Another course submission that throws light on the impact of media industry consolidation (read, mega mergers, acquisitions and conglomeration) on online media consumers.
Technological convergence over the past decade has led to the rapid movement of media companies into the global markets, bringing unprecedented changes in the media ownership structures and their impact on production, delivery and consumption of media content.
However, consolidation among the intersecting and overlapping telecommunications and media industries is leading to concentration of ownership in the hands of a few powerful media barons, who are increasingly controlling content, with far reaching consequences for online media consumers.
Convergence of media technologies has given rise to new theories of media consumption, leveraging on consumer uses and gratification, and hypothesizing the Internet as the great leveler for the all powerful transnational conglomerates.
However, content production, carriage, delivery, access and consumption are entrenched in the economic compulsions of a media company’s need to maximize profits and shareholder satisfaction (Doyle, 2002). Fewer media companies owning and controlling more and more consumer markets are explained in the microeconomic Theory of the Firm to understand media industry’s oligopolistic market structure.
The Transnational Media Management Theory, a research stream that first emerged in the 1970s in response to consolidation in the newspaper industry, continues to be a major focus of research today. It concentrates mainly on the effects of newspaper chain ownership on media content as compared to independent ownership (Mierzejewska, 2010).
This review finds props in this theory to help understand the impact on content in the transition of traditional media to new media.
Media concentration itself is an area of theoretical development in media economics, which explores competition and regulation to limit concentration. Research points to increasing consolidation across all areas of media industries with a handful of firms dominating the industry (Albarran, 2004).
Information and entertainment, as has been foreseen by new media theorists, is increasingly being consumed through devices that combine a computer and the television set, and transmitted via cable, satellite, telephone lines and airwaves (Martin, 2010). Such convergence, further goaded by digitalization and the provision of broadband channels, is leading to mega mergers and alliances across media and telecommunications sectors.
Technological convergence has led to consolidation of ownership and control of media organizations in three broad forms: horizontal, vertical, and diagonal (Thakurta, 2012).
“Horizontal” mergers occur when two entities engaged in the same activity join hands or combine forces.
“Vertical” expansion entails “forward/upstream” or “backward/downstream” integration into different stages of the supply chain, like when content creators get into the retail and wholesale distribution of the same content to bring down transaction costs.
In the current context are new forms of “diagonal” mergers or “lateral” expansion where there is a strategic association between a telecommunications company and a media company to enable use of common infrastructure.
The consequent concentration of ownership of telecommunications and media industries in many countries with a handful of powerful media barons, has significantly affected the content of mass media, in turn, impacting consumers. This trend of consolidation has increasingly come to include the Internet which many media scholars and theorists – concerning themselves with the likely ‘digital divide’ – view as having dire implications for society at large (Warf, 2007).
The benefits of economies of scale and scope rationalize the convergence of telecommunications and media industries; but it also leads to the possible curbing of freedom of expression and imposes subtle forms of censorship in the pursuit of profit maximization and increasing market shares (Thakurta, 2012).
Of particular concern to this review is the increasing consolidation among broadband Internet service providers with content providers. The ubiquitous usage of the Internet comes from the consumer perception that online content is free. However, with lack of competition in the broadband Internet industry and absence of a clear regulatory framework, industry consolidation will likely mean that Internet will not remain “free” or “open” for long (Independent Film & Television Alliance, 2010).
Although a good deal of user generated content (UGC) might still be free, more and more content will come at a premium (Jenkins, 2004), especially if consolidations among content carriers and content providers lead to tiered Internet or do away with network neutrality.
Near future fallout of such consolidation is expected to be on net neutrality. Net neutrality is currently in the foreground of policy making considerations in many countries as it will have far reaching implications for online media consumers, both in terms of what content they access online and at what price.
This review thus attempts to view the consumer within the economic equation of consolidated media markets rather than take a socio-cultural or political view of the context.
Convergence and Content:
To understand what is driving present day media consolidation, it is pertinent to understand convergence of media. Convergence is defined as the interlinking of computing and Information and Communication Technologies (ICTs), communication networks, and online media content, and the convergent products, services and activities that have emerged in the digital media space (Australian Law Reform Commission, 2012).
Many see this as simply the tip of the iceberg, since all aspects of institutional activity and social life, from art to business, government to journalism, health and education, and beyond, are increasingly conducted in this interactive digital media environment, across a plethora of networked ICT devices (Australian Law Reform Commission, 2012).
Broadband applications include interactive digital television and high-speed Internet services for multimedia uses, including live broadcasts, business-to-business linkages, Internet gaming, telemedicine, videoconferencing, and Internet telephony.
In a convergent media culture, it is not just television and internet services that present barriers to information access, but also the content and the hardware of apps, tablets, eReaders and connected TVs, which may not be available to all users.
Digital media content can be sourced, distributed and accessed from any point in the world to any other point in the world. This has led to the rise of media platforms and content distributors such as YouTube, Facebook, Twitter and Apple iTunes that transcend national jurisdictions (Australian Law Reform Commission, 2012).
Media economist Alan Albarran posits at least four strategic reasons for media industry consolidations (Albarran, 2004).
Not surprisingly, he rates financial factors first for driving the unprecedented merger and acquisition activities that have reshaped the structure of the media industry. A second strategic reason is to leverage content such as programming over an increased number of distribution channels; and as an add-on, to be able to cross-promote across media.
A third reason, he enumerates is the creation of barriers to new competition, where vertically integrated companies with respect to media content and distribution, make it difficult for smaller content competitors to access audience. And the final strategic factor is globalization whereby media companies have identified international markets as a prime source of future revenue growth (Albarran, 2004).
Yet another reason for media consolidation is the high cost involved in the creation, maintenance and constant upgradation of the infrastructure required to deliver content. Naturally, telecommunications companies would want to ensure their returns by controlling the content that passes through their delivery systems.
On a different plane, it may be argued that the web increases the amount of information available to consumers, but it does not increase their capacity for consuming that information. Therefore, what content producers and advertisers are battling for is consumer attention in what is increasingly evolving as an “attention economy” (Martin, 2010). Consumer attention is scarce and in the race to grab eyeballs, content aggregators and content delivery companies are tying up to cash in on priority content.
Vertically integrated gatekeepers have both the means and the incentive to favor their own services and to exclude rivals. Gateway monopolists can abuse their position either by denying access to rival service providers or by offering access on terms that are very disadvantageous to potential competitors. Like monopolists in any other situation, gatekeepers have power to raise prices, restrict output and engage in other forms of behavior that run contrary to the interests of consumers (Doyle, 2002).
The Media Market:
The giants dominating the global media and telecommunications industry, which together employ 1.3 million people, are AT&T (telecom), AOL Time Warner, Walt Disney, Viacom, News Corporation, and Vivendi. Collectively, they control 75% of the US television audience and 90% of the television news audience (Warf, 2007).
Thus, over the past two decades, the dramatic transformation in the telecommunications and media industries has resulted in an oligopolistic market structure with ownership concentrated in the hands of a few powerful media barons (Warf, 2007). This has significantly affected content of mass media, the consequences of which have a direct bearing on consumers. And typical to firms in an oligopolistic market, these conglomerates act as price-setters rather than as price takers, which would mean higher prices for consumers (Warf, 2007).
Taking a rather cynical view of the implications of media oligopolization, Warf says the idea of a “free market” today is mythical and found only in economics textbooks because the media and telecommunications sectors “resemble a cartel where members act in collusion.”
In his arguments against consolidation, Warf is concerned with the intersecting and overlapping media and telecommunications industries, which play a central role in providing information, and the new economic structure of the industry which has enormous implications for the consumer’s ability to procure information.
With operations that extend from books, magazines, and newspapers to cable television, satellite television, and, increasingly, the Internet, these enormous multinationals are driven by profits, aided as they are by deregulation, the search for economies of scale, and digital convergence (Warf, 2007).
In an article titled “Media Consolidation Comes to the Internet” Johnnie L. Roberts talks about “cyberhogs” or giant companies that draw most of the traffic on the Internet (Roberts, 2001).
When leading American internet service provider Comcast announced a merger with content producer NBC Universal, there was a hue and cry from small and independent content producers. Fear was that the same conglomerates that have consolidated and controlled traditional media would now be allowed to act as gatekeepers for the Internet (Independent Film & Television Alliance, 2010).
It was critical, they said, that such conglomerates are not allowed to discriminate and manipulate the speed or services provided to the public in order to favor self-owned or other major conglomerate content.
The Comcast-NBCU merger:
For media watchdog groups and consumer advocates, the February 2013 merger of America’s largest cable and Internet company Comcast, with one of the country’s oldest and largest news and entertainment producers, NBC-Universal, is a binding case in point to voice their objection to creation of such behemoths.
In a deal that is expected to cost cable viewers as much as $2.4 billion over the next decade, the cable giant bought General Electric’s 49% stake in NBCU, which includes the network news division along with cable properties such as MSNBC and CNBC. This means that Comcast is the sole owner of NBC, instead of just owning a majority of the network (McChesney & Nichols, 2011).
In July 2012, Comcast had purchased Microsoft’s stake in MSNBC.com to gain sole ownership. In a coinciding branding shift, MSNBC.com became NBCNews.com, and in early 2013, MSNBC.com re-emerged as a site just for the cable channel. Comcast now owns the entire digital business of NBC News.
With this move, Comcast will now control one in five hours of all TV viewing in the United States; will own more than 125 major cable channels, television stations, websites, film studios and related production facilities; and will dominate local media controlling cable and Internet service and TV stations in major cities across the US (McChesney & Nichols, 2011).
The Indian scenario:
Although comparatively smaller, the Indian media is nevertheless significant in terms of its potential growth on the wings of increasing mobile Internet connectivity.
The horizontal and vertical mergers in India are still happening in the traditional media sector including newspapers and television. The April 2012 merger of the Hindi dailies Dainik Jagran and Nai Dunia is an example of horizontal merger; and the STAR (Satellite Television Asia Region) group’s control of cable distributor Hathway; the Zee group’s control of direct-to-home (DTH) satellite channels provider Dish TV, and the Sun group’s control of cable distributor Sumangali are examples of vertical integration (Thakurta, 2012).
Of particular concern, however, are the recent diagonal mergers where telecommunications giant Reliance Industrial Limited (RIL) has entered into a strategic association with the media company Network 18 and the Eenadu groups; and the Aditya Birla group has acquired a substantial holding in the Living Media group (Thakurta, 2012).
Paying for content:
Most believe that the commercializing of cyberspace has majorly undercut the web’s prevailing “gift economy.” Although there will still be a great deal of free content produced by users, more and more content will come with a price tag. The choice of how we pay for web content can have enormous cultural implications (Jenkins, 2004).
Jenkins indicates that a shift towards a subscription-based model will result in greater media concentration and the construction of higher barriers of entry to the cultural marketplace, since most consumers will buy only a limited number of subscriptions and are more likely to buy them from companies that can promise them the broadest range of possible content (Jenkins, 2004).
The Net Neutrality debate:
Internet Service Providers (ISPs) are expected to not discriminate between different kinds of content on commercial grounds, which includes not giving priority to their own content over that of competing businesses. This principle also forbids the practice of a tiered Internet, that is, higher priced priority channels for faster and better quality carriage.
In the debate on net neutrality, the proponents say that if neutrality is done away with, the ISPs can discriminate against innovative apps; kill competition by selectively disallowing certain applications; control consumers making them inaccessible to other players; and set the price for prioritized content. This will hurt consumers in the long run (Sridhar, 2012).
The opponents of net neutrality, on the other hand, argue that mobile broadband capacity (spectrum) is limited and therefore its capacity is finite. If there is no prioritization, a few apps will consume too much bandwidth and hurt everybody; and also it reduces the service provider’s motivation to increase bandwidth.
They also argue that prioritization and higher pricing for specific apps can be used to pay for new innovations in future network capacity increases (Sridhar, 2012).
However, a key argument by the ISPs is that they are entitled to a share in the huge profits that content providers make using the network providers’ pipes. Proponents of net neutrality see this argument as nothing but one goaded by greed, because ISPs already charge the content providers as well as the end consumer a fee for accessing the Internet in the first place (Mittal, 2012)
In favor of consolidation:
In harping on the downside to consolidation, it must be said that there are also the proponents who claim it benefits consumers by providing them with more news and entertainment variety. If large corporations didn’t buy up some of the smaller ones, they would go out of business anyway. Bigger companies can capitalize on economies of scale and pass the benefits along to the consumer (cabrini.edu).
It can be said that larger companies are better able to afford to bring in the investments needed for technological convergence which is making content accessible to consumers anytime, anywhere and on any mobile, connected device.
Until recently online content was synonymous with low quality, freely available media, which is not the case anymore. Today, content creators and film studios are increasingly creating and distributing high resolution, quality hi-definition content either directly or through service providers and content aggregators, thereby alleviating scarcity of quality content (Narang, 2012).
This content, however, does not come cheap. Over-the-top services (OTT) are no longer seen as complementary but entering mainstream platform offering convenience of on-demand and catch-up TV at competitive cost. It is estimated that OTT video will grow from $1 billion in 2010 to over $20 billion by 2014 (Narang, 2012).
By 2017 there will be nearly three times as many internet connected devices as people and global internet traffic will have reached 1.0 zettabytes a year. Users will access a new wave of content via an ever growing array of devices. Media consumers will adopt video as the channel of choice, accessing it via mobile smart phones, tablets and even televisions. By 2017, every second, nearly a million minutes of video content will cross the global Internet (Cisco, 2013).
Such future projections simply indicate the need for massive investments in the requisite infrastructure.
As of today, much of these investments in new media products and new avenues for distribution of media output have come from existing large players in the media and communications industries, such as Time Warner, Pearson, Bertelsmann and Telefonica.
This has, obviously, led to the emergence of de facto vertical and horizontal monopoly situations (Doyle, 2002). But Doyle says “monopolies may have to be tolerated at least in the short term” considering the high cost of laying broadband cable infrastructures.
To counter monopoly situations and to encourage the development of new media, Doyle posits that the conduct of the large players should be regulated in such a way as to prevent anti-competitive behavior (Doyle, 2002).
The close interdependence of access to media content and access to distribution infrastructures has led to media market watchers and consumer advocates calling for strengthened policies to tackle vertical cross-ownership.
Interestingly, Henry Jenkins brings out the innate insecurity of these large firms, which, despite their size, fear fragmentation of audiences, who are increasingly becoming “active” and “noisy” (Jenkins, 2004).
Thus, with policy frameworks largely conducive to more consolidation, it may be said that increased consumer agency can keep the media conglomerates on their toes.
Pertinently, Canadian media academic Dwayne Winseck says, talk about media concentration is really “a proxy for bigger conversations about consumer choice, freedom of expression as well as democracy.” (Winseck, 2012).
This review thus concludes that while consolidation in the media industries may be an economic reality that impacts consumer access to and consumption of content, what is required to ensure consumer protection against aggressive monopolies is government regulation that is sorely lacking in many countries.
Albarran, A. B. (2004). Media Economy. Sage Publications.
Australian Law Reform Commission. (2012). Media Convergence and the Transformed Media Environment. National Classification Scheme Review.
Cisco. (2013, May). The Zettabyte Era – Trends and Analysis. Retrieved August 2013, from Cisco Visual Networking Index: http://www.cisco/com/en/US/solutions/collateral/nc341/ns525/ns537/ns705/ns827/VNI.html
Doyle, G. (2002). Understanding Media Economics. Sage Publications.
Independent Film & Television Alliance. (2010, March 8). Issues. Retrieved August 2013, from Independent Film & Television Alliance: http://www.ifta-online.org/issues
Jenkins, H. (2004). The Cultural Logic of Media Convergence. International Journal of Cultural Studies .
Martin, T. D. (2010). Updating Diversity of Voice Arguments for Online Media. Global Media Journal – Australian Edition, Volume 4:1 .
Mierzejewska, B. I. (2010). Media Management in Theory and Practice. In M. Deuze, Managing Media Work (pp. 13-30). Thousand Oaks, Calif.: Sage Publications.
Mittal, S. (2012, July 24). Airtel now vocally against network neutrality. Retrieved August 2013, from TechWhack: http://techwhack.co/airtel-vocally-network-neutrality-4038/
Narang, N. (2012). Digital Media Convergence:Are the Stakeholders Listening? Infosys Lab Briefings, Infosys .
Nichols, R. W. (2011, January 20). Comcast/NBC Merger Takes Media Consolidation to the Next Level. Retrieved August 2013, from The Nation: http://www.thenation.com/article/157898/comcastnbc-merger-takes-media-consolidation-next-level#
Nichols, R. W. (2011, January 20). Comcast/NBC Merger Takes Media Consolidation to the Next Level. Retrieved August 2013, from The Nation: http://www.thenation.com/article/157898/comcastnbc-merger-takes-media-consolidation-next-level#axzz2bAUCu1Bu
Roberts, J. L. (2001). Media Consolidation Comes to the Internet. Retrieved August 2013, from Rense.com: http://rense.com/general11/media.htm
Sridhar, V. (2012, September). Net Neutrality Debate – A Supply/Demand Perspective. Turing100@Persistent Lecture Series . Pune, Maharashtra, India.
Thakurta, P. G. (2012, August). Good for Business, Bad for Freedom-Convergence and Consolidation-Part-I. Retrieved August 2013, from The Hoot: http://thehoot.org/web/Good-for-business-bad-for-freedom/6169-1-1-4-true.html
Warf, B. (2007, March). Oligopolization of Global Media and Telecommunications and its Implications for Democracy. Ethics, Place and Environment, Vol.10, No.1 .
Winseck, D. (2012, November). Media and Internet Concentration in Canada, 1984-2011. Retrieved August 2013, from Mediamorphis: http://dwmw.wordpress.com/2012/11/26/media-and-internet-concentration-in-canada/