Entertainment Upheaval : Merger Mania More High Politics Than High Tech

There has been a strange confluence of events and near-events this week involving several of the most important industries in America, and collectively they tell an enlightening tale of power and politics in the 1990s. It’s a tale that can be interpreted in several different ways, but one central lesson is inescapable: It is the evolution of political ideology, more than any advances in technology, that is changing the shape of the nation’s communications industries.

The importance of politics, and especially the fervent pro-business, anti-government ideology that dominates in America today, isn’t what our esteemed entrepreneurs and deal makers like to dwell upon. Walt Disney Co.’s move to acquire Capital Cities/ABC Inc. is supposed to be testament to the strategic vision of Disney’s Michael Eisner and Cap Cities’ Thomas S. Murphy and investor Warren Buffett, to their ability to push Disney programming and products in new and innovative ways. Westinghouse’s proposed purchase of CBS, though less widely lauded, is at the very least presented as a rational consolidation that will lead to a better-run television network.

Yet what’s most striking about both these transactions is their direct and immediate link to changes in the rules of the game. Until recently, regulations that sharply restricted the network’s ability to own their own programming effectively prevented Hollywood studios from owning networks. That was the intent of the rules, crafted at a time when people believed the “vertical integration” of program creation and distribution would stifle creativity. Then the rules were changed. So a studio bought a network.

Similarly, the Westinghouse-CBS deal is a direct result of a change in the rules governing TV station ownership. It’s currently illegal to own more than 12 stations nationwide or to own stations reaching more than 25% of the population. But those restrictions are going to be eased, so consolidation becomes possible. It didn’t take long for Westinghouse, with eight stations, to move on CBS, which owns seven.

That these deals happened the very week the House is considering a landmark telecommunications reform bill is almost too delicious to be true. The legislation is big and complicated, and the endless fighting about it has come to bore even those of us who follow it for a living. But make no mistake: The myriad changes in the rules governing telephone companies, cable firms, TV broadcasters and possibly even on-line computer services will have large and immediate consequences. The relaxation of the media concentration laws isn’t the half of it.

Rounding out this week’s remarkable civics lesson, the Justice Department is in the midst of a tortured debate over whether to bring an antitrust lawsuit against Microsoft Corp. The department fears the software giant will gain an unfair competitive advantage in the on-line services business by including the access software for its own on-line service with its Windows 95 personal computer operating software.

Again, even in this explicitly high-tech realm, at the heart of the matter one finds questions of policy, not technology. Is vigorous antitrust enforcement in the interests of the public over the long run? Or should the big and the strong be allowed to get bigger and stronger? If Microsoft is taken to task, the legal theory will probably involve “tying,” in which the purchase of one product is linked to the purchase of another. It’s a doctrine that was in place long before the PC was invented.

On Capitol Hill, advocates of telecommunications reform trumpet the effort as “deregulation,” and indeed the general thrust of the legislation--and especially the House legislation being debated today--is toward fewer and less onerous rules. The Clinton Administration objects to the House bill but supports the broader direction.

There is in fact something approaching a consensus on the general notion that some government communications rules have outlived their usefulness. When the networks were the only game in town, for example, a strict regulatory regime may have been appropriate. In the era of cable television and satellite television and the ubiquitous VCR, a little more flexibility seems only reasonable. In this respect, technological progress has certainly had its impact.

But when it comes to businesses like television and telephones, which depend on government-allocated radio frequencies on the one hand and still-impregnable historic monopolies on the other, loose talk about the government “getting out of the way” is dangerously misleading. Just to cite a couple of extreme scenarios, complete deregulation would almost certainly prompt some enterprising TV broadcasters to cash in on pornography, while aggressive local telephone operators might decide that a tripling of basic rates is in order. The free market wouldn’t prevent such abuses, it would cause them.

Of course, the companies involved all have arguments as to why their restrictions should be lifted while their competitors’ restrictions should remain in place. Usually these arguments revolve around some alleged technology change that has rendered their markets competitive. But for all the incredible advances in digital communications technology, the fundamentals of telephone service have changed little since the break-up of the old Bell System. The overwhelming majority of telephone customers cannot choose their local telephone company and will not be able to for the foreseeable future.

Similarly, the television landscape has changed a lot less than one might expect over the past few decades. The networks originally derived their extraordinary power from their unique ability to reach almost all Americans at once. Despite the inroads made by other media, that’s the very same strength they enjoy today.

And thus the question of whether a Disney-ABC combination is a good and logical thing ultimately becomes a matter of ideology. Historically, Americans have had conflicting attitudes about big business. Periods of populist hatred of corporations--one of which, around the turn of the century, led to the passage of the antitrust laws and the break-up of Standard Oil and other industrial giants--alternate with epochs in which businessmen are revered in proportion to the size of their fortunes.

It wasn’t so long ago that the government was filing lawsuits to break up companies like AT&T; and IBM. But today we’re clearly in the reverential mode. We apparently welcome the consolidation of the mainstream media and communications industries into a few giant, vertically integrated monoliths.

We, or at least our campaign contribution-hungry elected representatives, seem to support elimination of restrictions on the Bell telephone companies, which will allow these giant firms to use the rivers of cash generated by the local phone business to expand into long-distance and other new areas. We admire the success of Bill Gates, even though many believe Microsoft’s success is built at least in part on a long history of questionable business practices.

It seems unlikely, but perhaps it’s true, that continuing consolidation in these industries is good for America and its economy in the long run. Perhaps people really did vote for that when they voted Republican. Perhaps, to paraphrase from an earlier era, what’s good for Disney and Pacific Bell is good for the country.

But perhaps the consequences of a purist free-market ideology were not entirely clear, at least not in this realm. For there’s nothing inevitable about any of this, no way in which the new media and communications landscape is a logical outcome of advancing technology. It’s a question of how we shape policy.