in the 1960s.

It’s hard to make a convincing case of insidious media concentration when investors are still risking their funds in periodicals and the industry is no more concentrated than it was 30 or 40 years ago when there were “only” 8000 titles and the most popular titles like Life and Look accounted for a greater proportion of total readership than any titles do today.

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