IT'S A SMALLER WORLD April 10, 1997 TRANSCRIPT

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The new buzz word in the communications industry is "synergy." But what is the price of synergy, and is it good for the consumer? Jeffrey Kaye of KCET-Los Angeles reports on the shifting world of telecommunications and how media, mergers, and lots of money effect the way we are entertained.

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A RealAudio version of this NewsHour segment is available. NewsHour Links February 8, 1996: Jim Lehrer discusses the new Telecommunications Act with FCC Chairman Reed Hundt. February 2, 1996: Ken Auletta of the New Yorker and telecommunications consultant Richard MacDonald discuss the telecom bill passed by Congress. December 14, 1995: NBC and Microsoft announce their intentions to create a joint news organization, MSNBC. Browse the Online NewsHour's Business coverage. Outside Links Walt Disney

JEFFREY KAYE: If the world seems small to the Walt Disney Company, it's because Disney owns an increasingly large piece of it. Last year the corporation Mickey Mouse put on the map took in close to $19 billion. And Disney expanded its magic kingdom by buying up Capital Cities\ABC, a merger Disney CEO Michael Eisner said would create synergy.

MICHAEL EISNER, CEO, Walt Disney Co.: (July 1995) But there is synergies. There's the synergies of Disney's distribution systems and syndication, syndicating ABC programing.

JEFFREY KAYE: The enlarged Disney empire was one of many mergers among mega media companies since the enactment in February 1996 of the Federal Telecommunications Act. The law deregulated TV and telephone businesses. Supporters had promised greater competition and lower prices, but those promises have not materialized, according to Communications Law Professor Tracy Westen. Westen has worked for both the Federal Trade and Communications Commissions.

TRACY WESTEN, Communications Law Professor: So you're not finding this aggressive competition that the drafters of the 1996 Telecommunications Act predicted. In fact, what we tend to see is massive conglomeration, companies buying each other out in the attempt to be the last remaining survivor.

JEFFREY KAYE: The biggest buyout was the merger of Time-Warner, which owns cable TV and movie companies, and Turner Broadcasting, owner of CNN. The marriage created the world's largest media conglomerate and joined the country's largest cable operators, Time-Warner and TCI, Telecommunications Incorporated, a part owner of Turner.

TED TURNER, CNN: I'm nearing the end of my career, and I want to see what it's like to be big for a while.

JEFFREY KAYE: Also growing bigger after deregulation were Westinghouse Electric, which bought CBS and Infinity Broadcasting, the radio giant, and Rupert Murdoch of Fox became the largest single owner of TV stations in the nation. In the phone industry Bell Atlantic is in the process of buying NYNEX. SBC acquired Pacific Telesis. Increasingly, the telecommunications business is being dominated by a handful of major players.

SPOKESMAN: Well, what are some other differences--

JEFFREY KAYE: Mark Crispin Miller, a writer and professor at the Johns Hopkins University in Baltimore, is studying the wave of mergers.

MARK CRISPIN MILLER, Media Critic: Now we have clients who don't own only networks, who don't own only TV stations, who don't own only radio networks, but they also own film studios, book publishing companies, newspaper chains, magazines, and so on. That changes things enormously, both in the world of journalism and entertainment.

JEFFREY KAYE: Disney is a case in point. It owns six film production and distribution companies, theme parks in Florida, California, Paris, and Tokyo. It owns three record companies, and more than a hundred magazines, including "Women's Wear Daily," seven daily newspapers, including the "Kansas City Star," and Disney Stores, 530 of them worldwide selling Disney products. On cable TV there is the Disney Channel. Disney is also a partner in ESPN, the sports network, A&E, the history channel, and Lifetime TV. In sports, it owns the Mighty Ducks hockey team and is a partner in the Anaheim Angeles Baseball franchise. Disney's theatrical division puts on stage versions of its movies. Its cruise line subsidiary will soon launch two ships that will dock in a Caribbean Island owned by Disney. Disney also owns two book publishing companies, and through ABC ten TV and twenty-one radio stations. ABC Radio is the largest radio network in the country. Maureen Lesourd is president and manager of ABC's three radio stations in Los Angeles.

MAUREEN LESOURD, ABC Radio: I think what synergy has done for us, particularly here in Los Angeles, the fact that we've got KBC Television and Disneyland and there's Los Angeles Magazine and just, you know, the movie people over at Disney, it's a great opportunity to really cross-promote each vehicle and, and really help each other.

JEFFREY KAYE: Cross-promotion of Disney's interlocking enterprises is a big part of the Disney business strategy. Tim Allen stars in Disney movies and on ABC TV. He has also written a bestseller for Disney-owned Hyperion Books. The Lifetime and ABC networks promote Disney World, and ESPN features the Mighty Ducks. ABC has positioned its three Los Angeles radio stations to attract different audiences. The Rock FM station features often raunchy DJ's Mark and Brian. And the talk stations that once competed now complement each other.

MAUREEN LESOURD: It seemed to make more sense that we would provide some, some complement to each other.

JEFFREY KAYE: Rather than competition.

MAUREEN LESOURD: Exactly. Rather than direct head-to-head competition. So we're appealing to a slightly different audience and certainly on KBC, as a news, talk, issue-oriented station, which tends to be more I call it front page newspaper type issues, would be more male-leaning.

MALE RADIO TALK SHOW HOST: But what prepared you, do you think, the most? I mean, was it the war? Was it--

JEFFREY KAYE: While one station tries to attract a male audience, the other programs lifestyle topics.

FEMALE RADIO TALK SHOW HOST: Is most of this an emotional attachment, or--

JEFFREY KAYE: And is more geared to women listeners. But media critic Miller is not happy about one company programming three radio stations in the same community.

MARK CRISPIN MILLER: To regard it as a point of pride, to have two stations doing complementary things, is basically to give up the notion of a democratic culture in favor of a kind of national entertainment state in which everybody's happy with the particular product that has been geared toward his market segment.

JEFFREY KAYE: Miller says the increased concentration of media ownership has led to a bottom line orientation in the culture industry.

MARK CRISPIN MILLER: Whenever you're primarily concerned with moving product, you know, you're going to be making esthetic judgments that are based on something other than the requirements of a good story or an effective book or good news coverage. You're going to be doing a lot of TV news stories, for example, on that night's episode of ER. You're going to be--what's another good example--you're going to be publishing books in your book division that are written by the star of your sitcom, you know. You're going to be making a movie that, that features people who have been in your TV shows. I mean, it's very ingrown, and it isn't necessarily the case that those authors ought to be writing books, or that those movies ought to be made with those people in them, you know.

JEFFREY KAYE: But TV programming and cable executives say their goal is to provide variety. Americast, for example, is a programming consortium of five phone companies and Disney. Disney programs are prominent among its line-up, but Americast President Steve Weiswasser says as responsible program suppliers, they will offer a range of alternatives.

STEPHEN WEISWASSER, CEO, Americast: And I don't think Disney is looking at this as a way to sort of inundate and bombard its audience with Disney content. We can't compete, but if--right out of the box we're not offering to all potential customers all of the content that they're familiar with and used to. We want--we'll take all of the Turner system cable program services, as well as the others, just as they carry the Disney Channel. I mean, this is a business in which that would be classically cutting off your nose to spite your face in a way that nobody would do.

JEFFREY KAYE: But some providers are squeezing out the competition. In New York City, Time-Warner has kept Fox News out of its cable system. Fox competes with Time-Warner's CNN. C-Span is being dropped or cut back in 75 communities. The service, funded by the cable industry, provides two channels covering Congress and public affairs forums. Representatives of TCI, the nation's largest cable company, blame programmers for forcing cable operators to drop certain channels. Although TCI is curtailing C-Span, 64 of its cable franchise areas, company vice president Robert Thomson points out TCI is C-Span's biggest financial supporter.

ROBERT THOMSON, Tele-Communications, Inc.: We're also the largest television distributor of C-Span. We look forward to the day when we have the channel capacities available to carry it on every one of our cable systems. But you have to understand that as our programming marketplace gets consolidated and fewer and fewer mega companies own all the programming services, you have to understand the type of leverage that that gives mega consortiums. If you want to carry their high profile, star programming service, you may just have to carry their brand new service, their brand new cable service. In an era of scarce channel capacity, this puts enormous pressure, enormous pressure on independent programming service like the Weather Channel, like--like C-Span, and a few others.

JEFFREY KAYE: Thomson says TCI's decisions are also driven by financial ties to programs. TCI has interests in a number of production companies, including MacNeil/Lehrer Productions, the Discovery, Learning, and Family Channels, as well as the Encore, and Stars Movie Channels. Thomson says TC gives preference to its related companies.

ROBERT THOMSON: For example, we started Discovery. Discovery wouldn't have been a network today but for our early investment. They've invested in a service called Animal Planet. Should we turn them down for carry simply because we have a minority interest in Discovery? Of course not. Of course not. Family-oriented programming is at a premium on cable, at a premium. We consider it very important, and we've tried to give it some distribution, Animal Planet.

JEFFREY KAYE: Right. But to whose detriment? That's going to squeeze out someone, right?

ROBERT THOMSON: Yes. In an era of scarce channel capacity you do have to make room for a service like Animal Planet.

JEFFREY KAYE: TCI and most other cable companies have also drawn criticism from consumer groups for rate increases. Gene Kimmelman is a director at the Washington office of Consumers Union, publisher of Consumer Reports. He says that contrary to industry promises both cable and telephone businesses have raised their prices.

GENE KIMMELMAN, Consumers Union: I believe officials in all of the major segments of the communications industry exaggerated the likelihood of competition in order to get a greater chance of profitability by relaxing regulation of prices and relaxing limitations on the ownership of stations and properties. Those industries won. They got a tremendous opportunity to raise price, to consolidate through merger, and unfortunately, the consumer was left at risk with a hope and a promise of competition to bring choice and lower prices but not the reality.

JEFFREY KAYE: TCI's rates increased 21 percent last year. The company plans another 6.8 percent rate hike in June.

ROBERT THOMSON: Our programming costs go up, and our other wholesale costs go up. Those are the determinants of our rates.

JEFFREY KAYE: But what happened to--to the notion with more competition there would be lower rates?

ROBERT THOMSON: I think it's a promise still to come, and the reason it's a promise still to come is because each of these businesses, both the telephone business and even more so the cable business, are very capital intensive businesses. It's going to be a while before we see full-fledged competition in either one of those businesses.

JEFFREY KAYE: Or between those businesses. Telephone and cable companies have scaled back plans to aggressively compete in each other industries, but there is increasing competition between local and long distance phone companies and between cable and satellite TV. Consumer groups are hopeful that competition will keep a check on rising prices.

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