industrial sponsors focused heavily on its educational, informational and
cultural potential to which they were allegedly devoted, and in 1922 then
Secretary of Commerce Herbert Hoover stated that there was no way we could allow
such a great medium to be overwhelmed by "advertising chatter." But
advertising chatter won, and the history of broadcasting ever since has
witnessed advertising’s increased hegemony and the displacement of the public
sphere with entertainment and advertising itself.
Similarly,
when the Internet took hold in the 1980s and into the 1990s, it was going to
provide an "information superhighway" that would enlighten us all,
bring us together, and advance democracy. Norman Solomon has shown, however,
that whereas in 1995 the major papers referred to the "information
superhighway" in 4,562 stories and "e-commerce" or
"electronic commerce" only 950 times, that ratio quickly shifted so
that in 1999, the superhighway was down to 842 mentions, e-commerce was
mentioned in 20,641 articles.
This
reflects the rapid takeover of the Internet by commercial interests and the
market’s belief that the Internet has enormous prospects in selling goods,
advertising, and inter-business transactions. There are almost daily notices of
new entrants or public offerings of recently organized firms with Internet
sites, software, and business connections that allow them to sell something
(toilet seats, flowers, pets, mortgage loan service, autos, groceries). And the
portals and servers that successfully build large customer bases increasingly
make money by deals with site businesses that direct customers toward those
sites. (AOL gets some 30 percent of its revenue from sources other than charges
to its customer base.)
Because
the market is super-bullish on Internet business, the market valuations of
Internet firms have been grotesqely inflated and many fortunes have been made
there in the 1990s. The high valuations of the premier firms have also allowed
them to buy out other firms by exchanges of stock, as the 15-year old AOL has
been able to buy out the giant Time-Warner with a stock valued at 55 times AOL
earnings (Time-Warner’s price-earnings ratio was 14). One theory of this merger
is that AOL’s management recognizes that its market value is unsustainable and
is shrewdly buying solider (more rationally-valued) assets at the top of its own
peculiar market. It is possible that the Internet market bubble will burst and
that the Big One will unravel by price declines that will cause the stockholders
to vote the merger down. But there would be heavy costs in exiting from the
merger and this scenario is unlikely to materialize. The AOL bid has put
pressure on other firms to do the same, so that Internet and related stocks may
get another round of inflation based on these expectations and followup mergers.
All this is wonderful from the standpoint of a small set of owners of the
affected stocks and investment bankers and lawyers who will cash in on another
merger wave.
The
merger clearly has other motives than AOL’s cashing out of an inflated market
valuation, and sharing some of that loot with Time-Warner’s officials and
stockholders. AOL’s managers have been worried about their lack of access to
high-speed broadband cable distribution and the threat of companies like ATT who
aim to bundle Internet service with phone and TV business and who can offer free
Internet service as a loss leader. Time-Warner gives them a major cable system.
It also gives them massive "content" that they can offer and push.
Time-Warner, on its side, gets a stockholder bonanza (barring further major
declines in AOL’s price before actual sale), plus a major increment to their
customer base and Internet access.
None
of the benefits accruing to the merger participants benefit society at large.
Both companies were completely viable and could have done what they get from the
merged partner by internal investment, smaller acquisitions, contractual
arrangements, or some combination of these, even if more slowly and
incompletely. The "synergies" they get from combination don’t
constitute social efficiencies, they are merely privileged tie-ins that make it
possible to get business without competing for it or to more effectively target
the customers advertisers want. (One global media ad buyer remarks, "The
combined company will have a fantastic data base. They will have a phenomenal
way of slicing and dicing their consumer data base to deliver the specific
target audiences that I want.") Virtually all the proposed gains are
"pecuniary" and private, not "real" and social economies.
And
the social costs of the merger are substantial. The phony synergies reflect
increased market power, just as they did in the case of the Disney-ABC and
Time-Warner-Turner mergers, where intra- system films could be given a special
push in the controlled TV stations and magazines that would increase sales and
revenues. Now, AOL will be able to give special position to Time-Warner content,
at the expense of content that might be better but doesn’t have the market power
of a "synergistic" merger behind it.
Competition
will be weakened not only by the preferential treatment given own-content within
this vertically integrated giant, which will make it tougher for outsiders to
reach and/or sell to target audiences, it will decline because of the rush to
consolidate into comparable giants by AOL’s and Time-Warner’s rivals.
Time-Warner’s Levin asserted that "This should provide encouragement for
other combinations that wouldn’t have been thought possible," as if the
followup mergers would be a very good thing. But this will further concentrate
and oligopolize the media, bringing the New Media into this web of privilege and
power. This merger highlights the fact that the new technology of the Internet
is not providing new competitors to the Old Media, but instead offers a new
means of distribution that is rapidly integrating with the content-rich and
content-dominant Old Media to yield even more powerful oligopolists. No doubt
competition will still exist on the fringes, and we can all still send messages
to one another and start our own sites, but competition will be substantially
reduced.
The
"content" that the merger will help push is also the
commercial–dominantly entertainment–material that a pop culture behemoth like
Time-Warner has increasingly featured. It is notable that "Entertaindom"
is the first of several miniportals Time Warner is starting, and it will be
featured on AOL’s entertainment channel. Any neutrality in AOL’s channeling of
customers toward content will end and the hegemony of the commercial over the
rapidly billboarded "information highway" will be consolidated by this
merger. The 75 year history of broadcasting in the United States established the
virtual "law" of media evolution: that commercialization steadily
erodes the public sphere, substitutes entertainment for public sphere materials
like in-depth news and documentaries relevant to a democratic politics, and even
transforms the residul news into entertainment. There is solid evidence that the
Big One will advance that process by integrating the New Media into the
commercialized Old.
The
merger will also have the immense disadvantage that, apart from its negative
effect on competition, it will further centralize economic power, directly and
by the defensive mergers that will follow. This will further skew political
power toward the corporate community and affluent as the new giants will have
both financial and market leverage to affect the political process. The media
have acknowledged this wee bit of a problem, but give it little weight. The New
York Times editorialized that "The remedy to this political threat is not
to scuttle mergers, but rather to fix campaign contribution laws" (Jan.
11). What makes this answer absurd is that the further centralization of power
makes it more difficult to pass and enforce limits on campaign financing, and
electoral funding arguably will be uncontrollable by law in any case as huge
power differentials will necessarily feed in to the political process.
This
centralized economic power has already taken a huge toll not only in electoral
politics but in its derivatives: the courts and the regulatory agencies. It has
also affected ideology with the help of a steadily centralizing and
commercializing media. This is why antitrust and FCC regulation have weakened,
why bigness and the centralization of economic power have ceased to have any
influence on policy actions, and why the Big One is likely to pass muster
despite its huge social negatives. The feedback mechanisms at work, which have
protected the merger process, continue to damage economic and political
democracy. This process will halt only when we see a grass roots movement like
that we witnessed at Seattle but multiplied by many thousands.