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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