For Better or Worse, More Mergers Likely

Tuesday’s deal between Viacom Inc. and CBS Corp. marks a fitting close to what may well be looked back on as the decade of the media merger, a period in which about $130 billion in deals realigned an entire industry.

Although the 1990s saw massive consolidations in such industries as autos, telecommunications and banking, no business year after year has experienced such a steady stream of major mergers as entertainment and media. The result has consolidated enormous global power into the hands of an ever-shrinking number of companies, raising fears that consumers face a more homogenized future when it comes to choices available to them on television, radio and at the local multiplex.

The end of the decade has left four gigantic players standing in the forms of Time Warner Inc., Viacom Inc., Walt Disney Co. and News Corp., and a host of smaller, but significant, companies such as NBC, Universal Studios Inc. and Sony Corp. of America looking hard at their own futures and needs for strategic partners.

Credit a looser regulatory environment, pressures to combine the making of content with distribution operations such as TV and cable and the increasing globalization of entertainment that has made being huge a prerequisite.

“We’ve been bludgeoned with one merger after another in this field,” said UC San Diego communications professor Dan Schiller. “This group is cementing its control over production and distribution globally. What we need to have is a full-scale inquiry into whether this kind of concentration serves the national interest.”

Entertainment analyst Jeffrey Logsdon of The Seidler Co. says the continuing industry consolidation also results in “shelf space being taken out of the marketplace,” making it more difficult for smaller independent companies to compete.

Media critics already complain that powerful executives such as News Corp.’s Rupert Murdoch or Disney’s Michael Eisner have the ability to exert their will on programming and news, or can more easily be subjected to pressures from interest groups. And critics also complain that with fewer companies, programming looks more and more the same, such as the current obsession in television with programs featuring young white teens.

Just 10 days into the 1990s, the biggest media merger to date closed when Warner Communications Inc. formally merged with Time Inc. for what then was an unfathomable $14.1 billion. Now, that merger is a distant memory and its price seems like small potatoes.

Indeed, keeping track of the flurry of multibillion-dollar deals is a chore in itself: Walt Disney Co. buying Capital Cities/ABC Inc., Time Warner buying Turner Broadcasting System, Westinghouse Corp. buying CBS, Viacom buying Paramount Communications and Blockbuster Inc., Seagram buying Universal Studios Inc. and then music giant PolyGram NV.

And it’s unlikely to stop. The Viacom-CBS deal now puts pressure on General Electric Co.’s NBC to link up with a major entertainment giant lacking a network--Sony Corp. or Universal Studios Inc. being prime candidates. Yet another possibility is NBC linking up with behemoth Time Warner, finally sating Time Warner Vice Chairman Ted Turner’s yearning to own a major broadcast network.

And industry insiders believe that the Viacom-CBS deal puts particular pressure on USA Networks chief Barry Diller, whose position is essentially dwarfed in the new landscape. Diller has longed to own a major network and once had a deal to buy CBS that unraveled. He also tried unsuccessfully to buy Paramount before Viacom snatched it away.

“I think Barry faces a formidable landscape in New York with this giant now sitting there and it may send him back to NBC,” said one industry veteran, adding that Diller would have to do such a deal hand in hand with Seagram Co. Chief Edgar Bronfman Jr., who owns about 45% of USA Networks.

Executives at competing companies acknowledge that the announcement of the Viacom-CBS deal caused them to pause.

“Your first reaction is envy and your second is anxiety,” said Sony Corp. of America Chairman Howard Stringer, himself a former CBS president. Stringer adds that while “your impulse to make a phone call is very strong, it’s best to wait for the temperature to drop” before making any major moves.

Fittingly, Tuesday’s deal combines two companies that were once united but split apart in an era of heavy regulation in the early 1970s and are now being reunited in a less regulated era nearly three decades later.

Viacom, formed by CBS to comply with regulations barring TV networks from owning cable TV systems and syndicating programs, was spun off to CBS shareholders in 1971.

Now, those and other regulations have been cast aside, sparking many of the mergers in the 1990s such as Disney buying the ABC network. Indeed, the acquisition by Viacom, which owns such assets as Paramount Pictures, MTV and Nickelodeon, grew out of discussions sparked when regulations were relaxed allowing companies to own more than one TV station in a market.

“It’s like putting all the pieces back together of what promised to be a really greatly formed media company,” Stringer said of CBS combining with Viacom.

Analyst Logsdon notes that the appeal of vertical integration--in which companies both produce content such as movies and TV shows and distribute them as well through their own TV networks, cable channels, satellite systems and other methods--is that it provides giant media companies with “multiple revenue streams, or cash registers, to insulate themselves from the frivolity of the theatrical film business.”

Viacom Entertainment Chairman Jonathan Dolgen said that the deal will serve as “a wake-up call” to the industry to deal with such issues as whether companies should own more than one network and consolidate operations further.

Still another top industry executive said the deal particularly leaves Sony--which owns the Columbia Pictures studio and produces TV shows such as “Wheel of Fortune” and “Party of Five”--as “totally naked” because it has not linked up with a major network and has not developed the kind of major cable networks its competitors have.

But Stringer argues that for a company like Sony, “the urge to look into the future is more palpable than the urge to look into the past.”

What that means, Stringer explains, is that Sony is basically more interested in pursuing opportunities in the new world of the Internet and digital platforms than it is in traditional media where the company would have to give up control.

“We’ve had deals break down over control,” he says. While Stringer wouldn’t specify or elaborate, it’s an open secret that in recent years Sony has had merger discussions with both NBC and CBS but nothing ever came of them.

That doesn’t mean, however, that Sony’s phone hasn’t already begun to ring, “from a lot of visitors,” says Stringer, who assured that NBC wasn’t among them.

Stringer says that Sony views content “in a different way” than other media companies because the Tokyo-based electronics giant is a manufacturer of digital devices.

“Sony sees content as something it can exploit in the digital platform, not in traditional media,” he noted. “We don’t think bigger is necessarily best for Sony.”

But Logsdon and other industry observers believe that the Viacom-CBS deal puts added pressure on NBC, the only nonintegrated network left, to get into the content business, as well as on media companies like Sony and Universal to further expand their operations.

“It’s musical chairs and you keep taking away a chair, so soon there will be nowhere to sit,” said the analyst.