Beyond the mogul: From media conglomerates to portfolio media

Abstract

The article shows that outside ownership of media moves in stages – from media properties as the mouthpiece for personal and business interests, to a second stage of conglomerates seeking economic “synergies” of performance, to a third stage dominated by financial portfolio diversification. These phases of outside media ownership correspond to the stages of economic development in that country.The article finds that in rich countries, the ownership of media by industrial companies as a way to create political influence has been declining. The second phase, based on economic synergies, has become a less significant driver, too. On the other hand, there has been a significant growth of cross-ownership through financial intermediaries. In contrast, the media systems of emerging and developing countries are still operating in the first two phases of cross-ownership, centered on projection of influence and on conglomerate business synergies.It is quite likely that these dynamics will lead to a “capture gap” between emerging and rich societies. Media in the former would be significantly more captured through the seekers of personal influence and conglomerate synergies, while media in the latter are subject to professional investors imperatives of profitability, growth, predictability, and fit into portfolio diversification. The same financial institutions from rich countries are also likely to seek acquisitions in the emerging markets by leapfrogging the two other stages. The likely responses are restrictions on foreign ownership of media. Domestic conglomerates will step in and assume control. Media capture will then become patriotic.The article is fact-based and provides details on the media assets of non-media companies in 26 countries accounting for about 60% of the world’s population and over 80% of its economy.

Keywords

Media mogul media conglomerates outside ownership media capture media ownership institutional ownership synergies

For a long time, the critics of powerful private media (Bagdikian, 1983, 2004; Lessig, 2004; Wolff, 2008) focused on the classic moguls of the Murdoch and Redstone kind. More recently, observers have looked at media being controlled by large interests from outside the media sector. This article will take the discussion one step further by identifying the dynamics of such outside ownership. It is the contention of this article and the hypothesis that will be explored, that the outside ownership is moving in stages – from media properties as the mouthpiece for personal and business interests, to a second stage of conglomerates seeking economic ‘synergies’ of performance, and to a third stage dominated by financial portfolio diversification and less by content intervention. Furthermore, that these phases of outside media ownership in a country correspond to the stages of economic development in that country. As highly developed countries are transitioning to the financial portfolio model with its reduced intervention by owners, emerging countries such as the ‘BRICS’ (Brazil, Russia, India, China, and South Africa) are moving to the stage of industrial–media conglomerates or are still operating in the first model, that of media as mouthpieces. Thus, the divergence of non-media content intervention between developed societies and emerging ones will grow and we may witness what might be called a ‘capture gap’. The nature of media systems in each of these stages is influenced by such dynamics: they are politics-driven in the first stage, synergies-driven in the second stage, and investment-model driven in the third stage.

This analysis will be based on a fact-based (though not quantitative) analysis of media companies and ownerships. Such analysis needs to be wide-ranging across countries as well as time periods, or else the discussion of media capture becomes largely anecdotal.

The issue of state control over media has been a long-standing topic for discussion (Gehlback and Sonin, 2014) and will not be repeated here. Nor will we discuss the issue of large media firms controlling their markets or other media, that is, media concentration (Albarran and Dimmick, 1996; Compaine and Gomery, 2000; Downing, 2011; Doyle, 2002; Noam, 2016; Thierer, 2005), or of the impact of ownership concentration on content (for a discussion of different types of newspaper ownership, see Baker, 2007; Berry and Waldfogel, 2001; Cooper, 2003; Horwitz, 2005; Picard and Van Weezel, 2008; Soloski, 2005), or of the impact of ownership categories, such as public service versus corporate (Hallin and Mancini, 2004; Lacy, 1991; Picard and Van Weezel, 2008; Soloski, 2005). Rather, the question for our analysis is the evolution of ownership by non-media industrial companies that own media properties among their conglomerate holdings. We should clarify the term ‘conglomerate’, which is often used loosely. Almost all large media firms operate across multiple media activities,¹ but that does not make them into conglomerates. Vertically or horizontally ‘integrated’ media companies own other firms with which they have vertical supply relationships or where there exists a horizontal market extension into related products or markets. A television network company that also produces films and owns sports teams and music publishers is such a vertically integrated firm. But it is not a conglomerate. Although that term is often used in the sense of ‘large and diversified company’, a conglomerate is a collection of unrelated activities. Not TV & film & music, but TV & cheese & submarines. And the questions are the extent of such combinations of media and non-media firms; their trend over time; their rationale; and their link to economic development.

In order to come to conclusions that are not anecdotal and selective, we created a database of such combinations. It is a starting point for analysis, given the large number of countries, companies, industries, and decades that would need to be covered.²

We conclude that entry into media by non-media firms follows three phases, each with a different priority:

Stage 1: Seeking influence;

Stage 2: Seeking business synergies;

Stage 3: Seeking portfolio diversification.

Each of these phases is accompanied by a particular institutional and business setting. We will discuss these three phases in turn.

Stage 1: Seeking influence

In the first stage, a media involvement is an extension of the interest of rich individuals and their companies. In some cases, it gives them a prestigious and influential outlet for their talents, ambitions, and philosophies. It also provides a tool to advance the interests of their companies and industries.

One way to gauge whether such acquisitions from industry into media are motivated by business factors beyond seeking influence is to ask whether they go in both directions. If it makes pure business sense for an industrial company to buy into media in order to create synergies, the same incentives should also be true in the reverse direction. Yet such acquisitions of industrial companies by media owners are relatively rare (Swanberg, 1961).

Examples for an entry by industrial interests into media in order to gain influence are given below.

In the United States, the Hearst family’s mining fortune underwrote young William Randolph Hearst’s move into newspaper ownership. Hearst soon used his platform to influence policy and to seek political office as Mayor and Governor of New York and as a Presidential hopeful. Similarly, Eugene Meyer, before acquiring the Washington Post, was a financier and co-owner of the Allied Chemical company. He, too, used his papers to advance his political perspective (Pusey, 1974).

In the United Kingdom and Canada, Lord Beaverbrook (Max Aitken), the British-Canadian press magnate, made his money in electric utilities and cement before moving into press ownership. He became an influential political figure and cabinet member in several governments.

In Germany, the main press owners in the pre–World War I and in the subsequent Weimar years were the coal and steel magnates Alfred Hugenberg and Hugo Stinnes. They used their respective media platforms for their conservative political views and business interests. Stinnes owned more than 60 newspapers outright and controlled even more.

In Italy, the industrialist families of Agnelli (FIAT and other auto companies) and De Benedetti (Olivetti, Buitoni) acquired newspapers and other media companies. More dramatically, the construction magnate Silvio Berlusconi moved into television which he then dominated and then parlayed into electoral success to become prime minister of Italy.

In Israel, the American tycoons Sheldon Adelson (casinos) and Ronald Lauder (cosmetics) own media properties, largely to promote their perspectives on Mideast politics.

In Russia, it is hard to distinguish personal expansion by ‘oligarchs’ into media activities from that of a conglomerate empire building. They are probably some of both.³ For many of these industrialists, the ownership of a media outlet provides a way to advocate their company’s positions and to attack their adversaries.

In economically advanced countries, the role of media acquisitions as a way to serve as a mouthpiece – with the aim of influencing public policy in a way that favors the media owners and their companies – has declined over time. There are few examples today in the United States, Canada, United Kingdom, Germany, Sweden, Switzerland, and Japan. Exceptions exist in Italy, Ireland, and Israel. In the United States, Jeff Bezos, founder of Amazon.com, in 2013 bought the Washington Post and several smaller newspapers and magazines. This would seem to be a classic case for a personal expansion into media activity to advance an agenda. There are few business synergies for a global retailer to own a regional newspaper. Bezos owns the paper personally, not Amazon. However, this case also illustrates the limitations of this approach and its hazards in antagonizing customers and shareholders who hold a different view. It can also backfire and become, in purely business terms, a liability. When the Washington Post became critical of candidate Donald Trump,⁴ this was not left unanswered. Trump responded, ‘If @amazon ever had to pay fair taxes, its stock would crash and it would crumble like a paper bag. The @washingtonpost scam is saving it!’ Trump claimed that Amazon has ‘a huge antitrust problem’ and that the Washington Post was merely a mouthpiece for Amazon’s business interests. He threatened that he would ‘open up our libel laws’ specifically mentioning the newspaper. Amazon is ‘getting away with murder, tax-wise’, he claimed. ‘He’s using the Washington Post for power so that the politicians in Washington don’t tax Amazon like they should be taxed’. ‘… he bought this paper for practically nothing and he’s using that as a tool for political power against me and against people and I’ll tell you what, we can’t let him get away with it’.⁵

To avoid such backlash, the Bezos model of an assertive journalism is an exception. More likely is the less controversial ‘good government’ model in which a wealthy business owner saves a local paper from going under – as will increasingly be the case with the decline of newspapers’ economic base – in a spirit of good citizenship and then leaves it alone. Such ownership may also be a prestigious toy for wealthy business tycoons, not unlike owning a local sports team. Economists, going back to Harold Demsetz (1989), concluded that the non-financial ‘amenity potential’ of controlling media outlets, such as fame, influence, and favorable policy, are high and therefore create incentives to acquire control. Yet as one looks at such personal expansions into media, one observes that in the highly developed countries, new examples have become relatively rare.

The expansion of industrialists into media as a mouthpiece is more prevalent in politically volatile countries such as Russia and Turkey where wealthy participants (in the case of Israel, from America) seek to affect politics and are willing to subsidize their views. This model of expanding industrial power into media ownership in order to expand one’s influence can therefore be expected in less developed countries whose politics are often unsettled. It is less likely to be the model of the future for rich countries.

Stage 2: Seeking business synergies

The second type of cross-ownership of industrial and media properties are the classic conglomerates. These are companies who combine a series of holdings, with media properties merely one item in the collection.

What are reasons for conglomerates of non-media companies with media companies, considering that each of their parts does only little business with the others? There are several factors in which the various parts might generate ‘synergies’ (also known as ‘economies of scope’) where the efficiency of the parts is greater together than they are separately:

The sharing of an effective management at the holding company level;

Reduced transaction costs;

Better access to financial markets (Hubbard and Palia, 1999);

A rising attractiveness of the conglomerate’s stock which provides currency for further expansion;

Ability to internally cross-finance and provide collateral for acquisitions;

A diversification of risk;

A brand recognition that generates trust and the potential for premium pricing;

An ability to cross-sell customers various product lines;

Foreclosed internal markets for rival companies’ products, with reciprocal dealings;

Economies of scale in shared overhead services;

A potential for transfers of technology and management skills;

A side-stepping of regulatory constraints which block expansion in the company’s core sector, such as ceilings to media ownership.

Economists always had an uneasy perspective on conglomerates, beyond public policy concerns with aggregate concentration in the economy: they could not be readily explained in business terms. Horizontal mergers and expansion fit easily into the basic economic model, with economies of scale, network effects, and pricing power being major factors. Vertical integration is more controversial as a company strategy but can still be rationalized as an expansion of market power held in one industry into a more competitive industry downstream or upstream (Riordan and Salop, 1995). But conglomerate mergers are harder to explain (Pautler, 2003). The advantages have been listed above. But there are also considerable disadvantages:

Lack of managerial focus and expertise;

Dilution of core competency;

Conflicting internal cultures;

Over-expansion;

High debt load with attendant vulnerabilities;

Complex institutional arrangements and contradictory deals;

Lack of transparency;

Slowness in technological innovation;

Internal politics;

Public pushback and unpopularity;

Frequent competition with one’s own customers;

Slow, bureaucratized, and autocratic decision-making at the center.

In several countries, the conglomerate system has been the mainstay of the economy, and media ownership was simply part of it. Japan and South Korea are major examples. More recently, India, Turkey, Malaysia, Indonesia, and Arab oil states have moved strongly in that direction. In the United States, too, such conglomerates used to be frequent and strong, including combinations of non-media and media. The following is a review of such ownership conglomerates in countries around the world, a compendium essential to discussions of media capture. For details, see Appendix 1 of this article.⁶ Most of the data for the past 20 years were brought together in a volume on global media ownership (Noam, 2016) with over 800 tables and graphs, 13 media industries, and 30 countries. The data provide a quantification of market shares of companies over time, cross-media ownerships, and a description of owners.

In the United States, the 1960s and 1970s witnessed a wave of conglomerates being formed, often including media properties. The strategy behind the conglomerates was to buy undervalued and undermanaged companies and provide management talent (Ravenscraft and Scherer, 1987). US examples for non-media/media conglomerates:

Gulf + Western, a sprawling conglomerate active in many industries, owned the film studio Paramount Pictures, the publisher Simon & Schuster, music labels, and sports teams before selling off its various parts and disappearing.

Kinney National, a conglomerate owning parking lots, funeral parlors, and dry cleaning store chains, bought Warner Bros., Warner Music, and Panasonic. But further mega-mergers that created AOL Time Warner proved disastrous, shareholders clamored for a streamlining of the business, and the company divested itself of many of its divisions. In 2017, it was in the process of being acquired by AT&T.

GE was perhaps the most successful of the conglomerates, with technologies for electric power generation, aviation, medical imaging, consumer electronics, and financial services. GE acquired the major TV company NBC, as well as parts of the Universal film studio, but ended up selling them to Comcast after 2011 when performance and synergies proved disappointing.

ITT was a major conglomerate company that owned many telecom equipment and operating firms around the world and diversified into insurance, rental cars, hotels, food, timber, and real estate. This did neither work out economically or politically.⁷ Eventually, ITT divested itself of most of these assets.

Loews was a conglomerate that owned Lorillard Cigarettes, Bulova watches, several energy companies, hotels, and finance companies. In media, it owned a movie theater chain and the CBS TV network, both of which were subsequently sold.

Looking at these conglomerates, one cannot identify a single large non-media/media combination in the United States that has survived into today. American media companies are big and sprawl into related online activities and technology, but industrial/media conglomerates are rare today, despite the absence of regulatory constraints.

What has been the presence and track record of non-media/media conglomerates in other countries? They can be ordered into several categories. For more details, see Appendix 1.

Limited presence of industry/media conglomerates

In Germany, as mentioned, the Stinnes and Hugenberg conglomerates in pre–World War II Germany combined heavy industry with numerous newspapers. At the time of Hugo Stinnes’ death in 1924, he owned 4500 companies, but the empire collapsed within a year. Post–World War II, however, there were few such cross-sector instances. The steel maker Mannesmann started the number 2 mobile telecom firm but sold it to Vodafone. A similar low level of industry–media ownership exists in Switzerland.

In Canada, too, there is only limited industry–media cross-ownership, primarily the Power Corporation of Canada, and by the Bragg family (food processing, telecom, and cable) and the Irwing family (industrial assets and newspapers.)⁸ More recently, the Bragg family owns food processing as well.

Formerly strong but weakening presence of industry/media conglomerates

In Japan, the ‘keiretsu’ conglomerates (succeeding the pre-war ‘zaibatsu’ that were partly broken up by the American occupation) have been a mainstay of the economy. They are groupings of companies of many industries, joined by small cross-ownership in each other and by interlocking board memberships. The keiretsu are typically centered around a major bank that owns shares in all of them and is in turn owned by them and a trading company. Media-oriented keiretsu include the following:

Mitsui holds ownership stakes in Fujifilm, in Sony Corporation and its subsidiaries, as well as in Yaussa Corporation, Ibiden, Toshiba, and the Tokyo Broadcasting System.

The Sumitomo keiretsu has investments in the electronics company NEC.

The Dai-Ichi Kangyo keiretsu has holdings in the electronics companies Fujitsu and Hitachi.

The Sanwa keiretsu has investments in the electronics companies Hitachi, Kyocera, and Sharp Corporation, along with the film production and theater company Toho.⁹

The keiretsu system proved to be an effective business model during Japan’s rise to economic super-power. However, its static nature contributed to a decline of dynamism in the Japanese economy and led subsequently to a considerable loosening of many keiretsu alliances:

In the United Kingdom, Pearson PLC emerged as a classic conglomerate. Starting as the world’s largest construction company in the 19th century, also active in oil exploration and production, it expanded into media in a big way and in time dropped the non-media conglomerate activities. A more recent example is the Richard Branson’s Virgin Group, which is active in travel, lifestyle, entertainment, financial services, food and drink, as well as media and telecommunications. However, Virgin exited from most of its media activities, such as cable, music, and books, although the brand name sometimes remains. Another conglomerate is that of the Barclay brothers, who own retail chains, real estate, and newspapers.

In Finland, Nokia, the global mobile and telecom equipment company, originated as a multi-product conglomerate that produced rubber boots, toilet paper, electric power, and cables, but in time focused on communications technology, with a reduction in other parts of its industrial activities.

In Australia, of the media families, Murdoch has become a pure media firm after divesting control of the airline Ansett, while Packer left the media business. Stokes is the main remaining industrial/media conglomerate.

Strong presence of industry/media conglomerates

In South Korea, the ‘chaebol’ conglomerates have been the foundation of that country’s emergence as an economic powerhouse. Most important companies were owned by a few major conglomerates that were controlled by their founding families. However, in the financial upheavals of 1997, many of them collapsed. Today, Samsung (63 companies), CJ (spun off from Samsung and controlled by a branch of the same family, with 224 subsidiaries), LG (46 companies), and SK (59 companies) own major parts of the economy, as well as media and communications. In contrast to the Japanese keiretsu, the chaebol are not centered around banks but were based on government support programs. Since the 1997 economic crisis, the chaebol have become a target for considerable public and governmental backlash (Kim, 2002).

In France, the water utility Compagnie Generale des Eaux (also active in other public services) spun off its media activities operation which was renamed Vivendi and became the country’s major media and communications firm, with holdings in film and TV (Canal Plus, StudioCanal), games and video hosting, advertising, telecom (in France, Morocco, Brazil, and Italy), and music (Universal Music Group). Faced with gigantic losses, it divested many of these operations. The company is now controlled by the paper, logistics, and energy company Bolloré.

Other French conglomerates with media participations are the construction and real estate company Bouygues and the defense contractor Lagardère. The latter has become a pure media company.

In Sweden, Kinnevik and the Wallenberg family own companies across the economy, including in media operations and technology. In Belgium, Albert Frere, the country’s major financier, owns various media properties. In Ireland, Denis O’Brien and Tony O’Reilly are rival conglomorateurs with major holdings in industry and media.

Strong and rising presence of industry/media conglomerates

In Latin America, industry–media conglomerates are strong in several countries. In Mexico, the main conglomerate is Carlos Slim’s Grupo Carso, which is active in manufacturing, retailing, high-technology, transportation, real estate, financial services, hospitality, TV (Ora TV), and, in particular, wireless and wireline telecommunications. Slim is also the largest individual owner of the New York Times Co. Another large conglomerate is Grupo Salinas. In Brazil, the Andrade Gutierrez Group, Silvio Santos, La Fonte, and Inepar are major industrial conglomerates with media holdings. Conversely, the large media company Grupo Globo/Marinho family also owns companies in the financial, real estate, and food industries. In Chile, COPESA, Bethia, and Almendral have media assets.

In India, huge conglomerates dominate across the economy, and many have media and communications properties. The major groups are Tata, Reliance, Rajan Raheja, Aditya Birla, Bharti, and Sahara India Pariwar.

In China, much of the entire economy, being state-owned, can be seen as a gigantic conglomerate, including ownership of most media organizations. Private conglomerates that own media assets are the China Poly Group (theaters and films), Wanda Group (film theater chains and productions), Legend Holdings (IT and consumer electronics), Alibaba/Jack Ma (investment in the largest private film company Huayi Brothers), and Tencent (portal, film investment, and search engine).

In Hong Kong, the conglomerate CK Hutchison is involved in media and communications. Hutchison is a huge operator and owner of ports, retailing, infrastructure, and energy. It owns mobile telecom in Austria, United Kingdom, Denmark, Italy, Ireland, Sweden, Indonesia, Australia, and others, with over 100 million subscribers worldwide. It also owns the TOM Group which has interests in TV and magazines in the China region.

In Western Asia and the Middle East, Egypt’s Dallah Al-Baraka Group, the Mawarid Group, KIPCO, and Salah Diab are conglomerate ownerships. In Israel, IDB Holding owns properties across the economy, including media. In Turkey, the conglomerate form of media ownership is the basic way for media to operate, as part of the Dogan, Calik, Dogus, Ciner, Albayrak, Demiroren, and so on industrial groups.

We can summarize today’s presence of business-based conglomerates that link non-media companies with media firms in the various countries.

Limited presence: Canada, Germany, Switzerland;

Formerly strong but weakening presence: Australia, Japan, Finland, United Kingdom, United States, Argentina;

Strong presence: Belgium, France, Ireland, Israel, Korea, Sweden, Taiwan, Argentina;

Strong and rising presence: Brazil, Chile, China, Egypt, India, Indonesia, Mexico, Turkey.

What can we conclude from these observations? Conglomerates with media dimensions have not done well in highly developed countries with a relatively competitive business structure. Over the past two decades, they have receded in North America and several major European countries. Similarly, they have declined in Japan and undergone stress periods in Korea. It does not appear that in the highly industrialized countries, the ownership by industrial companies of media companies has increased. In fact, one can observe a reduction as industrial companies have divested their media properties, and vice versa. The reason lies in the general turn away from conglomerates and toward more focused companies. Conglomerates dilute management attention and confound investors who prefer ‘pure plays’. Analysts have identified a ‘conglomerate discount’ on share prices that had been estimated, in a Boston Consulting Group report, as 13.9 percent (Burch and Nanda, 2003; Graham et al., 2002; Rajan et al., 2000; Wall Street Oasis, 2014). In other words, instead of being valued higher as a synergistic firm, such a company as a whole is worth one-seventh less than the sum of its component parts. The reasons will vary but are generally a combination of the factors listed earlier in this section. In some cases, the maturing of media companies and their low profitability might be a reason. But that would not preclude an expansion into online media with a high growth potential. The most likely explanation is the absence of positive synergies, dilution of focus, cultural incompatibilities, and the specialized experience and talent that are required at the top

Conglomerates, however, have their place on the development ladder. For all of the positive reasons enumerated earlier, they are strong, and often getting stronger, in the emerging countries of India, Turkey, Mexico, Brazil, China, Egypt, Russia, and Indonesia. Other reasons are as follows:

Governments have ambitious development goals but lack the bureaucratic infrastructure to implement them.

Large industrial companies have special access to government and establish symbiotic relations with the political power structure.

Large industrial companies have easier access to internal and external funding, in contrast to smaller firms.

Conglomerates may provide managerial efficiency and scale in otherwise relatively inefficient economies.

Thus, it appears that the conglomerate stage of cross-ownership of media and non-media companies is an attribute of emerging economies, not of developed and competitive ones.

Could an inefficient conglomerate keep prospering, nevertheless, in a country that has moved into the stage of high development, because of the persistence of its market power? This is unlikely in the long run, although it might take a lengthy transition. In globally traded products, global competitiveness will reduce the ability to maintain domestic market power. Conglomerates then will have to focus on their core competencies in order to keep up and jettison secondary operations, including media operations. That, however, is more likely for technology and for distribution platforms than for content creation, which is often more domestic in nature. But even here, the globally oriented parts of a conglomerate will be burdened by a cross-subsidy to the media operations.

Stage 3: Seeking portfolio diversification

The decline of conglomerate and personal cross-ownerships does not mean that cross-ownerships are on their way out in rich countries. But they have changed their nature. What is emerging is a cross-ownership through investors rather than through empire-builders, moguls, and conglomerates. Investors seek a diversified portfolio for their assets, but they are not willing to let conglomerate managers do the diversification for them. Instead, they turn to professional money managers to create diversification through carefully structured portfolios whose performance could be monitored closely and which typically are more liquid (Berger and Ofek, 1995; Lang and Stulz, 1994). In that model, media properties are merely one category of assets among many others, with particular risk and return characteristics.

This ownership model has led to a huge industry of institutional investors. Institutional ownership is not a recent phenomenon, but it has increased with the growth of mutual funds and pension funds.¹⁰ Mutual funds are companies that seek and manage the money of investors and invest it in a portfolio of stocks, bonds, and other assets. They attempt to optimize return for a given risk level or category of investment. In some countries, government rules aimed at protecting investors from imprudent risk-taking limit fund investment in any single company to no more than, for example, 5 percent of assets in any one company and to no more than 10 percent of any company’s outstanding shares. This limits the capacity of any individual fund to exercise much control over a firm. But such limitations do not exist for hedge funds and private equity (PE) funds that serve larger investors such as pension and endowment funds.

Institutional owners control the shares they hold in two ways. First, they own shares outright in their own account, partly to earn a dividend return and often for the potential gain in value. In some cases, they might have been part of an investment bank consortium that created and marketed the public shares in an initial public offering (IPO) or secondary public offering (SPO), and they may have kept shares for gradual sale. Larger in volume is the second way in which institutional owners hold shares as asset managers. They manage other people’s money through various forms of investment funds which they control, but which are indirectly benefiting their funds’ investors. In practice, the two forms of holdings are intermingled.

The trend toward institutional ownership accelerated with the emergence of PE funds as acquirers of stock market traded ‘public’ media and communications firms. PE funds pool the financial resources of large investors, which are often financial institutions such as pension funds. They then buy up companies, withdraw their shares from public trading, reorganize them, and eventually may sell them back to the wider investor public.

After 2005, large US-based PE firms such as Bain, Blackstone, Carlyle, KKR, Providence, and Texas Pacific – and their equivalents elsewhere, especially in London – acquired major media and communications companies. These include, in the United States, Clear Channel, MGM, Univision, Primedia, and PanAmSat and, in The Netherlands, VNU (which owns Nielsen Media Research in the United States). Other PE-held firms include ProSiebenSat1 in Germany, TDC in Denmark, Eircom in Ireland (for two ill-fated rounds), SBS in Luxembourg, EMI in the United Kingdom, and PRISA in Spain. Goldman Sachs has major media holdings in Australia and Argentina, for example. The UK-based CVC Capital Partners control media companies in Australia and Switzerland. In Ireland, the US firm Providence; in Sweden, the UK fund BC; and in Brazil, Capital Group and Citigroup (US) control major media companies.

These institutional owners hold a great number of media stocks, with stakes valued at often many billions of dollars. An example is the Vanguard Group. Vanguard owns assets in 12 of the top 20 content companies. Vanguard, given its origin as an index fund, seems invested in almost every major media company – in the United States, the five major network and content providers, the three major traded cable TV companies, and two major search engines; in Europe, three major TV companies; in Canada, Singapore, France, and Germany, major telecoms.

Even more interesting than the components of Vanguard’s portfolio is their magnitude. Hugely present is Google (US$20 billion), Comcast (US$11 billion), Disney (US$10 billion), and Time Warner and 21st Century Fox (US$5 billion each), not counting another US$3 billion for the TWC spin-off.

Vanguard’s stake in Google is almost as high as those of the founders Brin and Page (though without the voting power). It holds more shares in Comcast than the Roberts family (again, without the votes). It is by far the largest shareholder in Time Warner, Liberty, and Disney (except for Steve Jobs’ widow). Thus, on any objective measure, it is a huge media owner. And yet, hardly anybody has heard of its CEO, F. William McNabb III, or its headquarters location, Malvern, Pennsylvania. McNabb does not even have a Wikipedia entry. A hybrid arrangement is that of Warren Buffett–controlled Berkshire Hathaway (BH). It is technically a conglomerate, but due to its extreme decentralization and diversification it functions like an investment company. In the media field, BH owns a number of small newspapers, a Miami TV station, and parts of the major newspaper chain Gannet. It holds US$19.2 billion in Apple, US$13.8 billion in IBM, US$800 million in Verizon, US$1.1 trillion in Liberty Global and Liberty Media, and US$58 million in Graham Holdings.

Generally, the stake of institutional investors is much larger than those of individuals. In 2013, State Street had US$65 billion invested in major media companies. Rupert Murdoch, in comparison, had ‘only’ US$11.6 billion. Dodge & Cox, with US$20 billion, had more money tied up in media than Berlusconi, Malone, Redstone, and Lagardère combined.¹¹

The total media assets of the top 10 institutional owners add up to US$332.5 billion; the top 20 have US$423.4 billion and the top 30 have US$449 billion. US institutional owners dominate. Of the headquarters of those top 30 asset management companies, 73 percent are based in the United States (22 companies). Overall, North American firms account for 50 percent of the asset management industry’s funds under management. UK firms have about 10 percent and about 5 percent each for Switzerland, Japan, Germany, and France.

The old-age pension system in the United States is based on individual investment accounts (such as ‘401(k)’ plans) rather than on a tax-based ‘pay-as-you-go’ governmental pension plan prevalent in Europe. In the United States, there are many huge endowments of private universities, museums, and so on that are run by asset management firms. There exists a greater willingness and ability to invest pension funds and other forms of savings in equities (stocks) rather than bonds, which are safer in producing income but do not provide ownership rights. Given the size and expertise of the asset management firms, they also attract money to manage from investors around the world, not just the United States.

What then is the impact of such ownership on media firms? Can it be described as capture? Institutional investors are usually viewed as primarily concerned with short- or medium-term gain, gauging corporate performance solely according to stock price and earnings. This would suggest that they exercise their preferences through ‘exit’ rather than through ‘voice’, that is, that they would not actively intervene (Hirschman, 1970). But that conclusion might be too facile. Institutional investors cannot easily liquidate large stakes and often are investors for the long haul, especially if they assume full control as PE and hedge funds often do. Even mutual funds with smaller percentage of shares have the capability to intervene and to potentially batter a stock, and top management knows that. In 1997, institutional investors became dissatisfied with the composition of Walt Disney’s board of directors, which Business Week had named the ‘worst board in America’. It included individuals with close ties to CEO Michael Eisner, such as his personal attorney and his second home’s architect. Eisner was forced to make changes in response to the institutional investor criticism, but his troubles with institutional and pension funds continued, and they led eventually to his ouster.

In 2003, US mutual fund Tweedy Browne, which held 18 percent of the newspaper holding firm Hollinger International shares, initiated an investigation that uncovered misspending at the newspaper chain (Chicago Sun-Times, Daily Telegraph, and several other papers). The discovery led to the resignation of Lord Conrad Black from his position as CEO, the sale of the company, and Black’s criminal conviction.

In 2006, several ‘activist’ institutional shareholders, led by Carl Icahn, challenged Time Warner’s conglomerate structure, advocating a breakup of the company. They argued that the sum of the parts was more valuable than the whole. Time Warner’s management opposed the shareholder resolution and prevailed in a formal sense. But within a few years it sold or spun off these parts of the company: Warner Music Group, Time Warner Cable, AOL, TW Telecom, Time Books, and Time Inc. magazines.

When it comes to direct intervention in content issues, in theory, institutional owners might be tempted to oppose content that would negatively affect other holdings of their portfolio. If Fidelity holds large ownership positions in tobacco companies and in Disney, it is possible that Disney’s ABC TV network management might pull its punches in producing programs about the addictiveness of nicotine. However, since direct intervention by institutional owners would often not remain confidential and backfire, either such instances are rare or they are implicit and require no direct communication. In contrast, for individual ownership there is ample evidence for direct intervention into content matters by the major individual owners, including on just that tobacco issue.¹²

Generally, institutional investors will prefer safe mainstream content rather than controversial one that may make some of their investors unhappy. Similar incentives for safe mainstream content exist in many cases also for profit-maximizing corporate media management (Demers and Merskin, 2000). Where a media corporation veers off the center, it may well be a branding differentiation rather than ideology. Institutional ownership might affect content quality through greater pressures for short-term profitability. Yet it may also shield managers from control by erratic principal owners.

Public attention has centered on highly visible moguls and multi-industry conglomerates. But the reality of media ownership is that of institutional investors that hold small- to medium-sized pieces of many media companies. There are several potential issues associated with such an ownership system: too much control, not enough control, and the absence of localism. The first issue is that an institutional owner or a small group of such owners would affect media behavior. They do not normally exercise a direct role in management in the way that personal owners do, but instead do so in an indirect way. Through their setting priorities on short-term stock performance and through their buy-and-sell decisions, they set behavioral parameters for the actual managers. The second potential problem is the opposite, giving managers too much of a free hand, without the alleged vision and civic responsibilities of proprietors or their heirs. And the third and most real type of problem is that of absentee ownership – a lack of sensitivity and concern by institutional owners for distant localities.

These are serious issues of concern, yet in comparison with the earlier two stages with their direct interventions by non-business owners as part of exercising economic or political power, the portfolio diversification ownership seems the lesser evil.

Conclusion

This article has analyzed the cross-ownership of media and non-media companies. It concluded that the ownership of media by industrial companies as a way to create direct personal and corporate political influence has been declining in rich countries. The second phase for such a non-media/media cross-ownership is based on more direct business factors of economic synergies. It, too, has been declining in many rich countries.

On the other hand, there has been a significant growth of cross-ownership of an indirect type, through financial intermediaries of PE finance and institutional investment funds.

In contrast, the media systems of emerging and developing countries are still operating in the first two phases of cross-ownership: the first centered on projection of influence and the second on seeking conglomerate business synergies.

Will these divergent trends in media control lead to fundamentally divergent media systems and consequently of journalism? It is quite likely that these dynamics will lead to a ‘capture gap’ between emerging and rich societies. Media in the former would be significantly more captured through the seekers of personal influence and conglomerate synergies, while media in the latter are subject to professional investor imperatives of profitability, growth, predictability, and fit in portfolio diversification. The same financial institutions from rich countries are also likely to seek acquisitions in the emerging markets by leapfrogging the two other stages. If this would play itself out freely, the emergence of a global media system whose ownership is not centered on individual moguls or conglomerates but on international financial institutions based in a few financial centers might be closer than we think.

However, the responses are predictable. Countries will impose restrictions on foreign ownership of media. And domestic conglomerates that step in and assume control will wrap themselves in the flag as protectors of national sovereignty. Media capture will become patriotic.

Thus, the emerging challenges to a diverse and pluralistic media control come less from inside the media and its large media companies and more from the outside, through an ownership by non-media organizations: financial institutions in rich countries, and a combination of domestic industrial and foreign financial firms in poor and emerging countries.

As we observed in the beginning, the nature of media systems in each of these stages is influenced by its drivers: they are politics-driven in the first stage, synergies-driven in the second stage, and investment model-driven in the third stage. Which should one prefer? None is a happy choice. For a vigorous democratic discourse, the first stage is strongest, as long as media concentration is kept modest, which is a strong condition that has to rely on the very same political process. For professionally run media operations, the third stage works best, though subject to severe penny-pinching. The worst stage seems to be the second one, in which industrial empire builders increasingly control media with the rationalization of pursuing business synergies, while in reality a major driver is an incestuous relation with the government in power.

The result of these trends – to fund managers in rich countries and to crony capitalists/conglomerateurs in developing ones – may well be control of a kind that may make us nostalgic for the good old days when media moguls roamed the earth.

Footnotes

Appendix 1 13

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The underlying data collection was supported by a grant from the Open Society Institute.

Notes

Author biography

Eli Noam is the Garrett Professor of Public Policy & Business Responsibility, Columbia Business School, and the Director of the Columbia Institute for Tele-Information. Former Public Service Commissioner, New York State. His 30 books include recent titles: Who Owns the World’s Media; Managing Media (two forthcoming textbooks); Cloud-TV (forthcoming); Broadband Networks and Smart Grids; Media Ownership and Concentration in America; and Peer to Peer Video. He received the degrees of BA, MA, Ph.D (Economics) and JD from Harvard University, and honorary doctorates from the University of Munich (2006) and the University of Marseilles Aix-la-Provence (2008).

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