by Dana Blankenhorn
  Volume VII, No. XVI

This Week's Clue: The Real Cost of Media Consolidation

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This Week's Clue: The Real Cost of Media Consolidation
SSP (Shameless Self Promotion)
SP (Shameless Promotion)
Moore's Second Law
Exponential vs. Arithmetic
The Big Pay-Off
Clued-in, Clueless

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For the Week of April 21, 2003

As you may know I recently took a new job covering (of all things) "old media" - by which I mean newspapers, magazines and radio - for a nice outfit based in John Cheever's Connecticut . (Their main office is in Westport.)

The big excitement on the new beat is the FCC's ongoing effort to allow more media consolidation. Every few years the agency looks at its rules over who can own how much of the nation's media, and this time there's a twist. The law has been changed so the burden of proof falls on those who want limits, instead of the other way around. Some relaxation is certain.

In examining the question the FCC mainly looks at advertising rates. They have found, for instance, that local rates for radio have increased as a few giant companies have gained control of most stations in many markets. They have not found (yet) any extraordinary rate increases for national advertising - in fact national radio advertising is booming.

It's also likely that the FCC will again allow local newspapers to own TV and radio stations in the same market. Here in Atlanta Cox Enterprises has been doing this since before the FCC got involved in the issue, so their monopoly is "grandfathered." Cox' media monopoly here hasn't stopped Atlanta from growing, but it has made Atlanta a very small town. It's a company town, and you either work for the company or you're invisible. (Even the anchors of CNN were, for many years, invisible.)

The way to success here is to either work for Cox and become (perhaps) a big fish in its small pond, or go to New York, make it big there, and come back to be hailed by Cox as a "discovery". (The Time Warner takeover of CNN simply restored the status quo.) Atlanta, in the end, can't test people because it's not a competitive market.

This is a cost to media consolidation the FCC is ignoring. We've already made most media variations on the local Atlanta theme, and this is killing our cultural leadership.

Where do our great new trends come from? Today most of them are imported. Our new TV concepts - our game shows and reality shows - all come from England. Our kids' cultural life is imported from Japan. The Oscars are dominated by Australians and (more recently) New Zealanders.

There is a reason for this. It's the committee.

In order for anything to be "greenlighted" for national distribution, whether it's a book, a movie, a TV or radio show, it has to go through a committee process. It needs numbers, proof that it stands a great chance of success. It needs to be tweaked - a lot of "experts" have to get their hands on it.

In other words it has to be ruined.

All art is, at heart, an individual process. When art is applied to business (as it always is in media) it's an entrepreneurial business. One person's vision must rule, for better or worse. We know the successful franchise by the individual who stands behind them - a Spielberg movie, a Dick Wolf TV show, or a Stephen King novel. This is also true for media companies. The committees of Time Warner destroyed Ted Turner, and Rupert Murdoch rules because we know he's in charge. (I still have great hopes for Oprah.)

Murdoch himself is an interesting case. He's not from around here. We have made it so hard for media entrepreneurs to rise that we have to import our moguls, and the result is we are slowly losing control of our market. Others can follow the Murdoch model. Compete in and come to dominate a foreign market, then execute your strategy here, and you will win because the Americans are so timid they won't listen to one another. It's not just Murdoch. All the coming powers on my beat, in newspaper and magazine journalism, are foreigners.

The problem with media consolidation is you shrink the pile of entrepreneurs, and eventually they die-out altogether, replaced by committees. Eventually, perhaps soon, a committee will replace Rupert Murdoch at Fox, and Fox' fire will fail. Viacom (which owns CBS) succeeds mainly because Sumner Redstone is firmly in charge, and its investors hope that when he goes (he's about 80) Mel Karmazin will take over. Disney's future is all about Michael Eisner, and whoever succeeds him. If it's a committee, the company will start to fail. General Electric was Jack Welch, before that it was Reginald Jones, and if Jeffrey Immelt can't put his stamp on it, GE's light will go out.

In a competitive market there are entrepreneurs constantly fighting at every level of the business ladder. Some are strong in one market, others in one niche. Some are good at building big companies out of a lot of little ones, and others are only good with what they build themselves.

But in a world where you can count the number of companies that count on one hand - GE, Disney, Fox, Time Warner, Viacom - eventually the committees will rule. The committees will look for guarantees of success before greenlighting anything. Rungs will be taken out of the ladder of success. This has already happened in books, and music, and it will soon happen in movies. Mid-list authors like me aren't heard, but where do you think tomorrow's best sellers will come from? (And what's the biggest of the best-sellers? Harry Potter, written by J.K. Rowling -- an Englishwoman.)

Foreign markets are smaller, they are more competitive, and that is why more of our stars are now imported. We get our movie stars from Hong Kong, and maybe next we will look for them in India's Bollywood, because what committees produce is bland, unappealing, assembly-line entertainment. Even if you live in a trailer park, you know what you like, and that isn't it.

This is the real cost of our media consolidation. It's the cost we have paid for the consolidation that has already taken place. And after the rules are changed so that even-fewer companies count, the price will rise.

America's success is based on competition. The market is broken up into many different pieces, and people fight over every one of them. But when you make America one market, and put the power to act in just a few hands, you eventually replace men with committees, and courage with timidity. We are in the process of doing just that, and thus we are making ourselves ripe for the picking.


SSP (Shameless Self-Promotion)

The Howard Dean Campaign blogged last week's cover story. But here's a Clue for y'all. These Clues can also be used by Republicans. If you know one, pass last week's issue along.

The reviews (well, some of them) are in. "Dana, it is GOOD," raves Pete duPont, lawyer, futurist and once a candidate for President. "This is some really powerful 'stuff.' I think you've got a winner," says Drew Kaplan of DAK Catalog fame.

Find out what the excitement is about. Buy The Blankenhorn Effect at Amazon.Com , then go back and say nice things. You can use the ASIN number, 1553953673, and recommend it to readers of other, similar books. You can also save on shipping when you buy the book at Amazon, over the cost of buying it elsewhere.

If you can convince some more published reviewers to read The Blankenhorn Effect and recommend it to their readers, please send me a name and address. In exchange, you'll get the PDF version of my second book, The Blankenhorn Effect: Boom, Bust & Beyond. This is a collection of columns from, organized chronologically and by subject, with additional commentary from yours truly.

I have begun working full-time for MediaPost , but I have also written lately for BtoB Boardroom and Mobile Radio Technology . You can follow the continuing story of The Blankenhorn Effect on my "Moore's Lore" blog . I also contribute to NowEurope and GreaterDemocracy .

You have my permission to forward this newsletter widely. And if you have trouble subscribing let me know . Remember: it's journalism that keeps the Clues coming...


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Takes on the News

Moore's Second Law

The "big bang" theory of the universe holds that everything started with an explosion. Observations show that more explosions - supernovas - happen all the time. Within the first explosion, galaxies and solar systems formed, and continue to form and re-form. There are also opportunities for growth and change from supernovas, and hopefully those may yet be explored.

The same is true for Moore's Law. The explosion represented by semiconductors created new opportunities in PCs, in consumer electronics, in software, in communications, and on and on. It continues to do this. But nothing is free, either in the universe or in business. To keep going and growing we have to deal with Moore's Second Law, which holds that as devices get more-and-more complex, they become exponentially more expensive to produce.

Moore's Law isn't a street of one-way growth, even though it's a continuum of progress. Moore's Second Law is just one guarantee of this.

When you're inside the explosion this can be easy to forget. And a lot of smart people have forgotten it lately starting with John Markoff and the source of this story , Michael S. Malone. Markoff claims (without attribution) that Moore's Law is reaching its limit (maybe in 25 years), then launches into a quote from Malone that this is a good thing.

"It is precisely this fixation," he added, "at the cost of other considerations like profit, product and market, that led to the dot-com bubble and bust." This is nonsense.

The dot-com bust had nothing to do with Moore's Law. The exponential improvement in silicon was matched by exponential improvements in storage and optical capacity, creating an Internet where supply overwhelmed even the most optimistic estimates of demand. And while a lot of kids got greedy, a lot of so-called adults also became thieves. The fact that more aren't in jail today (and thus investors still lack confidence) also has nothing to do with Gordon Moore. (Gordon Moore is, and was, always an honest businessman.)

The dot-com boom was a secondary explosion to the big bang of Moore's Law. Blaming its mismanagement on Moore is like blaming Mohammed for Osama bin Laden, or blaming Jesus for the Inquisition.

What we need, however, are more secondary explosions. We need more imagination, we need new paradigms of computing, and we need more optimism from everyone. We need fewer bozos like Michael S. Malone, and more intelligence from reporters like John Markoff.


Exponential vs. Arithmetic

One reason Moore's Law doesn't guarantee wealth is because it's exponential in nature.

At first you can keep up with exponents. Two becomes four, and four becomes eight. Hey this is fun. But eventually 1 billion (and a bit) becomes 2 billion (and a bigger bit). That's basically what Microsoft has finally faced, and it's losing the race.

The only way to win against exponential questions, in the end, is with an exponential answer. This is why Linux trumps Windows the way paper covers rock. Linux can scale. The more people who have Linux, the more potential customer service people you have. Sure it's nice to have a central repository, like Sourceforge, or a central standards-based service desk, like Red Hat, or even someone you know you can call on, like IBM.

But even if you're a small business, with Linux you've still got the community and most likely someone else in that community has faced your problem, and maybe they've solved it. Because of the nature of the system they're going to share that solution with you. (If you get the solution first, you will share it with them.)

With Windows, you'll never know. You're dependent on the Big Green One for your answers. If they haven't found it, if they haven't created it, you don't get it.

In other words, Linux scales and Windows doesn't. The Number One, no matter how mighty and Ozymandias-like it might be, is still just one. It's still just a "fuzzy foam finger."

Now standards are important, and when numbers are small, having one King you can depend on to maintain the standard is a very good thing. But Moore's Law isn't arithmetic, it's exponential, and at some point it overwhelms you.

The same thing is true in bandwidth. The great secret of the telecomm collapse is that supply overwhelmed demand, because supply was increasing exponentially while demand was growing (at best) in multiples - and ordinary multiples remain arithmetic. If this weren't true the spam flood would have overwhelmed us by now, but instead it's just a nuisance we deal with at the network edge.

We live in an arithmetic world, where 2002 becomes 2003 and 2003 becomes 2004. But Moore's Law is exponential, and the only way to meet exponential supply is with exponential demand, exponential service, and exponential business models.

This is simple math. This is not hard to understand. Yet most analysts of this business fail to grasp it, as do nearly all the market's participants. It's as though the market were living in a Newtonian universe, but underneath (at the chip level) life is proceeding as Einstein envisioned it, in the patent office at Berne, 100 years ago (or thereabouts) this week.

Happy anniversary.


The Big Pay-Off

The Murdoch acquisition of DirecTv represents the biggest scandal in American history, and the biggest political pay-off.

Murdoch has been angling for DirecTv for years. It completes his global footprint and (he believes) solidifies his media dominance. (Too bad he can't stop time.) Near the end of the Clinton era the prize went beyond his grasp, with EchoStar's purchase of DirecTv. But the same FCC that now sees media consolidation as a good thing somehow had problems with one competitor to cable. The EchoStar purchase was scuttled. Then, one by one, rival bidders -- SBC, Liberty Media -- disappeared. Murdoch was left alone and got the prize for half-price .

Initial reports from the stock market were that Murdoch overpaid , but economics is not the game here. Politics is the game. America's political right now has complete mastery of the skies, on a worldwide basis, and its message will (it hopes) overwhelm all opposition for years to come.

Fortunately, Rupert Murdoch will die. (So will you, so will I.) Fortunately, however, no plan for world hegemony is capable of surviving its own internal contradictions. Competition will, in time, destroy the Bushies and all their works. It will just take longer now.


Clued-in, Clueless

Clued-in is Sen. Charles Grassley for insisting that crooks' earnings shouldn't be shielded simply because they were once CEOs. But Grassley needs another Clue - make Enron, Worldcom, HealthSouth et. al. subject to the RICO statute. I want these boys in jail forever, their kids impoverished, and their grandkids changing their names to hide the stigma. That's the only way the rest will get the message.

Clueless is the method by which Time is pulling its magazines behind the AOL firewall . (The idea itself is sound.) Isolate yourself completely from the Web and you become invisible. Learn from the Wall Street Journal, which selectively places stories in front of the firewall, thus retaining its connection to the Web and some of its importance within it.


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