Media mergers: Is bigger better?

Tentative deal to combine CBS and Viacom would create a new superpower

While cable and the Internet are creating new consumer choices by the gigabyte, the traditional media titans are concentrating their power.

The proposed buyout of CBS Corp. by Viacom Inc. - creating the world's largest media conglomerate - underscores the growing concentration of power in an industry that now controls everything from the evening news to the latest movie release.

The tentative $34 billion deal between the once sterling network and the owner of Paramount Pictures and MTV, announced Sept. 7, will give both companies greater access to production and distribution facilities in their quest to control what comes over the big and small screens. In today's deregulated market, such "vertical integration" is considered essential to corporate survival.

But underlying this and other recent mergers are questions about the impact of fewer people controlling what goes on the air.

"We're not dealing here with rubber tires or candy bars," says media critic Jerry Landay. "We're dealing with the control of the voices of a democratic society that are now in fewer and fewer hands. That raises concern bordering on horror."

For the corporate executives with their eye on the bottom line, the proposed buyout is proof that in the increasingly competitive media world, that bigger is undoubtedly thought to be better.

"Our union will be king," said Viacom chief Sumner Redstone in a statement. "We will be global leaders in every facet of the media and entertainment industry, financially strong from day one with an enviable stable of global brands."

But for media critics, this is nothing to celebrate. They blame Congress and the Federal Communications Commission (FCC) for loosening the regulatory reins that until 1996 provided a set of clear limits on media ownership.

Before the Telecommunications Reform Act of 1996, the big three networks were forbidden to own any studios. The idea was to keep the producers of what Americans saw on television in separate hands from those that put it on the air to avoid monopoly control.

In 1970, the FCC even forced CBS to sell Viacom as a TV syndication company after it ruled that networks couldn't even have a financial stake in the shows they broadcast.

But with the proliferation of cable channels and the development of two new networks, including Viacom's struggling UPN, Congress decided that constraint was no longer necessary. Thus began the merger mania which produced the landmark Disney/ABC and the Time Warner/Turner deals.

But CBS had been left out in the cold as the mergers heated up. Three years ago, many pundits were wondering if it would even survive. It didn't have either a production studio, like ABC did with Disney, or a strong cable presence, as NBC had with its CNBC and stakes in other cable channels.

But over the last few years, CBS worked to improve its position. It bought Country Music Television, the Nashville Network, and a majority share of Infinity Broadcasting - a radio powerhouse. This year it made a deal to buy King World Productions. But CBS was still small compared to its competitors.

Then last month, the FCC relaxed its regulation that forbade one company from owning two televisions in a single media market. That move prompted Viacom to act. It now owns Paramount Studios, MTV, the Nickelodeon Channel, VH-1, Showtime, a series of theme parks, and a 50 percent stake in the UPN Network.

Both companies also own a stable of local television stations that would have previously made such a deal impossible.

By buying CBS, Viacom gives itself a much stronger distribution network. CBS gets the strong production studio it still lacked.

But for the deal to be approved by regulators, both companies may have to sell off a few television stations. The FCC still forbids one company from owning access to more than 35 percent of the nation's homes. It also forbids one company from owning two networks, so the future of the UPN could be in doubt.

But all in all, says media critic Ken Auletta, the deal strengthens each company. And he's confident, that's exactly what executives had in mind over the long weekend as they hammered out the financial details.

"Did they sit down and talk about quality - ask, 'How are we going to make the evening news better? Can we open more foreign bureaus if we do this?' " says Mr. Auletta. "Do you think they asked that question? If you do, I have a bridge I want to sell you."

Mr. Auletta also questions the key assumption underlying this deal - that bigger is better. While the new company, which will be called Viacom and headed by Mr. Redstone, will have a dizzying array of media outlets and products, it's large size could end up being an impediment.

That's in part because it lacks a strong Internet presence. But some also believe that small and fast is what's needed in the new media world. "If you think about the Internet, which is arguably the most profound change in the distribution of information since television, it is a key component that the new company lacks strength in," he says.

(c) Copyright 1999. The Christian Science Publishing Society

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