Will the Real Giant Please Stand Up?

This article first appeared in the Philadelphia Inquirer, January 16, 2000.

Time Warner's merger with America Online seems like yet another large media merger. Inevitably, the phrase "media giant" comes into play. As a sample, "Consumers do not want to be beholden to a giant media-Internet dictatorship, even if it promises to be a benevolent one," was proffered by a coalition of groups such as Consumers Union. But this is a merger with a difference. It shows the amazing potential for unregulated markets to shake up the status quo.

In the early nineties, AOL was not one of the big players in the mediamarket. Could anyone have predicted that AOL could negotiate a merger ofequals with Time Warner less than a decade later? AOL was in the rightplace at the right time--not in the stifled telephone business or therate-regulated cable business. In unregulated Internet business, where noone knows who will come from behind, and where regulatory gamesmanshipcannot be deployed to delay competition.

Suddenly, AOL can challenge the giants. Time Warner's merger with AmericaOnline will create a media company worth over $350 billion. That is a lotof capital to invest in new networks and new communications products. Itgives AOL the distribution outlets it needs to compete with cable broadbandnetworks. Time Warner will get an injection of fresh ideas andInternet-speed management.

Complex and powerful forces of change begin to operate, transformingexpectations of regulators and business alike almost overnight. Microsoft'sdominance is suddenly threatened. The regulatory debate aboutbroadband--whether regulators should mandate "open access" to existingbroadband networks--is transformed.

Will "bigness" inevitably lead media outlets to lose their independence?Every media merger is greeted with the expectations that editorial integritywill soon crumble away entirely. Professor Robert McChesney of theUniversity of Illinois argues that "good journalism is bad business and badjournalism is, regrettably, at times good business." This may be true forcoverage of some individual stories, but media companies that abandon theirintegrity once too often find themselves stung by the court of publicopinion. Witness CBS's prompt apology for their blunder in altering the NewYear's scene in Times Square to remove an NBC logo.

If the media business values their reputation so little that consumer'sdesire for reliable news cannot restrain its decline at all, one wouldthink that the media would have utterly declined long ago. Big mediacompanies are not a new thing.

And--there's still the Internet. The business model that draws us to theNet is freedom of choice and interactivity; companies like AOL will fail ifthey abandon that model. Web companies simply have not adopted models thatrigorously control content. As Professor Richard Epstein aptly put it, "theminnows still swim with the whales."

Media independence is a real issue--but it is more complex than the size ofthe company. Media companies, big or small, have always faced conflicts ofinterest. One major threat to integrity stems from the need to stay on goodterms with government. Imagine you are a journalist who regularly coversthe White House. You cannot afford to be too critical and anger yoursources there--or you will be cut off from first-hand coverage of any majorstory from that outlet. So far, this more subtle threat has been overlookedby watchdog groups.

Instead of having the Department of Justice and the FCC scrutinize AOL/TimeWarner or other private-sector mergers, lets have the high-tech companiesscrutinize the Department of Justice and the Federal CommunicationsComission. Imagine the conversation between technological tycoons about theantitrust review process. "It's a bottleneck," they might say. "Weourselves cannot reliably predict where the market will be in fiveyears--how could they know?" "How long is the FCC going to take withthis--are we going to lose another year?" "We'd better not argue that theirother rulemaking violates the free speech rights of our journalists--theymight withhold our merger approval."

Despite the dozens of hardworking experts employed at the FCC and DOJ andthe best of intentions, those institutions act just like--monopolists (or atleast the way monopolists are supposed to act on television). They're slow,over-confident, and the only change seems to be that they get bigger everyyear. If you want to avoid dealing with them, you have to emigrate to outerspace--you don't just turn off the TV. If you need an ominous looming giantto worry about, how about the federal government?