```

[Senate Hearing 106-974]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 106-974

 
 THE VIACOM/CBS MERGER: MEDIA COMPETITION AND CONSOLIDATION IN THE NEW 
                               MILLENNIUM

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                    BUSINESS RIGHTS, AND COMPETITION

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                                   on

 MEDIA COMPETITION AND CONSOLIDATION ISSUES, FOCUSING ON THE PROPOSED 
                      ACQUISITION OF CBS BY VIACOM

                               __________

                            OCTOBER 28, 1999

                               __________

                          Serial No. J-106-57

                               __________

         Printed for the use of the Committee on the Judiciary

71-576 CC

2001
?

                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman

STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona                     HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire

             Manus Cooney, Chief Counsel and Staff Director

                 Bruce A. Cohen, Minority Chief Counsel

                                 ______

      Subcommittee on Antitrust, Business Rights, and Competition

                      MIKE DeWINE, Ohio, Chairman

ORRIN G. HATCH, Utah                 HERBERT KOHL, Wisconsin
ARLEN SPECTER, Pennsylvania          ROBERT G. TORRICELLI, New Jersey
STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont

             Pete Levitas, Chief Counsel and Staff Director

        Jon Leibowitz, Minority Chief Counsel and Staff Director

                                  (ii)
                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page
DeWine, Hon. Mike, a U.S. Senator from the State of Ohio.........     1
Wellstone, Hon. Paul, a U.S. Senator from the State of Minnesota.     4
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.    36

                    CHRONOLOGICAL LIST OF WITNESSES

Panel consisting of Sumner M. Redstone, chairman and chief 
  executive officer, Viacom, Inc., New York, NY; Mel Karmazin, 
  president and chief executive officer, CBS Corporation, New 
  York, NY; Andrew Jay Schwartzman, executive director, Media 
  Access Project, Washington, DC; Lawrence K. Grossman, former 
  president, NBC News, former president, PBS, New York, NY; and 
  David Waterman, associate professor, Department of 
  Telecommunications, Indiana University, Bloomington, IN........     6

                ALPHABETICAL LIST AND MATERIAL SUBMITTED

Grossman, Lawrence K.: Testimony.................................    20
Karmazin, Mel:
    Testimony....................................................     8
    Prepared statement...........................................    10
Redstone, Sumner M.:
    Testimony....................................................     6
    Prepared statement...........................................    10
Schwartzman, Andrew Jay:
    Testimony....................................................    16
    Prepared statement...........................................    18
Waterman, David:
    Testimony....................................................    22
    Prepared statement...........................................    24

 THE VIACOM/CBS MERGER: MEDIA COMPETITION AND CONSOLIDATION IN THE NEW 
                               MILLENNIUM

                              ----------                              

                       THURSDAY, OCTOBER 28, 1999

                           U.S. Senate,    
    Subcommittee on Antitrust, Business Rights,    
                                       and Competition,    
                                Committee on the Judiciary,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 1:32 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Mike DeWine 
(chairman of the subcommittee) presiding.
    Also present: Senator Kohl.

OPENING STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM THE 
                         STATE OF OHIO

    Senator DeWine. Good afternoon, and welcome to the Senate 
Antitrust Subcommittee hearing on the Viacom/CBS Merger: Media 
Competition and Consolidation in the New Millennium.
    Since this merger was first announced in early September, 
it has been the object of a great deal of discussion. Some of 
this scrutiny is due to the fact that we are immersed in a 
merger wave that has been going on for several years. This 
proposed deal is another sign that the merger wave is certainly 
continuing.
    Some people are intrigued by the idea that Viacom, which 
was spun off as a small unit of CBS some 30-odd years ago, has 
grown up and come back to buy its parent company. Of course, 
any time a merger is valued at $40 billion, it will be closely 
examined.
    But beyond any of these issues is a sense of concern 
generated by the ongoing consolidation that we are seeing in a 
variety of media markets. In radio, in newspapers, and now in 
television, we are beginning to see the trend towards 
consolidation that has swept through so many other industries 
over the last few years. While many of these mergers have been 
procompetitive and helped provide consumers with a better 
product at a better price. We need to be especially careful 
when we are dealing with companies that provide information, 
because the free flow of information is crucial for a democracy 
to function. We must--we must--have competition in the 
marketplace of ideas, and excessive concentration will hinder 
that competition.
    For this reason, many people have reacted with concern to 
the proposed merger. The Viacom/CBS deal will create a company 
with very significant holdings in cable, broadcast television, 
movie production, movie rental, radio, publishing, and 
billboard advertising, and a growing presence on the Internet, 
as well. The idea of another media conglomerate with holdings 
in so many related market segments seems somehow a little 
scary.
    Mr. Redstone's statements about the merger have not done 
very much to reassure people. Let me quote from one of the 
joint Viacom/CBS press releases on this merger. Mr. Redstone 
said, ``Our union will be king, not just in content, but in its 
distribution, marketing, and packaging. We will be global 
leaders in every facet of the media and entertainment 
industry.'' While this no doubt is a reassuring and comforting 
vision to the CBS and Viacom shareholders, it is understandable 
that some others have had reservations about creating such a 
dominant media conglomerate.
    Frankly and candidly, I myself do have some concerns about 
the proposed merger. However, good, sensible competition policy 
is certainly not made on the basis of vague feelings nor 
general concerns, and this subcommittee will make no judgment 
on this deal without a close examination. This proposed merger 
must be carefully scrutinized in order to determine whether it 
is anticompetitive or whether it is procompetitive and whether 
or not it unduly hinders free trade in the so-called 
marketplace of ideas.
    We need to examine closely whether it creates competitive 
problems in the advertising market and whether it raises entry 
barriers for prospective competitors. We need to examine what 
impact Federal Communications Commission regulations will have 
on the proposed merger. We need to examine whether it will 
hinder coverage of the news, limit editorial freedom, or 
decrease the range of available programming. And in each of 
these separate areas, we need to determine what procompetitive 
benefits are generated by the proposed merger and balance these 
against any concerns that we may have. Finally, all these 
judgments must be made in the context of a rapidly changing 
marketplace, where new programming is being developed 
constantly and the Internet is rapidly expanding consumer 
choice.
    All of these factors require careful evaluation, and as I 
have already mentioned, the complexity of the analysis is 
increased because the proposed merger is taking place in a very 
important and very dynamic industry. We hope that our hearing 
today can help shed some light on all these very interesting 
and important issues, and I look forward to the testimony of 
our witnesses.
    Let me now turn to the ranking member of our subcommittee, 
Senator Kohl.
    Senator Kohl. Thank you, Mr. Chairman. We are here today to 
examine the Viacom/CBS merger, a deal which raises many 
important questions about the future of the media and the 
entertainment industry in America. In our subcommittee, we have 
always taken the position that a media merger is different 
from, say, a merger between telephone companies, oil companies, 
or cereal manufacturers. When we are examining media mergers, 
we need to take special care to ensure that we protect the free 
flow of information and ideas. My own sense is that the Viacom/
CBS deal creates more synergy than suspicion, but the next 
major media deal may not.
    Let me start by acknowledging the abilities of both Sumner 
Redstone and Mel Karmazin, two highly talented businessmen who 
have built Viacom and CBS into two of the most important media 
entertainment conglomerates existing today.
    But given your experience and your expertise, gentlemen, 
you must also recognize why some observers have serious 
concerns regarding your planned merger. CBS and Viacom are both 
media and entertainment giants, and combining your companies 
would create an enormous enterprise with involvement in 
virtually every aspect of the media and the entertainment 
business.
    Of course, we all recognize that size alone is not the 
issue, that big is not necessarily bad, and in the end, this 
merger appears likely to pass muster under the traditional 
antitrust tests, given the number of other competitors, these 
companies' market shares, and the absence of direct competition 
between Viacom and CBS in many markets. But some antitrust 
questions do remain. For example, will the combined company 
have so much advertising clout in some communities that it will 
hurt small local businesses that cannot afford to buy ad time? 
Or will it, along with other media conglomerates, be able to 
crowd out independently owned radio stations?
    These traditional antitrust tests, however, are not the 
last word in dealing with a media merger such as this one. In 
fact, no less an antitrust authority than you, Mr. Redstone, 
told our subcommittee in 1993 when you opposed TCI's plans to 
purchase Paramount, and I quote, ``TCI and its partners' market 
power is dangerous enough, but when coupled with the 
publishing, television, and motion picture production and other 
interests of Paramount, the dangers to fundamental first 
amendment principles are sobering.'' Mr. Redstone, that was 
then. Perhaps today you will have something else to say.
    Mr. Chairman, let me make just a couple more points. We 
have had so much media consolidation and cross-ownership in the 
last few years that we have created a sort of American media 
keiretsu. It is also reasonable to ask whether in today's 
bottom-line environment, hard-hitting, objective journalism 
could be sacrificed to gain ratings, audience share, and 
revenues.
    Now, I laughed, Mr. Redstone, when you responded to a CNN 
reporter, ``Do we own you yet?'' after she asked you a question 
at the press conference announcing your deal, but that joke, to 
be sure, does illuminate an important issue.
    Indeed, there may still be sufficient competitive 
alternatives in the media and entertainment industry so that 
this merger is approved, although I am not quite sure if 
America is ready for one company to own two major networks. 
Regardless, we should be careful to pay attention to its 
effects in the marketplace of ideas and not merely the 
marketplace of dollars, and we should consider during our 
hearing the question of, if not now, when, at what point future 
media consolidation might just become too dangerous. Your 
guidance today, gentlemen, will be helpful in shaping the media 
of tomorrow.
    Thank you, Mr. Chairman.
    Senator DeWine. Senator Kohl, thank you very much.
    We will turn to our first panel, the Honorable Paul 
Wellstone. Paul, thank you very much for joining us, and you 
may proceed.

STATEMENT OF HON. PAUL WELLSTONE, A U.S. SENATOR FROM THE STATE 
                          OF MINNESOTA

    Senator Wellstone. Thank you, Senator DeWine and Senator 
Kohl. First of all, I want to tell you that I very much 
appreciated hearing both of your remarks and I also appreciate 
this opportunity to testify before this subcommittee on an 
issue that deserves a much wider debate in the Congress and in 
the public.
    Mr. Chairman, I think the recent wave of mergers among 
media companies, including the proposed acquisition of CBS by 
Viacom, raises some very troubling questions for our system of 
representative democracy. These media mergers warrant the 
highest level of scrutiny by our antitrust agencies and by the 
Federal Communications Commission. They may also require 
Congress to consider a new legislative framework to address the 
growing problem of media concentration.
    Some of my colleagues may be aware of my concerns about 
increasing concentration in other sectors of the economy, 
especially in agriculture and finance. But of all the 
industries where concentration is now accelerating at such a 
rapid pace, it is really consolidation in the media and 
entertainment industries that should alarm us the most. We are 
talking about the very flow of information in a representative 
democracy.
    The media is not just any ordinary industry. It is the 
lifeblood of American democracy. We depend on the media for the 
free flow of information that enables citizens to participate 
in the democratic process. As James Madison wrote in 1822, ``A 
popular government without popular information or the means of 
acquiring it is but a prologue to a farce or a tragedy, or 
perhaps both.'' That is why freedom of the press is enshrined 
in our Constitution. No other industry enjoys that kind of 
protection.
    For our democracy to work, we depend on the media to do two 
things. We depend on them to provide citizens with access to a 
wide and diverse range of opinions, analyses, and perspectives, 
and we depend on the media to hold concentrated power, whether 
it is public or private power, accountable to the people. The 
greater the diversity of ownership and control, the better they 
will be able to perform those functions.
    Some have argued, Senator DeWine and Senator Kohl, that the 
recent round of consolidation in the media and entertainment 
industries, especially the trend toward vertical integration, 
will offer consumers a more diverse array of choices. But it is 
important to distinguish between outlets and content. It is a 
very important distinction. A proliferation of new media 
outlets does not guarantee any greater diversity of viewpoint. 
After all, one corporate conglomerate can still exercise 
control over the content of the media that reaches citizens 
through many different outlets. The safest and best way to 
ensure diversity of viewpoints is through diverse ownership.
    Mr. Chairman, I think most people in our country would be 
shocked at the degree of media concentration that has occurred 
in the last 15 years. When the classic, ``The Media Monopoly,'' 
was written in 1983, about 50 media conglomerates controlled 
more than half of all the broadcast media, newspapers, 
magazines, video, radio, music, publishing, and film in the 
country. In 1986, that number had shrunk from 50 to 29. By 
1993, it had shrunk to 20. Today, fewer than ten multinational 
media conglomerate, dominate most of the American mass media 
landscape. The range and scope of their holdings is astounding.
    I think this proposed merger is really part of a larger 
problem. Yes, this would be the largest media merger in 
history, and CBS/Viacom would be the second-largest media 
corporation in the world. But these two companies undoubtedly 
felt compelled to act by competitive pressures, namely the 
rapid vertical integration in the industry through a spate of 
high-profile mergers and acquisitions in recent years. By the 
same token, one problem with this merger is that it would 
increase pressure on other firms to do the same, accelerating 
the momentum toward further concentration in the industry.
    As the chairman of Sony commented on the merger, and I 
quote, ``After a deal like this, the urge to merge becomes 
feverish, and right now, temperatures are soaring all over the 
city.'' We need to concern ourselves not only with the effects 
of this merger, but also with the aftershocks that will be felt 
for years to come.
    These concerns about media concentration need to be 
addressed by both the FCC and our antitrust agencies. Congress 
has directed the FCC to uphold a ``public interest'' standard 
in approving media mergers, though that standard has been 
severely weakened in recent years. Last month, Chairman Kennard 
said in a speech, and I think this is what is at issue, 
``Broadcast ownership rules serve principles that we still 
cherish, principles like competition, localism, and a diversity 
of voices. We can and must do more to make sure that there are 
a multitude of voices and opinions on the airwaves.''
    These are admirable principles, yet they are difficult to 
reconcile with the chairman's statement on the CBS/Viacom deal, 
in which he said, ``The essential question will be, how does 
this merger accelerate delivery of digital age services to all 
consumers?'' The more important question is, when and why do 
the principles of competition, localism, and diversity lose out 
to other considerations, such as delivery of digital services 
to consumers?
    Clearly, something needs to be done. If our antitrust 
agencies and the FCC fail to address the problem of media 
concentration within their current legislative mandates, a 
legislative remedy may be necessary. One option would be, I 
would say to both my colleagues, to breathe new life into the 
FCC's public interest standard by giving presumptive weight to 
considerations of competition, localism, and diversity of 
viewpoint from independent sources. Another option would be to 
provide additional guidance for the application of our 
antitrust laws to media mergers, either through new legislation 
or through new enforcement guidelines.
    Undoubtedly, and I conclude this way with a sense of irony, 
such an effort would meet considerable resistance, not least 
from media corporations themselves. Progress in the area of 
antitrust has almost always come in response to public 
pressure. Yet, this is the quandary of democratic with a small 
``d'' I say to the chairman--media reform. Involvement of the 
public in this debate depends on coverage and attention by the 
major media. Unfortunately, the record to date has not been 
encouraging. There has been virtually no public awareness or 
public discussion of the rapid concentration of media that has 
occurred over the last 15 years.
    As Will Rogers used to say, ``Freedom of the press is great 
if you own a press.'' As fewer and fewer presses are 
concentrated in the hands of fewer and fewer people, we need to 
start asking ourselves how we can make that freedom meaningful 
for more people. But that is a debate we need to engage in with 
a larger audience. We can start by bringing attention to it in 
this Congress, and for that reason, I thank this subcommittee 
for holding this hearing.
    Senator DeWine. Senator, thank you very much for your 
testimony. Senator Wellstone, I think that the questions you 
raised are certainly going to be questions that we will be 
raising with the next panel. We appreciate your testimony very 
much.
    Let me invite our second panel to now proceed to come up, 
and as you are coming up, I will introduce you.
    From my left to right, Sumner Redstone is the chairman of 
the board and chief executive officer of Viacom, Inc., where he 
has served as chairman since 1987.
    Mel Karmazin became the president and chief executive 
officer of CBS Corporation in January 1999. He is also 
chairman, president, and CEO of Infinity Broadcasting.
    Andrew Jay Schwartzman is the president and CEO of Media 
Access Project, MAP. He has directed that organization since 
June 1978.
    Larry Grossman was the president of NBC News from 1984 to 
1988 prior to which he was president of PBS. He is a published 
author and writes a regular column for the Columbia Journalism 
Review.
    The final witness on the second panel is David Waterman, 
who is an associate professor of telecommunications at Indiana 
University and was previously a faculty member of the Annenberg 
School for Communication at the University of Southern 
California.
    We welcome all of you and we appreciate you being here. Mr. 
Redstone, we will start with you.

  PANEL CONSISTING OF SUMNER M. REDSTONE, CHAIRMAN AND CHIEF 
 EXECUTIVE OFFICER, VIACOM, INC., NEW YORK, NY; MEL KARMAZIN, 
  PRESIDENT AND CHIEF EXECUTIVE OFFICER, CBS CORPORATION, NEW 
  YORK, NY; ANDREW JAY SCHWARTZMAN, EXECUTIVE DIRECTOR, MEDIA 
 ACCESS PROJECT, WASHINGTON, DC; LAWRENCE K. GROSSMAN, FORMER 
 PRESIDENT, NBC NEWS, FORMER PRESIDENT, PBS, NEW YORK, NY; AND 
      DAVID WATERMAN, ASSOCIATE PROFESSOR, DEPARTMENT OF 
    TELECOMMUNICATIONS, INDIANA UNIVERSITY, BLOOMINGTON, IN

                STATEMENT OF SUMNER M. REDSTONE

    Mr. Redstone. Good afternoon, Mr. Chairman, Senator Kohl, 
and members of the subcommittee. I am, as you know, Sumner 
Redstone. I am Chairman and CEO of Viacom.
    In fact, as you heard, these are truly exciting times in 
the media industry and I want to thank you for the opportunity 
to appear before you to talk about the equally exciting merger 
of Viacom and CBS.
    Twelve years ago, I acquired a company called, I guess it 
was called Viacom then, whose core assets were a couple of 
cable networks that were just beginning to build their youth 
and teen audiences. Those networks, MTV and Nickelodeon, are 
now household names. Today, Viacom exports MTV and Nickelodeon 
in some 14 languages to more than 100 countries around the 
world. That first strategic acquisition started Viacom down the 
path of creating a diverse media company, one that serves a 
vast array of domestic and international audiences.
    The next step in fulfilling this strategic vision was the 
Paramount acquisition, when Viacom combined that company's 
movie studio and television program production and distribution 
with our cable networks. With the movie studio, we were able to 
expand Viacom's content for theater-goers. With the television 
programming production arm, we were able with our partner 
Chris-Craft to launch a new over-the-air broadcast network. 
UPN's ratings are but a fraction of those of the four 
established networks, and our experience in building a 
broadcast network from the ground admittedly has been very 
bumpy and very costly. We are proud, though, of this 
alternative voice in free over-the-air television, and in 
particular of the diversity which we have promoted.
    Viacom's merger with CBS will allow us to serve the full 
array of today's fragmented audiences even better, from the 
young viewers of Nickelodeon's ``Blue's Clues'' to the older 
viewers of CBS's ``Touched by an Angel.'' We see the combined 
assets of the new company as highly complimentary, and once 
blended, capable of achieving significant economies of scale, 
and all of this will, I assure you, be to the consumers' 
benefit.
    Undeniably, we are in the midst of an unparalleled 
technological revolution that is occurring on a global scale 
and promises to forever change the way entertainment and 
information options are chosen, delivered, and received. The 
world at the close of the century is much different from when I 
began in the media business more than 40 years ago. Single-
screen cinemas have given way to 25-screen megaplexes. The big 
three broadcast networks are now the big four, and in sum, 
where the big three used to have 90 percent of the prime time 
viewers, today, they have less than 50 percent. Cable 
television enjoys a success that few envisioned even 10 years 
ago. Satellite TV, which did not exist until a few years ago, 
provides some 300 channels directly to 12.3 million U.S. homes. 
And the Internet is now viewed as a viable alternative for 
accessing video and music.
    With respect to the effect of this new company and what it 
will be on competition in the United States, the short answer, 
and we can demonstrate it, is that it will do nothing but 
enhance it. The vast majority of our operations are 
complimentary. They do not overlap.
    For example, Viacom through Paramount is one of the leaders 
in theatrical motion picture production. CBS does not produce 
theatrical motion pictures. Viacom, through Blockbuster 
Entertainment, is in the video rental business. CBS is not. 
Viacom has five regional theme parks. CBS has none. Viacom's 
Simon and Schuster is a book publisher. CBS is not. And for its 
part, CBS operates a group of radio stations and owns a large 
outdoor advertising business. Viacom has no such operation. CBS 
is known for its sports and news programming. Viacom is known 
for its music and entertainment programming.
    Thus, Viacom and CBS clearly are not competitors intent 
upon cornering markets. Instead, they are two fundamentally 
different companies seeking to compliment their strengths. 
However, where limited overlap does exist, each of these 
markets has multiple, strong, healthy players that will ensure 
continued competitiveness. Moreover, as the media marketplaces 
keep fragmenting, the new Viacom will, in turn, have to compete 
more aggressively, which no doubt in the final analysis will 
benefit all consumers as we enter into the new millennium.
    Of course, before the new Viacom can explore the 
opportunities the combined entity will bring, the merger must 
await approval from both the Justice Department and the FCC. We 
expect a careful review. We look forward to working with both 
agencies. After their separate reviews, we believe that each 
will quickly conclude that the new Viacom will promote 
competition and, indeed, serve the public interest even better 
in the years ahead.
    By the way, I heard myself quoted before, so may I add a 
quote which comes from a major speech I gave on mergers at 
Harvard Law School, and I would like to read it, because I 
think it is relevant. ``A core requisite relating to the 
protection of free speech flows from the understanding that 
marketplaces enhance not just our pocketbooks, but also free 
discourse in ideas. The principle is that ideas, like products, 
compete for acceptance and the best ones win in a 
competition.'' Thank you.
    Senator DeWine. Mr. Redstone, thank you very much.
    Mr. Karmazin, thank you for joining us.

                   STATEMENT OF MEL KARMAZIN

    Mr. Karmazin. It is good to be here. Mr. Chairman, Senator 
Kohl, with your permission, I would just like to submit my 
comments to you, but I would like to focus on a couple of 
points, if I may.
    Senator DeWine. That will be fine. All the witnesses, your 
written testimony that has been submitted is now made a part of 
the record and you can proceed as you wish.
    Mr. Karmazin. Thank you. I am a broadcaster. I have been a 
broadcaster for a little bit over 30 years and I find it really 
interesting, all of this discussion about less competition. On 
one hand, I would relish the days of going back to where there 
were just AM radio stations or there were just the big three 
networks. I enjoyed watching Senator Wellstone last night on 
CNBC, a network that did not exist as a competitor to us not 
too long ago. So I believe that when we are looking at 
competition, what Washington ought to be doing is looking at 
competition in a way of preserving free over-the-air 
broadcasting, something that I have been involved in for an 
awful long time.
    There is probably a belief by some that our competition is 
NBC, ABC, and possibly Fox, but that is truly, truly bizarre. 
Today, our competition is all of the cable channels. Our 
competition is Yahoo. Our competition is AOL. It is interesting 
to note that when Westinghouse acquired CBS, they paid $5 
billion for that acquisition. Last year, Yahoo acquired 
broadcast.com for over $5 billion in stock. Yahoo's stock is 
valued at 50 percent more than CBS's stock, and the reason for 
that is because Yahoo is competing with CBS for all kinds of 
opportunities with listeners, with content. Some of our radio 
stations offer free over-the-air broadcasting opportunity, have 
a sports team on the air. Broadcast.com is going to sports 
owners and saying to them, they could pay more money for the 
content than CBS is currently paying them.
    So I think the focus should be on coming up with 
competition, and though it would be good to go back, I do not 
think there is a chance of that. But what the competition needs 
to do is to preserve free over-the-air broadcasting, and 
certain rules, like the rule that would limit us to owning 
television stations that cover 35 percent of the country, are 
terribly outdated and really are not helpful to creating 
competition because if, in fact, the free over-the-air 
broadcasting is not going to be financially healthy, and you 
make your money on your television stations, not on your 
network, and that is not about bookkeeping, that is just the 
reality of it, that a lot of content that used to be on free 
over-the-air broadcasting will find itself migrating to cable 
where only certain of the rich people are able to get that.
    Obviously, there is a lot of NFL programming on Direct TV, 
and we paid $4 billion for the rights to the NFL. We managed to 
present the football games free to the public. We are not going 
to be able to do that unless we are profitable and unless we 
are financially successful, and we are getting increased 
competition.
    It is also a little peculiar to me to see that there is a 
question as to whether or not we can own the struggling UPN 
network, which is factually a network that loses over $200 
million, and whether we can continue to have an investment in 
that and CBS. At a time when cable companies can own 37 percent 
of the country and have multiple channels there and that we can 
only maybe have an eighth or a tenth of the number of stations 
that would be in 35 percent of the country really seems to be a 
little bit anticompetitive to them.
    It also is important that if we were to take the UPN 
network and put it on cable, nobody would have a problem with 
that. But because we want to preserve the diversity of a UPN 
network and to provide it free over the air, someone says in 
this multichannel world that everybody acknowledges there that 
you cannot have two of these channels.
    So we feel very strongly that when this subcommittee looks 
into things, that we ought to be looking at ways of increasing 
competition, and that is to preserve free over-the-air 
broadcasting. We will do whatever the Justice Department, the 
DOJ, the FCC, or this committee says to close the Viacom 
transaction, but we really do think that needs to be looked at. 
Thank you.
    Senator DeWine. Thank you very much.
    [The prepared statement of Mr. Redstone and Mr. Karmazin 
follows:]

       Prepared Statement of Sumner M. Redstone and Mel Karmazin

                              introduction
    Viacom and CBS wish to thank the Members of the Senate Subcommittee 
on Antitrust, Business Rights and Competition for providing the 
opportunity to describe their proposed merger.
    On September 6, 1999, Viacom Inc. and CBS Corporation agreed to 
combine the two companies in a merger of equals. Sumner Redstone will 
lead the new company, to be called Viacom, in his continued role as 
Chairman and Chief Executive Officer, as well as majority shareholder. 
Mel Karmazin, now President and Chief Executive Officer of CBS, will 
become President and Chief Operating Officer of the new Viacom, with 
all operations of the combined company reporting to him.
    The assets and markets of the two companies are highly 
complementary, have very little overlap and, once merged, will achieve 
significant economies of scale, resulting in new programming, new jobs, 
lower costs and an increase in exports of Viacom's brands, for the 
benefit of Americans and all consumers around the world. Subject to 
governmental approvals, Viacom will meld its brands and assets in basic 
and premium cable networks (for example, MTV, Nickelodeon, VH1 and 
Showtime), movie production (Paramount Pictures), television program 
production and syndication (Paramount Television), broadcast television 
stations, theme parks, publishing (Simon & Schuster), home video and 
rental and retailing (Blockbuster) and websites, with CBS's television 
network, broadcast television stations, basic cable networks (CMT 
[Country Music Television] and TNN [The Nashville Network]), regional 
sports operations, radio stations (Infinity Broadcasting), outdoor 
business and online holdings, to create a U.S.-based global media 
company that is positioned to seize the myriad opportunities and 
confront the formidable challenges of the 21st century. Such 
opportunities include serving the explosive media and entertainment 
demands of the domestic and international arenas through the Internet 
and other distribution channels we know today, while the challenges 
include maintaining a voice in an increasingly fragmented and 
technologically evolving marketplace.
    The proposed merger of Viacom and CBS is no accidental pairing. 
Rather, it represents another strategic and significant landmark in a 
far-sighted vision of constructing a competitive media and 
entertainment company flexible enough to adapt to changing times. The 
vision took seed some 40 years ago, with a handful of drive-in movie 
theaters. With the waning audience for such theaters, those holdings 
were expanded to include the much-in-demand indoor, multiplex variety 
of theaters. And, in turn, it was with this base set of assets in 1987 
that Viacom and its cable networks, including MTV and Nickelodeon, were 
acquired. Seven years later, Viacom's cable network brands--by then 
having expanded beyond MTV, Showtime and Nickelodeon to VH1, MTV Europe 
and MTV Asia--combined with the Paramount movie studio. This marriage 
reaffirmed Viacom's commitment to content and resulted in a 
strengthened and enhanced programming portfolio that now extends Viacom 
franchises into theaters and homes around the country and the world. 
For example, Paramount Pictures worked with Nickelodeon to produce 
``The Rugrats Movie,'' and Paramount Parks feature Nickelodeon play 
centers. Globally, MTV can be viewed in over 300 million households, 
Nickelodeon in over 135 million households and VH1 in over 90 million 
households, in some 14 different languages and in more than 100 
countries around the world, from the People's Republic of China to 
Norway to Mexico. And as the world goes digital, Viacom is ready to 
supply content through its suite of digital channels that are accessed 
via television, and through its music and child-oriented sites that are 
accessed via that ubiquitous digital medium, the Internet.
    As Viacom has grown, it has never lost sight of the importance of 
funneling its profits back into the company to finance quality 
programming for diverse audiences and to meet the public service 
obligations owed to its viewers. Early this year, for example, Viacom, 
together with its non-profit partner Children's Television Workshop, 
launched Noggin, the nation's first round-the-clock, commercial-free 
educational children's channel. Such a risky enterprise with such a 
kid-centric mission would have been impossible without Viacom's 
wherewithal to finance the creation and production of new quality 
educational programming for the channel, Nickelodeon's vast library of 
top-notch programming, and MTV Networks' expertise in obtaining 
distribution for program services across all platforms. Indeed, despite 
the financial losses that have accompanied the start-up of Noggin, 
Viacom has pledged the funds necessary to nurture this educational 
channel to success.
    As with its undertakings to children, since 1995 with the launch of 
broadcast television network UPN, Viacom, with partner Chris-Craft, has 
responded to the needs of the underserved segments of American viewers, 
particularly those with access only to free, over-the-air broadcast 
television. With programs written and produced by minorities and 
featuring minorities in the casts of almost all of its dramas and 
sitcoms, UPN has outperformed all other broadcast networks in 
attracting a disproportionately large African-American audience. Yet, 
despite the substantial draw of the upstart network to black 
households, total viewership nationwide has lagged, resulting in UPN's 
loss of hundreds of millions of dollars in its short life of less than 
five years. Viacom's programming strength and size so far have allowed 
it to continue to underwrite UPN with its partner so that this 
alternative voice may still be heard.
    In addition to funding diverse and high-caliber programming, Viacom 
has dedicated funds to serving its largest segment of viewers, the 
youth of America. It has done so on-air and off through pro-social 
campaigns that address violence, tolerance and helping others. One such 
campaign, MTV's ``Fight for Your Rights: Take a Stand Against 
Violence,'' which was unveiled even before the tragic incident at 
Littleton, includes several on-air specials, a free CD containing music 
and comments on violence from top recording artists and an action guide 
produced in cooperation with the Departments of Justice and Education. 
Nickelodeon's ``The Big Help'' is a year-round campaign that encourages 
children ages 6-14 to volunteer in their communities. Paramount 
Stations Group's ``The Teen Files'' campaign includes local outreach 
programs centered around Paramount-produced quarterly specials on 
subjects important to teens, including the Emmy-award-winning ``The 
Truth About Drinking.'' And VH1's ``Save the Music'' has implemented 
350 school music programs in 30 cities around the country through 
fundraising and instrument-donation drives.
    This is Viacom today, an entertainment, content-rich, largely 
cable-network and motion picture and television studio company, that 
seeks to partner with CBS, a news, sports and distribution-focused, 
largely broadcast television, radio and outdoor advertising company. 
CBS, like Viacom, grew from a small collection of assets to become a 
pioneer in the field of broadcasting. In 1929, William Paley purchased 
a failing group of 22 radio stations--known then as the United 
Independent Broadcasters Network--and turned it into a profitable 
network, while introducing such figures as Bing Crosby, Kate Smith and 
Frank Sinatra to the airwaves. CBS ushered in the era of television in 
1939 and later introduced to the ``small screen'' personalities such as 
Lucille Ball and Ed Sullivan. In the 1970s, when television had become 
a truly mass medium, CBS dared to air revolutionary programs such as 
``All in the Family'' and ``M*A*S*H,'' both of which became critical 
and popular successes. In addition to entertainment, CBS saw television 
as a promising technology for the transmission of news, and built the 
CBS Television Network into a powerhouse of journalism, led by legends 
such as Edward R. Murrow and Walter Cronkite.
    Through the six decades since its founding, CBS has stayed true to 
its broadcasting roots. Today, it is the number one broadcast 
television network in total viewers and household ratings. The CBS 
Evening News, now in its 37th season, continues the CBS tradition as 
the flagship broadcast of the CBS news division, and is rounded out by 
many other news and public affairs broadcasts--including, of course, 
the pioneering and perennially popular ``60 Minutes''--that serve to 
inform its viewers. And radio, where it all began for CBS, continues 
its important role through CBS's majority interest in Infinity 
Broadcasting, which operates 163 stations nationwide.
    Also like Viacom, CBS has had the vision to adapt to the ever-
changing media landscape. It has entered into the cable arena with two 
country-oriented channels--one music and one lifestyle--and it has 
ventured into the e-world, largely by investing in websites in exchange 
for promotion and advertising on the older media of radio and 
television.
    In light of the two different, but successful, business strategies 
forged by the two companies, which share a common concern for serving a 
wide range of Americans, the merger of Viacom and CBS will be a union 
between two natural partners. The merger will also mark a family re-
union of sorts, given that Viacom was spun off from CBS in the early 
1970s, to comply with the FCC's financial interest and syndication 
rules, which before they were repealed in 1995--prohibited integration 
of broadcast networks and syndicated programming. As a reunited Viacom/
CBS, the new Viacom will be best positioned to offer creative, 
innovative and diverse voices in the ever-fragmented video and audio 
media world of hundreds of cable and direct broadcast satellite 
channels, VCRs, personal digital video recorders, digital broadcast 
television, digital audio radio services and the tens of thousands of 
websites on the Internet. There will be, under the umbrella of the new 
Viacom, entertainment, news and sports that will be sought out by the 
full spectrum of American viewers, from our nation's youth (through 
``Blue's Clues'' and ``The Rugrats'') right up to our nation's older 
generation (through ``60 Minutes'' and ``Touched by an Angel ''). And 
Viacom/CBS will enjoy stronger cross-promotion for its content, 
accelerated international growth for Viacom's current cable brands and 
first-time international expansion for the CBS cable networks. Equally 
important, the new Viacom will remain true to the common commitment of 
both companies in returning to their audiences quality programming and 
public service.
                      department of justice review
    Of course, before the new Viacom can begin to reap the efficiencies 
and explore the untapped opportunities the combined entity will bring, 
the merger of Viacom and CBS must await governmental approvals, both 
from the Department of Justice and the Federal Communications 
Commission. One of the issues that always arises in a significant 
transaction--and the reason for today's hearing--is the effects the 
proposed merger will have on competition in the relevant markets. 
Accordingly, it is expected that the Department of Justice will 
carefully review this transaction, as it should. Viacom and CBS look 
forward to working with the Justice Department in this review and 
believe that the more the Justice Department learns about this proposed 
merger, the more quickly it will conclude that the new Viacom will 
promote, not reduce, competition.
    The U.S. antitrust laws are the bulwark of our nation's economy. 
When antitrust laws are strong and properly applied, the economy is at 
its most robust. ``Strong'' antitrust laws are those that protect the 
American people from companies and individuals intent upon cornering 
the market and destroying competition. They are not, however, laws that 
interfere where they are not needed. Nor are they rules that limit the 
incredible dynamism of our great economy.
    Under this rubric, the combination of Viacom and CBS does not raise 
such antitrust concerns, because the vast majority of the business 
operations of the two companies simply do not compete with one another. 
Most of what we do is different. For example, Viacom, through 
Paramount, is one of the leaders in theatrical motion picture 
production. CBS does not produce theatrical motion pictures. Viacom, 
through Blockbuster Entertainment, is in the video rental business. CBS 
is not. Viacom has five regional theme parks. CBS has none. Viacom's 
Simon & Schuster is a book publisher. CBS is not. And for its part, CBS 
operates a group of radio stations and owns an outdoor advertising 
business. Viacom has no such operations. CBS is known for its news and 
sports programming. Viacom is known for its music and entertainment 
programming. Thus, Viacom and CBS clearly are not competitors intent 
upon cornering markets, but, instead are two fundamentally different 
companies seeking to complement their strengths.
    Some overlaps, however, do exist between Viacom and CBS. First, 
Viacom and CBS each own one broadcast TV station in six of the same 
geographic areas. Second, both companies are involved in broadcast TV 
networks, albeit ones that do not really compete with one another--CBS 
through its CBS Television Network and Viacom through its 50 percent 
ownership in the fledgling UPN. Third, Viacom and CBS operate cable 
networks. And fourth, the two companies are each in the television 
syndication business.
    In each of these four overlap areas, numerous large, healthy and 
eager competitors already compete, ensuring not only the continuing 
competitiveness of the affected markets, but, also, as such markets 
evolve, that the new Viacom itself will have to compete more 
aggressively in the future. This increased level of competition on the 
parts of all players will benefit consumers.
    With respect to the overlap of TV stations, Viacom and CBS each 
have a station in the Philadelphia, Boston, Dallas, Detroit, Miami and 
Pittsburgh television markets. These six cities are each major 
metropolitan areas, which rank in the top 20 television markets and 
have licensed to them anywhere from 9 to 21 full-power, broadcast TV 
stations. In addition, these markets, on average, enjoy about a 71 
percent cable penetration rate, higher than the national average of 
about 68 percent, which means that nearly three-quarters of the 
households in the six markets have access to cable. And all households 
in each market have access to direct broadcast satellite and its 
hundreds of channels.
    The Viacom-owned UPN-affiliated stations tend to have small 
audience shares such that a combination would not result in a 
significant increase in concentration in any of these six television 
markets. Indeed, under the broadcast ownership rules adopted by the 
Federal Communications Commission just this past August, common 
ownership of two television stations is permitted where there remain at 
least eight independently owned full-power commercial and non-
commercial TV stations post-combination and where the two merging 
stations are not both among the top four-ranked stations in the market, 
as measured by audience share. Given the high level of competition 
among TV stations in the six affected markets and the low ratings and 
shares of the UPN-affiliated stations, Viacom and CBS hope to obtain 
FCC approval of station combinations in these six cities.
    In the case of broadcast television networks, CBS is an established 
and widely viewed network. It provides nearly 16.5 hours of programming 
to its affiliates each weekday and 12 hours on weekends. UPN, by 
contrast, remains a fledgling network, having launched not even five 
years ago. It distributes only ten hours per week of prime-time 
programming, plus small amounts of kids and other programming in other 
dayparts. In terms of total household ratings, UPN is not in CBS's 
league--garnering only about one-quarter of the viewers that CBS does. 
Moreover, the demographics for the audiences of UPN and CBS are also 
very different. UPN largely attracts younger urban male viewers, while 
CBS attracts a broad-based audience with a slight bias toward older 
females. Given the drastically varying ratings and demographics of the 
two networks in a universe of seven national broadcast networks and 
hundreds of cable networks, common ownership of UPN and CBS does not 
raise antitrust concerns.
    As for cable television networks, a third area where Viacom's and 
CBS's businesses complement each other, Viacom operates several premium 
cable channels, including Showtime, and several basic cable channels, 
including MTV, Nickelodeon and VH1, while CBS runs only two basic cable 
networks, CMT and TNN. These Viacom and CBS cable networks exist in a 
universe of several hundred other cable television networks, all 
competing vigorously with each other and with other media, including 
broadcast networks and the Internet, for advertisers, access to 
distribution platforms and viewers. Consequently, the combination of 
Viacom's and CBS's cable networks would not adversely impact 
competition. Moreover, although genres of programming do not define 
separate markets in cable television, the fact remains that the Viacom 
and CBS networks do offer different types of programming from one 
another that appeal to different types of audiences, further reducing 
the small amount of overlap between them.
    Syndicated television programming, the final area in which both 
companies operate, includes those shows and movies that air during 
times of the day when broadcast network fare does not. Such shows 
include ``Wheel of Fortune'' and ``Cheers.'' With more than a dozen 
major entities--including Columbia Tri-Star, ABC/Disney, Warner Bros., 
Fox/Twentieth Television, Hearst-Argyle, MGM, Universal, King World, 
Studios USA, Pearson, in addition to CBS/Eyemark and Viacom's Paramount 
Television-offering hundreds of hours of television programming each 
and every season, and many having done so for decades, there are 
hundreds of thousands of hours of programming available, and more are 
being created each year for syndication. In short, excluding future 
programming production, there is already in existence plenty of content 
for a highly competitive market.
    In light of this robust television programming marketplace, there 
is, for several reasons, no threat to competition from a combined 
Viacom/CBS. First, Viacom's and CBS's programming offerings vary 
markedly, reducing the degree of competition between the two companies. 
In fact, CBS's syndicated programming will come in large part from King 
World, upon CBS's pending purchase of that company, which produces only 
four shows that garner nearly three-quarters of its revenue: the game 
shows ``Wheel of Fortune,'' ``Jeopardy'' and ``Hollywood Squares,'' and 
the talk show ``Oprah.'' Paramount's top syndicated shows, on the other 
hand, include ``Judge Judy,'' ``Entertainment Tonight,'' ``Frasier,'' 
``Real TV'' and ``Star Trek: Voyager.'' Paramount has no syndicated 
game show, and while it does produce the talk shows ``Montel'' and 
``Leeza,'' their ratings do not reach the lofty heights achieved by 
``Oprah.'' Further, Paramount distributes feature films and a vast 
array of library product (such as I Love Lucy'' and ``Bonanza''), which 
neither CBS nor King World do. By any measure, therefore, no 
competitive problem is presented by combining the two companies' 
syndication operations.
    In sum, the proposed merger of Viacom with CBS logically reflects 
the increasing amount of competition in the entertainment industry. FCC 
rules such as the financial interest and syndication prohibition and 
the limitations on local television and radio ownership were created 
when most markets had three or four television stations, little or no 
cable penetration, no satellite distribution and, of course, no 
Internet access. As a result, all of the alternative distribution 
markets were nurtured in a regulatory environment that restricted the 
growth of over-the-air television. Now, most markets have at least 
several television stations and nearly all households can choose to 
receive cable television and satellite television, as well as access to 
the Internet. As a result, the rules on financial interest and 
syndication and local broadcast ownership have been relaxed, 
encouraging deals like the Viacom/CBS merger. Viacom and CBS believe 
that more needs to be done to enable free over-the-air broadcast 
television to compete fairly against the other forms of video 
programming distribution and to compete in the international 
marketplace. Provided that the antitrust laws are applied in the normal 
course, as they should be, the proposed merger of Viacom and CBS should 
pass the Justice Department's antitrust scrutiny.
                federal communications commission review
    As for review by the Federal Communications Commission, that 
agency's mission is to determine whether the public interest would be 
served by the merger. Most often, that objective is achieved by looking 
at the impact of a merger on the twin pillars of competition and 
diversity. Viacom and CBS commit to making any necessary divestitures 
as expeditiously as possible after the merger so that their ownership 
of broadcast stations complies with all of the FCC's local broadcast 
ownership rules, including the TV duopoly and TV-radio cross-ownership 
rules. Concerns have been raised, however, about whether the combined 
assets will conflict with two of the FCC's national television 
ownership rules: the 35 percent reach limit, which caps the percentage 
of households in the country that one owner may serve through its 
television stations; and the so-called ``dual network'' rule, which 
prohibits the common ownership of an established network and UPN or WB. 
Specifically, when aggregated, the national reach of Viacom's UPN-
affiliated TV stations and CBS's TV stations equals about 41 percent, 
about 6 percent in excess of the cap. And retention of current assets 
would leave the new Viacom with ownership in CBS and the UPN 
``weblet.''
    While Viacom and CBS have stated to the Commission that following 
the merger the combined company will come into compliance as quickly as 
possible with whatever rules are in place at the time of their closing, 
the two companies firmly believe that the 35 percent national TV 
ownership limit and the dual network rules no longer serve the public 
interest of viewers and those rules should be relaxed. Changing the two 
rules would be in keeping with the directive of Congress in the 
Telecommunications Act of 1996--to eliminate unnecessary and 
counterproductive regulation hamstringing the broadcasting industry.
    In the case of television station ownership, after careful 
consideration of the two issues central to the public interest--
competition and diversity--the Commission just this past August 
substantially liberalized its local broadcast ownership rules. That 
decision was well justified and highly commendable. But if local TV 
ownership deregulation is justified--and it is--then there is no 
rationale for retention of the national TV ownership cap. Indeed, 
acknowledging the importance of rationality in the establishment of 
rules, FCC Chairman William Kennard, in his statement accompanying the 
adoption of the relaxed local broadcast ownership rules, noted:

          [We] are adopting common sense rules that recognize the 
        dramatic changes that the media marketplace has undergone since 
        our broadcast ownership rules were adopted 30 years ago * * * 
        [We] need to provide broadcasters with the flexibility to seize 
        opportunities and compete in this increasingly dynamic media 
        marketplace.

To that end, countless economic studies prove that the national cap 
does not make any economic sense. Nor does it make any public interest 
sense.

    First, the national TV cap does not promote diversity. As the FCC 
itself found in the mid-1980s:

          [T]he most important idea markets are local * * * [N]ational 
        broadcast ownership limits, as opposed to local ownership 
        limits, ordinarily are not pertinent to assuring a diversity of 
        views to the constituent elements of the American public.

    Second, the national cap does not promote localism in terms of a 
station's involvement with the community or programming focused on 
local issues. Even if it made a difference in this regard to have more 
locally owned stations, group station ownership is now the norm, and 
economic reasons will ensure that the vast majority of local stations 
will always be owned by an entity--very often a publicly traded 
corporation--whose home office is elsewhere. In fact, 64 percent of all 
U.S. households are served by CBS affiliates run by group owners, and 
only 2 percent are run by individual owners. Excellent broadcasters who 
head television groups that are headquartered all over the country run 
CBS-affiliated stations. And the FCC agrees. It found in 1985 that 
``the economics of each local market require autonomous decisions by 
each station with respect to its editorial judgments.'' Thus, the 
national cap simply has no effect on localism.
    Most important, though, broadcasting, like politics, is necessarily 
local, regardless of where the home office is. For example, Cox 
Communications, a large group owner based in Atlanta, does an 
outstanding job of serving the community of Dayton, Ohio, through its 
affiliate WHIO. CBS, which owns WFRV in Green Bay, Wisconsin, does the 
same outstanding job serving its community. Local station affiliates or 
network-owned stations depend on involvement with their local 
communities to differentiate themselves and to succeed in selling local 
advertising. Localism expresses itself in the content of local 
newscasts, which are an extraordinarily important part of an 
affiliate's schedule. It expresses itself in community activities, 
which create goodwill for the station and build its audience. It 
expresses itself in special news coverage of emergencies, which every 
broadcaster sees as part of its public responsibility. Above all, free, 
over-the-air broadcast television stations, unlike nationally 
programmed cable and satellite systems, are uniquely situated to offer 
local voices to their communities. Broadcasters would never forsake 
this principal competitive advantage.
    Maintaining the current national ownership limit is also defended 
by some on the grounds that raising the cap would allow network 
companies to exert anticompetitive power in their relationships with 
non-network-owned affiliates. Since each market stands alone, there is 
no reason why ownership of a station in a different market should 
affect an affiliate's clout.
    Finally, the opponents of broadcast deregulation once again fall 
back on the old specter of network dominance. If those opponents simply 
want network companies to be weaker so that they can extract more 
favorable terms in their affiliation contracts, it is not the job of 
Congress or the Commission to accommodate them. Moreover, the term 
``network dominance'' was used to justify network regulation of the 
1970's, when upwards of 90 percent of the television audience watched 
one of the then-three existing networks. Those regulations were 
repealed years ago; today, the broadcast networks are doing well if 
they garner more than 40 percent of the prime-time television audience. 
The catch-phrase ``network dominance'' was once and for all debunked by 
the Commission and the courts. It is perplexing that some network 
affiliates, including those owned by large group owners who are more 
than able to fend for themselves in the marketplace, resurrect this 
term in the cause of perpetuating government regulation of their 
business.
    In the dramatic, evolving telecommunications marketplace of today, 
outdated regulations can have perverse effects. Regulatory policies 
simply cannot keep pace with the market forces that drive technology 
and innovation. If one believes that free, quality universal television 
is a public good, the government should be encouraging the flow of 
capital into this service. Instead, the 35 percent cap distorts the 
investment of capital and programming by penalizing broadcasters and 
needlessly encouraging the flow of capital to pay outlets. Viacom and 
CBS will, of course, do whatever is necessary to adapt to this 
situation. But, the question remains whether retention of a national 
limit is in the public interest and makes any sense--whether that limit 
is set at 35, 50 or even 99 percent of the country. By comparison, 
under the FCC's newly adopted cable television ownership rules, a cable 
operator is permitted to own multichannel video programming 
distribution systems, such as cable, satellite and other such services, 
serving 30 percent of subscribers to those services nationwide. This 30 
percent, according to the Commission's calculations, equals 
approximately 37 percent of all cable subscribers nationwide. However, 
in that percentage of the country, cable systems are most likely to be 
the only cable systems. Under the 35 percent broadcast television cap, 
by contrast, a station faces competition from at least one to as many 
as 32 other stations in that percentage of the country. Accordingly, 
broadcasters once again, have been singled out for restrictive 
treatment.
    As for the dual network rule, it is yet another example of an FCC 
ownership regulation which discriminates against broadcasters who 
provide free and universal programming. Rather, the rule benefits those 
industries which provide programming viewers must pay for, while 
imposing yet another handicap on free over-the-air broadcasters. The 
rule provides that one of the four established networks is prohibited 
from combining with an ``emerging'' network, which the FCC has 
interpreted to cover only UPN and WB, the two emerging networks in 
existence at the time the Telecommunications Act was passed in 1996. 
The rule, therefore, is especially discriminatory and arbitrary. For 
example, NBC would be allowed to purchase the ``seventh'' current 
network, PAXNET, but the new Viacom could not operate CBS and UPN. This 
lacks all rationality, especially since under the Commission's current 
rules one company can own unlimited cable networks.
    It is unclear what benefit the public gains from this policy. 
Again, many of the same arguments that are used to support the 
retention of the 35 percent cap are used here: network dominance, 
advertising consolidation, lack of diversity of views and decreased 
minority ownership. These are all unfounded fears. Instead, this rule 
is yet another unnecessary restraint on the ability of broadcasters, 
who offer a free and universal product, to achieve ownership 
efficiencies needed to compete with those who offer a programming 
service for which consumers must pay.
    If Viacom is required to divest its interest in the UPN network, 
the following paradox will likely ensue. Viacom could try to sell its 
50 percent stake, which would mean transferring its losses to a third 
party. Yet, no party is lining up to assume responsibility for a 
network that is still losing hundreds of millions of dollars each year. 
The only other option, therefore, might be to shut down UPN altogether. 
But, shuttering UPN is something Viacom and CBS want to avoid. Closing 
it would not serve the public interest. The UPN network is off to a 
very good start this year, and the efficiencies, synergies and network 
experience that CBS would bring to the table could be the boost that 
UPN needs to continue its rise and make it a successful network in 
terms of a business and in terms of service to the public.
    UPN now serves minority viewers well. Last season, while UPN had a 
disappointing 2.0 overall rating, it garnered a 5.8 rating among 
African-American households. Among the top 50 rated television network 
programs among African-American households, 10 air on UPN. Indeed, as 
the owner of CBS and UPN, the new Viacom is more likely to retain the 
``niche'' status of UPN than is any other owner, who might be compelled 
to clone the new network to look like yet another ``established'' 
network capable of reaching a larger mass audience and, with it, larger 
advertising revenues needed to succeed.
    Whether these broadcast ownership rules are changed or retained, 
the Viacom/CBS merger will happen. However, it would be a great 
disservice to the public interest if the full potential of UPN is not 
allowed to blossom. Such an anomalous result should not be allowed to 
happen.
          * * * * *
    Once again, Viacom and CBS appreciate the opportunity to appear 
before the Senate Antitrust Subcommittee. We would be pleased to 
provide any additional assistance to the Subcommittee or its staff on 
the merger and any issues related to the merger.

    Senator DeWine. Mr. Schwartzman.

              STATEMENT OF ANDREW JAY SCHWARTZMAN

    Mr. Schwartzman. Thank you, Mr. Chairman. Before I start, I 
would like to express my appreciation to the minority and 
majority staff. We moved our office this week and we had all 
sorts of logistical problems and copiers that did not work and 
so forth, and they have been extremely helpful in just the 
physical task of getting my testimony together.
    Senator DeWine. Thank you very much.
    Mr. Schwartzman. Thank you, Mr. Chairman. I start with six 
propositions. First, we have the best system of broadcasting in 
the world because of, not in spite of, the Federal 
Communications Commission rules which have limited the size and 
reach of broadcasting and cable companies.
    Second, free speech is not just an end into itself. It is 
also a necessary means of democratic self-governance. In the 
20th century, Congress and the FCC have preserved James 
Madison's vision of a marketplace of ideas by ensuring that 
broadcasting helps promote free and open political 
deliberation.
    Third, broadcasters are, quite literally, an integral 
component of the electoral process. We trust them to provide 
equal time and equal rates to all political candidates. We 
count on them to share their monopoly access to publicly-owned 
spectrum with Federal candidates. But we permit them to refuse 
unreasonable requests.
    Fourth, over-the-air broadcasting is, and for many years to 
come, will remain the single most important influence on how we 
vote, especially at the local level. For the time being, the 
Internet is not a substitute for local newspapers and local 
broadcast news. The Internet is not the way that citizens 
decide for whom to vote in the city council election, not yet.
    Fifth, broadcasting, especially television, teaches us 
about each other. Those of us fortunate enough to ride in 
taxicabs and dine in fine restaurants know much less about the 
people who drive those cabs and who bus the tables than vice 
versa. We need it more than they do.
    Sixth, we are needlessly endangering this wonderful but 
deceptively fragile system.
    The policy problem is generic. It is not about Mr. Karmazin 
and Mr. Redstone or CBS and Viacom. They are businessmen 
playing the angles and trying to do it lawfully. This hearing 
could just as easily feature Bob Wright and Barry Diller. Back 
before and after Mr. Redstone bought Viacom, we worked for that 
organization closely, many times to promote diversity and open 
entry into programming and to keep huge telephone companies, or 
at least one huge telephone company, from taking over a huge 
cable company when we cared about those things, and it was 
precisely because it threatened to squelch program diversity 
and competition. And we supported Mr. Karmazin's vigorous 
defense of his right to make money by distributing material 
which is offensive to some, but constitutionally protected for 
all.
    The fact remains that Congress and the FCC have permitted a 
massive expansion of broadcasters' national and audience local 
reach, first in radio and now in TV. My testimony addresses 
many instances of problems in diversity that come off of this 
merger. But I am going to place particular attention on one 
seemingly small aspect of the CBS business, local radio news.
    The combined CBS/Viacom operation will control as many as 
eight radio stations and two TV stations in markets, particular 
individual markets. To simplify here, I am going to lump all 
the companies together because they have one attribute in 
common. Mr. Karmazin now controls or manages them. CBS was the 
undisputed leader in quality and depth of its radio news for 
generations. Westinghouse, generally regarded as number two in 
quality, merged with CBS a few years ago. When Mr. Karmazin's 
Infinity and Westwood One operations were placed under common 
control, he brought along the old Mutual News, and the name, if 
nothing else, of NBC Radio News.
    Here is the part that is less well understood. Westwood One 
owned what used to be called Shadow Traffic, but had been 
renamed Shadow Broadcast Services. This past spring, Westwood 
One acquired what used to be called Metro Traffic, but is now 
called Metro Networks. We know about these traffic services 
that do the traffic reports on all the radio stations.
    But those two companies changed their names because they 
have branched out into what appears to be a much more expansive 
business, radio, and more recently, television newscasts. They 
do a lot more than feed actualities for clients to mix into 
newscasts. In most cases, Metro provides a complete turnkey 
newscast operation. The entire newscast is prepared by Metro or 
Shadow personnel in their studios. All the stations in the 
market use the same reports, even if delivered by different 
announcers, many of whom appear on several stations using 
different names to match the format of the station of the 
moment. Metro has now gone further, by using outsourcing 
models. The Morning Zoo co-host is in many instances now an 
employee of Metro, that is, Mr. Karmazin, and not the 
broadcaster who purportedly operates the station and supposedly 
provides source diversity in the marketplace of ideas.
    I do not have numbers because they are not available. 
Perhaps Mr. Karmazin will give us numbers for an individual 
market, because I cannot get them. It brags nationally that it 
has an opportunity for advertisers to reach every one of 100 
million people a day. That is their average reach. Its average 
is 23 stations per market that it provides news services to.
    I believe that Metro has about 25 clients in Baltimore out 
of 40 radio stations, well over half. That is not diversity. 
There is now, at most, one reporter covering city hall for all 
those stations. They fired their news departments. That is not 
diversity. That is not what we are expecting different views 
and opinions.
    I am not describing a trend. I am describing the market as 
it exists today. Democracy and the first amendment deserve 
better, but it is only going to get worse.
    I am not saying we should return to the days when William 
Paley said, ``You guys cover the news. I have got Jack Benny to 
make money for me.'' But I am saying that broadcast 
consolidation presses even the best broadcasters to cut costs 
and reduce standards. When informing the public becomes a 
nuisance, not a duty, we are all the worse for it.
    Senator DeWine. Thank you very much.
    [The prepared statement of Mr. Schwartzman follows:]

              Prepared Statement of Andrew Jay Schwartzman

    I start with three propositions.
    First, we have the best system of broadcasting in the world because 
of--not in spite of--Federal Communications Commission rules which have 
limited the size and reach of broadcasting and cable companies.
    Second, as Justice Brandeis taught us, free speech is not just an 
end unto itself, or simply a freedom from Government meddling; it is 
also a necessary means of democratic self-governance.\1\ In crafting 
the First Amendment, James Madison sought to insure political equality, 
especially in the face of economic inequalities. In the 20th century, 
Congress and the FCC have preserved Madison's vision by insuring that 
broadcasting helps promote free and open political deliberation. 
Broadcasters are, quite literally, an integral component of the 
electoral process. We trust them to provide equal time at equal rates 
to all political candidates. We count on them to share their monopoly 
access to publicly-owned spectrum with federal candidates, but we 
permit them to refuse unreasonable requests.
---------------------------------------------------------------------------
    \1\ ``Whitney''
---------------------------------------------------------------------------
    Third, over the air broadcasting is, and for many years to come, 
will remain, the single most important influence on how we vote, 
especially at the local level. The Internet is not very helpful in 
determining the outcome of a city council election.
    Fourth, broadcasting, especially television, teaches us, about each 
other. Those of us fortunate to ride taxicabs and dine in fine 
restaurants know much less about the people who drive those cabs and 
bus the tables than vice versa. ``We'' need it more than ``they'' do.
    Fifth, we're needlessly endangering this wonderful but deceptively 
fragile system.
    This isn't about Mr. Karmazin and Mr. Redstone. They are 
businessmen playing the angles. In fact, before and after Mr. Redstone 
bought it, Viacom and my organization have worked closely together to 
promote diversity and open entry in programming markets, and to keep 
huge telephone companies, or at least one huge telephone company, from 
taking over a huge cable company, precisely because it threatened to 
squelch program diversity and competition. And we have supported Mr. 
Karmazin's vigorous defense of his right to make money by distributing 
material which is offensive to some, but constitutionally protected for 
all.
    But the fact remains that Congress and the FCC have permitted a 
massive expansion of broadcasters' national and local audience reach 
first in radio, and now in TV. CBS and Viacom have moved to the front 
of the line, and their merger, if approved legitimates all the smaller 
ones already announced or which are soon to follow thereafter.
    The size and complexity of these transactions is mindnumbing. I 
choose to place particular attention on one seemingly small aspect of 
the CBS business, radio news.
    Its not just that the combined CBS-Viacom operation will control as 
many as 8 radio stations and two TV stations. CBS has moved to blugeon 
its way into the Internet by establishing a dominant presence in the 
Internet.\2\ CBS' Country Music Channel and The Nashville Network 
provide some national news as well. Although Viacom's TV stations have 
disgraced themselves with having little or no locally originated 
programming at all, the company provides news on MTV, and some 
syndicated TV shows.
---------------------------------------------------------------------------
    \2\ Me relentless cross-promotion of its sports and financial news 
during NFL telecasts is just part of that effort.
---------------------------------------------------------------------------
    But there is much more.
    To simplify things, I am going to lump together various related 
companies which have, among other things, one attribute. Mr. Karmazin 
now controls or manages them.
    Public radio aside, CBS was, for at least six decades, the 
undisputed leader in quality and depth of its radio news, Westinghouse, 
perhaps number two in quality, merged with CBS a few years ago. When 
Mr. Karmazin's Infinity and Westwood One operations were merged in, he 
brought along the old Mutual News and the name, if nothing else, of NBC 
News.
    Here's the Part that is less well-understood. Infinity also owned 
what used to be called Shadow Traffic, but had been renamed Shadow 
Broadcasting Services. This past spring, Westwood One acquired what 
used to be called Metro Traffic, but is now called Metro Networks.
    We all know the traffic services, which intelligently and 
efficiently permit radio and TV stations to share resources in 
reporting on rush hour traffic. But these two companies changed their 
names because they have branched out into what appears to be a much 
more expansive business radio and, more recently, television, 
newscasts.
    This is a lot more than feeding a few taped ``actualities'' for 
clients to mix into its own newscasts. In most cases, Metro provides a 
complete turnkey newscast operation. The entire newscast is prepared by 
Metro or Shadow personnel in their studios. All the stations in the 
market use the same reports, even if delivered by different announcers, 
many of whom appear on several stations using different names.
    More recently, Metro has begun to follow the outsourcing model. 
That ``morning zoo'' co-host in many cases now an employee of Metro--
that is, Mr. Karmazin--and not the broadcaster who purportedly operates 
the station and supposedly provides source diversity to the marketplace 
of ideas.
    I can't give you accurate figures in any particular market because 
Mr. Karmazin's companies do not disclose them. I'm asking him right now 
to tell us this morning about his newscast operations in any of the 
largest markets in the country.
    But here's what I can tell you--Metro Networks alone is--by far--
the largest producer of radio news in the country. Although its name is 
never mentioned on the air, Metro provides newscasts to some 155 TV 
stations and 1700 radio stations. Its average market penetration is 23 
affiliates per market. Metro says that it provides news services in 67 
of the top 75 markets, and that its newscasts are heard by 100 million 
people every day. It brags to advertisers that it offers them ``the 
opportunity to reach a broad-based local, regional or national audience 
through a single purchase of commercial airtime inventory by Metro.
    In a large market like Baltimore, which has about 40 radio stations 
and 12 TV stations, I believe Metro provides all or most of the news to 
about 25 radio stations--well over half and two TV stations.
    So much for diversity. There is now, at most, one reporter covering 
City Hall for all those stations. There is no one to bring a different 
perspective, to provide the safety valve for a lazy, or even corrupt 
reporter willing to overlook a story for the wrong reason.
    I'm not describing a trend. I'm describing the market as it exists 
today. Democracy and the FLA Amendment deserve better, but it is only 
going to get worse.
    The CBS-Viacom combination is also profoundly anticompetitive. 
Small entrepreneurs are particularly threatened by the way in which 
broadcasters have restructured advertising markets by cross--selling, 
``format squeezes,'' \3\ tie--ins and similar arrangements. As Mr. 
Karmazin told Barron's Magazine:

    \3\ This is just what the name suggests. Group owners controlling 
eight or more stations in a market can use weaker properties as 
strategic assets by developing formats which attack an opponent's 
demographic niche, for example by targeting its younger listeners, 
thereby enabling their stronger partner to challenge the target 
station.
---------------------------------------------------------------------------
          It used to be that [stations] competed, that media buyers 
        would play [them] off against each other. Now we have the [CBS 
        stations'] ad sales managers talk to each other every morning. 
        That adds up to higher prices and better margins.

See ``CBS Eye Looms Larger with ARS Deal,'' Media Week, October 6, 
1997, p. 20. Even substantial TV groups can now be targeted and 
squeezed, as NBC is doing in San Francisco.\4\ These stations, which 
traditionally put mom resources into locally originated news and public 
affairs programming, will have to cut back to survive.
---------------------------------------------------------------------------
    \4\ See ``Battle by the Bay--NBC's Wright is Playing `Hardball' to 
Get KRON-TV,'' Broadcasting and Cable, October 18, 1999, p 6. [``NBC 
President Bob Wright sent a letter * * * executives describe as a 
thinly veiled threat that any buyer other than NBC will face 
significant, changes in KRON-TV's affiliation with NBC--possibly even 
termination * *  [T]he executive said, ``they're going to lower the 
value of the television station to a pont which they're willing to pay 
for it.'']
---------------------------------------------------------------------------
    The impact is no less dangerous in national program markets. About 
six years ago, over the opposition of Viacom and Paramount, as well as 
public interest groups, the FCC permitted TV networks to produce their 
own prime time programming. Over the last several years, a trend has 
become a pattern: networks are showing creatively inferior self-
produced programming reflecting mainstream, rather than more diverse 
casts. Even with somewhat lower audiences, this tactic is evidently 
more profitable to the networks.
    This is no exaggeration: these changes also threaten the very 
structure of self-governance. Because we depend on broadcasting as the 
most important source of voter information, the sacrifice of program 
budgets and editorial independence ought to trouble us all. The 
networks are now managed by owners who often view serious journalism 
(as opposed to large blocks of soft self-promotion and celebrity gossip 
passed off as news) as a burden. Larry Grossman can tell you how Jack 
Welch told him that news was no longer ``the core of the asset'' at 
NBC.
    Examples abound. Just this week, the New York Times reported that 
the Chair of the Consumer Product Safety Commission lost her status as 
a Today Show regular guest, and was relegated to ABC's Good Morning 
America when she wished to announce a recall of GE-manufactured 
dishwashers.
    I am not saying that we should return to the days when William 
Paley said ``You guys cover The news; I've got Jack Benny to make money 
for me.'' \5\ But I am saying, that broadcast consolidation presses 
even the best broadcasters to cut costs and reduce standards. When 
informing the public becomes a nuisance, not a duty, we are all the 
worse for it.
---------------------------------------------------------------------------
    \5\ Dean Alger, Megamedia (1998), p. 60 (quoting Marvin Kalb).

    Senator DeWine. Mr. Grossman.

               STATEMENT OF LAWRENCE K. GROSSMAN

    Mr. Grossman. Thank you, Mr. Chairman. I have accepted your 
invitation to testify at this hearing not in order to oppose 
the merger of CBS and Viacom. I am certainly not a fan of these 
huge media mergers or of the increasing concentration of media 
ownership and a decrease in diversity of news and programming 
sources that the recent spate of mergers is producing. New 
telecommunications technology is giving us many more channels, 
but current public policy is also giving us far fewer 
gatekeepers. However, in view of the past approvals of major 
media mergers, I am convinced that it would be hard to justify 
stopping CBS and Viacom from joining to produce one of the 
world's biggest multimedia entertainment conglomerates.
    I do want to take this opportunity, however, to express to 
you my concern, first, that independent program producers risk 
becoming an endangered species when a shrinking number of major 
gatekeepers to national and international network distribution 
also own their own production facilities. Naturally and 
understandably, Disney and Fox and now Viacom, which owns 
Paramount, all prefer to choose the programs that they 
themselves produce, rather than buy someone else's programs, 
and they are organizing their companies to make sure that that 
happens more often in the future, thereby reducing both 
competition and diversity.
    But most important and the real reason I am here is to 
express my concern about the future of television news in this 
era of mega-mergers and consolidations. As we all know, most 
Americans get their news primarily from television, the single 
most important news medium by far in our democracy. So the 
commitment to responsible news gathering and news reporting by 
major companies like CBS/Viacom is essential to the quality of 
our democratic society.
    In the press conference announcing the CBS/Viacom merger, I 
was dismayed that none of the principals uttered a single word 
about their goal for significantly improved news performance 
and about serving the public interest, about increasing quality 
children's programs, about the essential responsibility as 
public trustees of the public airwaves. The climax of their 
discussion was Mr. Karmazin's expressed personal goal to make 
Mr. Redstone even richer than Bill Gates as a result of the 
merger, which I regard as a laudable ambition, but we should 
expect far higher aspirations for a company that is so central 
to the quality of the information and ideas that the nation 
receives in the telecommunications age.
    The concerns about the future of television news are real 
and important. The number of news channels is certainly 
multiplying in this telecommunications era, but the number of 
news sources is shrinking. The television networks are cutting 
the costs of their worldwide news gathering by closing bureaus 
left and right. We are seeing a kind of reverse funnel effect, 
in which more and more channels are pumping out the same news 
headlines gathered from a single all-purpose source, and that 
is happening not only internationally, but also, and of most 
concern, locally, as syndicated news services rather than 
individual radio and television station news staffs, whose 
numbers are also being slashed, gather what news that is 
reported.
    On the network level, the years that have coincided with 
the major media mergers are marked by one singularly disturbing 
fact. Every top national television news organization has been 
embarrassed by a major news magazine scandal, suggesting a 
lowering of network news and corporate broadcasting standards 
and a growing carelessness about reporting accuracy.
    In 1993, NBC was forced to apologize to General Motors and 
pay millions of dollars in legal fees because of a faked 
investigative report on ``Dateline'' that planted an incendiary 
device in a General Motors truck.
    Two years later, ABC, while in the midst of its merger with 
Disney, apologized to Philip Morris and paid $15 million in 
legal costs for a story on its news magazine ``Day One,'' 
alleging that the tobacco company spiked its cigarettes with 
nicotine, even though many thought the piece was right on 
target.
    Later that year came the ``60 Minutes'' tobacco debacle on 
CBS, now, by the way, the subject of a Disney feature film 
starring Al Pacino, just at the time that CBS was merging with 
Westinghouse.
    And in 1998, CNN joined the malfeasance parade, repudiating 
its own investigative report on Operation Tailwind. It was a 
story also featured in Time magazine, which was a questionable 
demonstration of the much-vaunted benefits of synergy achieved 
by joint media ownership.
    Certainly, not all these major journalistic and corporate 
transgressions can be blamed on the mergers, but it is unlikely 
that they would have happened in an earlier, more responsible 
era of network news. Much of it has to do with the diminishing 
importance of news in the organizational charts and balance 
sheets of today's vast media entertainment conglomerates. Once 
the centerpiece of the nation's major broadcasting companies, 
led proudly by CBS News, I might add, television news has now 
become marginalized, a very small piece on the fringe of a 
giant entertainment complex.
    Part of the problem also has to do with the lowering of 
television's journalistic standards, the tabloidization of TV 
news, and the blurring of the line between news and 
entertainment in today's no-holds-barred race for ratings and 
profit, caused in great part by the bottom-line emphasis of 
these giant mergers.
    It used to be that the flagship programs of the television 
networks' news divisions were their nightly news reports, prime 
time documentaries, and live news event coverage. Today, the 
flagship network news programs are the programs that make the 
most money, the primetime magazine shows, most of which offer 
essentially nonfiction entertainment rather than meaningful 
news of the world.
    In conclusion, I would urge the members of this committee 
to ask the principals of CBS and Viacom here in this room for 
their long-term commitment to preserve and enhance the quality 
and character of CBS News, to commit their company to 
responsible and thorough worldwide national and local news 
gathering and news reporting, to refrain from interfering with 
the content and quality of the news regardless of their 
immediate financial interest, and to recognize and acknowledge 
their paramount responsibility as trustees of the public 
airways to provide the resources needed for thorough and 
responsible news gathering and news reporting on CBS and its 
stations. After all, the station licenses that CBS holds as a 
public trustee constitute by far most of the company's 
financial value in its merger with Viacom, and you should 
insist that its valuable trusteeship will be honored. Thank 
you.
    Senator DeWine. Thank you very much.
    Professor Waterman.

                  STATEMENT OF DAVID WATERMAN

    Mr. Waterman. Thank you, Mr. Chairman. I also very much 
appreciate the opportunity to appear on this panel.
    I have spent most of my career studying the economics of 
media industries and I share the view that you and Senator Kohl 
and others have expressed that media mergers should endure 
especially close policy scrutiny. Like other mergers adverse 
effects on prices, output levels, and economic welfare in 
general can result. But I acknowledge an overriding need to 
preserve a diversity of voices or a free marketplace of ideas 
in our society.
    Generally speaking, I think that the CBS/Viacom merger is 
not likely to be a serious threat, either to economic welfare 
or to a free marketplace of ideas. Necessarily, though, my own 
review of the merger is preliminary and cursory, and I will, 
therefore, speak as much about what I think are the appropriate 
criteria for evaluating these media mergers as about the CBS/
Viacom deal itself.
    In that regard, the main point I want to make is that I 
believe we need to focus on how a merger may create horizontal 
market concentration within particular media markets, 
appropriately defined, rather than size or breadth of 
operation, or for the most part, the extent of vertical 
integration.
    Regarding the concerns about size, I think it is important 
to consider the growth of media firms relative to growth of the 
media industries themselves. In 1977, CBS, Incorporated, was by 
far the largest media conglomerate in the United States, with 
annual media revenues of $2.3 billion, at that time mainly 
television and radio broadcasting, music, publishing, and 
magazines. Twenty years later, in 1997, the combined media 
revenues of CBS and Viacom were $14.4 billion, about six times 
that of the old CBS.
    But during that same 20-year period, total consumer plus 
advertising spending on media in the United States rose from 
approximately $40 billion to $234 billion. That is also about a 
six-fold increase. So the new CBS/Viacom would not only account 
for a fairly minor proportion of total media business, all 
considered, in the United States, it would be only slightly 
larger than the CBS of 20 years before.
    Several of the media that CBS and Viacom are involved in, 
video cassettes and cable networking, in particular, barely 
existed 20 years ago, and in spite of all the new competition, 
most of the established industries, including broadcasting, 
have expanded briskly over the same time frame.
    I think the evidence earlier cited that the media are 
falling into fewer and fewer hands is not supported by the 
evidence. What is most important in any case, I believe, from a 
policy standpoint, is not size but how a media merger changes 
the degree of horizontal ownership concentration within 
individual media industry segments.
    For example, does concentration in broadcast TV networking, 
broadcast station ownership, cable networking, et cetera, or 
perhaps all of the media within a local market, reach levels 
that risk anticompetitive behavior or threaten the diversity of 
ideas?
    Let us consider first the economic perspective. From casual 
observation, at least, it seems to me unlikely that the 
increases in concentration in television station ownership or 
television network ownership due to the proposed merger would 
turn out to be excessive in antitrust terms, at least at the 
national level. But I emphasize, Justice Department scrutiny of 
these combinations is very important, though, especially at the 
local market level. For example, it is quite possible that 
excessive cross-ownership of radio, television, and other media 
outlets would have an adverse effect on competition for 
advertising within particular local markets, as Senator DeWine 
mentioned. We need to ensure that local market shares in each 
of the individual media, or in the media as a whole, remain 
low.
    Also, the merger of UPN and CBS, due to the special 
circumstances of the broadcast industry, does raise important 
competitive questions that need to be considered.
    Now, from a diversity of voices perspective, I think the 
same general criteria should apply. That is, concentration 
within individual industry segments or local market areas, but 
I also recognize the media as a whole, is important. What the 
right thresholds of ownership concentration are, I think, is a 
different matter. They should probably be stricter than 
economic criteria. I think that diversity of voices is more 
important than competition and efficiency, and this is 
especially true regarding news and information. But where those 
thresholds fall is really a matter of political judgment on 
which I claim no particular expertise. But I think a historical 
perspective is again useful. Media chains and cross-ownership 
are growing, but the media outlets are themselves growing, I 
think, as fast, or probably faster.
    Let me turn briefly to the question of vertical 
integration. The merging of Viacom's substantial TV production 
and programming resources with the CBS network has attracted a 
lot of attention. The concern there is that CBS network would 
favor the programming produced by the suppliers that it owns to 
the exclusion of independent or unaffiliated producers. This is 
an important concern, because free entry and programming supply 
promote both economic welfare and a diversity of voices.
    I think we can, in fact, expect a TV network to lean toward 
exhibition of programs in which it has an ownership interest. I 
doubt, though, that the merger would result in very serious 
vertical foreclosure effects from either an antitrust 
perspective or diversity of voices perspective.
    First, unaffiliated program suppliers retain substantial 
alternative channels of distribution. Also, and I think this is 
perhaps most important, there are very powerful constraints on 
self-dealing in this type of market. From the network's 
perspective, it is self-destructive to exhibit programs that 
will not attract the highest or most valuable audience 
possible, and vice-versa from the producers' perspective. They 
need the best and most appropriate outlets for their programs. 
More generally, I think, broadcast networks have no way of 
predicting where the best ideas from their programs will come 
from and they cannot afford to close or restrict those 
channels.
    To summarize, in general, I just want to say that I think 
that the most important step in any merger analysis is to begin 
by asking the right questions. The main one, again, should be 
about the extent to which they create excessive concentration 
within particular markets, however appropriately defined. Their 
sheer size or breadth of operation are not, in my opinion, of 
very much significance. Also, while vertical integration can 
have important harmful effects under certain circumstances, the 
amount of attention it receives in the public forum is, in my 
opinion, out of proportion to its real consequences. Thank you 
very much.
    Senator DeWine. Thank you.
    [The prepared statement of Mr. Waterman follows:]

                  Prepared Statement of David Waterman

    My name is David Waterman. I am Associate Professor in the 
Department of Telecommunications, Indiana University, Bloomington. I 
have spent most of my career studying the economics of media 
industries.
    I share the view of many others that media mergers should be 
subject to especially close policy scrutiny. Like mergers in other 
industries, they may have adverse effects on prices, output levels, and 
other elements of economic welfare. I believe that there is also an 
overriding need to preserve a diversity of voices, or a free 
``marketplace of ideas,'' in our society.
    Generally speaking, I think that the CBS-Viacom merger is unlikely 
to pose a serious threat either to economic welfare or to a free 
marketplace of ideas. Necessarily, my analysis of this merger is 
preliminary. Pending a more detailed analysis, which both the Justice 
Dept. and the FCC will no doubt conduct, I will therefore speak as much 
about what I regard as the appropriate criteria for evaluating media 
mergers, as about the CBS-Viacom combination itself.
    Much concern has been expressed about the sheer size and range of 
media interests that media conglomerates, notably CBS-Viacom, are now 
attaining. It is important, however, to consider the growth of media 
firms relative to growth of the media industries themselves. In 1977, 
CBS, Inc. was by far the largest media conglomerate in the United 
States, having annual media revenues of $2.3 billion, mainly from 
television and radio broadcasting, music publishing, and magazines. 
Twenty years later, in 1997, the combined media revenues of CBS and 
Viacom were $14.4 billion, approximately 6.2 times that of the old CBS. 
During that same 20 year period, however, total consumer plus 
advertiser spending on media in the United States rose from 
approximately $40 billion to $234 billion, a 5.9 fold increase.\1\
---------------------------------------------------------------------------
    \1\ Media are considered to include broadcast television and radio, 
cable television, other multichannel video distributors, home video 
rentals and sales, movie theatres, newspapers, magazines, books, 
records and Internet advertising. Source: Annual 10-K reports, U.S. 
Dept. of Commerce, Newspaper Publishers Association, Paul Kagan 
Associates, Benjamin Compaine.
---------------------------------------------------------------------------
    Thus, the new CBS-Viacom would not only account for a fairly minor 
proportion of total media revenues in the U.S. It would, in these 
terms, be only slightly larger than the CBS of 20 years before.\2\ 
Several of the media industries that CBS or Viacom are now involved in, 
notably videocassette distribution and cable networking, barely existed 
two decades ago. And in spite of all the new competition, most of the 
established media--including broadcasting--have expanded briskly over 
that time period as well.
---------------------------------------------------------------------------
    \2\ Media revenues of the largest media conglomerate in the United 
States, Time-Warner, were approximately $22.3 billion in 1997, half 
again as large as CBS + Viacom, although a relatively high proportion 
of its revenues are derived from foreign markets.
---------------------------------------------------------------------------
    What is most important from a policy standpoint is in any case not 
the overall size of a media conglomerate. Rather, we should be mainly 
concerned with how a media merger changes the degree of ownership 
concentration within individual media industry segments. For example, 
does concentration in broadcast networking, broadcast station 
ownership, cable networking, magazine publishing, etc., reach levels 
that risk anticompetitive behavior or jeopardize a free marketplace of 
ideas?
    Consider first the economic perspective. It seems unlikely that the 
concentration increases in television station or television network 
ownership due to the proposed CBS-Viacom merger would raise serious 
antitrust concerns, at least at the national level. Justice Dept. 
scrutiny of these combinations is important, however, especially at the 
local market level. It is impossible that excessive cross-ownership of 
radio, television, and other media outlets would have adverse effects 
on competition for advertising within particular local market areas. We 
need to ensure that local market shares in each of the individual media 
(and among the media as a whole) remain low. If they do, harmful 
economic effects on advertising prices or other economic measures are 
unlikely to result.
    From a market-place-of-ideas perspective, the concentration of 
media ownership within particular industry segments (or within certain 
local market areas) is also the appropriate criteria for merger 
evaluation. Most important in my opinion is diversity of ownership of 
news and information outlets.
    In general, I think that such diversity concerns before efficiency. 
The proper thresholds of market concentration may be quite different on 
the marketplace-of-ideas vs. economic criteria. What the appropriate 
limits on the number of independent voices in television, radio, or 
broadcasting more generally, are, is a matter of political judgement 
upon which I claim no special expertise. Some historical perspective, 
however, is again useful. While television, radio, and other media 
chains are becoming larger, and media cross-ownership has increased, 
the number of media outlets that citizens have available, including 
those offering news and information, appear to be growing as fast or 
faster.
    One feature of this proposed merger that has attracted much 
attention is the vertical integration of substantial television 
production and programming resources owned by Viacom with the 
distribution facility of the CBS television network. A widely expressed 
apprehension is that after the merger, the CBS network would favor 
programming produced by the suppliers that it owns, to the exclusion of 
independent or unaffiliated producers. This is an important concern 
because free entry in programming supply promotes both economic welfare 
and a healthy marketplace of ideas.
    We can, in fact, expect a television network to lean toward 
exhibition of programming in which the firm has an ownership interest. 
From a marketplace-of-ideas perspective, such favoritism is of inherent 
concern. I doubt, however, that the CBS-Viacom merger would result in 
very serious foreclosure effects from either an antitrust or diversity 
of voices perspective. First, unaffiliated program suppliers would 
retain substantial alternative channels of distribution. Also, the 
competitive environment imposes powerful constraints on self-dealing in 
this market. From the network's perspective, exhibiting programs that 
are not expected to attract the highest or most valuable audience 
possible is self-destructive. From the producer's perspective, 
accepting distribution on any less than the best or most appropriate 
outlet is equally costly. More generally, broadcast networks have no 
way of predicting where the best ideas for their programs will come 
from, and they cannot afford to close or restrict those channels. The 
power of these incentives is demonstrated by the high degree to which 
prime time network programs are now bought from independent suppliers 
or are cross-traded between vertically integrated network and 
programming suppliers.
    In summary, the main policy concern with media mergers, including 
CBS-Viacom, should be the degree to which they may create excessive 
horizontal market concentration within particular media industry 
segments (e.g., broadcast television networking) or within local market 
areas. Their sheer size or breadth of operation are not in my opinion 
of much significance. Also, while vertical integration can have 
important harmful effects on economic or social welfare, the amount of 
attention that vertical ownership receives in the public forum is out 
of proportion to its real consequences. The most important step in any 
merger analysis, therefore, is to begin by asking the right questions.

    Senator DeWine. Thank you all very much. That is very 
helpful.
    Mr. Redstone and Mr. Karmazin, that was quite a press 
conference you all had. You got everybody's attention. It has 
been quoted here four or five times today. I wonder if you 
would respond to Mr. Grossman's comment and others' comments in 
regard to the fact that at this press conference, there was no 
mention about quality as far as children's programming, no 
mention about the quality of news.
    Mr. Redstone. Let me comment just for a moment.
    Senator DeWine. You can take issue with the premise, even, 
if you want to.
    Mr. Redstone. And then I will turn this over to my new 
boss.
    Senator DeWine. You need to pull that closer, sir. We need 
to hear you.
    Mr. Redstone. As I said, let me comment about this and then 
I will turn it over to my new boss, Mr. Karmazin. We did not 
intend to cover every subject, and I do not see how anyone 
could raise questions about the quality of children's 
programming. Nickelodeon is hailed by teachers, by parents, and 
also by the children themselves as a wonderful contribution to 
children's programming. That is why it has more than 50 percent 
of all the rating points, not because of any kind of power, but 
because of the quality of the programming.
    So when you look at Nickelodeon and you talk about the 
issues you have raised, you think about Nickelodeon's programs 
like ``Big Help,'' where children are empowered to commit their 
time to their communities rather than to be on the streets.
    So I just want to comment briefly on that aspect of the 
subject. We were not purporting to cover the world in that 
limited press conference, but I do not think anybody could take 
a contrary view to the one I expressed, that Nickelodeon stands 
for quality programming.
    Let me turn this over to Mel.
    Mr. Karmazin. I did not say I love America, either, and I 
do. Quality programming and integrity of news is something that 
is so obvious when you are a trustee of a license that you do 
not need to say that. It goes with the territory. We have all 
been broadcasters for a long time and we know what that 
responsibility means.
    Senator DeWine. Let me follow up with that. Mr. Grossman 
had some, I would say, fairly critical comments about what has 
happened with broadcast news. This has been a drumbeat that we 
have heard for some time as far as shutting off foreign outlets 
or shutting off foreign bureaus, et cetera. I just wondered if 
you would want to comment on that.
    Mr. Karmazin. Sure. Mr. Chairman----
    Senator DeWine. What I want to do is, first, give you an 
opportunity to answer some of these things that have been 
stated here.
    Mr. Karmazin. Mr. Chairman, I will do anything that you 
want me to do. This merger has nothing to do with CBS News. 
Viacom is currently not in the news business at all, so that 
any changes that we wanted to make within CBS News, we could 
have made within CBS News. But the facts support just the 
contrary. If there is anything going on, we are supporting and 
putting more money and investing more into CBS News. We are 
very proud of ``60 Minutes'' and ``60 Minutes II.'' Dan 
Rather's evening news is still being broadcast, and we spend a 
considerable, an incredible amount of money to do that half-
hour program. On Monday, we are going to start a new morning 
news show, hopefully to be competitive with the other networks, 
that would star Bryant Gumbel.
    So I would support that the facts are to the contrary, that 
there is more of an investment, more of a commitment on the 
part of CBS in news, and the fact that--I heard some reference 
earlier to Shadow and Metro. It seems to me that there are more 
people now doing news. So on one hand, it is worse if there are 
less, but when new entries come in to do news, that, too, many 
not be perceived by some people as being good.
    I will give you another great example of where this merger 
is benefiting the public, is that there is an awful lot of 
Paramount stations that do not do news at all. They currently 
are not doing news in markets where CBS has a television 
station and we obviously do do news. The opportunity exists for 
us to serve the public by providing a 10 o'clock news on a UPN 
station or Viacom station and an 11 o'clock news on a CBS 
station. So it is just the opposite. I think there are great 
public service advantages to this merger.
    Senator DeWine. You mentioned Metro. I was sort of 
intrigued by the comments about Metro. Do you want to tell us a 
little bit about that, your side of that story?
    Mr. Karmazin. I am not sure I know what there is to tell 
about it. Certainly, a company called Westwood One, which is a 
separate publicly-traded company with separate shareholders and 
had Shadow Traffic, acquired Metro. It went through the 
Department of Justice. Obviously----
    Senator DeWine. Well, no, excuse me. We are not talking 
about the legalities here. We are talking about the statement 
that was made by Mr. Schwartzman in regard to this that, 
basically, you are getting the same news on station after 
station after station in the same market. It is different 
stations, yes, maybe different people with different title of 
news director, but the allegation was--and we are not saying 
there is anything illegal about it. What we are here today to 
talk about is public policy. Is that true, and what is your 
comment about the public policy?
    Mr. Karmazin. I think as a public policy, it has served the 
country well to have the Telecommunications Act of 1996, 
because the radio business was suffering and losing money. 
There were 5,000 stations losing money, so stations were 
cutting news because they could not make money. The fact is 
that there are more stations doing news today since the 
Telecommunications Act passed because they now have the 
services of companies that were created to provide news for 
stations that were not in the news business.
    It was mentioned earlier that CBS and Westinghouse 
combined. The record is clear, because someone can go to New 
York City and they can see that we own WCBS Radio and WINS 
Radio, two all-news stations, totally separate newsrooms, not 
consolidated, not even at the same location. Neither one of 
them are at the same location as our television stations, each 
with individual news directors.
    So the fact is that in any market in the country, I believe 
that there is more news being presented. It may, in fact, be 
done by few people because the economics are such that you 
cannot have 20 people doing news for radio because the radio 
business was a bad business in those days and stations were 
going dark.
    Senator DeWine. So your bottom line--I do not want to 
belabor this point, but your bottom line is, I can pick it up 
on more stations. I might have XYZ station. None of the three 
of them might be carrying news but for this. What you are 
saying is I am better off as a consumer to be getting news on a 
whole bunch of different stations, some of them which would not 
have had any news, even if the news is all the same, even if it 
comes basically from the same source.
    Mr. Karmazin. I think what I am saying is that if given the 
alternative for radio stations to fully staff a news 
organization or, as an alternative, they will not present news 
at all, so the fact that there are outside sources that are 
able to provide the press conference coverage--I mean, it is a 
little bizarre to me to see all of these people here taking 
individual pictures and a lot of companies cannot afford to 
have photographers here. So the fact that somebody is going to 
take the picture and sell it to a bunch of newspapers, I think 
that makes a whole lot of sense. If not, they would not get the 
picture. It is not like----
    Senator DeWine. With all due respect, that is a little 
different. That is a little different than how the news is 
presented over the air, and this is not a major point of this 
hearing. I just was trying to get it clarified. But I want to 
go back to what I asked you, and I was trying to be fair to 
you. All you are saying is, I am better off as a consumer 
having it on 10 different stations, whereas if but for what you 
are doing with Metro, I might only be getting it on five. The 
only counterpoint to that is, it is coming out of the same 
source and we just accept that.
    Mr. Karmazin. Possibly, Mr. Chairman, but what I am also 
saying is that each of these radio stations have separate 
licensees and separate people who are there to serve their 
community. If the news product that they were presenting on 
their radio station was not what they wanted to present to 
their audience, it would not be on. It is not a decision on the 
part of Metro----
    Senator DeWine. Well, that is stating the obvious, I think.
    Mr. Karmazin. OK; as long as we agree with that, then that 
is fine.
    Senator DeWine. I am just trying to get what the basic 
facts are and taking what Mr. Schwartzman said and whether you 
agree with his basic facts or not.
    Mr. Karmazin. I do not agree because of the relevancy and 
the size of Metro traffic, Metro news or sports news, is so 
minimal. There are just not a lot of major television stations 
or radio stations that are doing it. They are using it as a 
source. They are getting some content.
    Senator DeWine. Again, I think you are protesting too much. 
It is, again, not that huge, central part of this hearing. But 
he went beyond that. He said other forms of content of news 
coming out. It was not just the sports or traffic. It was 
everything that he was talking about. I was just trying to get 
what the facts are.
    Mr. Karmazin. I will not protest anymore, then.
    Senator DeWine. No, you can protest. I am just trying to 
get you to give me the facts and tell me where his facts are 
wrong.
    Mr. Karmazin. The facts are that there is a company that is 
called Metro Traffic and Shadow Traffic, Shadow Services and 
Metro Services, and one of the services that they provide to 
the broadcasting industry is that they provide news, sports, 
and certain type of entertainment programming. I cannot tell 
you in every single market the number of stations. But I also 
should say that that is not part of CBS and it is not part of 
Viacom.
    Senator DeWine. One last question and then I will turn to 
Senator Kohl. Mr. Redstone and Mr. Karmazin, you have made 
clear in your written testimony and in your comments here today 
that you believe this deal will pass muster with the antitrust 
agencies and with the Federal Communications Commission, and I 
can certainly appreciate this point of view. There is limited 
overlap in the markets that you currently serve and it does 
seem likely that you will be able to comply with the FCC 
regulations one way or the other.
    Still, putting aside any issues of antitrust law, as a U.S. 
Senator from Ohio and as a consumer, I still have some concerns 
about what this deal means in the long run. Mr. Redstone, you 
yourself have stated that the merged Viacom/CBS will be the 
``king of content,'' and that leaves a perception, at least, 
that Viacom in some sense will be part of a very small group of 
companies that has very significant control over the flow of 
information to American citizens. I wonder if you can address 
those concerns for us----
    Mr. Redstone. I would like to----
    Senator DeWine [continuing]. And if I could finish, and 
what are the long-term implications for the entertainment and 
media industry.
    My point, gentlemen, is that this committee is the 
Antitrust Committee. It is also the Competition Committee. I 
think there are some very significant issues of public policy 
that are at stake here that go beyond whether or not there is a 
technical compliance with the antitrust law or whether you can 
make the changes that the Justice Department may require you to 
make.
    Mr. Redstone. I would be glad to answer that, but I would 
like to start with a small subject matter which bears on this 
that was raised before, and it deals with this general issue, 
and that is whether independent programmers, for example, will 
be denied access to, say, CBS because of its relationship with 
Paramount. That goes to the heart of the matter.
    That course of action would be totally self-destructive. If 
CBS confined its purchase of programming to Paramount 
programming, it would be destructive of CBS. CBS's job is to 
get the best programming it can from anybody, from an 
independent program, from somebody with a new idea, and 
Paramount's job is to sell its programs to the highest bidder. 
So you will see none of that in this merger and that is one 
issue that has been raised about the merger. There are other 
companies that look at this differently. We do not. This is not 
an area for synergy.
    As far as the long-range implications of this merger, I 
think it will only enhance competition. Why? Because when you 
look at each element of our business, CBS is subject to 
enormous competition. CBS has competition from three major 
networks and from two minor networks. Paramount is subject to 
enormous competition, and by whom? Not small companies--Time 
Warner, Columbia, Seagrams, Newcorps. Take every one of our 
single businesses we have. It is true that CBS has a prominent 
position in radio. They own one-and-a-half percent of the radio 
stations in the United States. They may do better than others, 
but that is because of the quality of the programming on there. 
We have no interest in outdoor advertising. They do. It is hard 
for me to see, and there are many businesses that I have said 
that we are in, like publishing, like parks, like video 
rentals--Blockbuster is very important to us--they have nothing 
to do with that.
    So it is hard to see why there would be any long-range 
difficulties, long-range negatives to this kind of a merger. 
Unlike other mergers, we are not concentrating anything. As was 
pointed out, we may be a big company, but the media industry is 
very big. Look at who our competitors are. The major companies 
in the media industry all compete with us on an overall basis.
    Senator DeWine. Mr. Karmazin.
    Mr. Karmazin. No, I think in every one of our individual 
businesses, I think the relevant thing is that we have an awful 
lot of competition, whether it be in the television business, 
in the outdoor business, in the radio business. But I cannot 
underestimate and talk about the importance of the new 
technology that is coming out there. There are currently 1,800 
radio stations on the Internet, and there are all kinds of 
ideas coming out every day about broadband and streaming video 
and the importance of that.
    So the competitive landscape is moving so rapidly--so 
rapidly--that it is unfair to not consider that when they are 
competing with us for advertising dollars, for viewers. 
Washington has not figured out a way to expand the day beyond 
the 24 hours. So if you believe that people are using the 
computer more, then the time that they are spending on that 
computer is taking it away from something, and it is taking it 
away from television, it is taking it away from watching radio, 
and it is making our business more competitive.
    So I think that there are existing FCC regulations, as 
someone who has gone through it a long time, there are existing 
DOJ regulations, and all of them deal with the issues that this 
committee is also concerned about. I think that there is plenty 
of competition for this new company. We are not even the 
biggest company in the media business, let alone that the 
biggest company in the media business is not really a big 
company in the scope of bigness.
    Mr. Redstone. May I also add, because I think you want to 
know what the advantages are. Is there not an advantage to this 
country where the export of information and entertainment is so 
important that MTV is now in 300 million households around the 
world? That Nickelodeon is now in 140 countries. It just went 
into India, for example. I see that as an advantage, not as a 
disadvantage, in terms of the public interest of this country, 
and to the extent that we become stronger as a company and 
enabling us to do that more.
    For example, some of the CBS product, could not Paramount 
help in distributing that product? The infrastructure of 
Paramount is all over the world.
    I am saying, I think that it is OK and it is appropriate to 
look at possible concerns about this merger, although we say 
they are little because we have such competition in every area 
of the business. I think we should also look at the advantages 
of the merger.
    Senator DeWine. Senator Kohl.
    Senator Kohl. Thank you. Continuing on, Mr. Redstone and 
Mr. Karmazin, obviously, you both contend that this merger does 
not violate any antitrust concerns. Where do we draw the line 
in the sand? What kinds of mergers, what companies would you 
suggest whose merger would violate antitrust concerns?
    Mr. Redstone. Well, I certainly would not identify any 
particular companies, but I think where you have a merger, 
where you have competing parties and you are going to eliminate 
competition, I certainly think that would be a merger that 
would not fly and should not fly, and I doubt that the 
regulatory authorities would permit it to fly.
    Where you have a merger where you have one business and you 
are going to end up with more concentration in that business, 
which is unlike this because the business is different, I think 
that kind of a merger would warrant scrutiny. And, frankly, 
where you have a merger which would, in your view, impede the 
free flow of information, and there are some mergers that have 
historically run that risk. I testified here on one of them 
some time ago. Then I think you have to take a good look at 
that, but I do not think that exists here.
    Senator Kohl. Your partner, who is the chairman of CBS, 
said when he was the chairman of CBS that he would like to buy 
NBC. How does that strike you?
    Mr. Redstone. He was on the wrong track. What he should 
have been looking to buy----
    Senator Kohl. He was on the wrong track?
    Mr. Karmazin. He wanted me to buy UPN. What I was saying 
then, and I believe today, is that there is so much 
competition, there is so much competition, to preserve free 
over-the-air broadcasting, which I think should be an important 
agenda, needs to have some consolidation. The number of 
channels that we have now, CBS is allowed to have one. There 
used to be only 5, or 6, or 7 channels. There are now--talk 
about 500, but I know I have 76 channels that are available to 
me.
    If we were to take the UPN network--it is not ours, but if 
we were to take the UPN network and put it on cable, the only 
people who would get hurt are the poor people that do not have 
cable, because there is no rule that says we cannot do that. If 
we were to create a new CBS network, CBS II, there are no rules 
that say we cannot create a second network. As a matter of 
fact, that would be looked upon as being procompetitive, to 
have another network.
    What exists today are these rules that were done in 
different times and with no consideration to broadband, no 
consideration to what has happened in cable, no consideration 
to the new technology, and we think that the, what I was saying 
at that time, is the ability to own two networks is not an 
unreasonable position. But that is not what we are here 
proposing. We are proposing----
    Senator Kohl. We are trying to get at when do you believe 
we step over the line.
    Mr. Karmazin. I believe that you are in a better position 
and the DOJ is in a better position to determine that. But I 
know that on this deal, we have not, for the reasons that we 
have submitted.
    Senator Kohl. Any comment on that, Mr. Grossman?
    Mr. Grossman. First of all, I am delighted to hear the 
commitment to maintain and, in fact, expand CBS News and its 
quality. I think we have to start looking underneath. There 
certainly is plenty of competition, but the reality is that in 
the news gathering, and radio is a prime example of that, there 
are some 15 all-news radio stations, of which CBS now owns 
four, two in Los Angeles and two in New York, but by and large, 
there are no radio stations in the country that have their own, 
or very few that have their own independent news staffs left.
    So while there is much competition, there is a tightening 
of that pipeline in terms of the actual gathering of news. 
People are spilling out, as we see with the O.J. Simpson 
phenomenon and the other stories that so dominate the 
headlines, the same stories over and over again. The emphasis 
on news has been increasingly in the areas that make money, do 
not cost money, which is entertainment, in effect, the prime 
time news magazines, which largely do not cover the major 
issues around the world.
    I think we have to look very hard at the quality of the 
information that American society is being given through this 
most important medium, and I think we have to start addressing 
the issues of the diversity of sources of news, because while 
there is much competition, there are very few companies that 
are doing major jobs in the news reporting and news gathering 
in the broadcasting area.
    Senator Kohl. Does he not make good sense?
    Mr. Karmazin. No; his facts are wrong. I think we can argue 
opinion, but not facts. In talking about New York City, in New 
York City, there are, as was mentioned, we have two all-news 
stations. There is a separate news department at the Chris-
Craft TV station, at the Tribune TV station, at the Disney TV 
station, at the Fox TV station, and at the NBC TV station. 
There are, in addition to the all-news stations, radio stations 
that operate separate news operations that do not get their 
news from the Metro Traffic services or from Shadow traffic 
services.
    So I do not know if there is a number that somebody wants 
to say is the right number, but in the markets that we are 
talking about on our deal, there are plenty of news gathering 
companies.
    We spend, and I find it is just so peculiar, the amount of 
money that we spend covering the world, not for the half-hour 
of nightly news but just in case war breaks out, or just in 
case, God forbid, there is a tragedy--and I am proud of the job 
that CBS does. And again, this merger and what we are here to 
talk about is not about--if we wanted to cut the news costs at 
CBS, we could have long done that. This has nothing to do with 
Viacom. There is no cost there.
    The only thing that is coming in and the only thing that I 
think this committee should be concerned about is Viacom is 
bringing in a very healthy company, something that has some 
very profitable cable networks, a profitable studio, and that 
could make CBS stronger. And if CBS is stronger, then we can 
provide more news and operate more bureaus and operate more 
programming devoted to news, and that has been our track record 
and we can demonstrate that.
    Senator Kohl. What is your participation in CBS News?
    Mr. Karmazin. My participation in CBS News is that when I 
see--Andrew Hayward is the president of CBS News. Dan Rather is 
the managing editor. Don Hewitt and Mike Wallace and all those 
guys are there. I say hello to them and I thank them. But if 
the question is, am I involved in the process of selecting 
stories, deciding, no, I have not, and there has not been one 
example, not one example in my 30 years of involvement in 
broadcasting, where I would interfere with news. It just does 
not go in line with being a broadcaster. I think that----
    Senator Kohl. Are you comfortable with that statement, Mr. 
Grossman?
    Mr. Karmazin. I think if you know those people, and I know 
he does, that he is aware that Don Hewitt is running ``60 
Minutes'' and Andrew Hayward is running that.
    Mr. Grossman. I think one of the great virtues of Mr. 
Karmazin's experience as a broadcaster is that he knows the 
limits and is aware of the sensitivity and is concerned about 
not interfering with news. I will not say that about all new 
owners of television or broadcast companies. But eventually, 
they learn.
    I still think there is a major problem. I will give you a 
very good example. We are talking about radio. When NBC Radio 
was sold to Westwood One, it was given the right to use NBC 
Radio News on the air and identify itself as such, even though 
NBC News had absolutely no editorial oversight or 
responsibility for it. And the fact is that it came out of a 
central pipeline, as Andrew Schwartzman very accurately 
described it, so that what people were getting was not NBC News 
at all. They were getting some syndicated service that was 
simply slapped on the identification of NBC News. I think we 
have to be very careful about looking at the authenticity and 
the diversity of news sources, not just news broadcasting.
    Senator Kohl. Mr. Waterman.
    Mr. Waterman. You asked originally, what are the limits. I 
think a good example of a bad merger would be CBS and NBC 
because of the concentration that creates in not only news 
delivery but in broadcast television networking, or how about 
Viacom and Time Warner. These are things that create a large 
concentration within particular market segments, like cable TV 
programming.
    Just another comment, though. All the news may look the 
same, but there is certainly an awful lot more of it. What is 
really important is the number of separate owners. I do not 
think the stories, that you hear about the fact that one 
company owns two networks in one market and they tell you a 
story about how the news is very different and independent from 
one station to another. I do not think that those are really 
relevant comparisons.
    I think that what your role has to be and the Antitrust 
Division of the FCC is to make sure there are enough separate 
owners of outlets of news and information so that that problem 
is not at risk.
    Senator Kohl. One other question. Gentlemen, I have a 
friend who owns a couple of radio stations in Milwaukee. As a 
result of the radio consolidation that we have seen, and 
especially the pending Clear Channel AM-FM merger, my friend 
worries that he will not be able to compete and sell 
advertising on his stations, particularly when he is faced with 
the large market clout offered by large conglomerates. He gets 
a lot of offers to sell his stations to the ``big guys,'' but 
he does not want to. He likes being part of the local community 
and feels a responsibility as an African-American to ensure 
that minority voices are represented on radio.
    Mr. Karmazin, are my friend's concerns, and they are well-
documented and long-standing--he has been in business for a 
long, long time--are his concerns legitimate? Are small radio 
station owners today doomed in the marketplace? Will small 
broadcasters be able to compete with your multimedia 
conglomerates in the battle for listeners and advertisers?
    Mr. Karmazin. Yes; I believe that if, in fact, somebody has 
some good programming ideas and are operating their radio 
stations well, they can compete. Senator, I do not know if you 
are familiar with Beaver Dam, WI. It is just right outside of 
Madison. I have a son who owns four radio stations there and he 
is competing with a company called Clear Channel and my son is 
making an awful lot of money as an independent operator, with 
no help for his father, that is for sure----
    Senator Kohl. Does he live there?
    Mr. Karmazin. He lives there, yes, and votes there. 
[Laughter.]
    Just joking. But he is a resident of Beaver Dam, WI, and he 
competes with Clear Channel.
    It is interesting to note that you mentioned the Clear 
Channel merger, and it has gotten a lot of attention and has 
some 800 or 900 radio stations. Of that number of stations, 540 
of them have revenues of under $2 million, and that is the 
problem of the radio business, is that it is a very fragmented 
business and one that there were so many stations that were 
losing money that the consolidation was necessary.
    If there is one newspaper, and again talking about local 
advertising in a market, in a given market, the Washington Post 
here in Washington, if you were to take the amount of 
advertising that somebody would have owning a bunch of radio 
stations and having some outdoor, and if you were to aggregate 
all of the advertising in Washington, which would include the 
Post and the Times and everything else, you would see that this 
company is a very, very small piece, even in the local market 
of total advertising, when you look at the newspapers.
    So, no, I think that newspapers get 22 percent. The 
advertising pie in America is a little over $200 billion. 
Newspapers get 22 percent of that pie, and in most markets, it 
is the newspaper that really has the monopoly. We are not 
complaining about that, but what was necessary was 
consolidation to be able to go after some of the advertisers 
that are in the newspapers, and it is very hard to talk about 
concentration when the radio business is today 7 percent of the 
advertising pie, the outdoor industry is 2 percent of the 
advertising pie, and the cable business is 7 percent of the 
advertising pie.
    On competition, the FCC made it very clear on these local 
ownership rules that when they are allowing to operate, when 
they are going to allow two stations, there needs to be at 
least an independent television station voice in that market, 
and they have also said that two of the top four stations 
within a market cannot combine. So even where somebody is going 
to own two television stations in a market, they are not going 
to have the two top stations, because they cannot do that under 
the regulation.
    Senator Kohl. Mr. Schwartzman.
    Mr. Schwartzman. Yes; as to that last, with respect to the 
independent voices, the independent television stations and the 
National Association of Broadcasters last week asked on 
reconsideration for the FCC to abolish those eight-voice tests, 
and I guess I hear Mr. Karmazin disagreeing and wanting to 
support them, and I look forward to seeing CBS file at the FCC 
in support of retaining those eight-voice limits.
    I would like to say, I thought the example of Mr. 
Karmazin's son is kind of interesting because it also addresses 
some stuff that came up earlier. I do not think that anybody 
needs to say much to the competitors of those radio stations 
that Mr. Karmazin's son owns, for them not to face especially 
aggressive or really strong-arm tactics. I can just see the 
discussion.
    His father is Mel Karmazin. I am not sure we really want to 
fool around with him. Mr. Karmazin does not have to do 
anything. There is nothing wrong. His son should be in 
business. It is just that his son is blessed because there is a 
kind of self-restraint, and that is the problem in the news 
area, as well.
    I do not think for a minute that Mr. Karmazin is going to 
interfere with a news operation. He knows better. But there are 
lots of people in the newsroom who may not realize that. The 
biggest problems, and Larry Grossman has written about and 
cited numerous examples he could explain to you, is self-
censorship.
    Suppose, for example, one of these horrible nightmares, a 
parent's nightmare, a teenage kid involved in an accident and 
there is alcohol and cars and this kind of thing, and the guy 
sitting in the TV station newsroom says, you know, that kid is 
the owner's son, or even the owner's next-door neighbor. I am 
not sure we really need to lead the newscast with this story. 
What do you think? There is no need for any kind of 
interference.
    Now, if you take Shadow Traffic, now Shadow Broadcast 
Services, Metro Traffic, now Metro Networks, which as best as I 
know it provides full turnkey services--it is the complete news 
department for over half the radio stations in Baltimore, and I 
invite Mr. Karmazin to give me real numbers so that I cannot 
try to have to pull them together on my own--if you have got 
that situation, so you do not have 23 different radio stations 
and 23 news directors each making their own news judgment and 
you are dependent on one person making that news judgment and 
that one news judgment is an erroneous one, the assumption that 
they should shade the news in favor of the boss, or the boss's 
best friend or the boss's business partner, that is the 
problem.
    Senator Kohl. Thank you very much. Your son, Mr. Karmazin.
    Mr. Karmazin. My son.
    Senator Kohl. Is he a good Democrat? [Laughter.]
    Mr. Karmazin. Listen, I do not want to get in trouble.
    Senator DeWine. Good answer.
    I have a statement by Senator Leahy which we will insert in 
the record, without objection, at this point.
    [The prepared statement of Senator Leahy follows:]

 Prepared Statement of Hon. Patrick J. Leahy, a U.S. Senator From the 
                            State of Vermont

    Mr. Chariman: Thank you for holding this hearing.
    My guess is that we are going to hear a lot about synergy today. 
This merger, indeed, may end up being a good example of vertical 
integration making the merged entity far more efficient. However, there 
should be more to this story.
    When you can make a product like a computer or a TV set more 
cheaply through vertical integration--consumers benefit. It is clear 
how the new Viacom will benefit in this case, it is not as clear how 
consumers or buyers of billboard advertising, or radio listeners, or 
movie goers, or TV watchers will benefit by this merger.
    I want to raise some larger concerns--which are harder to measure 
but potentially more serious.
    Ultimately, as these types of huge media mergers continue to create 
ever larger media giants will there be a cost to society? Will there be 
a loss of different viewpoints?
    Will there be less vigorous press activity or a reduction in the 
free flow of ideas offered by the media as fewer news sources are 
distributed more widely.
    Indeed, some suggest that this merger could provoke ``defensive'' 
mergers of other media companies--which can led to more defensive 
mergers, and more defensive mergers. Where does this end?
    Will independent producers have less chance of being carried by CBS 
when CBS has big production studios--Paramount, Viacom and Spelling 
Entertainment--in the corporation? And if the new Viacom owns 
``competing'' radio and TV stations how aggressively will they compete 
for news scoops?
    Will the reduction in different media outlets make it more 
difficult for some to negotiate deals for advertising?
    I think we should look beyond the traditional antitrust analysis 
and get answers to larger questions which is the reason for this 
hearing.
    Thus the major question: At what point does the FCC, or the Justice 
Department, draw the line and say enough is enough? In my view, it will 
have to be drawn at some point to protect the free flow of ideas, news 
and creativity.

    Senator DeWine. I also have three questions that Senator 
Hatch has asked that we ask on his behalf, which I will now 
read.
    The first question is for Mr. Redstone and Mr. Karmazin. An 
article last month in the New York Times called the proposed 
CBS/Viacom a ``virtual monopoly for online music,'' and said 
that it would create a formidable and potentially 
anticompetitive force in the sale, distribution, and promotion 
of music over the Internet. Analysts have described the 
proposed merger as a ``music sales promotion and distribution 
powerhouse that looks to play a leading role in mainstreaming 
the Internet radio format and potentially the selling of music 
online, both through mail order and digital downloads.''
    Senator Hatch continues, I am concerned that one large 
company like a merged CBS/Viacom might become a virtual 
monopoly for online music and negatively impact the emerging 
online music distribution market. Will others be able to 
compete in this new market with a company that owns mtv.com, 
vh1.com, and popular music websites, as well as hundreds of 
radio stations?
    Mr. Redstone. Well, I cannot help it if the quality of our 
music is such that people are interested in it. But I would 
like to point out that one of the great things about the 
Internet is it provides a voice for practically everybody, and 
right now, we have one music site. There are 100,000 music 
sites on the Internet. So I do not see the basis for that 
concern.
    Mr. Karmazin. And it is a great recognition that the 
Internet is a competitor, and I think that Senator Hatch is 
correct. The Internet is a competitor. I think Mr. Redstone 
said it, there is MP-3 technology. There are just a ton of 
people that are able to provide content on there. We do not 
sell music today. It is the record companies that have the 
control on the content. We need their content for our 
programming. So I do not see the concern there.
    Senator DeWine. Senator Hatch's second question is, it is 
my understanding that a merged CBS/Viacom will push into the 
online radio broadcasting market and soon begin offering 
streaming audio versions of its radio content through CBS's 
infinity.com website. Will not a merged CBS/Viacom, with its 
MTV, VH1, and radio station assets, be able to prevent entry by 
competitors into the market for online radio broadcasting?
    Mr. Karmazin. I think I covered that earlier. There are 
currently 1,800 radio stations online right now, and by the 
way, none of our radio stations are streaming audio at all.
    Senator DeWine. This question is the third question by 
Senator Hatch, and this is for the entire panel, anyone who 
would like to respond. It has also been reported that MTV, 
which is owned by Viacom, has a ``huge influence over record 
companies,'' which could intensify if it obtains access to 
CBS's TV network affiliate stations and national radio and 
outdoor advertising exposure. Will this huge influence over 
record companies that a merged CBS and Viacom will have be good 
for musicians and good for consumers, and how?
    Mr. Redstone. May I?
    Senator DeWine. Mr. Redstone.
    Mr. Redstone. I have a lot of respect for the Senator, 
Senator Hatch, but, in fact, we live at the mercy of the record 
companies. They do not live at the mercy of MTV. We get our 
videos from the record companies. Without the record companies, 
there is no MTV. So I do not see that concern, if I may suggest 
it.
    Senator DeWine. Mr. Karmazin.
    Mr. Karmazin. No, I think Mr. Redstone said it. There are 
these digital channels. There are all of these number of cable 
channels. We certainly think that there is plenty of 
competition in that area.
    Mr. Grossman. I certainly am no expert in the music 
business, and there is not a reason, it seems to me, to oppose 
the merger on that grounds. But I do think we have to be 
careful in citing the Internet and all the new technology as 
making available thousands of channels. We always cite new 
technology, whether it was FM or UHF in radio or television as 
the source of increasing diversity. The problem is that you are 
getting these major players that have tremendous marketing and 
promotional clout through radio stations, through their music 
sources, through their ownership of cable channels, that so 
completely can dominate a field that it makes it very hard for 
others to break in, even though they have access, but they 
really do not have any mainstream way of reaching their 
potential consumers, and I think that is a matter that has to 
be analyzed and carefully considered.
    Senator DeWine. Professor.
    Mr. Waterman. Well, very briefly, I agree with Mr. Grossman 
on this. I think it is a very natural process, though, as new 
media develop, for existing conglomerates to quickly move into 
those areas to diversify risk and for other purposes. I agree 
it is very important to watch the way that market structure 
develops in those areas and the relationship that they have 
with established firms in other media.
    Mr. Redstone. I do not want to disagree, but it has not 
stopped America Online, a relatively new company, from 
dominating maybe the Internet. It has not stopped companies 
like Yahoo. These companies have bigger capitalizations than 
Viacom has. So it does not seem to me that there is any 
inhibition from people establishing new businesses on the 
Internet, and competitive businesses, indeed.
    Senator DeWine. Mr. Schwartzman.
    Mr. Schwartzman. I would like to echo the observations 
about the role of the Internet. I would like to make two short 
additional points in that regard.
    First, CBS in particular, is, as with the other major media 
companies, is aggressively using its clout to acquire 
circulation in the Internet. If you are a sports fan, I think 
you have an idea that there is something called CBS Market 
Watch and there is something called Sports Zone. As a matter of 
fact, if you watch television sports, they are ramming it down 
your throat relentlessly in huge multimillion-dollar tradeout 
arrangements. That is good business, but it is acquiring 
dominance in a new medium by using the dominance of the old 
medium to get there.
    Second, the Television Bureau of Advertising, in 
particular, but the broadcasting industry, in general, 
aggressively argues that as the media fragment, as there are 
more and more sources of information, broadcasting, 
particularly over-the-air television, becomes more important 
and more powerful. It is the only way to reach a mass audience. 
It is a smaller piece of a much bigger pie. The cost per 
thousands are doubling and tripling.
    If you look at the TVB, the Television Bureau of 
Advertising's own promotional information, they brag that 
everybody else is fragmented. If you want to get into every 
home of America, 100 percent of the nation's TV homes, there is 
one way to do it and it is network television, not cable, not 
the Internet, not direct broadcast satellite. It is network 
television, and that is frequently overlooked.
    Senator DeWine. Senator Kohl.
    Senator Kohl. Thank you, Mr. Chairman.
    I just have one question and I hope we will agree. Can we 
all agree that media mergers need to be held to a different and 
perhaps a higher standard?
    Mr. Redstone. Absolutely.
    Mr. Grossman. Yes.
    Mr. Waterman. Yes.
    Senator Kohl. Thank you. Thank you, Mr. Chairman.
    Senator DeWine. Let the record reflect that all of the 
witnesses have said yes, I believe. Thank you very much.
    Mr. Schwartzman, what impact does this deal have, in your 
opinion, on advertisers? There appears to be competition in 
almost every local advertising market, so why can advertisers 
not just buy their ads from somebody else? Why does it matter 
if Viacom has a broad national presence?
    Mr. Schwartzman. First, I find it interesting that the 
advertising community quietly complains, but advertisers are 
scared to pursue their concerns aggressively because of the 
clout that broadcasters have and the fact that they need them. 
It magnifies their power.
    Mr. Karmazin told Barron's magazine, it used to be that 
stations competed, that media buyers would play them off 
against each other. Now, we have the CBS ad sales managers talk 
to each other every morning. That is higher prices and better 
margins.
    They use the multiple stations in the market to do format 
squeezes. You get on one side or the other side of a station 
with a similar format. You drive their numbers down. You put 
them out of business. You buy them out, and you raise the 
prices. That is what is going on in market after market.
    This economy has grown on small entrepreneurs. This economy 
is built on low barriers of entry. Local radio is one of the 
most important advertising media for people with a few bucks 
trying to reach a targeted audience. It is becoming harder and 
harder to do that. Even if you are on the Internet and you are 
in the dot-com business, the way you get to the general public 
is broadcast advertising. Listen to the radio. Watch TV. All 
the dot-coms have to advertise to make themselves known, and 
those rates are going up on a cost per thousand basis.
    So this consolidation, particularly at the local level, 
which is what I have tried to stress today--I can speak to the 
national issues, but I have tried to stress the local issues 
today--within markets, the increase in cost, the bulk deals, 
the cross-promotions, being able to sell national advertisers 
to localities by aggregating them with the large chains--when 
you have a couple hundred radio stations, you can do that--all 
those things are making it much harder for small advertisers to 
get their share.
    Senator DeWine. Does anybody else want to comment on that?
    Mr. Karmazin. Mr. Chairman, on this Viacom/CBS deal, the 
only local advertising that is affected, because Viacom, as Mr. 
Redstone pointed out, is not in the local radio business, so 
that is not changing it. They are not in the local outdoor 
business. The only effect on the local advertising aspect is on 
the television station side, and in all of the markets, in 
every single one of the markets, there are rigorous rules, both 
from the FCC and DOJ, on concentration in television, which we 
talked about. So somebody may not like it, but this merger has 
nothing to do with what he is talking about.
    Senator DeWine. Mr. Grossman.
    Mr. Grossman. Senator DeWine, I just wanted to make one 
comment. It is, I think, appropriate, oddly enough, that we are 
ending up talking so much about radio, because I think radio, 
in many ways, is a precursor of what is happening in the other 
more modern fields. Is it not interesting that the most 
significant, important, useful, serious news is being offered 
in radio by public radio, and it is the one major national news 
network left in radio. I think that that suggests the direction 
that is going to happen in television, and I am afraid also on 
the Internet. And as I say, it is not----
    Senator DeWine. Excuse me. That the direction----
    Mr. Grossman. Will be that, somehow or other, we need an 
alternative public service to focus on the things that are 
important to our democracy, like civic information, free 
political time, service to arts and culture, particularly 
education, because increasingly, we are becoming the old 
fashioned public trusteeship notion in this new merger media 
environment. It is really broken and I do not think it is going 
to be fixed.
    Senator DeWine. Mr. Schwartzman.
    Mr. Schwartzman. I might add, Senator DeWine, that I think 
Mr. Karmazin today has made a terrific case for Chairman 
Kennard's initiative to start microradio stations, to create 
new intensely local neighborhood radio stations to serve the 
communities that the big chains are abandoning.
    Senator DeWine. Anybody else? Mr. Waterman?
    Mr. Waterman. Thank you. Just briefly, I agree this is very 
important. It is basically an antitrust question and the local 
market level is particularly important here, and each one of 
the markets has to be examined. But I think it is fair to say 
that, and I agree with Mr. Schwartzman on this, that the 
individual media probably are distinct markets, like television 
and radio advertising are a previous strength. But the 
important thing is just to make sure that the market share of 
those individual media are sufficiently low, and then I think 
that the problem will tend to disappear.
    So it may be more difficult in the future for independently 
owned radio stations or television stations, for example, to 
compete in the market, but to some extent, that is going to be 
an inevitable problem because of the greater efficiencies of 
combining resources at the local level under common ownership. 
So those forces have to be balanced. But the key thing is to 
keep the shares low within the individual media at the local 
market level.
    Senator DeWine. Mr. Karmazin, I would like to get back to 
something I believe you stated in your opening statement. I 
wrote it down. You talked about this merger creating more free 
over-the-air competition. Could you tell us about what goes 
over the air, not on cable, but what poor people can see, 
people who cannot afford cable? How does this merger help that?
    Mr. Karmazin. Because I believe that it makes the CBS 
company a stronger company and CBS is very committed to free 
over-the-air broadcasting, and that you need to be a very 
viable company to be able to operate expensive news bureaus 
across the world and to be able to provide the kind of 
programming that we want to provide.
    Everyone who owns content right now have alternatives as to 
where they put that content. Because we want to preserve our 
business, we need to compete with other technology that is out 
there offering money, like cable, as an example. If, in fact, 
there is an alternative sometimes for a sporting event to be on 
cable or to be on free over-the-air broadcasting, the more 
successful a company is, the more they can afford to pay for 
content. The more successful we are as a broadcaster, the more 
we can have the news departments that everyone is talking about 
being so important to maintain. When the time comes that free 
over-the-air broadcasting gets hurt, that is when we start 
running reruns of shows instead of doing news.
    So right now, a lot of our television stations, in addition 
to the network news, are doing hour or 2-hour, even, local news 
in the market, gathering the news with reporters independently. 
That is expensive and we need to be a viable business up 
against the competition.
    We do not have 90 percent--in spite of what Mr. Schwartzman 
says about the Television Bureau of Advertising, there was a 
time, and it seems logical, that we had 90 percent of the 
audience. Now, that audience is down to 40 to 50 percent with 
an awful lot of choices. There was a time when there was just 
CNN as a competitor. Now there is CNBC, there is MSNBC, there 
is just a lot of competition out there that broadcasters are 
competing with and we need to be viable.
    Senator DeWine. Following up on that, Mr. Grossman and Mr. 
Schwartzman have both stated, talked about the decrease in the 
international news bureaus. Do you agree that this is a trend, 
and will this trend continue, and does it matter?
    Mr. Karmazin. I think technology has contributed toward 
that, not our ability to have bureaus. We need to gather the 
news, but obviously, when satellites are there to be able to 
make it easier to cover the news, so, in fact, we may--not we 
may, we do have fewer news bureaus, but we are still--I mean, 
if you watch Dan Rather's evening news tonight, you will see us 
covering the world. So I do not believe that the number of 
different news bureaus is as critical as making sure we are 
gathering the news, and I will give you an example. If, in 
fact, we do not have a San Francisco news bureau but we put 
somebody on an airplane because there are planes going between 
Los Angeles and San Francisco, and in the old days there were 
not as many planes, we can get to these places.
    Senator DeWine. Sure, and you can cover it. This is your 
business and certainly not my business and you are the expert 
here today, but it seems to me that while you can get there and 
cover it, is there not some advantage in the news industry to 
have someone there who is digging up news every day, who is not 
just reacting to a coup or an earthquake or something, where 
you drop people in and you do the news.
    It seems to me that there is something as far as the 
quality to be said for having a bureau there, a person who 
becomes the person who reports from Rome and who knows Italy 
and who knows the region. I do not want to argue with you about 
it, but it just seems to me that there is something to be said 
for that and I just wonder if you agree.
    Mr. Karmazin. Mr. Chairman, I agree with you, and CBS News 
has over 1,500 employees, and it is not 1,500 employees 
necessary to do a half-hour program each day. So we agree, 
particularly in areas of where we are a licensed broadcast 
station, because that is all about the local news and being 
able to cover what is going on in that local community.
    But once again, and I am happy to answer any questions 
about any subject, but that has nothing to do with the Viacom 
merger. I mean, as I said, I am happy to deal with it, but by 
the combination with Viacom----
    Senator DeWine. We do not get you up here very often. We 
appreciate your coming and there are some questions that, 
frankly, I think, are public interest, and they were raised by 
other panelists, in all fairness.
    Mr. Karmazin. And, Mr. Chairman, if I were invited more 
often, I would be here more often. So thank you for the 
opportunity----
    Senator DeWine. We will take care of that, I guarantee it.
    Mr. Karmazin. Thank you. But, no, I do think it is fair to 
talk about it. I love talking about it. It is something that I 
am proud of.
    Senator DeWine. It is important. It is the quality of news 
which is a vibrant part of our democracy, and so this is what--
--
    Mr. Karmazin. And please watch CBS News this week and 
report to me on what you feel we are not doing, because we do 
spend an unbelievable amount of money. Next year, because there 
is very little advertising revenue, and I do not know if this 
will surprise you, but very little advertising revenue that is 
chasing the conventions and that is chasing all of the speeches 
that we cover. But you will find somebody from CBS News out 
there. By the way, I respectfully say the same thing about my 
competitors, NBC and ABC and CNN.
    So, once again, I know there are philosophical issues that 
some people have, but CBS News is committed to the kind of 
quality network news that we have always done, and our local 
news--I mean, it is just strange that when we are the company 
that is really providing local news in these markets, and there 
is no example of where Mr. Grossman is able to report--I do not 
know where he lives, but he could certainly listen to our two 
all-news radio stations and see how different those two all-
news stations are, with separate general managers 
editorializing and totally controlling those news operations 
and gathering news themselves.
    So maybe somebody feels it is better to have 10, but this 
merger has nothing to do with that.
    Senator DeWine. Anybody else on that question? Professor 
Waterman.
    Mr. Waterman. Well, there has been a lot of discussion 
about news content and its quality and I share all those 
concerns. But I think the changes we are observing in news and 
information are overwhelmingly driven by technology and 
competition and not ownership, in particular, conglomerate 
ownership.
    I am saddened, as Mr. Grossman is, about the fact that news 
producers no longer seem to have the same sense of public 
responsibility, but I do not think there is anything that you 
can do about that except try to keep the ownership separate.
    Finally, I would reiterate again that I do not think the 
relevant issue is, as Mr. Karmazin said, whether or not their 
commonly owned news stations have different news programs or 
they are independently operated or that the radio stations they 
have currently are not in the local market or whatever. By 
allowing common ownership, you have raised a potential for all 
sorts of things to proceed in the future that you cannot 
predict, and I think there is really nothing you can do but 
just try to keep the ownership diverse enough without worrying 
too much about who it is that owns these media.
    Senator DeWine. Mr. Schwartzman.
    Mr. Schwartzman. Senator, let me see if I can get you on 
the same side as Mr. Karmazin. I brought a lot of papers today 
with me, but I did not bring this week's Broadcasting and 
Cable, which has a story featuring how the coming season looks 
to be just a huge revenue bonanza, fueled in no considerable 
small part, the article says, by the bonanza of political 
advertising revenue that is expected. This is a major component 
in the prospects for a very favorable year ahead.
    Mr. Karmazin says that we need to make broadcasting viable 
and get these stations viable. Mr. Karmazin, you have had some 
dialog about whether there is going to be some independence in 
the news and there are going to be some different voices.
    Some of us this weekend are going to challenge the networks 
to take some of this viability and some of this revenue and 
provide 5 minutes of free time to the major candidates for 
public office before the election. I think that is a terrific 
dividend, and I certainly advocate, and I believe that the FCC 
has the power to require it. I think the FCC should require it.
    But what we are saying is, you are looking for a lot, you 
are doing pretty well, why do you not just do it, and that is 
what we are going to be asking this weekend. I think that this 
is really part of the solution. If we are not getting these 
voices out, if we are not getting some opportunity to hear some 
different things, let the candidates speak directly to voters. 
Let them use the time. I think Mr. Karmazin could do that very 
easily.
    Senator DeWine. Mr. Karmazin, do you want to make news 
today?
    Mr. Karmazin. No, thank you. I just want to go home. 
[Laughter.]
    The fact that we get a lot of political advertising, I wish 
we did not. We can sell our advertising to people at higher 
prices than we can sell to political candidates, so it would 
not really trouble us at all if, in fact, there was no 
advertising dollars that were from political candidates. We 
think we do a great job at CBS, and again, we can only speak 
for ourselves on our radio stations and our television network, 
in having candidates there.
    We are always open to hear any new ideas and we certainly 
are openminded on the subject, but I totally disagree with the 
subject that says we are asking a lot. We are not asking for 
anything. We are going to conform to the laws as the laws are 
existing. So I am not sure what we are asking for.
    Senator DeWine. It has been alleged in this panel that this 
deal is going to push other companies to merge. I wonder, Mr. 
Redstone and Mr. Karmazin, if you can respond to that. The 
allegation has been made, not just on this panel but it was in 
the print media and other people have written that what this 
will do is it is going to set off a wave of mergers. You are 
just going to have to be bigger to compete.
    Mr. Redstone. I do not really think that I agree with that, 
unless there are people who irrationally believe that bigger is 
better. In this case, neither CBS nor Viacom were driven at all 
by a desire to be bigger. Each company was doing wonderfully 
and each company will continually to do wonderfully if kept 
separate. We just thought that the combination was a very good 
combination.
    I do not see that kind of irrational point of view driving 
mergers which do not on their merits make sense. Maybe there 
are some people who are looking for bigness. We were not.
    Senator DeWine. Mr. Grossman, I understand your concerns 
about news programming, but it appears that the economic 
efficiencies are moving media companies towards the 
streamlining of their news budgets and relying on a single all-
purpose source for news. First, do you agree with that, and if 
you do, is that a bad trend, and if it is, can that trend be 
altered?
    Mr. Grossman. Yes; I think it is not a healthy trend in a 
democracy. I agree with Professor Waterman that the more 
diverse sources, not only diverse ownerships, which are 
important, but diverse sources of news, the stronger we will 
be, and it is no accident that we are having what seems to be 
an excessive sameness on single stories that so dominate our 
news, partly because they are all coming out of the same pipe.
    I think one of the things that can be done is to take--or 
not the same pipe, but a very narrowly constricted pipe. One of 
the things that can be done, and I go back to my own concerns, 
is there are many major elements of free political time, public 
service time, outlets, that these companies which are basically 
in the entertainment business, as has constantly been said, we 
have got to look hard, in the digital world, as well, at our 
public broadcasting system, to provide the kinds of things that 
our democracy needs that the marketplace is not providing.
    It is the stuff that costs money rather than makes money, 
and part of that has to do with news gathering. Some of it has 
to do with education. A lot of it has to do with free political 
time and public discussions of major issues that do not attract 
large audiences. It is a matter of our public policy, I think, 
being reexamined in this digital age to conform to what is 
obviously inevitable, namely, these enormous multimedia global 
companies, highly competitive, to be sure, but we are seeing 
some of the major elements that we require that used to be done 
under the Public Interest Doctrine, with news being a 
centerpiece of a broadcast company, beginning to be shunted 
aside. I think we have to look hard at some new public policy 
to deal with it, and I think that one of the ways to deal with 
it is to look hard at a strong public broadcasting system.
    Senator DeWine. Mr. Karmazin and Mr. Redstone, a lot of 
mergers look good on paper, but in practice, it is difficult to 
many times meld corporate cultures, maybe different ways of 
doing business. I know you obviously looked at that before you 
made this decision. Both of you have certainly had a lot of 
success being in charge of your own independent operations. How 
are you going to make this work?
    Mr. Redstone. Do you mind, Mel? OK; see, I always refer to 
him. That is one way to make it work. [Laughter.]
    You know, we really come from the same cloth, if I may say 
so. I started with a couple of drive-ins, and I kind of like 
where I am today. Mel is the same kind of entrepreneur that I 
am. Both of us are committed to driving our revenues and to 
driving our bottom line and, hopefully, to see our stock go up, 
and only in an appropriate way because we expect to perform 
well. I think we have a lot in common. We are both pretty good 
guys, as a matter of fact.
    At Viacom, we have a very, very unique atmosphere. I cannot 
even refer to the people who work there as employees. We are 
all associates. We like each other. We are driven by the same. 
We are really a family company. And I expect that Mel will join 
the family.
    Mr. Karmazin. I think that we have distinct businesses with 
distinct management teams that are going to work well together 
because there really is not a lot of overlap. I think the 
biggest change that I can see is that Mr. Redstone is going to 
have to get used to riding the shuttle instead of his private 
plane. [Laughter.]
    But other than that, I do not think there will be much of a 
change.
    Senator DeWine. Well, on that happy note, we will end the 
hearing. I appreciate the testimony from all five of our 
witnesses. I think it has been very instructive and very 
helpful. This obviously is a merger that has significance well 
beyond the affected shareholders, and that is why we held this 
hearing. We appreciate it. Thank you very much.
    The subcommittee is adjourned.
    [Whereupon, at 3:30 p.m., the subcommittee was adjourned.]
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