[BUSINESS] STRATEGIES OF THE NEW MEDIA GIANTS

MAXIMIZE PROFITS // REDUCE COSTS // REDUCE RISKS

I. ECONOMIC THEORY

ADAM SMITH: "THE INVISIBLE HAND": "every individual, in selfishly pursuing only his or her personal good, is led, as if by an invisible hand, to achieve the best good for all."

There is some evidence that this is true, IF there is PERFECT COMPETITION.

a. numerous buyers and sellers on each side,

b. who are well informed about quality and prices,

c. who have no reason to discriminate among merchants, and

d. who have no reason to think they can influence the market price.

This state of perfect competition is distorted by:

Economies of scale: a large corporation can produce "large amounts of goods and services at a lower per unit cost than a small company."

Economies of scope: a single corporation produces "different products and/or services involving similar processes."

 

II. ANTITRUST LAW

SHERMAN ACT (1890): prohibits monopoly, contracts, combinations "in restraint of trade."

CLAYTON ACT (1914): lists anti-competitive practices which have the effect of lessening competition or creating a monopoly.

Anti-competitive corporate mergers

Interlocking directorates

Discriminatory prices

Tying

CELLER-KEFAUVER ACT (1950): forbids acquisitions which have the effect of lessening competition or creating a monopoly and generally frowns upon increased concentration.

III. MEGAMEDIA AND ANTI-TRUST LAWS Megamedia seem to violate or skirt the antitrust laws in several ways:

Horizontal integration: a corporation takes control of other media companies (in the same mass medium or geographical area), and

Vertical integration: a corporation supplies the content (programming) or distribution systems.

Turner Broadcasting System v. FCC

Synergy: horizontally and vertically integrated system has a large number of media outlets to which it can give special preference; cross promotion:

Nicholas Johnson: "synergy is actually the annihilation of competition. . . . When you contract with an author to write a book and sell it in the stores you own, produce the movie in the studio you own and run it in the theatres you own, make it into a video and distribute it through the stores you own, then put it on the cable system you own and the broadcast stations you own, promote it on the TV network you own, and write it up in the entertainment magazine you own, thatÕs pretty tough to compete with."

IV. Other strategies within the bounds of the law

Mergers/Acquisitions > >> >Size

Branding

Segmentation/Specialization

Diversification

Globalization

Joint Ventures