”It is the purpose of the 1st Amendment to preserve an uninhibited marketplace of ideas in which truth will ultimately prevail, rather than to countenance monopolization of that market.”
–Supreme Court Justice Byron White, 1969
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THERE IS no mention of golden calves in the 1st Amendment.
Yet last week`s deal in which American Broadcasting Cos., parent of one of the nation`s three major television networks, agreed to be sold for more than $3.5 billion stripped the robes away from the communications industry and exposed it for what it has become–one of Wall Street`s biggest money makers. The purchase by Capital Cities Communications Inc., a broadcasting and publishing fiefdom one-fourth the size of ABC, would be the largest acquisition in corporate history outside of the oil industry.
The deal jarred the media`s image enshrined in lofty language by the nation`s courts as an institution that helped give birth and still is thought vital to democracy. It is difficult to relate multibillion-dollar deals with colonial editors such as John Peter Zenger, who risked jail at the hands of colonial governors and today is considered a hero in American journalism.
Is the mystique changing?
”The wraps are off on Wall Street,” Stephen Barnett, professor of media law at the University of California at Berkeley, said of the ABC deal. ”It is now out in the open that the media are money cows.”
Though the profit motive may be inescapably entwined with the traditional social purpose of the media these days, the ABC deal raises anew questions about whether the two can coexist and at what cost, if any, to the public interest.
The ABC ”takeover” last week was ”friendly,” not ”hostile.” Such words are part of the jargon used by financial moguls who have learned to play a corporate version of Pac-Man, whereby one company swallows another whole and then goes on to do it again.
If these corporations use good judgment in selecting their target companies, earnings multiply and their shareholders are happy.
Critics say such wheeling and dealing does little for the nation`s economy. It doesn`t create jobs or productivity–only profits for those who hold shares. Others argue that in such takeovers, market forces simply eliminate inefficient and poorly managed companies.
But such deals have come to be accepted and their makers` savvy is even admired–at least when it comes to oil companies, steel companies and catalogue stores.
But what about the media, the institution that James Madison credited at the founding of this country with ”all the (world`s) triumphs which have been gained by reason and humanity over error and oppression”?
The centralization of media ownership, which the ABC deal spotlights, is not new.
Ben Bagdikian, a former editor at the Washington Post and now a media critic at the University of California, wrote ”The Media Monopoly” in 1983. He noted there were 1,700 newspapers in this country, 11,000 magazines, 9,000 radio and 1,000 television stations and 2,500 book publishers.
More than half of these 25,000 media outlets were in the hands of only 50 companies. Many of them are newspaper companies that also have diversified into broadcasting and entertainment. Others may be broadcasting companies that have diversified into print properties. Some of these so-called communications companies even own baseball teams, such as Tribune Co. and its Chicago Cubs.
There are those who decry this growing concentration.
”The evil is that it takes from the strength of this country,”
according to Sen. Paul Simon (D., Ill.), a former newspaper writer and publisher of several small newspapers Downstate. ”It is the multiplicity of ideas, the cross-fertilization of ideas that has made this country strong. When you discourage that growth of ideas, which the concentration of ownership does, you`re really taking something away that is very fundamental to this country.”
In addition to lessening the overall number of properties that own media outlets, the ABC sale raises a disturbing new issue.
That deal is described as a ”natural fit” between the two media companies. But the apparent regulatory ease with which it is being
accomplished and the pot of gold it promises to investors raise a seductive lure to non-media companies to enter the communications market, and any media outlet may be fair game.
”Increasingly, information represents influence and power. And people who can control some aspect of a communications network can gain influence,” one media executive said.
The question raised by this speculation is, What if someday the target company is the New York Times, a beacon of journalistic integrity, and it is being pursued by a company with no journalistic tradition and little desire to communicate anything but news of its own financial success?
What if it had been a giant retail chain or a major oil company that purchased ABC and its worldwide news division consisting of talent such as Ted Koppel and Peter Jennings?
The principals in the ABC deal were aware of the dangers of a potential hostile takeover.
”ABC is a national news network, a national communications company. It can influence the public,” said Leonard Goldenson, the 79-year-old patriarch, chairman and chief executive officer of ABC who engineered the deal. ”In the wrong hands, it could be detrimental to the public.”
ABC is one of the nation`s most widely known companies, a giant among media giants.
By virtue of its owned-and-operated VHF television stations in New York, Los Angeles, Chicago, San Francisco and Detroit, it reaches 21 percent of the nation`s 85 million television households. That reach doesn`t include its 214 affiliated TV stations.
Through its programming, it had the potential to impose an immense cultural impact on American lives. It made professional football a Monday night staple, for example, and brought to millions last summer the spectacle of the summer Olympics.
Before the sale, Capital Cities was only a speck in the public`s eye with annual revenue of $939 million.
Industry insiders know Capital Cities to be a well-run company, with an enviable record of earnings and a no-frills, cost-conscious style of management that, some say, borders on parsimony in the newsrooms of its newspapers in Kansas City, Ft. Worth and Belleville, Ill.
Those insiders aren`t too worried about the ABC sale.
”It`s not as if the Hunt brothers were trying to take over a network,”
said one media property broker, referring to the wealthy Texans whose flamboyant commodities trading has them deep in financial and legal problems. Chairman Goldenson, the ultimate insider at ABC, said he knows Capital Cities and its management well, partly from Capital Cities` longtime ownership of four ABC-affiliated TV stations. He thinks Capital Cities will not stint in operating the ABC network and its news division.
”ABC will be in strong hands and will carry on forever with this move,” he said of the proposed merger.
But it could have been otherwise and, Goldenson knows it. He said the decision to merge with Capital Cities wasn`t a result of any threat of or speculation about an unfriendly takeover of ABC, but he was alive to the dangers of ABC being caught in the takeover grip of another company.
Partly to ensure that Capital Cities won`t itself be gobbled up after it acquires ABC, Capital Cities has agreed to sell an 18 percent stake in the company for $517.5 million to Berkshire Hathaway Inc., an Omaha firm headed by Warren Buffett. Buffett is a major stockholder in Washington Post Co. and other large media companies.
Berkshire Hathaway will provide much-needed money to Capital Cities. But, as Goldenson pointed out, Berkshire Hathaway also will own a large enough block of Capital Cities` stock to make more difficult any unfriendly takeover attempt.
”You never know,” Goldenson said in explaining the need for a takeover defense.
CBS also is a network exposed to takeover possibilities. It has been the target of a conservative group supported by Sen. Jesse Helms (R., N.C.). The group, called Fairness in Media, says it wants to control CBS to correct the
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”liberal bias” of CBS News.
Speculation that Fairness in Media might ally with broadcasting magnate Ted Turner or some other kindred spirit has helped send the price of CBS stock skyrocketing on Wall Street, but nothing seems to extinguish the takeover flame that burns for CBS.
Published estimates say acquisition of CBS might cost more than $4 billion. Unlike the ABC deal, which appears headed for approval by the Federal Communications Commission, an unfriendly takeover attempt of CBS may be thwarted by regulatory, congressional and court challenges, experts say.
R. Joseph Fuchs, a securities analyst at Kidder, Peabody & Co., thinks the surge in interest in media stocks is because the stock market and investors are paying more attention to the ”underlying value” of media companies. ”These are classic noncapital-intensiv e businesses,” Fuchs said. Their cash flows–earnings before depreciation and other deductions–”are substantial and their liquidation values generally are 33 percent to 50 percent higher than their normal stock market prices.”
”There`s a fair degree of speculation as to which will be the next company to fall,” Fuchs said.
In the past year, acquisitions activity has increased in the newspaper field, and even more so in magazines in the last year. But the red-hot market is the one for television and radio stations.
”It`s a new world out there” for broadcasters, said Chuck Ward, vice president in the mergers and acquisition department of First Boston Corp., an investment banking firm in the thick of the latest takeover activity.
One of the reasons is that the FCC is raising its ceiling on the number of TV and radio stations that can be owned by one company. It used to be seven TV, seven AM radio and seven FM radio stations. Now it is 12-12-12, providing that no TV or radio group reaches more than 25 percent of the total national audience.
The FCC also is making it plain that it will not hinder most requests for transferring stations` ownerships. Antitrust objections to mergers have been relatively rare during the Reagan administration. All these factors combine to make the Capital Cities-ABC deal feasible and to generate enthusiasm for more media acquisitions.
”Every communications company`s strategy now is to figure out what it wants to be in this new environment,” Ward said. ”Some companies believe they can`t compete in this environment and that they should be sellers and get their profit now. Others believe they can compete, but to compete they must be buyers.”
Many publicly held companies that would like to be among the buyers and not fall among the sellers are adding anti-takeover measures to their bylaws. Many media companies, public and private, still are controlled by their founding families and feel secure from takeover. But families do feud, and even the most cherished heirlooms can be sold when the bidding gets high enough.
Just ask David Kruidenier.
Kruidenier is a member of the Cowles family and is chairman of two media companies controlled by that family, Des Moines Register and Tribune Co. and Cowles Media Co. of Minneapolis.
He had hoped that the Iowa firm would remain in the control of the family. But after several unsolicited and escalating offers, ”it became almost irresistible to sell,” especially for younger members of the family, Kruidenier said. The assets of the medium-sized Iowa company are being sold and are expected to fetch more than $300 million.
One of Kruidenier`s chores is to try to convince people that Cowles Media, publisher of the Minneapolis Star and Tribune and other newspapers, isn`t on the block. But it`s not easy.
”The company isn`t for sale. You keep saying it and saying it. Ultimately, if you lose the support of your shareholders, you may have to sell,” he said. ”At some point, I suppose everyone has a price.”
The high prices being offered for media properties have attracted professional investors and speculators into media stocks.
”We have sort of a quasi-public trust,” Kruidenier said, referring to his family`s ownership of such papers as the Des Moines Register. ”But to the speculators, it`s just a straight dollar proposition, a chance to make a buck.”
He said the old club rules of media companies buying other media companies in friendly transactions are breaking down and ”anybody with big money can play in this game.”
The Register is to be sold to Gannett Co., one of the most aggressive members of that exclusive media club. Gannett and Washington Post are bidding to acquire blocks of stock in Cowles Media.
In only a few decades, Gannett has grown through acquisitions from a small Rochester newspaper publisher into a Washington-based media powerhouse. Gannett operates the nation`s largest newspaper chain (including the national daily USA Today), TV and radio stations, an outdoor advertising business and one of the more sophisticated satellite information transmission systems.
But in its phenomenal growth, Gannett claims to have observed the etiquette of the media club. ”We don`t go in (and make a bid) where we are not invited,” said Douglas McCorkindale, Gannett vice chairman and chief financial officer.
McCorkindale said media acquisitions have been primarily within the club`s circle and friendly because outsiders and corporate raiders don`t necessarily understand how to evaluate or operate a media company.
”Anybody can buy a newspaper`s printing press and trucks. In the Des Moines Register, we are buying the reputation, the integrity of that newspaper and its staff,” McCorkindale said. ”Professional investors may not realize that you can buy the assets but you`d better treat the people right. It`s not like buying a hardware store.”
More outsiders probably will buy their way into the media club, First Boston`s Ward said. The likeliest new faces will be entertainment companies, such as motion picture producers, buying TV stations, he said. Rupert Murdoch`s News Corp., an international publishing and communications empire that owns the Chicago Sun-Times, last week agreed to acquire a 50 percent interest in the Twentieth Century-Fox Film studio.
Ward said cable TV systems also may become more attractive to utility companies, which have a lot of experience with cable wire if not with cable programming.
Even within the media club, there has been a growth of corporate influence and fears that it could have an adverse impact on editorial functions as professional managers, accountants and marketing executives increasingly look to the bottom line.
”More and more, you`re getting people who are auditors and business people in control of the media whose concerns are with dollars and cents and the bottom line rather than with the quality of what they`re doing,” Sen. Simon said.
Such corporate interference isn`t readily apparent on the pages of the nation`s newspapers, though Bagdikian contended in his book that it sometimes occurs. The degree to which a parent corporation controls the content of a media subsidiary varies, he said.
”The most powerful influence, possessed by all, is the power to appoint media leaders,” he wrote. ”It is a rare corporation that appoints a leader considered unsympathetic to the desires of the corporation.
”And when it feels threatened by law, public opinion or the marketplace, no corporation will permit a subsidiary to harm the parent. Real independence for a media subsidiary is, at best, a disposable luxury.”
The fortunes of the corporate dollar are thought to have a larger impact on television, however.
”If you put somebody on TV sawing somebody apart with a chain saw and it brings in $300,000 more in advertising revenue, they`re going to put the chain saw murder on,” Simon said.
An example involves Fred Friendly, who teaches journalism at Columbia University. Friendly resigned as president of CBS News in 1966 because the network refused to cancel a rerun of the ”I Love Lucy” show to carry live coverage of crucial Senate hearings on the Vietnam War. According to Bagdikian, Friendly was told that a delayed episode of the ”Lucy” show was intolerable to shareholders, who would not accept any decrease in profits.
”I recognize you have to make money, but there ought to be in the media the very real sense of a sacred trust,” Simon said. ”There ought to be a sense of ideals and idealism, and I fear there is some loss of that.”
The language surrounding the development of 1st Amendment protections for the media is indeed rich in idealism and invokes the importance of the public interest.
Judge Learned Hand, a distinguished and influential federal judge who sat in New York, went so far as to suggest that 1st Amendment protection should be directed at the American public, not the media.
In a decision in the early 1940s, Hand, speaking of the newspaper industry, said it ”serves one of the most vital of all general interests: the dissemination of news from many different sources, with as many different facets and colors as is possible.
”The 1st Amendment . . . presupposes that right conclusions are more likely to be gathered out of a multitude of tongues, than any kind of authoritative selection. To many this is, and always will be folly; but we have staked upon it our all.”
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