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Media Concentration and

Ownership in the Digital Age

Eli Noam

Professor of Finance and

Economics

Garrett Professor of Public Policy

and Business Responsibility

Director, Columbia Institute for

Tele-Information

Columbia Business School

CMPF Policy Conference - EU Competencies

in Respect of Media Pluralism and Media

FreedomFlorence

25 October 2012 1

Outline• I will do two things here:

• 1st, an Empirical analysis of present media structure. And because this is a European event, it will focus on Europe.

• 2nd, I will analyze the trends and what they portend for the future.– I am mindful, however, that in Italy, after last

week, I might go to jail for being wrong about the future.

– But if I go to jail, at least I will be in good company, with most of the world’s macro economists

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• So let me start with the current structure of media industries.

• This is obviously not just an economic question.

• It is very public issue

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• But how much of a problem is it, now and soon?

• Here, there are two perspectives.

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1. Media Pessimists

• Dean of the UC Berkeley School of Journalism, Pultizer Prize winning journalist.

• Bagdikian: “5firms…own most of the newspapers, magazines, book publishers, motion picture studios, and radio and television stations in the US.” 6

Ben Bagdikian

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“3”• Larry Lessig(1998): “within a few years, we will live in a world where just three companies control more than 85 percent of the media.”

2. Media Optimists

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Adam Thierer (Former Pres., Progress and Freedom Foundation)“To the extent that There was ever a ‘Golden Age’ of media ..., we are living in it today…This is not a matter of

a silver lining around a dark cloud. There is no cloud”

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• So who is right? Both media pessimists and media optimists hold strong belief but marshallfew numbers.

• Now I would never argue that a question such as media ownership and diversity should be governed by empiricism alone.

• But policy need to have some relation to facts and trends.

10

• We—that’s about 70 researchers around the world, cover 30 countries, 13 media industries, and 10-25 years. Thousands of companies.

• What we at Columbia added to the national research teams was the common methodology, so that we could compare.

• It’s the national teams that did the data work.

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• Our work covers countries that account for

• 80% of world by population x, and 80% by GDP x

• Project supported by the Open Society Institute.

• Guiseppe Richeri here is co-author of the Italy chapter.

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80% of the World by Population

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80% of the World by GDP

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Countries of EU Investigated• Belgium

• Finland

• France

• Germany

• Ireland

• Italy

• Netherlands

• Poland

• Portugal

• Spain

• Sweden

• UK

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Non-EU Countries in Europe Investigated

• Russia

• Turkey

• Switzerland

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13 Media Industries Investigated• 1. Content Media

– 1.1 Print Media• Newspapers

• Magazines

• Books

--1.2 Audiovisual Media• Radio

• Broadcast TV

• Video Channels

• Film

• 2. Platform Media• Wireline Telecom• Wireless Telecom• Cable TV and Satellite

Multichannel Platforms

• 3. Internet Media• ISPs• Search Engines (also in

Content)• Online News Media (also

in Content)

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• And for these industries, the country teams identified and calculated market shares over 10 and often 20 years, company by company.

• This was quite an unprecedented effort.

• And its value was partly that it was done consistently, across countries, across industries, and across time.

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• Herfindahl-Hirschman Index (HHI)

Antitrust enforcement guidelines classify marketsHHI < 1,000 Unconcentrated Market1,000 < HHI, Moderately Concentrated Market1,800 < HHI, Highly Concentrated Market

Concentration index #1:

∑=

=f

iiSHHI

1

2

So what do we find?• A lot.

• I will focus on Europe.

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• What we find is that media concentration in Europe is high, and that it is higher than population size or income or other variables would predict.

• Let’s first look at the overall average of 8 content media per country, weighted by industry size, and then averaged by geographic region

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• Within the EU, highly concentrated countries are, overall, Portugal, Germany, Spain, and France.

Cross-Industry Measures

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Cross-Industry Measures• The figures above show averages across

industries. But concern with media power often centers on conglomerates that have a market presence in several media industries. Among the various ways to measure and summarize this is a “National Media Power Index.” It is defined as the sum of a country’s major media firms’ “Company Media Power Index.” And that index is the sum of a firm’s market shares in each of the 13 media industries, squared, and weighted by the industry size. 27

• A “Company Power Index” = Sum of company's HHI scores in 13 media industries. It is an indicator for the cross ownership of media ownership. A company with high market shares in several important industries will have a high company power index. A country with several such companies will have a high national media power index.

• “National Media Power Index” = Sum of the “Company Power Index” of the major media companies in a country

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Example,

Firm A’s Media Power Index = 202(200/350) + 102(50/350) = 242.85Firm B’s Media Power Index = 52(100/350) = 7.15 The National Media Power Index = 242.85+7.15 = 250

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Industry revenue

Firm A’s market share

Firm B’s market share

TV 200 20%

Books 100 5%

Film 50 10%

Total Revenue350

• Now we can also calculate the power index for individual companies, across the world.

• We do this by taking their national power index, and aggregate it across countries, accounting for the different size of countries by a weighting.

• So I will aks you then, who is in that antitrust sense the most powerful company in the world???

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National Media Power Index

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All Media - National Media Power Index

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Platform Media - National Media Power Index

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Chart 8

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Content Media - National Media Power Index

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• They show a significantly higher Power index in EU Europe than in North America. It is much higher (but decreasing) in Platform Media than in Content Media, where it is increasing. Of European countries, it is especially high in Portugal, Ireland, UK, and Spain, and low in Finland and Sweden.

News Media Concentration

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Chart 17

News Media Concentration (Weighted by Usage

as News Source)

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News Media

• The issue of media concentration is important in all media industries, but no-where more than for news media, as opposed to entertainment and content-free conduits. We therefore also aggregate news media for each country. These are newspapers, magazines, online news, radio, broadcast TV, and video channels. [Liwei, need to do this for 30 countries, and regional].

• [Findings]

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• We take this one step further. Because these media contain also non-news elements, especially for TV and video channels, and because the public receives its news information in different proportions from media we weight the news industries according to the share in which they contribute to the news consumption. What are these shares? [Liwei: we need to find how, for the US, people use various news media. About ten years ago, the FCC did that, but online news was not used, and possibly not magazines and video channels.]

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Importance of Media as a News Source

Sources: 1) “FCC Telephone Study (conducted by Nielsen Media Research), ” Washington, D.C., Federal Communications Commission, p. 87-94.2) Veronis Suhler Stevenson, Communications Industry Forecast & Report, annual, New York, NY

These weights are constructed based on data from a 2007 FCC Telephone Study: We averaged the four categories of news: Breaking news, in-depth information on specific news, national news, and local news.Since consumption varies greatly in different countries between Broadcast TV and Cable and Satellite Channels, we used the respective countries’ revenue composition to allocate the combined 56.1% for Broadcast TV and Cable and Satellite Channels.For Magazines, we used Veronis Suhler Stevenson data on Media Usage (Time Spent). We apply the ratio between newspapers and magazines, 15.8% for Newspapers (from the FCC study), to obtain and estimate 11.6% for Magazines that half of the time spent on magazines is for news contents.

Cable and Satellite Channels

Broadcast TV

Newspapers 15.8%

Online 15.8%

Radio 6.6%

Magazines 5.8%

56.1%

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News Media - National Media Power Index (Weighted

by Usage as News Source)

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Chart 20

• So we now have seen how media in Europe is highly concentrated,

• Beyond explanations of population, size, or income

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Media Voices

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Media Voices

• Another way to look at media diversity is to count the ‘voices’. We define voices as a company that has more than 1% of its media market. And where the same company cross-owns media outlets in several media industries, we count it only as one ‘net voice’, not as several.

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Media Voices – All Media

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Chart 13

• Here, we find a significantly higher number (40% higher) of such “Net Voices” in North America than in Europe. (Chart xx). A different picture emerges, however, when we take country size into account and look at “net voices” per capita.

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• Now, the European average is over twice as high as the North American and just about any region. The reason is that…

Voices Per Capita

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Chart 15

Countries with a high count of voices per capita tend to be relatively small countries that maintain nevertheless a fairly rich assortment of media voices. Europe has many such countries, such as Finland, Sweden, Ireland, and Portugal. It’s the combination of contentious politics, diverse population, entrepreneurship, and small population.

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Internet Media

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Do the new internet media make a difference to media concentration, in the way its enthusiasts believe? Not really. The core internet media are actually more concentrated than the old legacy media. The problem are fundamental economics of scale and network effects. There are dominant players in their respective niches—Amazon.com, Ebay, Microsoft, Google, Facebook, Twitter, YouTube, Apple i-store, and on. They all have high market shares, either in their national markets or globally. [Liwei: get non-US and also EU examples]

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These are the industries that were believed to be wide open and competitive, which would open things up for the rest. But they exhibit strong concentration trends. The underlying economic factors, are easy to describe: High fixed cost and low marginal cost on the supply side, and high network effects on the demand side. This creates very high advantages to scale.

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Finding: The Internet Media Are Rapidly

Rising in Concentration

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• We measured this concentration for ISPs, Search Engines, and Online News.

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For ISPs, concentration is very high. In most countries, over 3000.In the US, it is lower nationally. But locally, it is largely a duopoly of the telecom company, and the cable company. Satellite broadband is slow and expensive, and mobile phone is also relatively slow and expensive, once it is used for significant data downloads. [EN add after LiweiInternet regional]

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For Search Engines, concentration is enormously high in most countries, usually due to Google’s market share.

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• For Online News Media, regional data show Europe.

• Chart X below shows that the concentration of online news is often lower than of print newspapers. But in many cases it is actually higher. This is the case in the US, Germany, Japan, Spain, China, and Brazil.

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Finding : There is a Convergence of Concentration

Across countries

• Low concentration countries show rising concentration

• High concentration countries show declining concentration

70

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HHI

Year

Average HHI (Wireless Telecommunications)

America

Asia

Europe

Middle East/Africa

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HHI

Year

Average HHI (Wireline Communications)

Non-OECD

OECD

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0

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HHI

Year

Average HHI (Daily Newspapers)

America

Asia

Europe

Middle East/Africa

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America

Asia

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America

Asia

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Average HHI (Internet Service Providers)

Non-OECD

OECD

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HHI

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America

Asia

Europe

Middle East/Africa

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• So what does this mean?• It means that basically we are, for a good

number of important media industries, observing common trends in different parts of the world. And emerging common industry structures.

• Apparently, relative regardless of national economic particularities, of national regulatory particularities, of historic particularities

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Finding : Globally, content media are much lower in concentration than distribution media, and the gap is declining

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• Concentration in distribution high and rising

• HHI over 4,500. That’s a structure with the top firm of over 60%!

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Concentration Trends (World)

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Content Media Platform Media

Note: ~2000 number do not reflect data for all 30 countries,

since data is not available for some countries for early years

Chart 41

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Concentration Trends (EU)

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Content Media Platform Media

Note: ~2000 number do not reflect data for all 30 countries,

since data is not available for some countries for early years

Chart 42

• The trends for Content Media is somewhat rising concentration, while it is declining for Platform Media.

• However, EU Platform Media are much more highly concentrated (~3,500) than Content Media (~1,900).

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Finding : Concentration Trends Come in Cycles,

on an inclining axis

85

• This work is still in progress. • In the US, the share of top 5 media firms in

overall Mass Media more than doubled 1988- 2004 from 12.5% to 28.4%). But then it fell. To 21.5%. There have been major de-mergers and spin-offs.

• But Recently, the US government approved the acquisition by Comcast of NBC. And now, based on that, the share of the top 5 companies is up again, to 23.2%

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CONCENTRATION TRENDS, WITH CONTINUOUSLY RISING SCALE ECONOMIES AND DECLINING ENTRY

BARRIERS

Time

A

B

C

DC’

E

Schematic

ConcentrationTrend

Con

cent

rati

on

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Concentration Trend: Impact of Scale Economies and Entry Barriers

Scale Economies

Rising Declining

Entry Barriers

Rising Higher ConcentrationInverted-U Concentration

Trend

Decli- ningU-shaped Concentration

TrendLower Concentration

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• This would describe a cyclical concentration trend of up-and-down. However, this is not quite the end of the story. Even within the cycles there can be a trend. This trend is based on the economies of scale. When these economies grow, they lead to relatively larger firms within an industry, that is, to a higher concentration level. This can be seen in the next figure. It shows the oscillations in concentration that one could expect in an environment in which entry barriers steadily decline while economies of scale steadily rise.

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Finding: The Mass Media Sector’s Concentration

Trend is converging with that of ICT.

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CONVERGENCE OF CONCENTRATION OF OVERALL INFORMATION SECTOR AND

MASS MEDIA SECTOR

Time

Con

cent

rati

on Information Sector

Mass Media Sector

A

B

C

D

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• This convergence tendency suggests that the mass media sector, from a relatively lower level of concentration, will move to a higher level that is more similar to that of the overall information sector.

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• The fundamental problem is that the underlying economics of the media sector are those of high fixed costs, low marginal costs,

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• Media equilibrium structure likely to assume oligopoly structure

• Fundamental economic reasons:–High fixed costs–Low marginal cost–Competition–Leads to over-investment, price

deflation, failure, consolidation to achieve price stability

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And these fundamental economics are quite powerful, and show themselves globally, so they are not just due to some particularly greedy empire builder, or a pliant and complacent regulator. If one does not like that equilibrium then the conclusion has to be that of some form of regulation.

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• And this is just the beginning.

• Because the entire nature of media will be shifting.

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• The TV of the future is not just more of the same.

• Not just a widening of old TV to today’s multi-channel TV.

99 http://media-2.web.britannica.com/eb-media/31/71331-004-CDC77097.jpg

1st Generation Television: Broadcasting

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3rd Generation of TV: Widening-- More TV Options

10

Are You Ready?

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• But the trends are pushing on, for a century or more, exponential trends, secular trends– In tranmission speeds achieved by engineers x

– In the cost per unit of infromation distribution x

– In the cost per unit of content x

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Speed (Kbps) Trends

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P(D): Price of Distribution per Mbit/capita (Individualized Channels)

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Price of Media Content per Gbit/cap of information P(B)

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• Deepening:–Greater “Richness” of content

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• Richness means a greater sensory impact of media

• More bits/second

• If we look at the history of media for centuries, it is a history of continuous decline in the price per bits delivered to the user.

• So the user keeps consuming more and more bits because they become more affordable

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• And the number of seconds available for media consumption does not increase by much – there are only so many hours one can spend on media

• Therefore, the cheaper bits mean that more of them will be consumed per second – more bit per second

• And this means richer media.

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Bit Richness of Different Media per Secon’

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• Thus, the consumption of bits per time unit of media use has risen, by this calculation, by a 5.38% compound annual growth rate. This relationship is confirmed by the directly measured empirical trend, as shown in Graph 4 which exhibits a compound growth rate of 8%.

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Next Generation TV• 4K and 8K resolution

• 3D

• 2-way interactivity

• Multi-lateral interactivity

• Person to computer interactivity

• Personalization

• Multi-platform

• Asynchronous

• Immersion111

Flat Screens �Big Screens � Greater Requirement for Sharpness of Pix

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3D-TV

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Person-to person interactivity: Interactive Games

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Person-to-Computer Video Interactivity

Google’s “Project Glass” 2012

• Person-Computer Video Interaction

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Immersion Technology:Avatars and Virtual Worlds

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•Put these together and you can have “immersion.”

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• In Gladiator, Russell Crowe’s face was digitally superimposed on others’ bodies.

http://ffmedia.ign.com/filmforce/image/article/569/569303/gladiator_crowe_tiger_1101791020-000.jpg

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• If they can use Crowe’s face, why not yours?

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• Put all of these elements together

• This enables TV as an immersive, participatory, personalized, experience

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Participatory Experience – Film

122http://www.collider.com/uploads/imageGallery/Three_Hundred_300/300_movie_image_s.jpg

Participatory Sports – Experience

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Content Model: Adult Applications

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D. Content Model: Interactive and Immersive Marketing

Test Drive Car

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F. Content Model: Travelogue

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• To produce such content is difficult.

• It requires creativity, many programmers, lots of alpha and beta testing, and many new versions

• There are basically two models to create it. 127127

• One model: the community model, in which modules of media creation and play modules will be created by decentralized peers, collaborating loosely with each other.

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• But for Premium content there will complex, large suppliers

• a richer content means a more expensive content. This is a continuation of trends.

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• Terminator 2 (1992): $2.5 computer animators

• Terminator 3, $20 million computer graphics.

http://us.movies

1.yimg.co

m/movies.yahoo.co

m/images/

hv/allposters/60/180

0022060p

.jpg

130130

• In 1977 the credits for the original Star Wars listed 143 technicians;

• in 2003 the CG sequel, Attack of the Clones, listed 572 technicians.

• Avatar: over 800 computer graphic artists, $50 million spent on special effects.

131131

• Such expensive content exhibits strong economies of scale on the content production side, and network externalities on the demand side.

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• Both favor content providers with –big budgets

–can diversify risk

–can distribute over other platforms

–Can distribute globally

–With ability to coordinate specialized inputs

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• Now obviously not all of video will be like that.

• Linear will be around, but will be shrinking

• Immersive content will be the frontier of technical and cultural creativity

• There will be a lot of individualization that is automatic.

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• And this new TV will have lots of new and old problems.

• Privacy. Child protection. National culture. Access.

• But perhaps the most important new or newish issue is interoperability x

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Issue: Interoperability

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• There are numerous interoperation and coordination issues in such a system

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• An interoperability is required of content types, of users, of devices, of networks, of prioritization of traffic or software, of operating systems, of payment systems, of IPRs

• All of these are necessary in multi-player, multi-lateral tv

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Take for example 3D-TV

• 3D video requires coordination– producers, filmmakers, tv networks, tv sets.

• This has been quite a challenge already.

• If you don’t get it right, everybody gets a headache and never comes back.

• Now add an interactive dimension to it

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• In the absence of clear interoperation principles, these things will emerge inside of end-to-end integrator firms. Like apple

• Create certainty and confidence.

• But will easily lead to end to end control, even into the production side

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Google Cloud

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Netflix Cloud

http://www.afterdawn.com/news/article.cfm/2009/10/23/netflix_watch_instantly_is_going_international_in_2010142

The NBC (Comcast)—Fox (News Corp.)—ABC (Disney) Cloud

http://www.jeffooi.com/2007Q3/hulu.gif

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The BBC Cloud

Patalong, Frank (2007). BBC to Broadcast via Youtube. Retrieved from: http://www.spiegel.de/international/0,1518,469586,00.html

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Next Generation TV: “Cloud-TV”

• The TV system as “a cloud of clouds”

145Eli M. Noam, Production

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• The structure of media firms will be affected

• What will be emerging is a two-tier system of integrator firms and specialist firms

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The Future Structure of Media Industries• 1. specialized providers of specialized media modules

• 2. Integrator firms147147

• The major firms then are mainly coordinators, integrators of the specialist firms, and the branders of the final products. This will be the organizational model for media firms of the future.

Eli M. Noam, Production

148148

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Which firms might be such integrators?

• Multiple skills hard to assemble and manage

• Of today’s media giants, which might have many of these skills?–Disney? Viacom? TW? GE? Bertelsmann?

Vivendi? Sony? Verizon? DT? BBC? Google?

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Integrator Expertise Required in

• CE• Distrib N/Ws ( telecom, cable, sat,

BB)• Content prod and selection• Marketing• Portals and e-commerce• Payment systems

150150

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• So to conclude, the future Generation of TV media will not be just more of the same TV, but also a very different system of TV

• And that system will be tech-intensive

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• They will have high scale economies

• And they will probably be regulated much more like telecom companies than like traditional media or tv companies.

• Regulations like access, non-discrimination, univerality, tax, plus new tasks like assuring IPRs, child protection, consumer protection, etc.

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• So this will affect media structure in very fundamnetal ways

• It will affect politics

• It will affect culture

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Our research has already shown interrelations

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The Relation of Politics

andMedia

Concentration156

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R² = 0,7272

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vern

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t E

ffec

tive

nes

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HHI (TV broadcasting)

TV Concentration and Government

Effectiveness

Bad

Good

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R² = 0,496

6

6,5

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7,5

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8,5

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9,5

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Dem

ocr

acy

Ind

ex

HHI (TV broadcasting)

TV Concentration and Democracy

Bad

Good

158

R2 = 0.4754

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

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ISP HHI

Fre

edo

m In

dex

ISP Concentration and Freedom Index

Bad

Good

159

R² = 0,7437

0

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Fre

edo

m H

ou

se In

dex

HHI (TV broadcasting)

TV Concentration and Freedom

Bad

Good

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R² = 0,6649

0

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0 1000 2000 3000 4000 5000 6000 7000 8000 9000

Reg

ula

tory

Qu

alit

y

HHI (TV broadcasting)

TV Concentration and Regulatory Quality

Bad

Good

161

R² = 0,6625

0

1

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0 1000 2000 3000 4000 5000 6000 7000 8000 9000

Co

rru

pti

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exHHI (TV broadcasting)

TV Concentration and Control of

Corruption

Bad

Good

162

R² = 0,4819

0

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Hap

py

Pla

net

Ind

ex

HHI (TV broadcasting)

TV Concentration and Happiness

Bad

Good

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• And the problem is, that the underlying economics result in equilibria which we do not like

• And these fundamental economics are quite powerful, and show themselves globally, so they are not just due to some particularly greedy empire builder, or a pliant and complacent regulator, or a legally corrupt legislature.

165

• And what’s more, this will get worse, inevitably.

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• Whatever we do, we should think about it soon, before it is too late.

• Before the realities on the ground have become too entrenched.

• So we have started at Columbia to design some principles for the next generation of TV, for that Cloud TV.

• And we invite all of you to join us.

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Thank you!End of Talk

noam@columbia.edu

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