CBS-Viacom and the Effects of Media Mergers: An Economic Perspective

I. INTRODUCTION Like other large-scale mergers between media corporations, the proposed CBS-Viacom combination has attracted a great deal of public attention. It immediately rose to the top of the national news agenda when announced in September 1999, and congressional hearings followed on October 28.(1) The merger plan brings together the extensive motion picture and television production, cable network, video retailing, television station, television network, and publishing assets of Viacom, Inc. with the television network, radio station, and cable programming holdings of CBS, Inc., to create the world's second largest(2) media conglomerate (behind Time-Warner), having combined 1998 revenues of $18.9 billion. (A more complete description of the merger elements appears in Appendix Table 1). The CBS-Viacom debate has raised important questions about undesirable effects that this merger--and media mergers more generally-may have on our economy and society. Like mergers in other industries, media mergers can have adverse effects on prices, output levels, and other elements of economic welfare. Media mergers are of exceptional policy interest, however, because they may also threaten the diversity of voices or a free "marketplace of ideas" in the United States. Among the main issues that have been raised about CBS-Viacom are whether the merger will lead to excessive market power or a reduced diversity of voices within particular media market segments, such as in broadcast networking or in local radio and television station markets. A second issue is the effects of increased vertical integration, especially the combination of CBS's television network with the movie and television production facilities owned by Viacom. Will this integration increase barriers to market entry by independent suppliers of television programming, to the detriment of program diversity and freedom of market access by program producers? A third, broader concern about CBS-Viacom involves the growing size of media conglomerates in the United States. Does the CBS-Viacom merger take a significant step toward the concentration of control of the all media in the United States into too few hands? In the words of Senator Paul Wellstone, who testified at the October 28 Senate hearing: Mr. Chairman, I think most people would be shocked by the degree of media concentration that has occurred in the last [fifteen] years. When Ben Bagdikian wrote "The Media Monopoly" [sic] back in 1983, about [fifty] media conglomerates controlled more than half of all broadcast media, newspapers, magazines, video, radio, music, publishing, and film in this country. By 1986, that number had shrunk from [fifty] to [twenty-nine]. By 1993[,] it had shrunk even further, to [twenty] firms. Today fewer than [ten] multinational media conglomerates-Time/Warner, Disney, Rupert Murdoch's News Corp, Viacom, Sony, Seagram, AT&T/Liberty Media, Bertlesmann, and GE--dominate most of the American mass media landscape.(3) Of special significance in this respect--and receiving perhaps the greatest amount of attention at the October 28 hearing--is the threatened concentration of control by a handful of corporations over the major sources of news and information in the United States. Related questions about the effects of CBS-Viacom and other media mergers on the quality and integrity of news were also raised at the CBS-Viacom Hearings.(4) Both journalists and academics have in fact devoted much attention in recent years to the effects of common ownership of news with entertainment or other nonmedia products on news reporting.(5) The blending of entertainment into news programming, the increased subservience of news organizations to budget-minded executives, and the rising specter of conflicts of interest in news reporting have all been linked to the increasing size and breadth of media conglomerates. …