Mar 10, 2014

Consumers and shareholders come last in media ownership reform

Consumers and shareholders miss out whenever governments start talking about allowing more media ownership changes, write Bernard Keane and Glenn Dyer.

Beware of communications ministers prognosticating about the media. Here's Malcolm Turnbull yesterday:
"Why in an age when the internet has become the super platform which everyone has access ... why do we need to have platform specific ownership rules dealing with newspapers and radio and television? One of the big differences between my approach to this and Stephen Conroy's is that Conroy and the Labor Party saw the arrival of the internet as an opportunity for more regulation and less freedom in the media. My view is the arrival of the internet, and the additional diversity and avenues for competition that it brings, really says we should have less regulation and more freedom."
Turnbull’s remarks were nearly exactly 14 years since his predecessor as Coalition communications minister, Richard Alston, also declared the internet was a good reason to dump media ownership laws. Alston had a couple of goes at trying to remove media ownership laws. In 2002 he argued:
"It is this new media reality that drove the recent AOL/Time Warner merger and is resulting in companies such as Bell Canada and CanWest expanding across traditional media markets. It is the primary rationale behind the proposed Foxtel/Optus pay TV arrangement, with the participants recognising the importance of offering consumers a wider array of content choices across various platforms. It has also led the ABC to pursue its One ABC strategy, which seeks to adapt and exploit content across mediums, including through the provision of digital multichannels on pay TV."
History, alas, has not been kind to Alston’s arguments. AOL/Time Warner is now taught in economics and business administration classes as one of the worst mergers ever. CanWest, which used to own a controlling stake in Ten despite the old prohibition on foreign ownership, went bankrupt in 2009, not long after it flogged its shares. The Foxtel-Optus merger delivered a monopoly in metropolitan markets and paved the way for the Foxtel pay TV monopoly we now have. And the ABC wasn’t "led" to its One ABC strategy by any "new media reality" it came about in response to Alston and John Howard cutting its budget by 10%. By the time Alston was writing those words, then-ABC boss Jonathan Shier had already dumped much of the One ABC structure and moved on. Turnbull’s remarks about welcoming the internet with less regulation and more freedom are just as silly. Let's nail those for the garbage they are right now. At the moment, in Turnbull’s very portfolio, his parliamentary secretary, Paul Fletcher, is working to establish an internet censorship scheme that has infuriated large social media companies (smaller, more recent arrivals that middle-aged bureaucrats and politicians aren’t aware of, like Snapchat, aren’t included). And Attorney-General George Brandis has announced he is considering implementing the copyright cartel’s plan for three-strikes legislation or some other mechanism to force internet service providers to spy on and block users file sharing. Moreover, the Coalition has form in internet regulation; it was the Howard government that banned online gambling, an absurd and meaningless effort at prohibition that even Turnbull's department wants to dump, and it was the Howard government that banned online discussion of euthanasia. And if you think that’s a dead letter, ask Dr Philip Nitschke who was harassed and had information stolen by Customs while leaving the country in January. So while Turnbull points to the internet and declares "let freedom reign", he is part of a co-ordinated effort to impose more regulation on the internet, partly designed to stop consumers using it to thwart the will of the biggest old media companies, some of which are controlled by a certain "demented plutocrat". But for governments, consumers are just eyeballs to be shunted around between old media companies without any reference to what consumers might want. On the hierarchy of political interests, the benefits to consumers of, for example, additional competition has always come a distant -- very distant -- second to the interests of media proprietors.
"The most likely outcome of a new round of mergers will be deals that pay much money for weak assets ..."
And so too, as it turns out, have the interests of media company shareholders. You don't even have to go back to the media mergers of the 1980s to see that media mergers result in lakes of red ink. A distinguishing feature of the past few years in the Australian media has been billions of dollars in losses, write-downs and impairments in the wake of the last round of media law changes by Alston's successor, Helen Coonan. A rough count shows that the losses from poor acquisitions, weak trading, write-downs, staff sackings and other measure has topped the $11 billion mark in the past six years -- hardly the stuff to justify the current enthusiasm for another round of media dealings. The most notorious case was Nine, which James Packer offloaded to foreign private equity outfit CVC even before Coonan's changes had received royal assent. Nine spent years close to the edge because CVC paid too much and had too much debt, and it has only just now returned to public listing. The losses from these deals and then Nine's struggles to remain afloat top the $US2.5 billion mark. Kerry Stokes’ key media company, Seven West Media -- created in early 2011 via the merging of Seven and West Australian Newspapers -- made Stokes considerably poorer as the merged company's share price has collapsed. The company’s losses topped the $280 million mark in 2012-13, as it took the axe to the value of its magazine titles. APN's losses have also topped half a billion dollars, and Southern Cross Media lost more than $100 million on an unsuccessful US newspaper adventure under its previous owners, Macquarie Media. The Ten Network has wasted more than half a billion in new capital in the past three years, including a $285 million loss announced in 2013 for the previous year as asset values were slashed. In the same period, Fairfax has also lost close to $3 billion in write-downs and asset value downgrades, and News Corp/News Ltd has lost a similar amount, if nor more. Bauer, the German media group, wrote down the value of its reported $500 million purchase of ACP from Nine by more than $90 million. But sharemarket investors have forgotten all that damage. Why else would the shares of News Corp suddenly surge from just over $17 a month ago to $19.68 last Friday? And the rise in Fairfax's share price is also being driven by the same silly belief in the positive power of media mergers in the media -- ignoring the recent history of media red ink. The most likely outcome of a new round of mergers will be deals that pay much money for weak assets -- and when the dust settles, more losses would have to be acknowledged to the market because they were overvalued. The same factors eating away at the business plans of analogue media companies -- the rise of the internet, online ads, mobile media, different forms of TV delivery and rising costs for content -- are all still there and won't go away. Meanwhile, consumers will continue to find other ways to access the content that they want. And more and more of their money will go to Google, Microsoft, Samsung and Apple and Netflix (even if it isn’t officially operating in Australia) and ISPs and the VPNs that allow them to evade the censorship big media companies impose and get governments to impose at their behest.

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12 thoughts on “Consumers and shareholders come last in media ownership reform

  1. klewso

    Charlie’s brother? Murdoch’s got his very own “Malcolm McCarthy dummy”?

  2. The Pav

    Since , if Turnbull has his way, we probably won’t have an effective internet I find it hard to take his ruminations seriously

  3. paddy

    Turnbull’s certainly tying himself in knots.
    Between no NBN and “the Internet is the super platform”, he should probably arrange another appearance on qanda to explain himself.

  4. drmick

    Paddy; When he was cornered about local content disappearing in an interview this morning the minister for misinformation and disconnection nearly told the truth, caught himself, and bullshat and moved on.
    Destroy the NBN`s effective selling point, (sped), then sell the NBN as a vehicle for change. Its the magic pudding NBN now.
    He then spent more time explaining that Murdoch wasn’t the demented plutocrat that he described last week, He was actually talking about ANOTHER demented plutocrat. The smell emanating from the radio car was of the large bovine type and there was plenty of it.

  5. Daly

    Part of the IPA and Murdoch agenda for this government?
    Makes no sense but neither does most of the rest of their thought bubbles or decisions. Just gravy for mates.

  6. Jimmyhaz

    Reading through the Coalition’s endless piles of bullsh*t is starting to leave a very bad taste in my mouth.

  7. zut alors

    That’s rich, Malcolm Turnbull spouting off about the internet ‘super platform’
    considering he’s determined to reduce the NBN to the speed of a startled slug (it being, currently, merely that of a slug).

    Nor do I buy Turnbull’s explanation of demented plutocrats who run papers at a loss. He actually meant Hearst? Hearst ran newspapers at a profit after initially buying flagging titles cheaply & then boosting circulation. Sure, it was his hobby & not the principal source of his wealth, but his papers still made money. Unlike ‘The Australian’.

  8. klewso

    It makes complete sense:- knowledge is power.
    Control intelligence, manage information, edit it to the message you’re selling (which party is “most fit to govern”) and you can manage enough (“5(?)”% – the majority of the swinging vote) of the electorate’s perception to deliver government that suits you and your interests.
    It doesn’t always work, but how many Labor governments have we had in the last twenty one years? Two and a half (even Murdoch couldn’t help Hewson, try as he did)?
    [Little Joey Goebbels did it.
    Pravda did it.
    Kim Jong might be ill, but do it.
    Let’s do it,
    Let’s fall in line.]

  9. AR

    Bullturd has clearly had a bollocking from the boss about describing him so accurately. How many elections has Hearst stolen in the last 20 years?
    It was truly hilarious listening to him with Fran this morning – one could “see” the smiles of both their faces as he went traipsing through the daisies, or perhaps asphodel?

  10. drmick

    Interviewing this scum must be horrific for honest journalists. They both know someone stinks like they have stacked their daks; they both know who it is; but no one confesses and no one owns up; and we are expected to swallow it. We keep looking for information with the least amount of ka ka to swallow and the nicest smell.

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