Friday, March 03, 2006

The "non-media monopoly" as seen by the smart money

Among the worst performing publicly owned companies over the past three years are a collection of media companies, all associated with the popular misconception of “media monopoly.” This turns into an oxymoron when these so-called monopolies have such poor financial performance that they are among the bottom of the barrel among all sorts of competitive companies in other industries.

The reason we have laws prohibiting business monopolies (dating back to the 1890 Sherman Antitrust Act) is that capitalist economics don’t work when there is no competition. Prices can be set higher than they would be if there were competitors in the market. This pricing effect starts to be measurable even before there is literally one supplier: an oligopoly, where two or three suppliers dominate a market, can also set prices higher than they would be in a competitive market.

I count myself among a handful of voices that not only hold that all the trends and forces have been moving media in the opposite direction—away from concentration-- and back it up with empirical research, not merely a handful of anecdotes and speculations of what “could” happen. Adam Thierer has added more data in his Media Myths in contrast to the rhetoric of the “sky is falling” crowd.

In the case of the media, the most vociferous of those who fear concentration of ownership in few hands are not particularly concerned with the economic consequences of ownership. Indeed, Ben Bagdikian, in his book The Media Monopoly, does not discuss the economic concept of monopoly at all. According to the index of the fourth edition, he devotes part of two pages to a discussion of profits. He, as well as Robert McChesney and other critics make their argument on the presumed negative influence on civic discourse and culture that could be an outcome if a handful of individual owners did indeed set the agenda and determined what we all read, heard and viewed.

But there is a nexus between the two concepts of monopoly. Because if there were in fact a handful of big media companies that precluded competition in the marketplace of ideas, that would be reflected in the success of those same entities in the marketplace for products—the economic marketplace. That is, if you and me and everyone else could only go to Time Warner, News Corporation, CBS, Gannett, Disney, Bertelsmann, Viacom, Clear Channel, Comcast (geez, it gets to be a long list for a concentrated industry…) then presumably these companies would be raking it in. Can a small number of media companies—out of tens of thousands that are players in the U.S. alone— be truly dominant without that translating to the bottom line?

So let’s go to the ticker tape. Last year Adam Thierer and Dan English published a paper, “Testing ‘Media Monopoly’ Claims: A Look at What Markets Say” that I wrote about in September. They asked “If the media market were indeed full of monopolists, wouldn’t a lot of people be investing in media stocks?” In brief, Thierer and English found that Time Warner, Viacom, News Corp., Clear Channel, and Comcast lost a combined 52 percent of their value (in terms of market capitalization) over the previous five years.

The latest evidence along these lines is the recent compilation in The Wall Street Journal identifying the best and worst performing stocks (subscription required). Among the 50 poorest performers were six media companies, four with major holdings in the fading newspaper segment, but also two major broadcasters, including the largest owner of radio stations. Among the best performing media companies were younger and thus more volatile entrants.

Worst and Best Performers, Total Return, Past 3 Years
Source: The Wall Street Journal, Feb 27, 2006, R1. Compiled by L.E.K. Consulting LLC.

Although one might criticize Wall Street as being obsessed with last quarter's and the next quarter's earnings, over the longer haul the financial markets tell a story of substance. Out of 76 industry sectors (from home construction to computer hardware), the publishing industry was 72nd over the three year period, broadcasting and entertainment was 63rd. This is not the stuff of a concentrated industry ownership. Time to move on.

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