Is it inevitable that media industries will be dominated by conglomerates? This is the industry where scale creates more problem than its advantages
Thomas Edison, founder of General Electric, invented a process by which you could record sounds and play them back, over and over again. The modern media business was born. And now, after dabbling successfully in aero engines, medical equipment and financial services, GE is returning to these roots. Through Universal Studios, Jeff Immelt and his colleagues are now promoters of Eminem and producers of Seabiscuit.
The prospect of media industries inevitably being dominated by large international conglomerates has long excited investment bankers and depressed creative people. But, more recently, it has seemed to be yesterday’s idea rather than today’s. Time Warner, whose appetite for acquisitions was always greater than its capacity to finance or absorb them, made a deal too far and gave away half the company in exchange for AOL. AOL has now cheekily announced that its brand is tarnished by association with the struggling AOL Time Warner. And two European adventures in America have come to grief. Thomas Middelhoff was fired from Bertelsmann, Jean-Marie Messier from Vivendi Universal, and the empires they built are being dismantled.
Although other media giants are in better shape, their experience does not offer strong support for the inevitable consolidation of the industry. News Corporation and Viacom are the creations of business geniuses with an exceptional eye for undervalued assets and the evolution of their industries. But with Rupert Murdoch aged 72 and Sumner Redstone 80, the direction of these businesses is bound to change. Michael Eisner’s vision for Disney is that you make money for Disney’s shareholders – and chief executive – by exploiting the existing repertoire far more exhaustively than anyone had imagined possible.
The argument for vertical integration is that delivery needs content and vice versa. This is why the AOL Time Warner deal was, briefly, thought to be a marriage made in heaven. Content does need delivery – but it does not need to own it; the FT needs the newspaper delivery boy’s bicycle but does not need to buy it. The notion that Disney required the ABC network for distribution was ludicrous. And there are good arguments for keeping these businesses apart. The newspaper round will be more efficient if one bicycle carries several titles – and there will never be much rapport between a rap artist and a telephone company.
Perhaps horizontal integration is required by technological convergence, as new media blur boundaries between print, film and music. But assembling disparate groups of people with past success in established production and distribution systems is not necessarily the best way to exploit these opportunities. Music publishers have been more concerned to defend their existing businesses against the internet than to exploit it. New thinking comes most often from new companies.
Some people emphasise the opportunities for cross-selling in a multi-media business. Warner Bros can use AOL to promote Harry Potter films on the internet. But you do not need common ownership for this. The originator of the Potter phenomenon is Bloomsbury, the independent book publisher, and subsidiary rights are licensed to many different companies. Books with television tie-ins are today’s fashion but it is only fortuitous if the network and the publisher are part of the same corporation.
Media conglomerates are the product of the ambitions of those who run them rather than the imperatives of the market. Media businesses depend on talented, often difficult, individuals and their well founded suspicion of multinationals is an obstacle to the success of such businesses. The low-risk, bureaucratic way to run a media company is to focus on products similar to those that have already succeeded. And you need only look at television, music and films today to see that this is exactly what happens.
Current bestsellers, for instance, tend to be diet guides, courtroom thrillers and sporting biographies. I counted three genuinely original works among them: The Life of Pi; The No. 1 Ladies’ Detective Agency; and Schott’s Miscellany. Each was brought to market by a small, independent, specialist publisher.