Wednesday, April 03, 2002

Media consolidation revisited Stanton responds to my piece on why owning content and pipes does not matter. He argues:
IMO, the costs to society of a few companies controlling the message far outweigh any economic benefits of consolidation...[And] how does a company make as much money as possible? Simple, by gaining sole control of the market, by becoming a monopoly.
I think Stanton raises some commonly held arguments, so lets take them individually:

1) "Having only a few companies control the message is bad for society."
I can only think of two sorts of "control" an integrated media company has, 1) refusing to distribute someone else's content or 2) favoring their own content. As I explained earlier, if you factor in opportunity cost (which you should) an integrated company has no incentive to do either. So if the integrated company was maniacally evil they might be willing to lose money by "controlling" the message, but so long as they're just maniacally greedy, we're OK. And I think we're pretty safe on that score.

Moreover, the number of information outlets has been exploding for the past thirty years, and especially with the Intenet, there are more sources of "message" now than there have ever been before. I know from my law classes that practical reality is not popular in legal circles, but worrying about narrow content choice in this day and age seems pretty surreal. (Finally, there are also cases where splitting an audience too narrowly actually reduces media options by making that segment unprofitable to serve. But let's not get into that.)

2) "A company makes as much money as possible by being a monopoly."
I agree, but the details here matter a lot. The value of a monopoly is determined by the elasticity of demand for the monopoly product, which in turn depends on the cross market price elasticity between that market and close substitutes. There are many close substitutes for broadcast TV, such as cable and satellite. There are even more further substitutes, including radio, newspapers, and the Internet. While the three big network broadcasters (ABC, CBS, NBC) continue to collusively set ad rates, their fragmenting audience share makes that harder and harder. (Note: if companies compete on price, you only need two players to reach perfect competition. That's why collusion is so important in such industries).

And you have to remember, broadcast networks' customers are companies that advertise with them, not consumers who watch their shows. Broadcast networks *real* use of monopoly power is limiting *national* content distribution channels to keep their *national* audiences concentrated and *national* ad rates high. And cable, along with satellite distribution, has been gutting this for years.

Which brings us to the central insight--the three broadcast networks collusively protect their monopoly by limiting entry into the *national* TV advertising market. But the "anti-monopoly" concerns that oppose mergers like Hughes and Echostar ironically end up *protecting* the national TV advertising monopoly in the name of "not wanting media to get too powerful."

The broadcast cartel understands this and disguises their opposition to entry under "we must protect media diversity" rhetoric. This stuff's really obvious if you know how to look for it. For example, EchoStar is arguing it should be allowed to broadcast local TV across the US. What Hughes/EchoStar *really* want is a national broadcast network to compete with ABC, CBS, NBC. Local news is as unimportant to them as it is to the huge majority of viewers who don't watch it (ratings don't lie). So why is Hughes spinning this as a "we want to broadcast local news everywhere?" Because the broadcast cartel has convinced people local news protects media diversity and uses them (and that) to block anything that undermines *actual* competition in the *real* market.
Link to this column


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