Grow or Fail!?

The FT published recently some comments by James Murdoch claiming that News Corporation – the world’s largest media conglomerate – is not big enough. The reason, he argues, is that “When you actually look at the competitive set in an all-media market place, where you have monolithic brands, from Google and Apple etc, to the big [telecoms incumbents] Telefónica, Deutsche Telekom, Verizon – all the characters on a playing field or a terrain that has essentially collapsed – there are much, much bigger beasts than a News Corporation, or a Time Warner”.

So, he means that because the whole media sector (from production to distribution) is going through a technological revolution we are in for a “winner-takes-all competition”. I do not think so!

Interestingly enough the founders of News Corp, Google and Apple still control their companies and are not considered as part of the managerial capitalism sector, which thrives on rent-seeking behavior secured through oligopoly and regulatory protection. So, he is probably just voicing the usual kids whine about “that boys’ toy is bigger than mine” so dear to CEOs of managerial controlled firms.

There is however a case to consider whether the new technologies are promoting a mitigated from of winner-takes-all, the so called long-tail business model. In this model (with a long history in music and book publishing) the top sellers take about 80/90% of the total revenue while the remaining millions of producers have to fight for the residual 10/20% of revenues.

Whether this will be exacerbated or attenuated will depend not only on technology but also on the profit maximization choices of the leading companies. Should those “running the pipes” and the viewing devices – the telecoms and IT companies (e.g. Verizon and Apple) – be allowed to build oligopolistic positions based on competition for subscribers by offering “”all-you-can-eat” contents and devices for free, and then some producers and content aggregators (e.g. News Corp) would become almost entirely dependent on an oligopolistic advertising aggregator (e.g. Google). Under this scenario, it is not unreasonable to expect that content aggregators would also need to build oligopolistic positions.

Thus the fundamental question is whether atomized content producers and end-consumers would be well served by a supply chain (from aggregators to device manufacturers) that would be mostly oligopolistic. I do not think that they would benefit from such an end-game. Here is where economists and regulators should focus their attention. Our first impression is that some size limits should be considered before we get into “too big to fail” situations, regardless of whether they are managerial or entrepreneurial run firms.

These limits should be designed in a way similar to those that we advocate for the managerial sector in general. Not based on some old fashioned ideas like the percentages of ownership and national content.

Only a leading sector of market capitalism can protect the entire capitalist system as one of the main pillars of happiness for humankind.