January 06, 2004

Media concentration

I've commented before on the FCC's move to deregulate media ownership, but that was before I had a blog on which to vent. I came down (fairly) solidly on the free-market side of the debate that raged on an e-mail list.

Now, Reason has a new article debunking the myth of media concentration: Domination Fantasies: Does Rupert Murdoch control the media? Does anyone?

According to Ben Compaine, the media industry compares favorably in competitiveness to the US auto, semiconductor and pharmaceutical industries. Another tidbit: the total number of stations owned by Clear Channel (1,200) is less than half the number of new stations started in the last 20 years (2,500 of a total of 10,500).

Overall, worth a read.

For those that I didn't spam with my thoughts before, click the link to read my e-mail from September, happily removed from the troublesome responses and salient points of those I was debating....

Well, after much hesitation about joining the fray, here's my 2 cents.

While it may shock my wife to hear it, I agree with almost 100% of Alex's analysis, even though I'm sure our policy conclusions are pretty different. I wouldn't have said that capitalism and democracy are "contrary" -- I would have said "orthogonal", but that may be because I'm a computer geek. I actually think that they have a lot in common, since they both harness self-interest, decentralized decision-making, individual preference, and diffuse, tacit knowledge to create outcomes that are better than any one person (or elite group) could come up with. In my mind, they work for the same reasons. Yes, they butt heads in certain areas (like campaign finance, media, etc.) but, to paraphrase and extend Churchill, they are the worst combined economic/political system, except for all the rest.

But beyond that, contrary to Alex, no one worth listening to on the pro-capitalism, pro-business, pro-free-market side of the debate is actually arguing for full-on laissez-faire capitalism. That's a straw man argument from 125 years ago that's easy to beat up on but not really close to anyone's actual position. Similarly, very few on the pro-labor, pro-egalitarian, pro-welfare side of the debate are arguing that full-on central planning is a better idea than some form of market economy any more. Both extremes died in the laboratory of the 20th century -- or should have.

The question is, pragmatically, how do you strike the right balance to achieve your goals (and, of course, what are your goals)? Is it the income gap or absolute standards of living or the poorest, or the average standard of living that should matter? How much inequality is okay? How do you harness the engine of capitalism without losing control to the corporations? How do you provide a meaningful social safety net without "moral hazard" becoming a valid concern? These are all tough problems that reasonable people can disagree on.

I tend to come down on the libertarian, free-market side of the line for a few reasons. Skipping over the philosophical ones, the most important for this discussion is that the world is a dynamic place. All of the things that make 2003 a more pleasant (and healthier) time to live than 1903 or 1803 are here because of innovation, growth, progress, invention -- in short, change. And there's one thing that markets (and other decentralized, networked systems) are good at -- handling change. Central governments, on the other hand, tend to be pretty bad. Whether it's Soviet Gosplan trying to shuffle steel prices to take into account a coal shortage, or the US Patent Office trying to deal with gene sequence patent applications, or copyright law trying to deal with digital media, or the FAA with space flight, or Congress with Internet porn, or.... they tend to muck it up. At best they simply slow everything down, at worst they stymie innovation and force everyone down blind alleys. It gets even worse because companies with entrenched interests in existing regulations fight tooth and nail to keep them the way they are, clinging to the monopoly or competitive advantage the current rules give them. So I generally look sceptically at government regulations.

Now, all that being said, the FCC rule change is an interesting case.

First, rather than a market in tangible property, we have a market created from whole cloth in the licensing provisions of the Radio Act of 1927 and the Communications Act of 1934 that superceded it. Since you don't have real property rights, but rather renewable licenses in radio spectrum -- you can't just sit back and "let the market work". The government created the scarcity by limiting the number of stations in a geographic area and so needs to regulate the ensuing market. The same law that made the license in the first place, empowered the commission to protect the "public interest, convenience, and necessity." This is not the case in other markets with more Lockean property rights.

Second, I don't think the ownership rule changes are that easy to judge. To my point above about technological change, the current rules are either already out of date, or will be soon. Take the 1975 rule prohibiting "cross-ownership" of newspapers and radio or TV in the same market, for instance. Is this rule actually good for us now? With cable television, satellite TV, and the Internet, newspapers aren't the only place to advertise locally, and many are having a hard time surviving. Some major cities (including the 4th largest) have only one major paper. It's plausible that allowing cross-ownership will increase the number of papers available, which might be a good thing even if they are affiliated with a TV station. Also, the editorial departments of the newspapers could improve the quality of local news coverage on TV. I don't know if this will happen, but it seems possible. Plus, I can still use news.google.com and read any online paper in the world. With satellite TV and cable, why can Discovery, Inc. own 4 channels that I recieve, but a company can't own 2 broadcast channels in the same market? With streaming Internet radio, low-power radio, and XM satellite radio, how much longer is the artificial scarcity of radio broadcast licenses going to be relevant? Is 8 radio stations in a market really that much worse than six? Will it be in 5 years?

Third, in my mind if you really care about this stuff, you should care about the low-power radio rules, and make sure you support ("politically appointed") Powell there. Chairman Powell recently modified the rules to open up thousands of cheap licenses for low-power community radio stations -- a potentially major shift in how music and content is delivered. Maybe he "bought" these changes by caving on the ownership rules -- I don't know. Maybe that wouldn't be a good deal for us, the consumer -- again, I don't know. Regardless, Congress already tried to close this door once before with the Radio Broadcast Preservation Act of 2000, which put many roadblocks in the path of those trying to get the low-power licenses. It's likely that they'll try again -- so make sure any bill that you support to rollback the ownership rule changes doesn't also squash the new low-power rules. More choice is good for everyone.

So where do I come down on this one? I'm actually pretty conflicted. I don't want to see Clear Channel own 100 more stations any more that anyone else does. I'm not convinced that the rules are that great the way they are now, but I don't see a pressing need to change them either. Both the old rules and the new rules will have problems handling the future. I think the government's role as anti-trust watchdog is an incredibly important "check and balance" on the power of the private sphere, but I think our problems in the media space are much larger than just these rules over distribution. Technology will find a way to obsolete and replace the current means of distribution, so the rules governing the distribution aren't that important in the long run.

The larger issue, which no one in Washington wants to touch, is the control of the content. The six media companies that own all the content scare me much more than the distributors. And when they're the same company, it's their content that gives them their power. Increasingly strong copyright laws, protecting content in practical perpetuity, limiting the usefulness of our hardware and software, all bought by the lobbying of the big six -- that is the real danger.

So, yeah, maybe, oppose the rule change. But fight to repeal the DMCA, block the next Copyright Term Extension Act, stop the encroachment on fair use rights, donate to the EFF, etc., etc.

Posted by richard at January 6, 2004 07:40 PM

I had an answer to this. I know I wrote a whole big schpiel about "free market" and "government action" and blah blah blah.

But here is something fresh: a reason why I think that the media industry should be held to a more exacting competitiveness standard than the auto, semiconductor, and pharmaceutical industries.

Free press is something we consider crucial to democratic society. We like it so much we wrote an Amendment to the Constitution about it. A lack of diversity in semiconductor offerings hurts the economy. A lack of diversity in the media hurts democracy. It's not simply an antitrust issue, it's a question of bottlenecking information flow to the American people — information that not only affects what they buy, but how they think, what they think, how they vote.

It is a cardinal constitutional principle that the government cannot suppress the dissemination of views through the media. That principle becomes a moot point when big corporations can buy out or crowd out viewpoints that are offensive — or even uninteresting — to them.

The thing is, I'm making a point that a Yale law professor, Yochai Benkler, does a much better job of developing in this article (see Part II of it, especially).

And God forbid some media mogul should try to become President. Then you might have a situation like the Italians have with Silvio Berlusconi . . .

but I'm getting ahead of myself.

Posted by: Brad A. at January 6, 2004 11:50 PM

Sure, but an important part of the Reason article, in fact an important part of any evaluation of regulation in my book, is whether the current regulatory regime is doing the trick.

One concern is that the current regulations are stifling innovation. This was certainly the case before the television deregulation in the 80's. The entrenched powers (in that case, the networks) didn't want the rules changed because it changed the playing field completely (for the better in my opinion).

As I argue in my old e-mail, maybe allowing television/newspaper cross-ownership would lead to more newspaper choices amd higher quality. Newspapers are less profitable that they used to be because of the new places for local advertisers to go. Perhaps they would serve us better if the networks could bring their resources to bear.

Anyway, my point is that I agree the media is a crucial industry and the comparison to autos and semiconductors doesn't tell you everything. But that doesn't mean that the current regulations make sense today (or will tomorrow) or shouldn't be changed — there's a long way to go before you hit laissez faire.

Posted by: richard at January 9, 2004 12:54 AM