The Empire Strikes: Mergers in the Media World

If all major media in the United States - every daily newspaper, magazine, broadcasting station, book publishing house and motion picture studio - were controlled by one "czar," the American public would have reason to fear for its democracy.

The danger is not that this single controller would necessarily be evil, though this kind of extravagant power has a grim history. Whether evil or benevolent, centralized control over information, be it governmental or private, is incompatible with freedom. Modern democracies need a choice of politics and ideas, and that choice requires access to truly diverse and competing sources of news, literature, entertainment and popular culture.

Fortunately, no single corporation controls all the mass media in the United States. But something is happening that points in that direction. If mergers and acquisitions by large corporations continue at the present rate, one massive firm will be in virtual control of all major media by the 1990s. Given the complexities of social and economic trends, that is not inevitable. It is, however, quiet possible - and serious corporate leaders predict - that by the 1990s a half-dozen large corporations will own all the most powerful media outlets in the United States.

The predictions are not groundless. They are based on extraordinary changes in recent years. At the end of World War II, for example, more than 80 percent of the daily newspapers in the United States were independently owned, but by 1986 the proportion was almost reversed: 72 percent were owned by outside corporations and 15 of those corporations had most of the business. The pace of takeovers by large national and multinational corporations is increasing. In 1981, 20 corporations controlled most of the business of the country's 11,000 magazines, but only five years later that number had shrunk to six corporations.

Today, despite 25,000 media outlets in the United States, 29 corporations control most of the business in daily newspapers, magazines, television, books and motion pictures.

But there is something strange about leaders of the media acquisition drive. Most would agree that one "czar" in control would be disastrous for democracy, yet they praise the march toward that unhealthy end. The media they control take every opportunity to report the beauties of corporate bigness. And while there is much news and commentary about media mergers and acquisitions, it is reported almost exclusively as a financial game without social consequences. The general public is told almost nothing of the dangers.

Compounding the trend has been the practice of companies already dominant in one medium, like newspapers, investing in a formerly competitive medium, like television. Ownership in every major medium now includes investors from other media - owners of newspapers, magazines, broadcasting, cable systems, books and movies mixed together. In the past, each medium use to act like a watchdog over the behavior of its competing media. The newspaper industry watched magazines, and both kept a pubic eye on the broadcasting industry. Each was vigilant against the other industries' lobbying for unfair government concessions or against questionable business practices. But now the watchdogs have been cross-bred into an amiable hybrid, with seldom an embarrassing bark.

Corporations do not purchase local newspapers and broadcast stations for sentimental reasons. They buy them as investments that will yield a maximum return as quickly as possible. When they buy a local monopoly, which is typical of newspapers, or an assured share of the market, typical of television, few investors can resist the spectacular profits that can be made by cutting quality and raising prices. The magnitude of this temptation is not what media executives talk about in public. But in private they and their acquisition agents are unequivocal. Christopher Shaw, the merger expert, for example, speaking at a session of potential media investors in October 1986, said that a daily monopoly newspaper with a 15 percent annual operating profit can, within two years of purchase, be making a 40 percent profit by cutting costs and raising advertising and subscription prices. The investors were told, "No one will buy a 15 percent margin paper without a plan to create a 25-45 percent margin."

No Public Accounting

During most of this century the process of media consolidation remained quiescent, but beginning in the mid-1960s large corporations suddenly began buying media companies. The financial trigger was Wall Street's discovery of the best kept secret in the business of American newspapers.

For decades American newspaper publishers cultivated the impression that they presided over an impoverished institution maintained only through sacrificial devotion to the First Amendment. This image helped reduce demand from advertisers for lower rates and agitation by media employees for higher wages. The truth was that most daily papers were highly profitable. But that was easy to conceal when newspapers were privately owned and no public reports were required.

The golden secret was disclosed by an odd combination: the fertility of founding families and the inheritance taxes.

Most of the country's established newspapers were founded or began major growth in the late 19th Century, including The New York Times, the Washington Post, and the Los Angeles Times. At the time they were modest operations. But by the 1960s, thanks to the country's population growth, affluence and heightened literacy, as well as to mass advertising and local monopolies, they had become substantial enterprises. Papers that once represented small investments (Adolph Ochs bought The New York Times in 1896 with only $75,000 of his own money) were now worth millions.

Inheritance taxes for family owners can be avoided for about three generations; a person could leave the estate in trust to someone alive at the time the will take effect, often a grandchild, plus 21 years. By the end of the 1960s, the grace period for hundreds of papers was about to end and owners looked for a way to avoid overwhelming taxes (and possible forced sale of the papers) on the death of the heirs and the imposition of postponed estate taxes. One answer was to spread the ownership by trading shares on the stock market, thereby relieving family members of inheritance taxes on the entire property. Or the family could sell the paper outright to an outside corporation.

Major papers began offering their stock publicly in the early 1960s, thus opening their financial records to scrutiny by the Securities and Exchange Commission and Wall Street. So, suddenly, in the 1960s the investing world discovered that the newspaper industry was fabulously wealthy. The media race was on.

Television in the 1960s was already concentrated in ownership, but was to become even more so. Television, in the jargon of Wall Street, is a "semi-monopoly," not only because of the limited number of owners, but because in most cities the dominant stations have virtually guaranteed high profits; the ratings simply determine which company gets the most.

Recent events in broadcasting have further concentrated ownership in television. Initially, no company was permitted to own more than seven radio and seven television stations. Under the political drive for deregulation, the FCC in 1984 permitted each company to expand its holdings to 12 AM and 12 FM radio stations and 12 television stations, and said it would lift all restrictions in 1990.

In the past decade, magazine groups, book companies, even Hollywood studios, were added to the corporate mix when conglomerates came to appreciate the power to create national styles and celebrities (and extra profits) when combinations of different media reinforced each other in unified corporate promotional campaigns.

Magazine articles could become books, which could become television programs that could become movies from which a novelized version could join the parade of accompanying T-shirts, posters, cosmetics and stylized clothing. Owning properties in all the media concentrated the profits from them all.

Public Trust

It is possible that large corporations are gaining control of the American media because the public wants it that way. But there is another possibility: the public, almost totally dependent on the media to alert them to public problems, has seldom seen in their standard newspapers, magazines or broadcasts anything to suggest the political and economic dangers of concentrated corporate control. On the contrary, for years the media have treated mergers and acquisitions as an exciting game that poses no threat to the national pattern of news and information.

Most owners and editors no longer brutalize the news with the heavy hand dramatized in movies like Citizen Kane or The Front Page. Only a few bosses still storm into the newsroom to order outrageous lies into the headlines. Most of the time, professional journalistic standards and public sophistication are high enough to make gross suppression of dramatic developments ineffective.

Far more effective in creating public opinion is the pursuit of events or ideas until they are displayed in depth over a period of time, until they form a coherent picture and become integrated into public thinking. It is this continuous repetition and emphasis that create high priorities among the general public and in government. It is in that power - to treat some subjects briefly and obscurely but others repetitively and in depth, or to take initiatives unrelated to external events - that ownership interests most effectively influence the news they create.

As media conglomerates have become larger, they have been integrated into the higher levels of American banking and industrial life as subsidiaries and interlocks within their board of directors. Half the dominant firms are members of the Fortune 500 largest corporations in the country. They are heavy investors in, among other things, agribusiness, airlines, coal and oil, banking, insurance defense contracts, automobile sales, rocket engineering, nuclear power and nuclear weapons. Many have heavy foreign investments affected by American foreign policy decisions.

It is normal for all large businesses to make serious efforts to influence the news, to avoid embarrassing publicity, and to maximize sympathetic public opinion and government policies. Now they own most the news media that they wish to influence.