Go slow on FCC rule change

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Consolidation of ownership is one of the major forces transforming all sides of the media landscape. If the Federal Communications Commission votes June 2 to ease media-ownership restrictions further, consolidation may well become the dominant market force, outstripping the two other driving factors: technology and globalization

The argument for easing the rules is that increased competition from satellite and cable TV and from the Internet has changed the competitive environment in which traditional media operate. Current restrictions prohibit, among other things, a company from owning TV stations that reach more than 35% of U.S. households and from owning a newspaper and a TV station in the same city.

In recent years, consolidation has transformed both the media infrastructure and its content. Since the Telecommunications Act of 1996 went into effect, removing many barriers to consolidation, there are at least 1,100 fewer radio station owners, the Washington Post reported. In almost half the nation's radio markets, 80% of the audience listens to outlets controlled by three companies. In the U.S. TV industry, seven companies now control 98% of the audience, 98% of advertising revenues and 32 of the top 35 networks. There used to be thousands of cable TV operators. Now there are three big ones and three midsize ones.

In U.S. print media, the top five newspaper publishers own more than 200 dailies. Gannett Co. alone owns more than 90. Six companies make up virtually the entire U.S. magazine business. In outdoor advertising, three companies control an estimated 50% of the locations in the top 10 countries.

And the media-buying business is no different. In Carat's segment of the industry, media planning and buying, we've seen more change in the last 36 months than was witnessed in the last 36 years. In the United States, seven major media buyers, including Carat North America, now control more than 70% of all network TV advertising spending.

With all of this consolidation already in motion, why is the FCC in such a hurry to provide further incentives-particularly when we know so little about how satellite TV and the Internet will relate to traditional media? Why the rush to judgement?

Satellite TV may become an effective competitor of both broadcast and cable TV, but it certainly is not yet. In some areas, such as classified ads, Web sites such as Monster.com have the potential to offer effective competition to newspapers. But their position is still in flux.

Can the Internet become the antidote to media consolidation? Yes, possibly. Ideas are in the air. Ebay is considering launching a service in conjunction with local TV stations that will permit local sales of merchandise-in effect, a local yard sale on the Web. Just when the consolidated media is offering less and less local coverage, the Internet may step in and do it for them. But, again, this is tomorrow, not today.

Congress requires an FCC review of the ownership issue every two years, and the courts have questioned whether the FCC has sufficient analysis to maintain the restrictions. But this alone does not justify a change.

threat to ethics

The greatest threat posed by increased consolidation may, in fact, not come from issues of distribution and content but from business practices. As consolidation increases, and there are fewer and fewer businesses buying and selling media, the pressure to make each deal increases exponentially. And the potential for unethical behavior increases as well.

This is a problem that, in large part, we as an industry have not had to face, but we have seen how pressure for profits from public companies in other businesses led to excess. Major Wall Street investment banks are paying record fines for allowing pressure for profits from investment banking to affect the credibility of research; accounting firms have been damaged by permitting pressures for profits from their consulting practices to influence audits. Such excesses in our industry may seem unlikely, but how many of us thought that Arthur Andersen would just evaporate?

The most important question may not be whether ownership restrictions should be eased, but whether they should be replaced with more appropriate restrictions. Should there be a restriction prohibiting companies from owning both satellite and terrestrial TV systems? Or a prohibition against any advertising firm controlling more than a particular percentage of advertising volume?

From a business standpoint, reducing regulation sounds instinctively like a good thing. But, in this case, it may not be in the interest of business or the public. The wisest course for now is to wait and see. The media world is changing so rapidly that we may know more even in another six months to a year.

David Verklin is CEO of Aegis Group's Carat North America, New York.

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