TERENCE SMITH: Big media companies are big business, combining broadcasting, publishing, movies, and the Web. They reach millions of people and generate billions in revenues. And now, the big are likely to get bigger. The urge to merge is stronger than ever. Why?
A series of federal court decisions challenging the longstanding rules of the Federal Communications Commission on what broadcasters may own. An appeals court struck down a rule that said that one company could not own a television station and a cable system in the same market. It also questioned another rule that says that a company may not own television stations that reach more than 35 percent of the nation's TV households.
RICHARD BILOTTI, Morgan Stanley: We are going to see a very changed landscape in five years.
TERENCE SMITH: Richard Bilotti analyzes the cable and entertainment industries for Morgan Stanley. He foresees a media buying frenzy if the FCC's rules are, as expected, rolled back.
RICHARD BILOTTI: The big four networks will buy up most of their affiliates. I think a second wave will be that the major metropolitan newspapers will end up being purchased by those same companies.
TERENCE SMITH: The result? Fewer companies controlling more of the major sources of information in broadcast, cable, and print. As it is, the reach of today's media empires is staggering. AOL Time Warner, for example, owns America Online, CNN, HBO, Warner Brothers Studios, Time Inc.'s 140 magazines, and Time Warner cable. Altogether it is worth some $100 billion-- sharply down from what it was worth at the time of the merger two years ago, but still huge. Now, Bilotti says, the companies that own the big four television networks will also want to expand.
RICHARD BILOTTI: Where they get the most leverage, the most opportunity for cost cutting, the most opportunity for creating dominant positions in local advertising markets, is to buy up stations; next, radio, and finally the newspaper industry. Ten years from today, there may be four or five media giants in total, but only one or two will truly be dominant in each major market.
TERENCE SMITH: Television executives argue that in a multi-channel universe, with the audience fragmented by cable, the Internet, and DVD's, the current broadcast ownership rules are obsolete.
TERENCE SMITH: Should television be held to a different standard?
BOB WRIGHT, Chairman & CEO, NBC: Well, it is now. It's got this odd standard that doesn't have any real applicability to reality. You'll always have to have some kind of regulatory posturing, so I am not opposed to that, but it should make sense. It has to be against some standards of scale and size and appropriateness.
TERENCE SMITH: Bob Wright is chairman and CEO of NBC, and vice chairman of its parent company, General Electric. He says that antitrust and laws that ensure competition in other industries will remain on the books to protect the viewing public.
BOB WRIGHT: If people are acting in a manner that are foreclosing other people from competing in an unfair way, then you have... that's what antitrust laws are all about. And I think over time, that will be a concern. It will be a concern of cable operators owning too many programs because they are the distributor and the... they also own a lot of advertising time. There are underlying rules that are historic-- fair trade, antitrust-- that will have applicability and govern the ownership outside of these historical artifacts.
TERENCE SMITH: Perhaps, but critics question whether what's good for media conglomerates is necessarily good for Americans. What impact will further consolidation in the industry have on the flow of news and information?
KEN AULETTA, New Yorker: Well, what it does is it pushes news further down on the totem pole within organizations. It used to be that news was a primary focus of many of these companies, or certainly a large focus.
TERENCE SMITH: Ken Auletta covers the media for The New Yorker magazine.
KEN AULETTA: What happens is the profit- driven parts of the company are cable and software and syndication, and not news. And news then is expected to compete and contribute comparable profit margins to some of these other divisions, and it can't and still do good news. And so the public pays a price for that because ultimately the news will be cheapened and homogenized.
TERENCE SMITH: And as the conglomerates grow, so does the potential for conflicts of interest. ABC News, owned by Disney, once quashed an investigative story on Disney theme parks. Can NBC News, to choose another example, report on problems with aircraft engines made by its parent, GE?
BOB WRIGHT: The answer is yes, and does quite often-- probably more so than our competitors. There is a feeling that we should take a lead in that sort of reporting, or at least we should never be second, if we could be first. The perception of conflict in news reporting is... can damage your reputation, can damage our credibility; we don't need that.
TERENCE SMITH: But as ownership becomes more entangled, the public may be less aware of who owns what. How critically will corporations cover the movies they produce or the sports teams they own?
KEN AULETTA: The New York Times not only owns The Boston Globe, they now own a piece of the Boston Red Sox. The Atlanta Braves are owned by AOL Time Warner. The Chicago Tribune owns the Chicago Cubs. Comcast owns Philadelphia sports teams. The reader or viewer has a real reason to say, "hey, am I going to get the truth? Am I going to get an independent sportscaster or writer tell me what's really going on?"
TERENCE SMITH: What is the answer?
KEN AULETTA: I don't know, but I think in some cases the answer is that these guys are going to shill, and other cases they're going to tell the truth.
TERENCE SMITH: But the point is, you don't know.
KEN AULETTA: You don't know, and that is worrisome.
TERENCE SMITH: Consolidation is having an impact on the creative side as well. Media companies have already begun producing more of the shows that appear on the channels they own.
LARRY GELBART, Writer: I think you need only look at what is on television today, to see how much hamburger helper there is on... in broadcasting.
TERENCE SMITH: Veteran writer Larry Gelbart, whose credits include the TV hit "MASH" and the film "Tootsie," says conglomerate production companies are already affecting viewers' entertainment choices.
LARRY GELBART: They are doing it more or less by the numbers. A real showman, whether that's a writer or a producer or a director, deals first with the idea, not fulfilling a need, except perhaps a creative itch, whereas a company is really looking for a product, and a certain kind of product, very often. Maybe they even have a timeslot in mind. Maybe they have... they have a completely different set of priorities. "What does it take to knock such-and-such off at 9:30 on Thursday? Let's get us a show like that."
TERENCE SMITH: They are, he says, more likely to develop safe programs than to go out on a creative limb.
LARRY GELBART: The cliché goes, "Organization is the death of fun." It can also be the death of drama. It can also be the death of creativity.
TERENCE SMITH: But digital technology is changing everything. Richard Bilotti argues that broadband and Internet access offer an endless array of choices showcasing different views and perspectives.
RICHARD BILOTTI: Broadband has made it possible for a household to have 120 channels. You can go out today and access news or information on any topic you wish from an unlimited number of sources. And there is no way, for the "company that controls the pipe" to stop you from doing that.
TERENCE SMITH: The Chairman of the Federal Communications Commission, Michael Powell, is sympathetic to the business point of view. He says it's reasonable for the courts to ask the FCC to justify rules that were made when the major networks had the airwaves virtually to themselves.
MICHAEL POWELL, Chairman, FCC: I think that's a fair question to the commission. Why is it that you are making a limitation on ownership based on the preservation of viewpoints, but you have conveniently ignored the viewpoints that might come to consumers through cable or through DBS or through radio or through newspapers or through magazines? And the court said, "You need to offer us some explanation of why you haven't included them, or include them."
TERENCE SMITH: Senator Byron Dorgan, chairman of the Democratic Policy Committee, says consolidation of media threatens two important public interest considerations: Localism and diversity in radio and television.
SEN. BYRON DORGAN: If it is purchased and controlled out of New York or Texas or Los Angeles, it is a different flavor and a different type of responsibility to the community and region than having local ownership. And so many of us have felt that the ownership caps and the rules that we have had about local ownership are not at all old- fashioned.
TERENCE SMITH: Despite this threat, Dorgan says the Congress is unlikely to step in, given the power of the conglomerates involved.
SEN. BYRON DORGAN: Congress could do something about that. But you are aware, I am sure, that these big companies have enormous clout here in Congress. I mean, I have taken them on, and lost.
TERENCE SMITH: He says further consolidation will occur before Congress, or the public, catches on.
SEN. BYRON DORGAN: The big companies are really accumulating, very quickly, TV stations, radio stations, and buying a lot of different kinds of properties in broadcast. And I think, you know, this is a case where it is going to be done, and the dust will have settled, before Congress gets around to caring much about it, unfortunately.
TERENCE SMITH: And the public? Will they care much about it? That is not clear. But if another wave of media mergers takes place as expected, there may be more choices on the dial, but fewer voices behind them.