Friday, May 01, 2009

A "Media Concentration" Retrospective

Even though it has been a long time coming, yesterday marked the first explicit acknowledgement that Time Warner is seriously considering spinning off AOL nearly ten years after the initial merger occurred between the two. When the merger was announced back in January 2000, some thought that the combination of the United State's top Internet service provider and the world's top media conglomerate would create a "digital media powerhouse." AOL hoped to profit by providing Time Warner's large amount of content to its then fast growing subscriber base. At the same time, Time Warner hoped to use AOL as an entry point to the Internet services business, after several failed attempts on its own to do so.

Numerous "consumer and public interest" groups claimed that the merger would create a dominating entity in both the Internet services and the then emerging interactive TV markets. A Consumers Union representative claimed that the consolidated company "would be in a position to thwart competition in many markets across the country." A Media Access Project representative stated that "the sheer size of these two companies' assets and their inadequate commitment to open access fall short of what the public interest requires and the law permits." A representative of the Consumer Federation of America worried that by "[c]ontrolling both content and distribution, the company [could] design interfaces that capture and lock in customers, while they lock out competitors, except on terms and conditions that are set by the entity controlling the choke point." A Center for Media Education official noted that companies that "control both conduit and content… wield tremendous power in the marketplace of ideas" and possess "the ability to shape the future of the Internet and other digital media."

These groups filed a petition to deny this merger to the FCC, which described the "dangerous new dimension" being added to "the emerging structure of the cable TV/broadband Internet industry… by extend[ing] the reach of two huge, vertically integrated firms across the cable TV, broadband Internet and narrowband Internets." Among the "findings" cited in the petition: "The merger would allow two enormous firms to dominate the markets for broadband and narrowband Internet services, cable television, and other entertainment services, which could leave consumers with higher prices, fewer choices, and the stifling of free expression on the Internet." And the petition claimed that this "media giant" would "be able to quickly capture the new product market for interactive TV."

Clearly, the merged AOL-Time Warner failed to dominate either of these industries. Instead, the deal has resulted in the loss of more than $100 billion of shareholder value.

It is often interesting, and ought to be instructive, to look back at the hyperbolic statements made by those groups who routinely oppose these media mergers (also see my blog on the Sirius-XM merger) to see whether their concerns ultimately proved valid. They certainly did not with respect to the AOL-Time Warner merger. Wouldn't it be nice if these groups acknowledged that the marketplace, especially when it involves the quickly-shifting Internet and media sectors, has a mind of its own that is responsive to consumer demands and not government-dictated outcomes?