Why Consumers Balk At Megamedia Mergers
THERE was a festive air to the announcement of this summer's third megamedia merger, the marriage between Time Warner and Turner Broadcasting. Ted Turner joked about wanting to be "big" for a change. His friend and new boss, Time Warner chief executive Gerald Levin, called the merger a "sublime" match that will generate stunning returns. Mr. Levin even referred to the five weeks of sometimes tumultuous talks as "fun."
But consumer groups and competitors are finding little to smile about.
The $7.5 billion stock swap that ensures Time Warner will remain the world's largest media company is meeting with the most immediate and strident resistance of any of the proposed mergers so far, signaling a growing unease with the industry's recent spate of empire building.
"This is very dangerous," says Jeffrey Chester of the Center for Media Education, a think tank in Washington.
Consumer groups worry that the marriage of powerful programming companies to vast distribution networks will cause cable rates to soar, entertainment options to shrink, and TV news to slide into sensationalist mediocrity. They see saturation coverage of the O.J. Simpson trial as the harbinger of things to come.
"The already cynical readers and viewers who increasingly think that news is a rigged business will have more and more of an incentive to think that's the case," says Steve Rosenbaum, president of Broadcast News Networks, an independent news production company.
The merger will, among other things, bring CNN together with Time Magazine, HBO with the Cartoon Network, and Sports Illustrated with the Atlanta Braves.
A poll released last week by the Consumer Federation of America (CFA) found that 55 percent of Americans believe the growing media concentrations are "bad," 50 percent think such telecommunications mergers will increase prices, and 54 percent want the government to make it harder for such mergers to take place.
"I think what the poll shows is there's a strong expression of concern from the public," says Mr. Chester. "They think it's going to hurt their pocketbooks and it's going to hurt diversity." Chester and Consumers Union are calling for a federal review of the deal.
Time Warner's competitors aren't much happier. They now see how this "dream deal" could put them at a disadvantage. Even as the deal was announced Friday, one of Time Warner's own partners sued to block it.
The phone company, US West, owns a stake in Time Warner's Warner Brothers movie studios. The company claimed the merger would give an advantage to the two movie studios that Turner will bring into the company, because they'll both be wholly owned by Time Warner.
Two cable-system operators with seats on the Turner board also declined to vote on the merger. Comcast Corporation and Continental Cablevision Inc. said in a joint statement they "are deeply troubled ... particularly by the preferential treatment afforded to one shareholder to the detriment of all the others."
Analysts say the companies were referring to Tele-Communications Inc. (TCI), the nation's largest cable-system operator, which owns 21 percent of Turner and had veto power over any deal. To win approval of TCI chief executive John Malone, Turner negotiated separate long-term extensions on its contracts to carry all Turner's cable networks.
Neither Comcast nor Continental were afforded such concessions, and they're concerned their rates may go up as a result. Turner and Levin brushed off their partners' and competitors' concerns as having "no merit."
But many media analysts are withholding judgment, looking to the only other major media merger of print and broadcasting companies that has so far proven difficult and unwieldy: the one that created Time Warner.