Break Up the Media Giants
The streaming wars will produce a new oligopoly. We can do better.
For decades, corporate consolidation has been judged almost exclusively on whether it would raise prices for consumers, ignoring how the market power of massive conglomerates can have broader negative effects on society and the economy. That’s finally starting to change.
In the past year, the campaign to break up the tech giants has gained steam with support from Elizabeth Warren, Bernie Sanders, and other progressive politicians. Two-thirds of Americans now support the proposal, recognizing that monopolistic control of digital platforms and services has negative implications for privacy and economic prosperity. But we must also recognize that tech is just one part of a larger economic disease, and if it’s truly to be addressed, antitrust regulators will need to look beyond the core businesses of Apple, Amazon, Facebook, and Google.
Given the media’s importance in informing us about current events and crafting the stories through which we understand the world, regulators must address how film and television is dominated by a small number of media giants that are gaining ever more control over the production and distribution of entertainment. The industry is undergoing an important transformation as the delivery of content shifts to digital streaming services. While that’s generating new competition in the short term, it will result in further consolidation and less diversity in the long term — unless someone takes action.
Tech’s impact on media
Tech companies have been engaging with media for a long time. Music was central to Apple’s success, beginning with the iPod. Amazon made its name delivering books before selling us just about everything else. And Google has been scanning books, delivering music videos, and more for years. What has changed isn’t tech companies’ interest in media, but the scale of their ambitions.
All the major tech companies are creating their own content to make their services more attractive to consumers, competing directly with traditional media companies whose products they’ve long sold or showcased. Netflix was the successful pioneer, shifting from DVD by mail to streaming, and realizing that high-quality, exclusive content would be key to drawing an audience. Amazon followed with its Prime Video service, Google with YouTube Red, Facebook with Watch, and now Apple is joining the fray with TV+. Those services are competing with an array of streaming services from traditional media companies, including Hulu, CBS All Access, and the forthcoming Disney+ and Peacock, but tech companies have an advantage.
In a recent piece about WeWork, Recode’s Rani Molla explained how companies that masquerade as “tech,” despite operating in traditional industries, give investors the impression that their margins and growth will be much greater than they can actually deliver, opening the venture capital floodgates. Once investors realize they’re not going to get the returns they expected, however, it’s already too late: The well-capitalized “tech” company has already crippled or wiped out its traditional competitors that couldn’t benefit from a misleading tech designation.
While Amazon, Apple, Facebook, and Google subsidize their media plays with profits from other businesses, Netflix has benefited from this effect by painting a business that depends on high-quality content to bring in subscribers as being about tech first and foremost. That branding then eases its access to capital to fund its slate of original programming with massive annual losses, which, in turn, has placed significant pressure on traditional media companies.
The changing media landscape
In recent years, we’ve seen a spate of massive media mergers that kicked off with Comcast’s acquisition of NBCUniversal in 2009, but it has only accelerated since then. Disney acquired Marvel in 2009, Lucasfilm in 2012, and then bought out one of its main competitors, 21st Century Fox, in 2018. AT&T picked up DirectTV in 2015, followed by Time Warner in 2016, which includes HBO, CNN, DC Entertainment, and Warner Brothers. Then, in August, CBS and Viacom announced they’d be merging once again.
Not all of these mergers were driven by streaming and Netflix. Disney, in particular, has been pursuing a content strategy reliant on blockbuster media properties that has allowed it to dominate the film industry in a way no company has since MGM in the first half of the 20th century, before the Department of Justice enforced antitrust laws against the major studios. But the mergers from the past few years are clearly motivated by a desire to bolster the content libraries of key traditional players in order to compete in the coming streaming wars — and it likely won’t end here.
Ben Swinburne, Morgan Stanley’s head of media policy research, told the Financial Times that the media business “is getting harder, requiring more capital, more global distribution and ultimately more consolidation” — all trends being fueled by tech’s entry into the space. Swinburne thinks more consolidation is coming to the sector as the ever-larger media conglomerates buy up smaller content players that haven’t yet been snatched up, like Lionsgate and Discovery, and production costs are soaring as well.
Netflix, in its competition with HBO to create “prestige” television, has already significantly bid up production budgets to between $5 million and $7 million per hour of programming, but as even more well-financed tech companies move in, they’re going even higher. Apple, for example, is spending more per episode on its U.S. talk show drama The Morning Show than HBO paid for the final season of Game of Thrones, which cost $15 million per episode, and Amazon’s television series based on The Lord of the Rings is expected to be the most expensive ever made — all while content budgets are still going up.
The trends of greater consolidation and escalating budgets may seem like relatively recent developments resulting from the advent of a new technology — streaming video — but that’s not the case. Looking at the history of media regulation shows that it’s part of a longer process that could also inform the solution.
The first wave of consolidation
Before the 1990s, there were strict regulations on what the three major broadcast networks — ABC, CBS, and NBC — could air in prime time. The Financial Syndication and Interest, or “fin-syn,” rules were established in 1970 because the networks’ control over distribution allowed them to demand punitive terms from production companies.
Deficit financing was the primary way to produce television programming, which meant the production company made the show at a loss and hoped to recoup its investment later. The license for first-run distribution—essentially the first few times the show aired—often went to one of the major networks and covered most but not all of the production cost. The rest of the cost and any profit came from the second-run and foreign licenses. Amanda Lotz, professor at the Queensland University of Technology, explains that this model shifted risk from the network to the producer and incentivized the creation of large production companies that could shoulder the losses if a show wasn’t popular.
The networks went further, however, and used their market power to demand a cut of the profits, so production company had to pay to make the show and give a cut of all revenue after the first run to the network. This arrangement, Lotz writes, “shielded the networks from risk but also enabled them to share in the reward of hits,” and it nearly killed independent production, which fell from 33% in 1958 to 5% of all productions in 1968.
The fin-syn rules recognized that the networks were abusing their power and barred them from airing programming they owned in prime time or syndicated programming they had a financial stake in. Independent production rebounded, but the situation didn’t last for long. Cable television started taking off, and a fourth broadcast network, Fox, was launched in 1986. Those developments allowed the broadcasters to argue that there was sufficient competition, and they had a sympathetic ear.
After Ronald Reagan became president in 1981, deregulation was in the air. The fin-syn rules were weakened through the 1980s before a full repeal in the mid-1990s. However, the promise that deregulation would usher in a new wave of competition did not come to pass. Lotz notes that just five years after the rules were repealed, “CBS held an interest in or owned 68% of its prime-time schedule, and Fox owned 71%.” Instead of competition, there was a push to vertically integrate as networks increased their control of production to own their programming, making production budgets soar from $1.2 million for an hour-long show in the late 1990s to $3 million in the early 2000s.
In 1997, Thomas Streeter observed that “the cable fable is a story of repeated utopian high hopes followed by repeated disappointments… Cable was to end television oligopoly; instead it has merely provided an arena for the formation of a new oligopoly.” The experience of deregulation should serve as a warning for streaming’s effect on the media industry: It’s not ushering in a new era of competition, but swapping one oligopoly for another as consolidation and higher production costs further raise the barrier to entry and increase the market power of dominant players.
Combating the streaming oligopoly
For now, there are a number of streaming services for people to choose from, controlled by either a tech giant or a media conglomerate that’s trying to compete with some combination of large content libraries, popular shows like Friends and The Office, and expensive new series that are sending production budgets into the stratosphere to draw in customers. This situation won’t last forever, and that’s what we need to prepare for.
In “Platform Power and Policy in Transforming Television Markets,” Belgian scholars Tom Evens and Karen Donders explain that streaming offers broadcast networks the opportunity to cut out the cable company and go straight to the consumer, capturing a ton of data on them in the process. But while there’s some competition between them now, consumer choices will lessen as streaming matures for a very simple reason: “Platform markets are generally winner-takes-all markets and are populated by a few super-platforms.”
Search is dominated by Google, e-commerce by Amazon, online auctions by eBay, payments by PayPal, ride hailing by Uber and Lyft, social media by Facebook — I could go on, but I think you get the point. And there’s little reason to believe media platforms would operate any differently. If regulators don’t take any action, we’ll just end up with a few streaming silos filled with content owned by whichever conglomerate owns the platform as they continue to consolidate. But it doesn’t have to be like that.
To end the capture of the industry by a small number of massive conglomerates, we should learn from previous media regulations. The fin-syn rules significantly restricted the ability of networks to broadcast their own content, forcing them to rely on independent production companies instead of vertically integrating. In film, a landmark antitrust case produced the Paramount Consent Decrees in 1948, ending the oligopoly of the major studios by restricting how they sold their films and effectively barring them from owning theaters. The decrees are still on the books today.
Both of those rules recognize that there should be a separation between the makers of content and the means through which content reaches its audience. As such, the ability of major companies to own streaming platforms and the content that populates them is against the spirit of those restrictions. To foster a better media ecosystem, regulators must renew and expand those rules for the digital era.
Reining in the media conglomerates
The problem isn’t that regulators aren’t concerned about the effect of massive companies on the media industry, but that the scope of their response has been too narrow. For example, when Comcast bought NBCUniversal, conditions stopped it from favoring its own content and withholding content from smaller distributors. Those restrictions have now expired, however, raising concerns about anticompetitive behavior, and streaming wasn’t even a factor. To meet the challenge, regulators must get bolder.
In her landmark essay, “Amazon’s Antitrust Paradox,” Columbia Law School fellow Lina Khan suggested several remedies to rein in platform monopolies: revising rules on predatory pricing to reflect the reality of platform economics, placing restrictions on vertical integration that would ban “a dominant firm from entering any market that it already serves as a platform,” and regulating platforms as public utilities to relieve any concern they could “unfairly advantage [their] own business or unfairly discriminate among platform users to gain leverage or market power.”
A more explicit rule stopping tech companies from sprawling into so many unrelated industries should be considered.
What would those rules mean for media? Apple’s decision to make TV+ just $4.99 or free with a hardware purchase and Amazon’s decision to bundle Prime Video with its larger Prime membership could be seen as predatory pricing that provides those services with an unfair advantage. Meanwhile, restrictions on vertical integration would, in effect, stop platform operators from being able to produce their own content and force them to rely on independent production companies. That means Disney wouldn’t be able to have its own streaming platform and could also be forced to separate its broadcast arm, ABC, from content production. However, a more explicit rule stopping tech companies from sprawling into so many unrelated industries should be considered.
If platform owners were allowed to keep making their own content, public utility regulation would ensure Netflix couldn’t give its originals a prominent spot on the home screen or tweak its algorithm to give them a boost. It would be similar to net neutrality rules for internet providers, restricting them from privileging certain providers or content over others. Evens and Donders suggest this could also involve regulating prices and making the algorithm open access, while Democracy Collaborative fellow Dan Hind has proposed the creation of a cooperative media platform to act as a public alternative, updating the public broadcaster for the 21st century. This would be the ultimate step to ensure content is fairly distributed, data is used ethically, and public goals are prioritized over what’s profitable.
We’re headed toward a future where entertainment is further monopolized by a small number of massive global conglomerates with streaming platforms filled with content they own, making it harder and harder for small companies and perspectives that aren’t so easy to commercialize to have a shot. Right now, we’re in a sweet spot where competition between the conglomerates is providing some of those opportunities, but history shows us it will not last — and it may already be ending.
Erin Schiffer, CEO of the Patriarch Organization consultancy firm, says the “golden age of streaming” is already over. That’s clearly evident when looking at Netflix, which was once lauded for offering creators unparalleled freedom, but is now being called out for making decisions based on an opaque algorithm, disproportionately canceling series created by women, and its business calculation to cancel series after just two or three seasons to avoid the bonuses and salary increases that are expected for a successful series.
It can be hard to imagine any other way to organize the film and television industries given that we’re used to their present structure. Still, looking at the past shows us that they’ve been composed in different ways at various times, and that restrictions can help put the public interest first and give independent companies room to grow. The appetite for antitrust appears to be growing, with both Elizabeth Warren and Bernie Sanders calling for action to address media consolidation.
Make no mistake: Antitrust action and the development of cooperative alternatives would completely upend the streaming wars. It can’t come soon enough.