[Senate Hearing 106-974]
[From the U.S. Government Publishing Office]
S. Hrg. 106-974
THE VIACOM/CBS MERGER: MEDIA COMPETITION AND CONSOLIDATION IN THE NEW
MILLENNIUM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
BUSINESS RIGHTS, AND COMPETITION
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
on
MEDIA COMPETITION AND CONSOLIDATION ISSUES, FOCUSING ON THE PROPOSED
ACQUISITION OF CBS BY VIACOM
__________
OCTOBER 28, 1999
__________
Serial No. J-106-57
__________
Printed for the use of the Committee on the Judiciary
71-576 CC
2001
?
COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
Manus Cooney, Chief Counsel and Staff Director
Bruce A. Cohen, Minority Chief Counsel
______
Subcommittee on Antitrust, Business Rights, and Competition
MIKE DeWINE, Ohio, Chairman
ORRIN G. HATCH, Utah HERBERT KOHL, Wisconsin
ARLEN SPECTER, Pennsylvania ROBERT G. TORRICELLI, New Jersey
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
Pete Levitas, Chief Counsel and Staff Director
Jon Leibowitz, Minority Chief Counsel and Staff Director
(ii)
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
DeWine, Hon. Mike, a U.S. Senator from the State of Ohio......... 1
Wellstone, Hon. Paul, a U.S. Senator from the State of Minnesota. 4
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 36
CHRONOLOGICAL LIST OF WITNESSES
Panel consisting of Sumner M. Redstone, chairman and chief
executive officer, Viacom, Inc., New York, NY; Mel Karmazin,
president and chief executive officer, CBS Corporation, New
York, NY; Andrew Jay Schwartzman, executive director, Media
Access Project, Washington, DC; Lawrence K. Grossman, former
president, NBC News, former president, PBS, New York, NY; and
David Waterman, associate professor, Department of
Telecommunications, Indiana University, Bloomington, IN........ 6
ALPHABETICAL LIST AND MATERIAL SUBMITTED
Grossman, Lawrence K.: Testimony................................. 20
Karmazin, Mel:
Testimony.................................................... 8
Prepared statement........................................... 10
Redstone, Sumner M.:
Testimony.................................................... 6
Prepared statement........................................... 10
Schwartzman, Andrew Jay:
Testimony.................................................... 16
Prepared statement........................................... 18
Waterman, David:
Testimony.................................................... 22
Prepared statement........................................... 24
THE VIACOM/CBS MERGER: MEDIA COMPETITION AND CONSOLIDATION IN THE NEW
MILLENNIUM
----------
THURSDAY, OCTOBER 28, 1999
U.S. Senate,
Subcommittee on Antitrust, Business Rights,
and Competition,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to notice, at 1:32 p.m., in
room SD-226, Dirksen Senate Office Building, Hon. Mike DeWine
(chairman of the subcommittee) presiding.
Also present: Senator Kohl.
OPENING STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM THE
STATE OF OHIO
Senator DeWine. Good afternoon, and welcome to the Senate
Antitrust Subcommittee hearing on the Viacom/CBS Merger: Media
Competition and Consolidation in the New Millennium.
Since this merger was first announced in early September,
it has been the object of a great deal of discussion. Some of
this scrutiny is due to the fact that we are immersed in a
merger wave that has been going on for several years. This
proposed deal is another sign that the merger wave is certainly
continuing.
Some people are intrigued by the idea that Viacom, which
was spun off as a small unit of CBS some 30-odd years ago, has
grown up and come back to buy its parent company. Of course,
any time a merger is valued at $40 billion, it will be closely
examined.
But beyond any of these issues is a sense of concern
generated by the ongoing consolidation that we are seeing in a
variety of media markets. In radio, in newspapers, and now in
television, we are beginning to see the trend towards
consolidation that has swept through so many other industries
over the last few years. While many of these mergers have been
procompetitive and helped provide consumers with a better
product at a better price. We need to be especially careful
when we are dealing with companies that provide information,
because the free flow of information is crucial for a democracy
to function. We must--we must--have competition in the
marketplace of ideas, and excessive concentration will hinder
that competition.
For this reason, many people have reacted with concern to
the proposed merger. The Viacom/CBS deal will create a company
with very significant holdings in cable, broadcast television,
movie production, movie rental, radio, publishing, and
billboard advertising, and a growing presence on the Internet,
as well. The idea of another media conglomerate with holdings
in so many related market segments seems somehow a little
scary.
Mr. Redstone's statements about the merger have not done
very much to reassure people. Let me quote from one of the
joint Viacom/CBS press releases on this merger. Mr. Redstone
said, ``Our union will be king, not just in content, but in its
distribution, marketing, and packaging. We will be global
leaders in every facet of the media and entertainment
industry.'' While this no doubt is a reassuring and comforting
vision to the CBS and Viacom shareholders, it is understandable
that some others have had reservations about creating such a
dominant media conglomerate.
Frankly and candidly, I myself do have some concerns about
the proposed merger. However, good, sensible competition policy
is certainly not made on the basis of vague feelings nor
general concerns, and this subcommittee will make no judgment
on this deal without a close examination. This proposed merger
must be carefully scrutinized in order to determine whether it
is anticompetitive or whether it is procompetitive and whether
or not it unduly hinders free trade in the so-called
marketplace of ideas.
We need to examine closely whether it creates competitive
problems in the advertising market and whether it raises entry
barriers for prospective competitors. We need to examine what
impact Federal Communications Commission regulations will have
on the proposed merger. We need to examine whether it will
hinder coverage of the news, limit editorial freedom, or
decrease the range of available programming. And in each of
these separate areas, we need to determine what procompetitive
benefits are generated by the proposed merger and balance these
against any concerns that we may have. Finally, all these
judgments must be made in the context of a rapidly changing
marketplace, where new programming is being developed
constantly and the Internet is rapidly expanding consumer
choice.
All of these factors require careful evaluation, and as I
have already mentioned, the complexity of the analysis is
increased because the proposed merger is taking place in a very
important and very dynamic industry. We hope that our hearing
today can help shed some light on all these very interesting
and important issues, and I look forward to the testimony of
our witnesses.
Let me now turn to the ranking member of our subcommittee,
Senator Kohl.
Senator Kohl. Thank you, Mr. Chairman. We are here today to
examine the Viacom/CBS merger, a deal which raises many
important questions about the future of the media and the
entertainment industry in America. In our subcommittee, we have
always taken the position that a media merger is different
from, say, a merger between telephone companies, oil companies,
or cereal manufacturers. When we are examining media mergers,
we need to take special care to ensure that we protect the free
flow of information and ideas. My own sense is that the Viacom/
CBS deal creates more synergy than suspicion, but the next
major media deal may not.
Let me start by acknowledging the abilities of both Sumner
Redstone and Mel Karmazin, two highly talented businessmen who
have built Viacom and CBS into two of the most important media
entertainment conglomerates existing today.
But given your experience and your expertise, gentlemen,
you must also recognize why some observers have serious
concerns regarding your planned merger. CBS and Viacom are both
media and entertainment giants, and combining your companies
would create an enormous enterprise with involvement in
virtually every aspect of the media and the entertainment
business.
Of course, we all recognize that size alone is not the
issue, that big is not necessarily bad, and in the end, this
merger appears likely to pass muster under the traditional
antitrust tests, given the number of other competitors, these
companies' market shares, and the absence of direct competition
between Viacom and CBS in many markets. But some antitrust
questions do remain. For example, will the combined company
have so much advertising clout in some communities that it will
hurt small local businesses that cannot afford to buy ad time?
Or will it, along with other media conglomerates, be able to
crowd out independently owned radio stations?
These traditional antitrust tests, however, are not the
last word in dealing with a media merger such as this one. In
fact, no less an antitrust authority than you, Mr. Redstone,
told our subcommittee in 1993 when you opposed TCI's plans to
purchase Paramount, and I quote, ``TCI and its partners' market
power is dangerous enough, but when coupled with the
publishing, television, and motion picture production and other
interests of Paramount, the dangers to fundamental first
amendment principles are sobering.'' Mr. Redstone, that was
then. Perhaps today you will have something else to say.
Mr. Chairman, let me make just a couple more points. We
have had so much media consolidation and cross-ownership in the
last few years that we have created a sort of American media
keiretsu. It is also reasonable to ask whether in today's
bottom-line environment, hard-hitting, objective journalism
could be sacrificed to gain ratings, audience share, and
revenues.
Now, I laughed, Mr. Redstone, when you responded to a CNN
reporter, ``Do we own you yet?'' after she asked you a question
at the press conference announcing your deal, but that joke, to
be sure, does illuminate an important issue.
Indeed, there may still be sufficient competitive
alternatives in the media and entertainment industry so that
this merger is approved, although I am not quite sure if
America is ready for one company to own two major networks.
Regardless, we should be careful to pay attention to its
effects in the marketplace of ideas and not merely the
marketplace of dollars, and we should consider during our
hearing the question of, if not now, when, at what point future
media consolidation might just become too dangerous. Your
guidance today, gentlemen, will be helpful in shaping the media
of tomorrow.
Thank you, Mr. Chairman.
Senator DeWine. Senator Kohl, thank you very much.
We will turn to our first panel, the Honorable Paul
Wellstone. Paul, thank you very much for joining us, and you
may proceed.
STATEMENT OF HON. PAUL WELLSTONE, A U.S. SENATOR FROM THE STATE
OF MINNESOTA
Senator Wellstone. Thank you, Senator DeWine and Senator
Kohl. First of all, I want to tell you that I very much
appreciated hearing both of your remarks and I also appreciate
this opportunity to testify before this subcommittee on an
issue that deserves a much wider debate in the Congress and in
the public.
Mr. Chairman, I think the recent wave of mergers among
media companies, including the proposed acquisition of CBS by
Viacom, raises some very troubling questions for our system of
representative democracy. These media mergers warrant the
highest level of scrutiny by our antitrust agencies and by the
Federal Communications Commission. They may also require
Congress to consider a new legislative framework to address the
growing problem of media concentration.
Some of my colleagues may be aware of my concerns about
increasing concentration in other sectors of the economy,
especially in agriculture and finance. But of all the
industries where concentration is now accelerating at such a
rapid pace, it is really consolidation in the media and
entertainment industries that should alarm us the most. We are
talking about the very flow of information in a representative
democracy.
The media is not just any ordinary industry. It is the
lifeblood of American democracy. We depend on the media for the
free flow of information that enables citizens to participate
in the democratic process. As James Madison wrote in 1822, ``A
popular government without popular information or the means of
acquiring it is but a prologue to a farce or a tragedy, or
perhaps both.'' That is why freedom of the press is enshrined
in our Constitution. No other industry enjoys that kind of
protection.
For our democracy to work, we depend on the media to do two
things. We depend on them to provide citizens with access to a
wide and diverse range of opinions, analyses, and perspectives,
and we depend on the media to hold concentrated power, whether
it is public or private power, accountable to the people. The
greater the diversity of ownership and control, the better they
will be able to perform those functions.
Some have argued, Senator DeWine and Senator Kohl, that the
recent round of consolidation in the media and entertainment
industries, especially the trend toward vertical integration,
will offer consumers a more diverse array of choices. But it is
important to distinguish between outlets and content. It is a
very important distinction. A proliferation of new media
outlets does not guarantee any greater diversity of viewpoint.
After all, one corporate conglomerate can still exercise
control over the content of the media that reaches citizens
through many different outlets. The safest and best way to
ensure diversity of viewpoints is through diverse ownership.
Mr. Chairman, I think most people in our country would be
shocked at the degree of media concentration that has occurred
in the last 15 years. When the classic, ``The Media Monopoly,''
was written in 1983, about 50 media conglomerates controlled
more than half of all the broadcast media, newspapers,
magazines, video, radio, music, publishing, and film in the
country. In 1986, that number had shrunk from 50 to 29. By
1993, it had shrunk to 20. Today, fewer than ten multinational
media conglomerate, dominate most of the American mass media
landscape. The range and scope of their holdings is astounding.
I think this proposed merger is really part of a larger
problem. Yes, this would be the largest media merger in
history, and CBS/Viacom would be the second-largest media
corporation in the world. But these two companies undoubtedly
felt compelled to act by competitive pressures, namely the
rapid vertical integration in the industry through a spate of
high-profile mergers and acquisitions in recent years. By the
same token, one problem with this merger is that it would
increase pressure on other firms to do the same, accelerating
the momentum toward further concentration in the industry.
As the chairman of Sony commented on the merger, and I
quote, ``After a deal like this, the urge to merge becomes
feverish, and right now, temperatures are soaring all over the
city.'' We need to concern ourselves not only with the effects
of this merger, but also with the aftershocks that will be felt
for years to come.
These concerns about media concentration need to be
addressed by both the FCC and our antitrust agencies. Congress
has directed the FCC to uphold a ``public interest'' standard
in approving media mergers, though that standard has been
severely weakened in recent years. Last month, Chairman Kennard
said in a speech, and I think this is what is at issue,
``Broadcast ownership rules serve principles that we still
cherish, principles like competition, localism, and a diversity
of voices. We can and must do more to make sure that there are
a multitude of voices and opinions on the airwaves.''
These are admirable principles, yet they are difficult to
reconcile with the chairman's statement on the CBS/Viacom deal,
in which he said, ``The essential question will be, how does
this merger accelerate delivery of digital age services to all
consumers?'' The more important question is, when and why do
the principles of competition, localism, and diversity lose out
to other considerations, such as delivery of digital services
to consumers?
Clearly, something needs to be done. If our antitrust
agencies and the FCC fail to address the problem of media
concentration within their current legislative mandates, a
legislative remedy may be necessary. One option would be, I
would say to both my colleagues, to breathe new life into the
FCC's public interest standard by giving presumptive weight to
considerations of competition, localism, and diversity of
viewpoint from independent sources. Another option would be to
provide additional guidance for the application of our
antitrust laws to media mergers, either through new legislation
or through new enforcement guidelines.
Undoubtedly, and I conclude this way with a sense of irony,
such an effort would meet considerable resistance, not least
from media corporations themselves. Progress in the area of
antitrust has almost always come in response to public
pressure. Yet, this is the quandary of democratic with a small
``d'' I say to the chairman--media reform. Involvement of the
public in this debate depends on coverage and attention by the
major media. Unfortunately, the record to date has not been
encouraging. There has been virtually no public awareness or
public discussion of the rapid concentration of media that has
occurred over the last 15 years.
As Will Rogers used to say, ``Freedom of the press is great
if you own a press.'' As fewer and fewer presses are
concentrated in the hands of fewer and fewer people, we need to
start asking ourselves how we can make that freedom meaningful
for more people. But that is a debate we need to engage in with
a larger audience. We can start by bringing attention to it in
this Congress, and for that reason, I thank this subcommittee
for holding this hearing.
Senator DeWine. Senator, thank you very much for your
testimony. Senator Wellstone, I think that the questions you
raised are certainly going to be questions that we will be
raising with the next panel. We appreciate your testimony very
much.
Let me invite our second panel to now proceed to come up,
and as you are coming up, I will introduce you.
From my left to right, Sumner Redstone is the chairman of
the board and chief executive officer of Viacom, Inc., where he
has served as chairman since 1987.
Mel Karmazin became the president and chief executive
officer of CBS Corporation in January 1999. He is also
chairman, president, and CEO of Infinity Broadcasting.
Andrew Jay Schwartzman is the president and CEO of Media
Access Project, MAP. He has directed that organization since
June 1978.
Larry Grossman was the president of NBC News from 1984 to
1988 prior to which he was president of PBS. He is a published
author and writes a regular column for the Columbia Journalism
Review.
The final witness on the second panel is David Waterman,
who is an associate professor of telecommunications at Indiana
University and was previously a faculty member of the Annenberg
School for Communication at the University of Southern
California.
We welcome all of you and we appreciate you being here. Mr.
Redstone, we will start with you.
PANEL CONSISTING OF SUMNER M. REDSTONE, CHAIRMAN AND CHIEF
EXECUTIVE OFFICER, VIACOM, INC., NEW YORK, NY; MEL KARMAZIN,
PRESIDENT AND CHIEF EXECUTIVE OFFICER, CBS CORPORATION, NEW
YORK, NY; ANDREW JAY SCHWARTZMAN, EXECUTIVE DIRECTOR, MEDIA
ACCESS PROJECT, WASHINGTON, DC; LAWRENCE K. GROSSMAN, FORMER
PRESIDENT, NBC NEWS, FORMER PRESIDENT, PBS, NEW YORK, NY; AND
DAVID WATERMAN, ASSOCIATE PROFESSOR, DEPARTMENT OF
TELECOMMUNICATIONS, INDIANA UNIVERSITY, BLOOMINGTON, IN
STATEMENT OF SUMNER M. REDSTONE
Mr. Redstone. Good afternoon, Mr. Chairman, Senator Kohl,
and members of the subcommittee. I am, as you know, Sumner
Redstone. I am Chairman and CEO of Viacom.
In fact, as you heard, these are truly exciting times in
the media industry and I want to thank you for the opportunity
to appear before you to talk about the equally exciting merger
of Viacom and CBS.
Twelve years ago, I acquired a company called, I guess it
was called Viacom then, whose core assets were a couple of
cable networks that were just beginning to build their youth
and teen audiences. Those networks, MTV and Nickelodeon, are
now household names. Today, Viacom exports MTV and Nickelodeon
in some 14 languages to more than 100 countries around the
world. That first strategic acquisition started Viacom down the
path of creating a diverse media company, one that serves a
vast array of domestic and international audiences.
The next step in fulfilling this strategic vision was the
Paramount acquisition, when Viacom combined that company's
movie studio and television program production and distribution
with our cable networks. With the movie studio, we were able to
expand Viacom's content for theater-goers. With the television
programming production arm, we were able with our partner
Chris-Craft to launch a new over-the-air broadcast network.
UPN's ratings are but a fraction of those of the four
established networks, and our experience in building a
broadcast network from the ground admittedly has been very
bumpy and very costly. We are proud, though, of this
alternative voice in free over-the-air television, and in
particular of the diversity which we have promoted.
Viacom's merger with CBS will allow us to serve the full
array of today's fragmented audiences even better, from the
young viewers of Nickelodeon's ``Blue's Clues'' to the older
viewers of CBS's ``Touched by an Angel.'' We see the combined
assets of the new company as highly complimentary, and once
blended, capable of achieving significant economies of scale,
and all of this will, I assure you, be to the consumers'
benefit.
Undeniably, we are in the midst of an unparalleled
technological revolution that is occurring on a global scale
and promises to forever change the way entertainment and
information options are chosen, delivered, and received. The
world at the close of the century is much different from when I
began in the media business more than 40 years ago. Single-
screen cinemas have given way to 25-screen megaplexes. The big
three broadcast networks are now the big four, and in sum,
where the big three used to have 90 percent of the prime time
viewers, today, they have less than 50 percent. Cable
television enjoys a success that few envisioned even 10 years
ago. Satellite TV, which did not exist until a few years ago,
provides some 300 channels directly to 12.3 million U.S. homes.
And the Internet is now viewed as a viable alternative for
accessing video and music.
With respect to the effect of this new company and what it
will be on competition in the United States, the short answer,
and we can demonstrate it, is that it will do nothing but
enhance it. The vast majority of our operations are
complimentary. They do not overlap.
For example, Viacom through Paramount is one of the leaders
in theatrical motion picture production. CBS does not produce
theatrical motion pictures. Viacom, through Blockbuster
Entertainment, is in the video rental business. CBS is not.
Viacom has five regional theme parks. CBS has none. Viacom's
Simon and Schuster is a book publisher. CBS is not. And for its
part, CBS operates a group of radio stations and owns a large
outdoor advertising business. Viacom has no such operation. CBS
is known for its sports and news programming. Viacom is known
for its music and entertainment programming.
Thus, Viacom and CBS clearly are not competitors intent
upon cornering markets. Instead, they are two fundamentally
different companies seeking to compliment their strengths.
However, where limited overlap does exist, each of these
markets has multiple, strong, healthy players that will ensure
continued competitiveness. Moreover, as the media marketplaces
keep fragmenting, the new Viacom will, in turn, have to compete
more aggressively, which no doubt in the final analysis will
benefit all consumers as we enter into the new millennium.
Of course, before the new Viacom can explore the
opportunities the combined entity will bring, the merger must
await approval from both the Justice Department and the FCC. We
expect a careful review. We look forward to working with both
agencies. After their separate reviews, we believe that each
will quickly conclude that the new Viacom will promote
competition and, indeed, serve the public interest even better
in the years ahead.
By the way, I heard myself quoted before, so may I add a
quote which comes from a major speech I gave on mergers at
Harvard Law School, and I would like to read it, because I
think it is relevant. ``A core requisite relating to the
protection of free speech flows from the understanding that
marketplaces enhance not just our pocketbooks, but also free
discourse in ideas. The principle is that ideas, like products,
compete for acceptance and the best ones win in a
competition.'' Thank you.
Senator DeWine. Mr. Redstone, thank you very much.
Mr. Karmazin, thank you for joining us.
STATEMENT OF MEL KARMAZIN
Mr. Karmazin. It is good to be here. Mr. Chairman, Senator
Kohl, with your permission, I would just like to submit my
comments to you, but I would like to focus on a couple of
points, if I may.
Senator DeWine. That will be fine. All the witnesses, your
written testimony that has been submitted is now made a part of
the record and you can proceed as you wish.
Mr. Karmazin. Thank you. I am a broadcaster. I have been a
broadcaster for a little bit over 30 years and I find it really
interesting, all of this discussion about less competition. On
one hand, I would relish the days of going back to where there
were just AM radio stations or there were just the big three
networks. I enjoyed watching Senator Wellstone last night on
CNBC, a network that did not exist as a competitor to us not
too long ago. So I believe that when we are looking at
competition, what Washington ought to be doing is looking at
competition in a way of preserving free over-the-air
broadcasting, something that I have been involved in for an
awful long time.
There is probably a belief by some that our competition is
NBC, ABC, and possibly Fox, but that is truly, truly bizarre.
Today, our competition is all of the cable channels. Our
competition is Yahoo. Our competition is AOL. It is interesting
to note that when Westinghouse acquired CBS, they paid $5
billion for that acquisition. Last year, Yahoo acquired
broadcast.com for over $5 billion in stock. Yahoo's stock is
valued at 50 percent more than CBS's stock, and the reason for
that is because Yahoo is competing with CBS for all kinds of
opportunities with listeners, with content. Some of our radio
stations offer free over-the-air broadcasting opportunity, have
a sports team on the air. Broadcast.com is going to sports
owners and saying to them, they could pay more money for the
content than CBS is currently paying them.
So I think the focus should be on coming up with
competition, and though it would be good to go back, I do not
think there is a chance of that. But what the competition needs
to do is to preserve free over-the-air broadcasting, and
certain rules, like the rule that would limit us to owning
television stations that cover 35 percent of the country, are
terribly outdated and really are not helpful to creating
competition because if, in fact, the free over-the-air
broadcasting is not going to be financially healthy, and you
make your money on your television stations, not on your
network, and that is not about bookkeeping, that is just the
reality of it, that a lot of content that used to be on free
over-the-air broadcasting will find itself migrating to cable
where only certain of the rich people are able to get that.
Obviously, there is a lot of NFL programming on Direct TV,
and we paid $4 billion for the rights to the NFL. We managed to
present the football games free to the public. We are not going
to be able to do that unless we are profitable and unless we
are financially successful, and we are getting increased
competition.
It is also a little peculiar to me to see that there is a
question as to whether or not we can own the struggling UPN
network, which is factually a network that loses over $200
million, and whether we can continue to have an investment in
that and CBS. At a time when cable companies can own 37 percent
of the country and have multiple channels there and that we can
only maybe have an eighth or a tenth of the number of stations
that would be in 35 percent of the country really seems to be a
little bit anticompetitive to them.
It also is important that if we were to take the UPN
network and put it on cable, nobody would have a problem with
that. But because we want to preserve the diversity of a UPN
network and to provide it free over the air, someone says in
this multichannel world that everybody acknowledges there that
you cannot have two of these channels.
So we feel very strongly that when this subcommittee looks
into things, that we ought to be looking at ways of increasing
competition, and that is to preserve free over-the-air
broadcasting. We will do whatever the Justice Department, the
DOJ, the FCC, or this committee says to close the Viacom
transaction, but we really do think that needs to be looked at.
Thank you.
Senator DeWine. Thank you very much.
[The prepared statement of Mr. Redstone and Mr. Karmazin
follows:]
Prepared Statement of Sumner M. Redstone and Mel Karmazin
introduction
Viacom and CBS wish to thank the Members of the Senate Subcommittee
on Antitrust, Business Rights and Competition for providing the
opportunity to describe their proposed merger.
On September 6, 1999, Viacom Inc. and CBS Corporation agreed to
combine the two companies in a merger of equals. Sumner Redstone will
lead the new company, to be called Viacom, in his continued role as
Chairman and Chief Executive Officer, as well as majority shareholder.
Mel Karmazin, now President and Chief Executive Officer of CBS, will
become President and Chief Operating Officer of the new Viacom, with
all operations of the combined company reporting to him.
The assets and markets of the two companies are highly
complementary, have very little overlap and, once merged, will achieve
significant economies of scale, resulting in new programming, new jobs,
lower costs and an increase in exports of Viacom's brands, for the
benefit of Americans and all consumers around the world. Subject to
governmental approvals, Viacom will meld its brands and assets in basic
and premium cable networks (for example, MTV, Nickelodeon, VH1 and
Showtime), movie production (Paramount Pictures), television program
production and syndication (Paramount Television), broadcast television
stations, theme parks, publishing (Simon & Schuster), home video and
rental and retailing (Blockbuster) and websites, with CBS's television
network, broadcast television stations, basic cable networks (CMT
[Country Music Television] and TNN [The Nashville Network]), regional
sports operations, radio stations (Infinity Broadcasting), outdoor
business and online holdings, to create a U.S.-based global media
company that is positioned to seize the myriad opportunities and
confront the formidable challenges of the 21st century. Such
opportunities include serving the explosive media and entertainment
demands of the domestic and international arenas through the Internet
and other distribution channels we know today, while the challenges
include maintaining a voice in an increasingly fragmented and
technologically evolving marketplace.
The proposed merger of Viacom and CBS is no accidental pairing.
Rather, it represents another strategic and significant landmark in a
far-sighted vision of constructing a competitive media and
entertainment company flexible enough to adapt to changing times. The
vision took seed some 40 years ago, with a handful of drive-in movie
theaters. With the waning audience for such theaters, those holdings
were expanded to include the much-in-demand indoor, multiplex variety
of theaters. And, in turn, it was with this base set of assets in 1987
that Viacom and its cable networks, including MTV and Nickelodeon, were
acquired. Seven years later, Viacom's cable network brands--by then
having expanded beyond MTV, Showtime and Nickelodeon to VH1, MTV Europe
and MTV Asia--combined with the Paramount movie studio. This marriage
reaffirmed Viacom's commitment to content and resulted in a
strengthened and enhanced programming portfolio that now extends Viacom
franchises into theaters and homes around the country and the world.
For example, Paramount Pictures worked with Nickelodeon to produce
``The Rugrats Movie,'' and Paramount Parks feature Nickelodeon play
centers. Globally, MTV can be viewed in over 300 million households,
Nickelodeon in over 135 million households and VH1 in over 90 million
households, in some 14 different languages and in more than 100
countries around the world, from the People's Republic of China to
Norway to Mexico. And as the world goes digital, Viacom is ready to
supply content through its suite of digital channels that are accessed
via television, and through its music and child-oriented sites that are
accessed via that ubiquitous digital medium, the Internet.
As Viacom has grown, it has never lost sight of the importance of
funneling its profits back into the company to finance quality
programming for diverse audiences and to meet the public service
obligations owed to its viewers. Early this year, for example, Viacom,
together with its non-profit partner Children's Television Workshop,
launched Noggin, the nation's first round-the-clock, commercial-free
educational children's channel. Such a risky enterprise with such a
kid-centric mission would have been impossible without Viacom's
wherewithal to finance the creation and production of new quality
educational programming for the channel, Nickelodeon's vast library of
top-notch programming, and MTV Networks' expertise in obtaining
distribution for program services across all platforms. Indeed, despite
the financial losses that have accompanied the start-up of Noggin,
Viacom has pledged the funds necessary to nurture this educational
channel to success.
As with its undertakings to children, since 1995 with the launch of
broadcast television network UPN, Viacom, with partner Chris-Craft, has
responded to the needs of the underserved segments of American viewers,
particularly those with access only to free, over-the-air broadcast
television. With programs written and produced by minorities and
featuring minorities in the casts of almost all of its dramas and
sitcoms, UPN has outperformed all other broadcast networks in
attracting a disproportionately large African-American audience. Yet,
despite the substantial draw of the upstart network to black
households, total viewership nationwide has lagged, resulting in UPN's
loss of hundreds of millions of dollars in its short life of less than
five years. Viacom's programming strength and size so far have allowed
it to continue to underwrite UPN with its partner so that this
alternative voice may still be heard.
In addition to funding diverse and high-caliber programming, Viacom
has dedicated funds to serving its largest segment of viewers, the
youth of America. It has done so on-air and off through pro-social
campaigns that address violence, tolerance and helping others. One such
campaign, MTV's ``Fight for Your Rights: Take a Stand Against
Violence,'' which was unveiled even before the tragic incident at
Littleton, includes several on-air specials, a free CD containing music
and comments on violence from top recording artists and an action guide
produced in cooperation with the Departments of Justice and Education.
Nickelodeon's ``The Big Help'' is a year-round campaign that encourages
children ages 6-14 to volunteer in their communities. Paramount
Stations Group's ``The Teen Files'' campaign includes local outreach
programs centered around Paramount-produced quarterly specials on
subjects important to teens, including the Emmy-award-winning ``The
Truth About Drinking.'' And VH1's ``Save the Music'' has implemented
350 school music programs in 30 cities around the country through
fundraising and instrument-donation drives.
This is Viacom today, an entertainment, content-rich, largely
cable-network and motion picture and television studio company, that
seeks to partner with CBS, a news, sports and distribution-focused,
largely broadcast television, radio and outdoor advertising company.
CBS, like Viacom, grew from a small collection of assets to become a
pioneer in the field of broadcasting. In 1929, William Paley purchased
a failing group of 22 radio stations--known then as the United
Independent Broadcasters Network--and turned it into a profitable
network, while introducing such figures as Bing Crosby, Kate Smith and
Frank Sinatra to the airwaves. CBS ushered in the era of television in
1939 and later introduced to the ``small screen'' personalities such as
Lucille Ball and Ed Sullivan. In the 1970s, when television had become
a truly mass medium, CBS dared to air revolutionary programs such as
``All in the Family'' and ``M*A*S*H,'' both of which became critical
and popular successes. In addition to entertainment, CBS saw television
as a promising technology for the transmission of news, and built the
CBS Television Network into a powerhouse of journalism, led by legends
such as Edward R. Murrow and Walter Cronkite.
Through the six decades since its founding, CBS has stayed true to
its broadcasting roots. Today, it is the number one broadcast
television network in total viewers and household ratings. The CBS
Evening News, now in its 37th season, continues the CBS tradition as
the flagship broadcast of the CBS news division, and is rounded out by
many other news and public affairs broadcasts--including, of course,
the pioneering and perennially popular ``60 Minutes''--that serve to
inform its viewers. And radio, where it all began for CBS, continues
its important role through CBS's majority interest in Infinity
Broadcasting, which operates 163 stations nationwide.
Also like Viacom, CBS has had the vision to adapt to the ever-
changing media landscape. It has entered into the cable arena with two
country-oriented channels--one music and one lifestyle--and it has
ventured into the e-world, largely by investing in websites in exchange
for promotion and advertising on the older media of radio and
television.
In light of the two different, but successful, business strategies
forged by the two companies, which share a common concern for serving a
wide range of Americans, the merger of Viacom and CBS will be a union
between two natural partners. The merger will also mark a family re-
union of sorts, given that Viacom was spun off from CBS in the early
1970s, to comply with the FCC's financial interest and syndication
rules, which before they were repealed in 1995--prohibited integration
of broadcast networks and syndicated programming. As a reunited Viacom/
CBS, the new Viacom will be best positioned to offer creative,
innovative and diverse voices in the ever-fragmented video and audio
media world of hundreds of cable and direct broadcast satellite
channels, VCRs, personal digital video recorders, digital broadcast
television, digital audio radio services and the tens of thousands of
websites on the Internet. There will be, under the umbrella of the new
Viacom, entertainment, news and sports that will be sought out by the
full spectrum of American viewers, from our nation's youth (through
``Blue's Clues'' and ``The Rugrats'') right up to our nation's older
generation (through ``60 Minutes'' and ``Touched by an Angel ''). And
Viacom/CBS will enjoy stronger cross-promotion for its content,
accelerated international growth for Viacom's current cable brands and
first-time international expansion for the CBS cable networks. Equally
important, the new Viacom will remain true to the common commitment of
both companies in returning to their audiences quality programming and
public service.
department of justice review
Of course, before the new Viacom can begin to reap the efficiencies
and explore the untapped opportunities the combined entity will bring,
the merger of Viacom and CBS must await governmental approvals, both
from the Department of Justice and the Federal Communications
Commission. One of the issues that always arises in a significant
transaction--and the reason for today's hearing--is the effects the
proposed merger will have on competition in the relevant markets.
Accordingly, it is expected that the Department of Justice will
carefully review this transaction, as it should. Viacom and CBS look
forward to working with the Justice Department in this review and
believe that the more the Justice Department learns about this proposed
merger, the more quickly it will conclude that the new Viacom will
promote, not reduce, competition.
The U.S. antitrust laws are the bulwark of our nation's economy.
When antitrust laws are strong and properly applied, the economy is at
its most robust. ``Strong'' antitrust laws are those that protect the
American people from companies and individuals intent upon cornering
the market and destroying competition. They are not, however, laws that
interfere where they are not needed. Nor are they rules that limit the
incredible dynamism of our great economy.
Under this rubric, the combination of Viacom and CBS does not raise
such antitrust concerns, because the vast majority of the business
operations of the two companies simply do not compete with one another.
Most of what we do is different. For example, Viacom, through
Paramount, is one of the leaders in theatrical motion picture
production. CBS does not produce theatrical motion pictures. Viacom,
through Blockbuster Entertainment, is in the video rental business. CBS
is not. Viacom has five regional theme parks. CBS has none. Viacom's
Simon & Schuster is a book publisher. CBS is not. And for its part, CBS
operates a group of radio stations and owns an outdoor advertising
business. Viacom has no such operations. CBS is known for its news and
sports programming. Viacom is known for its music and entertainment
programming. Thus, Viacom and CBS clearly are not competitors intent
upon cornering markets, but, instead are two fundamentally different
companies seeking to complement their strengths.
Some overlaps, however, do exist between Viacom and CBS. First,
Viacom and CBS each own one broadcast TV station in six of the same
geographic areas. Second, both companies are involved in broadcast TV
networks, albeit ones that do not really compete with one another--CBS
through its CBS Television Network and Viacom through its 50 percent
ownership in the fledgling UPN. Third, Viacom and CBS operate cable
networks. And fourth, the two companies are each in the television
syndication business.
In each of these four overlap areas, numerous large, healthy and
eager competitors already compete, ensuring not only the continuing
competitiveness of the affected markets, but, also, as such markets
evolve, that the new Viacom itself will have to compete more
aggressively in the future. This increased level of competition on the
parts of all players will benefit consumers.
With respect to the overlap of TV stations, Viacom and CBS each
have a station in the Philadelphia, Boston, Dallas, Detroit, Miami and
Pittsburgh television markets. These six cities are each major
metropolitan areas, which rank in the top 20 television markets and
have licensed to them anywhere from 9 to 21 full-power, broadcast TV
stations. In addition, these markets, on average, enjoy about a 71
percent cable penetration rate, higher than the national average of
about 68 percent, which means that nearly three-quarters of the
households in the six markets have access to cable. And all households
in each market have access to direct broadcast satellite and its
hundreds of channels.
The Viacom-owned UPN-affiliated stations tend to have small
audience shares such that a combination would not result in a
significant increase in concentration in any of these six television
markets. Indeed, under the broadcast ownership rules adopted by the
Federal Communications Commission just this past August, common
ownership of two television stations is permitted where there remain at
least eight independently owned full-power commercial and non-
commercial TV stations post-combination and where the two merging
stations are not both among the top four-ranked stations in the market,
as measured by audience share. Given the high level of competition
among TV stations in the six affected markets and the low ratings and
shares of the UPN-affiliated stations, Viacom and CBS hope to obtain
FCC approval of station combinations in these six cities.
In the case of broadcast television networks, CBS is an established
and widely viewed network. It provides nearly 16.5 hours of programming
to its affiliates each weekday and 12 hours on weekends. UPN, by
contrast, remains a fledgling network, having launched not even five
years ago. It distributes only ten hours per week of prime-time
programming, plus small amounts of kids and other programming in other
dayparts. In terms of total household ratings, UPN is not in CBS's
league--garnering only about one-quarter of the viewers that CBS does.
Moreover, the demographics for the audiences of UPN and CBS are also
very different. UPN largely attracts younger urban male viewers, while
CBS attracts a broad-based audience with a slight bias toward older
females. Given the drastically varying ratings and demographics of the
two networks in a universe of seven national broadcast networks and
hundreds of cable networks, common ownership of UPN and CBS does not
raise antitrust concerns.
As for cable television networks, a third area where Viacom's and
CBS's businesses complement each other, Viacom operates several premium
cable channels, including Showtime, and several basic cable channels,
including MTV, Nickelodeon and VH1, while CBS runs only two basic cable
networks, CMT and TNN. These Viacom and CBS cable networks exist in a
universe of several hundred other cable television networks, all
competing vigorously with each other and with other media, including
broadcast networks and the Internet, for advertisers, access to
distribution platforms and viewers. Consequently, the combination of
Viacom's and CBS's cable networks would not adversely impact
competition. Moreover, although genres of programming do not define
separate markets in cable television, the fact remains that the Viacom
and CBS networks do offer different types of programming from one
another that appeal to different types of audiences, further reducing
the small amount of overlap between them.
Syndicated television programming, the final area in which both
companies operate, includes those shows and movies that air during
times of the day when broadcast network fare does not. Such shows
include ``Wheel of Fortune'' and ``Cheers.'' With more than a dozen
major entities--including Columbia Tri-Star, ABC/Disney, Warner Bros.,
Fox/Twentieth Television, Hearst-Argyle, MGM, Universal, King World,
Studios USA, Pearson, in addition to CBS/Eyemark and Viacom's Paramount
Television-offering hundreds of hours of television programming each
and every season, and many having done so for decades, there are
hundreds of thousands of hours of programming available, and more are
being created each year for syndication. In short, excluding future
programming production, there is already in existence plenty of content
for a highly competitive market.
In light of this robust television programming marketplace, there
is, for several reasons, no threat to competition from a combined
Viacom/CBS. First, Viacom's and CBS's programming offerings vary
markedly, reducing the degree of competition between the two companies.
In fact, CBS's syndicated programming will come in large part from King
World, upon CBS's pending purchase of that company, which produces only
four shows that garner nearly three-quarters of its revenue: the game
shows ``Wheel of Fortune,'' ``Jeopardy'' and ``Hollywood Squares,'' and
the talk show ``Oprah.'' Paramount's top syndicated shows, on the other
hand, include ``Judge Judy,'' ``Entertainment Tonight,'' ``Frasier,''
``Real TV'' and ``Star Trek: Voyager.'' Paramount has no syndicated
game show, and while it does produce the talk shows ``Montel'' and
``Leeza,'' their ratings do not reach the lofty heights achieved by
``Oprah.'' Further, Paramount distributes feature films and a vast
array of library product (such as I Love Lucy'' and ``Bonanza''), which
neither CBS nor King World do. By any measure, therefore, no
competitive problem is presented by combining the two companies'
syndication operations.
In sum, the proposed merger of Viacom with CBS logically reflects
the increasing amount of competition in the entertainment industry. FCC
rules such as the financial interest and syndication prohibition and
the limitations on local television and radio ownership were created
when most markets had three or four television stations, little or no
cable penetration, no satellite distribution and, of course, no
Internet access. As a result, all of the alternative distribution
markets were nurtured in a regulatory environment that restricted the
growth of over-the-air television. Now, most markets have at least
several television stations and nearly all households can choose to
receive cable television and satellite television, as well as access to
the Internet. As a result, the rules on financial interest and
syndication and local broadcast ownership have been relaxed,
encouraging deals like the Viacom/CBS merger. Viacom and CBS believe
that more needs to be done to enable free over-the-air broadcast
television to compete fairly against the other forms of video
programming distribution and to compete in the international
marketplace. Provided that the antitrust laws are applied in the normal
course, as they should be, the proposed merger of Viacom and CBS should
pass the Justice Department's antitrust scrutiny.
federal communications commission review
As for review by the Federal Communications Commission, that
agency's mission is to determine whether the public interest would be
served by the merger. Most often, that objective is achieved by looking
at the impact of a merger on the twin pillars of competition and
diversity. Viacom and CBS commit to making any necessary divestitures
as expeditiously as possible after the merger so that their ownership
of broadcast stations complies with all of the FCC's local broadcast
ownership rules, including the TV duopoly and TV-radio cross-ownership
rules. Concerns have been raised, however, about whether the combined
assets will conflict with two of the FCC's national television
ownership rules: the 35 percent reach limit, which caps the percentage
of households in the country that one owner may serve through its
television stations; and the so-called ``dual network'' rule, which
prohibits the common ownership of an established network and UPN or WB.
Specifically, when aggregated, the national reach of Viacom's UPN-
affiliated TV stations and CBS's TV stations equals about 41 percent,
about 6 percent in excess of the cap. And retention of current assets
would leave the new Viacom with ownership in CBS and the UPN
``weblet.''
While Viacom and CBS have stated to the Commission that following
the merger the combined company will come into compliance as quickly as
possible with whatever rules are in place at the time of their closing,
the two companies firmly believe that the 35 percent national TV
ownership limit and the dual network rules no longer serve the public
interest of viewers and those rules should be relaxed. Changing the two
rules would be in keeping with the directive of Congress in the
Telecommunications Act of 1996--to eliminate unnecessary and
counterproductive regulation hamstringing the broadcasting industry.
In the case of television station ownership, after careful
consideration of the two issues central to the public interest--
competition and diversity--the Commission just this past August
substantially liberalized its local broadcast ownership rules. That
decision was well justified and highly commendable. But if local TV
ownership deregulation is justified--and it is--then there is no
rationale for retention of the national TV ownership cap. Indeed,
acknowledging the importance of rationality in the establishment of
rules, FCC Chairman William Kennard, in his statement accompanying the
adoption of the relaxed local broadcast ownership rules, noted:
[We] are adopting common sense rules that recognize the
dramatic changes that the media marketplace has undergone since
our broadcast ownership rules were adopted 30 years ago * * *
[We] need to provide broadcasters with the flexibility to seize
opportunities and compete in this increasingly dynamic media
marketplace.
To that end, countless economic studies prove that the national cap
does not make any economic sense. Nor does it make any public interest
sense.
First, the national TV cap does not promote diversity. As the FCC
itself found in the mid-1980s:
[T]he most important idea markets are local * * * [N]ational
broadcast ownership limits, as opposed to local ownership
limits, ordinarily are not pertinent to assuring a diversity of
views to the constituent elements of the American public.
Second, the national cap does not promote localism in terms of a
station's involvement with the community or programming focused on
local issues. Even if it made a difference in this regard to have more
locally owned stations, group station ownership is now the norm, and
economic reasons will ensure that the vast majority of local stations
will always be owned by an entity--very often a publicly traded
corporation--whose home office is elsewhere. In fact, 64 percent of all
U.S. households are served by CBS affiliates run by group owners, and
only 2 percent are run by individual owners. Excellent broadcasters who
head television groups that are headquartered all over the country run
CBS-affiliated stations. And the FCC agrees. It found in 1985 that
``the economics of each local market require autonomous decisions by
each station with respect to its editorial judgments.'' Thus, the
national cap simply has no effect on localism.
Most important, though, broadcasting, like politics, is necessarily
local, regardless of where the home office is. For example, Cox
Communications, a large group owner based in Atlanta, does an
outstanding job of serving the community of Dayton, Ohio, through its
affiliate WHIO. CBS, which owns WFRV in Green Bay, Wisconsin, does the
same outstanding job serving its community. Local station affiliates or
network-owned stations depend on involvement with their local
communities to differentiate themselves and to succeed in selling local
advertising. Localism expresses itself in the content of local
newscasts, which are an extraordinarily important part of an
affiliate's schedule. It expresses itself in community activities,
which create goodwill for the station and build its audience. It
expresses itself in special news coverage of emergencies, which every
broadcaster sees as part of its public responsibility. Above all, free,
over-the-air broadcast television stations, unlike nationally
programmed cable and satellite systems, are uniquely situated to offer
local voices to their communities. Broadcasters would never forsake
this principal competitive advantage.
Maintaining the current national ownership limit is also defended
by some on the grounds that raising the cap would allow network
companies to exert anticompetitive power in their relationships with
non-network-owned affiliates. Since each market stands alone, there is
no reason why ownership of a station in a different market should
affect an affiliate's clout.
Finally, the opponents of broadcast deregulation once again fall
back on the old specter of network dominance. If those opponents simply
want network companies to be weaker so that they can extract more
favorable terms in their affiliation contracts, it is not the job of
Congress or the Commission to accommodate them. Moreover, the term
``network dominance'' was used to justify network regulation of the
1970's, when upwards of 90 percent of the television audience watched
one of the then-three existing networks. Those regulations were
repealed years ago; today, the broadcast networks are doing well if
they garner more than 40 percent of the prime-time television audience.
The catch-phrase ``network dominance'' was once and for all debunked by
the Commission and the courts. It is perplexing that some network
affiliates, including those owned by large group owners who are more
than able to fend for themselves in the marketplace, resurrect this
term in the cause of perpetuating government regulation of their
business.
In the dramatic, evolving telecommunications marketplace of today,
outdated regulations can have perverse effects. Regulatory policies
simply cannot keep pace with the market forces that drive technology
and innovation. If one believes that free, quality universal television
is a public good, the government should be encouraging the flow of
capital into this service. Instead, the 35 percent cap distorts the
investment of capital and programming by penalizing broadcasters and
needlessly encouraging the flow of capital to pay outlets. Viacom and
CBS will, of course, do whatever is necessary to adapt to this
situation. But, the question remains whether retention of a national
limit is in the public interest and makes any sense--whether that limit
is set at 35, 50 or even 99 percent of the country. By comparison,
under the FCC's newly adopted cable television ownership rules, a cable
operator is permitted to own multichannel video programming
distribution systems, such as cable, satellite and other such services,
serving 30 percent of subscribers to those services nationwide. This 30
percent, according to the Commission's calculations, equals
approximately 37 percent of all cable subscribers nationwide. However,
in that percentage of the country, cable systems are most likely to be
the only cable systems. Under the 35 percent broadcast television cap,
by contrast, a station faces competition from at least one to as many
as 32 other stations in that percentage of the country. Accordingly,
broadcasters once again, have been singled out for restrictive
treatment.
As for the dual network rule, it is yet another example of an FCC
ownership regulation which discriminates against broadcasters who
provide free and universal programming. Rather, the rule benefits those
industries which provide programming viewers must pay for, while
imposing yet another handicap on free over-the-air broadcasters. The
rule provides that one of the four established networks is prohibited
from combining with an ``emerging'' network, which the FCC has
interpreted to cover only UPN and WB, the two emerging networks in
existence at the time the Telecommunications Act was passed in 1996.
The rule, therefore, is especially discriminatory and arbitrary. For
example, NBC would be allowed to purchase the ``seventh'' current
network, PAXNET, but the new Viacom could not operate CBS and UPN. This
lacks all rationality, especially since under the Commission's current
rules one company can own unlimited cable networks.
It is unclear what benefit the public gains from this policy.
Again, many of the same arguments that are used to support the
retention of the 35 percent cap are used here: network dominance,
advertising consolidation, lack of diversity of views and decreased
minority ownership. These are all unfounded fears. Instead, this rule
is yet another unnecessary restraint on the ability of broadcasters,
who offer a free and universal product, to achieve ownership
efficiencies needed to compete with those who offer a programming
service for which consumers must pay.
If Viacom is required to divest its interest in the UPN network,
the following paradox will likely ensue. Viacom could try to sell its
50 percent stake, which would mean transferring its losses to a third
party. Yet, no party is lining up to assume responsibility for a
network that is still losing hundreds of millions of dollars each year.
The only other option, therefore, might be to shut down UPN altogether.
But, shuttering UPN is something Viacom and CBS want to avoid. Closing
it would not serve the public interest. The UPN network is off to a
very good start this year, and the efficiencies, synergies and network
experience that CBS would bring to the table could be the boost that
UPN needs to continue its rise and make it a successful network in
terms of a business and in terms of service to the public.
UPN now serves minority viewers well. Last season, while UPN had a
disappointing 2.0 overall rating, it garnered a 5.8 rating among
African-American households. Among the top 50 rated television network
programs among African-American households, 10 air on UPN. Indeed, as
the owner of CBS and UPN, the new Viacom is more likely to retain the
``niche'' status of UPN than is any other owner, who might be compelled
to clone the new network to look like yet another ``established''
network capable of reaching a larger mass audience and, with it, larger
advertising revenues needed to succeed.
Whether these broadcast ownership rules are changed or retained,
the Viacom/CBS merger will happen. However, it would be a great
disservice to the public interest if the full potential of UPN is not
allowed to blossom. Such an anomalous result should not be allowed to
happen.
* * * * *
Once again, Viacom and CBS appreciate the opportunity to appear
before the Senate Antitrust Subcommittee. We would be pleased to
provide any additional assistance to the Subcommittee or its staff on
the merger and any issues related to the merger.
Senator DeWine. Mr. Schwartzman.
STATEMENT OF ANDREW JAY SCHWARTZMAN
Mr. Schwartzman. Thank you, Mr. Chairman. Before I start, I
would like to express my appreciation to the minority and
majority staff. We moved our office this week and we had all
sorts of logistical problems and copiers that did not work and
so forth, and they have been extremely helpful in just the
physical task of getting my testimony together.
Senator DeWine. Thank you very much.
Mr. Schwartzman. Thank you, Mr. Chairman. I start with six
propositions. First, we have the best system of broadcasting in
the world because of, not in spite of, the Federal
Communications Commission rules which have limited the size and
reach of broadcasting and cable companies.
Second, free speech is not just an end into itself. It is
also a necessary means of democratic self-governance. In the
20th century, Congress and the FCC have preserved James
Madison's vision of a marketplace of ideas by ensuring that
broadcasting helps promote free and open political
deliberation.
Third, broadcasters are, quite literally, an integral
component of the electoral process. We trust them to provide
equal time and equal rates to all political candidates. We
count on them to share their monopoly access to publicly-owned
spectrum with Federal candidates. But we permit them to refuse
unreasonable requests.
Fourth, over-the-air broadcasting is, and for many years to
come, will remain the single most important influence on how we
vote, especially at the local level. For the time being, the
Internet is not a substitute for local newspapers and local
broadcast news. The Internet is not the way that citizens
decide for whom to vote in the city council election, not yet.
Fifth, broadcasting, especially television, teaches us
about each other. Those of us fortunate enough to ride in
taxicabs and dine in fine restaurants know much less about the
people who drive those cabs and who bus the tables than vice
versa. We need it more than they do.
Sixth, we are needlessly endangering this wonderful but
deceptively fragile system.
The policy problem is generic. It is not about Mr. Karmazin
and Mr. Redstone or CBS and Viacom. They are businessmen
playing the angles and trying to do it lawfully. This hearing
could just as easily feature Bob Wright and Barry Diller. Back
before and after Mr. Redstone bought Viacom, we worked for that
organization closely, many times to promote diversity and open
entry into programming and to keep huge telephone companies, or
at least one huge telephone company, from taking over a huge
cable company when we cared about those things, and it was
precisely because it threatened to squelch program diversity
and competition. And we supported Mr. Karmazin's vigorous
defense of his right to make money by distributing material
which is offensive to some, but constitutionally protected for
all.
The fact remains that Congress and the FCC have permitted a
massive expansion of broadcasters' national and audience local
reach, first in radio and now in TV. My testimony addresses
many instances of problems in diversity that come off of this
merger. But I am going to place particular attention on one
seemingly small aspect of the CBS business, local radio news.
The combined CBS/Viacom operation will control as many as
eight radio stations and two TV stations in markets, particular
individual markets. To simplify here, I am going to lump all
the companies together because they have one attribute in
common. Mr. Karmazin now controls or manages them. CBS was the
undisputed leader in quality and depth of its radio news for
generations. Westinghouse, generally regarded as number two in
quality, merged with CBS a few years ago. When Mr. Karmazin's
Infinity and Westwood One operations were placed under common
control, he brought along the old Mutual News, and the name, if
nothing else, of NBC Radio News.
Here is the part that is less well understood. Westwood One
owned what used to be called Shadow Traffic, but had been
renamed Shadow Broadcast Services. This past spring, Westwood
One acquired what used to be called Metro Traffic, but is now
called Metro Networks. We know about these traffic services
that do the traffic reports on all the radio stations.
But those two companies changed their names because they
have branched out into what appears to be a much more expansive
business, radio, and more recently, television newscasts. They
do a lot more than feed actualities for clients to mix into
newscasts. In most cases, Metro provides a complete turnkey
newscast operation. The entire newscast is prepared by Metro or
Shadow personnel in their studios. All the stations in the
market use the same reports, even if delivered by different
announcers, many of whom appear on several stations using
different names to match the format of the station of the
moment. Metro has now gone further, by using outsourcing
models. The Morning Zoo co-host is in many instances now an
employee of Metro, that is, Mr. Karmazin, and not the
broadcaster who purportedly operates the station and supposedly
provides source diversity in the marketplace of ideas.
I do not have numbers because they are not available.
Perhaps Mr. Karmazin will give us numbers for an individual
market, because I cannot get them. It brags nationally that it
has an opportunity for advertisers to reach every one of 100
million people a day. That is their average reach. Its average
is 23 stations per market that it provides news services to.
I believe that Metro has about 25 clients in Baltimore out
of 40 radio stations, well over half. That is not diversity.
There is now, at most, one reporter covering city hall for all
those stations. They fired their news departments. That is not
diversity. That is not what we are expecting different views
and opinions.
I am not describing a trend. I am describing the market as
it exists today. Democracy and the first amendment deserve
better, but it is only going to get worse.
I am not saying we should return to the days when William
Paley said, ``You guys cover the news. I have got Jack Benny to
make money for me.'' But I am saying that broadcast
consolidation presses even the best broadcasters to cut costs
and reduce standards. When informing the public becomes a
nuisance, not a duty, we are all the worse for it.
Senator DeWine. Thank you very much.
[The prepared statement of Mr. Schwartzman follows:]
Prepared Statement of Andrew Jay Schwartzman
I start with three propositions.
First, we have the best system of broadcasting in the world because
of--not in spite of--Federal Communications Commission rules which have
limited the size and reach of broadcasting and cable companies.
Second, as Justice Brandeis taught us, free speech is not just an
end unto itself, or simply a freedom from Government meddling; it is
also a necessary means of democratic self-governance.\1\ In crafting
the First Amendment, James Madison sought to insure political equality,
especially in the face of economic inequalities. In the 20th century,
Congress and the FCC have preserved Madison's vision by insuring that
broadcasting helps promote free and open political deliberation.
Broadcasters are, quite literally, an integral component of the
electoral process. We trust them to provide equal time at equal rates
to all political candidates. We count on them to share their monopoly
access to publicly-owned spectrum with federal candidates, but we
permit them to refuse unreasonable requests.
---------------------------------------------------------------------------
\1\ ``Whitney''
---------------------------------------------------------------------------
Third, over the air broadcasting is, and for many years to come,
will remain, the single most important influence on how we vote,
especially at the local level. The Internet is not very helpful in
determining the outcome of a city council election.
Fourth, broadcasting, especially television, teaches us, about each
other. Those of us fortunate to ride taxicabs and dine in fine
restaurants know much less about the people who drive those cabs and
bus the tables than vice versa. ``We'' need it more than ``they'' do.
Fifth, we're needlessly endangering this wonderful but deceptively
fragile system.
This isn't about Mr. Karmazin and Mr. Redstone. They are
businessmen playing the angles. In fact, before and after Mr. Redstone
bought it, Viacom and my organization have worked closely together to
promote diversity and open entry in programming markets, and to keep
huge telephone companies, or at least one huge telephone company, from
taking over a huge cable company, precisely because it threatened to
squelch program diversity and competition. And we have supported Mr.
Karmazin's vigorous defense of his right to make money by distributing
material which is offensive to some, but constitutionally protected for
all.
But the fact remains that Congress and the FCC have permitted a
massive expansion of broadcasters' national and local audience reach
first in radio, and now in TV. CBS and Viacom have moved to the front
of the line, and their merger, if approved legitimates all the smaller
ones already announced or which are soon to follow thereafter.
The size and complexity of these transactions is mindnumbing. I
choose to place particular attention on one seemingly small aspect of
the CBS business, radio news.
Its not just that the combined CBS-Viacom operation will control as
many as 8 radio stations and two TV stations. CBS has moved to blugeon
its way into the Internet by establishing a dominant presence in the
Internet.\2\ CBS' Country Music Channel and The Nashville Network
provide some national news as well. Although Viacom's TV stations have
disgraced themselves with having little or no locally originated
programming at all, the company provides news on MTV, and some
syndicated TV shows.
---------------------------------------------------------------------------
\2\ Me relentless cross-promotion of its sports and financial news
during NFL telecasts is just part of that effort.
---------------------------------------------------------------------------
But there is much more.
To simplify things, I am going to lump together various related
companies which have, among other things, one attribute. Mr. Karmazin
now controls or manages them.
Public radio aside, CBS was, for at least six decades, the
undisputed leader in quality and depth of its radio news, Westinghouse,
perhaps number two in quality, merged with CBS a few years ago. When
Mr. Karmazin's Infinity and Westwood One operations were merged in, he
brought along the old Mutual News and the name, if nothing else, of NBC
News.
Here's the Part that is less well-understood. Infinity also owned
what used to be called Shadow Traffic, but had been renamed Shadow
Broadcasting Services. This past spring, Westwood One acquired what
used to be called Metro Traffic, but is now called Metro Networks.
We all know the traffic services, which intelligently and
efficiently permit radio and TV stations to share resources in
reporting on rush hour traffic. But these two companies changed their
names because they have branched out into what appears to be a much
more expansive business radio and, more recently, television,
newscasts.
This is a lot more than feeding a few taped ``actualities'' for
clients to mix into its own newscasts. In most cases, Metro provides a
complete turnkey newscast operation. The entire newscast is prepared by
Metro or Shadow personnel in their studios. All the stations in the
market use the same reports, even if delivered by different announcers,
many of whom appear on several stations using different names.
More recently, Metro has begun to follow the outsourcing model.
That ``morning zoo'' co-host in many cases now an employee of Metro--
that is, Mr. Karmazin--and not the broadcaster who purportedly operates
the station and supposedly provides source diversity to the marketplace
of ideas.
I can't give you accurate figures in any particular market because
Mr. Karmazin's companies do not disclose them. I'm asking him right now
to tell us this morning about his newscast operations in any of the
largest markets in the country.
But here's what I can tell you--Metro Networks alone is--by far--
the largest producer of radio news in the country. Although its name is
never mentioned on the air, Metro provides newscasts to some 155 TV
stations and 1700 radio stations. Its average market penetration is 23
affiliates per market. Metro says that it provides news services in 67
of the top 75 markets, and that its newscasts are heard by 100 million
people every day. It brags to advertisers that it offers them ``the
opportunity to reach a broad-based local, regional or national audience
through a single purchase of commercial airtime inventory by Metro.
In a large market like Baltimore, which has about 40 radio stations
and 12 TV stations, I believe Metro provides all or most of the news to
about 25 radio stations--well over half and two TV stations.
So much for diversity. There is now, at most, one reporter covering
City Hall for all those stations. There is no one to bring a different
perspective, to provide the safety valve for a lazy, or even corrupt
reporter willing to overlook a story for the wrong reason.
I'm not describing a trend. I'm describing the market as it exists
today. Democracy and the FLA Amendment deserve better, but it is only
going to get worse.
The CBS-Viacom combination is also profoundly anticompetitive.
Small entrepreneurs are particularly threatened by the way in which
broadcasters have restructured advertising markets by cross--selling,
``format squeezes,'' \3\ tie--ins and similar arrangements. As Mr.
Karmazin told Barron's Magazine:
\3\ This is just what the name suggests. Group owners controlling
eight or more stations in a market can use weaker properties as
strategic assets by developing formats which attack an opponent's
demographic niche, for example by targeting its younger listeners,
thereby enabling their stronger partner to challenge the target
station.
---------------------------------------------------------------------------
It used to be that [stations] competed, that media buyers
would play [them] off against each other. Now we have the [CBS
stations'] ad sales managers talk to each other every morning.
That adds up to higher prices and better margins.
See ``CBS Eye Looms Larger with ARS Deal,'' Media Week, October 6,
1997, p. 20. Even substantial TV groups can now be targeted and
squeezed, as NBC is doing in San Francisco.\4\ These stations, which
traditionally put mom resources into locally originated news and public
affairs programming, will have to cut back to survive.
---------------------------------------------------------------------------
\4\ See ``Battle by the Bay--NBC's Wright is Playing `Hardball' to
Get KRON-TV,'' Broadcasting and Cable, October 18, 1999, p 6. [``NBC
President Bob Wright sent a letter * * * executives describe as a
thinly veiled threat that any buyer other than NBC will face
significant, changes in KRON-TV's affiliation with NBC--possibly even
termination * * [T]he executive said, ``they're going to lower the
value of the television station to a pont which they're willing to pay
for it.'']
---------------------------------------------------------------------------
The impact is no less dangerous in national program markets. About
six years ago, over the opposition of Viacom and Paramount, as well as
public interest groups, the FCC permitted TV networks to produce their
own prime time programming. Over the last several years, a trend has
become a pattern: networks are showing creatively inferior self-
produced programming reflecting mainstream, rather than more diverse
casts. Even with somewhat lower audiences, this tactic is evidently
more profitable to the networks.
This is no exaggeration: these changes also threaten the very
structure of self-governance. Because we depend on broadcasting as the
most important source of voter information, the sacrifice of program
budgets and editorial independence ought to trouble us all. The
networks are now managed by owners who often view serious journalism
(as opposed to large blocks of soft self-promotion and celebrity gossip
passed off as news) as a burden. Larry Grossman can tell you how Jack
Welch told him that news was no longer ``the core of the asset'' at
NBC.
Examples abound. Just this week, the New York Times reported that
the Chair of the Consumer Product Safety Commission lost her status as
a Today Show regular guest, and was relegated to ABC's Good Morning
America when she wished to announce a recall of GE-manufactured
dishwashers.
I am not saying that we should return to the days when William
Paley said ``You guys cover The news; I've got Jack Benny to make money
for me.'' \5\ But I am saying, that broadcast consolidation presses
even the best broadcasters to cut costs and reduce standards. When
informing the public becomes a nuisance, not a duty, we are all the
worse for it.
---------------------------------------------------------------------------
\5\ Dean Alger, Megamedia (1998), p. 60 (quoting Marvin Kalb).
Senator DeWine. Mr. Grossman.
STATEMENT OF LAWRENCE K. GROSSMAN
Mr. Grossman. Thank you, Mr. Chairman. I have accepted your
invitation to testify at this hearing not in order to oppose
the merger of CBS and Viacom. I am certainly not a fan of these
huge media mergers or of the increasing concentration of media
ownership and a decrease in diversity of news and programming
sources that the recent spate of mergers is producing. New
telecommunications technology is giving us many more channels,
but current public policy is also giving us far fewer
gatekeepers. However, in view of the past approvals of major
media mergers, I am convinced that it would be hard to justify
stopping CBS and Viacom from joining to produce one of the
world's biggest multimedia entertainment conglomerates.
I do want to take this opportunity, however, to express to
you my concern, first, that independent program producers risk
becoming an endangered species when a shrinking number of major
gatekeepers to national and international network distribution
also own their own production facilities. Naturally and
understandably, Disney and Fox and now Viacom, which owns
Paramount, all prefer to choose the programs that they
themselves produce, rather than buy someone else's programs,
and they are organizing their companies to make sure that that
happens more often in the future, thereby reducing both
competition and diversity.
But most important and the real reason I am here is to
express my concern about the future of television news in this
era of mega-mergers and consolidations. As we all know, most
Americans get their news primarily from television, the single
most important news medium by far in our democracy. So the
commitment to responsible news gathering and news reporting by
major companies like CBS/Viacom is essential to the quality of
our democratic society.
In the press conference announcing the CBS/Viacom merger, I
was dismayed that none of the principals uttered a single word
about their goal for significantly improved news performance
and about serving the public interest, about increasing quality
children's programs, about the essential responsibility as
public trustees of the public airwaves. The climax of their
discussion was Mr. Karmazin's expressed personal goal to make
Mr. Redstone even richer than Bill Gates as a result of the
merger, which I regard as a laudable ambition, but we should
expect far higher aspirations for a company that is so central
to the quality of the information and ideas that the nation
receives in the telecommunications age.
The concerns about the future of television news are real
and important. The number of news channels is certainly
multiplying in this telecommunications era, but the number of
news sources is shrinking. The television networks are cutting
the costs of their worldwide news gathering by closing bureaus
left and right. We are seeing a kind of reverse funnel effect,
in which more and more channels are pumping out the same news
headlines gathered from a single all-purpose source, and that
is happening not only internationally, but also, and of most
concern, locally, as syndicated news services rather than
individual radio and television station news staffs, whose
numbers are also being slashed, gather what news that is
reported.
On the network level, the years that have coincided with
the major media mergers are marked by one singularly disturbing
fact. Every top national television news organization has been
embarrassed by a major news magazine scandal, suggesting a
lowering of network news and corporate broadcasting standards
and a growing carelessness about reporting accuracy.
In 1993, NBC was forced to apologize to General Motors and
pay millions of dollars in legal fees because of a faked
investigative report on ``Dateline'' that planted an incendiary
device in a General Motors truck.
Two years later, ABC, while in the midst of its merger with
Disney, apologized to Philip Morris and paid $15 million in
legal costs for a story on its news magazine ``Day One,''
alleging that the tobacco company spiked its cigarettes with
nicotine, even though many thought the piece was right on
target.
Later that year came the ``60 Minutes'' tobacco debacle on
CBS, now, by the way, the subject of a Disney feature film
starring Al Pacino, just at the time that CBS was merging with
Westinghouse.
And in 1998, CNN joined the malfeasance parade, repudiating
its own investigative report on Operation Tailwind. It was a
story also featured in Time magazine, which was a questionable
demonstration of the much-vaunted benefits of synergy achieved
by joint media ownership.
Certainly, not all these major journalistic and corporate
transgressions can be blamed on the mergers, but it is unlikely
that they would have happened in an earlier, more responsible
era of network news. Much of it has to do with the diminishing
importance of news in the organizational charts and balance
sheets of today's vast media entertainment conglomerates. Once
the centerpiece of the nation's major broadcasting companies,
led proudly by CBS News, I might add, television news has now
become marginalized, a very small piece on the fringe of a
giant entertainment complex.
Part of the problem also has to do with the lowering of
television's journalistic standards, the tabloidization of TV
news, and the blurring of the line between news and
entertainment in today's no-holds-barred race for ratings and
profit, caused in great part by the bottom-line emphasis of
these giant mergers.
It used to be that the flagship programs of the television
networks' news divisions were their nightly news reports, prime
time documentaries, and live news event coverage. Today, the
flagship network news programs are the programs that make the
most money, the primetime magazine shows, most of which offer
essentially nonfiction entertainment rather than meaningful
news of the world.
In conclusion, I would urge the members of this committee
to ask the principals of CBS and Viacom here in this room for
their long-term commitment to preserve and enhance the quality
and character of CBS News, to commit their company to
responsible and thorough worldwide national and local news
gathering and news reporting, to refrain from interfering with
the content and quality of the news regardless of their
immediate financial interest, and to recognize and acknowledge
their paramount responsibility as trustees of the public
airways to provide the resources needed for thorough and
responsible news gathering and news reporting on CBS and its
stations. After all, the station licenses that CBS holds as a
public trustee constitute by far most of the company's
financial value in its merger with Viacom, and you should
insist that its valuable trusteeship will be honored. Thank
you.
Senator DeWine. Thank you very much.
Professor Waterman.
STATEMENT OF DAVID WATERMAN
Mr. Waterman. Thank you, Mr. Chairman. I also very much
appreciate the opportunity to appear on this panel.
I have spent most of my career studying the economics of
media industries and I share the view that you and Senator Kohl
and others have expressed that media mergers should endure
especially close policy scrutiny. Like other mergers adverse
effects on prices, output levels, and economic welfare in
general can result. But I acknowledge an overriding need to
preserve a diversity of voices or a free marketplace of ideas
in our society.
Generally speaking, I think that the CBS/Viacom merger is
not likely to be a serious threat, either to economic welfare
or to a free marketplace of ideas. Necessarily, though, my own
review of the merger is preliminary and cursory, and I will,
therefore, speak as much about what I think are the appropriate
criteria for evaluating these media mergers as about the CBS/
Viacom deal itself.
In that regard, the main point I want to make is that I
believe we need to focus on how a merger may create horizontal
market concentration within particular media markets,
appropriately defined, rather than size or breadth of
operation, or for the most part, the extent of vertical
integration.
Regarding the concerns about size, I think it is important
to consider the growth of media firms relative to growth of the
media industries themselves. In 1977, CBS, Incorporated, was by
far the largest media conglomerate in the United States, with
annual media revenues of $2.3 billion, at that time mainly
television and radio broadcasting, music, publishing, and
magazines. Twenty years later, in 1997, the combined media
revenues of CBS and Viacom were $14.4 billion, about six times
that of the old CBS.
But during that same 20-year period, total consumer plus
advertising spending on media in the United States rose from
approximately $40 billion to $234 billion. That is also about a
six-fold increase. So the new CBS/Viacom would not only account
for a fairly minor proportion of total media business, all
considered, in the United States, it would be only slightly
larger than the CBS of 20 years before.
Several of the media that CBS and Viacom are involved in,
video cassettes and cable networking, in particular, barely
existed 20 years ago, and in spite of all the new competition,
most of the established industries, including broadcasting,
have expanded briskly over the same time frame.
I think the evidence earlier cited that the media are
falling into fewer and fewer hands is not supported by the
evidence. What is most important in any case, I believe, from a
policy standpoint, is not size but how a media merger changes
the degree of horizontal ownership concentration within
individual media industry segments.
For example, does concentration in broadcast TV networking,
broadcast station ownership, cable networking, et cetera, or
perhaps all of the media within a local market, reach levels
that risk anticompetitive behavior or threaten the diversity of
ideas?
Let us consider first the economic perspective. From casual
observation, at least, it seems to me unlikely that the
increases in concentration in television station ownership or
television network ownership due to the proposed merger would
turn out to be excessive in antitrust terms, at least at the
national level. But I emphasize, Justice Department scrutiny of
these combinations is very important, though, especially at the
local market level. For example, it is quite possible that
excessive cross-ownership of radio, television, and other media
outlets would have an adverse effect on competition for
advertising within particular local markets, as Senator DeWine
mentioned. We need to ensure that local market shares in each
of the individual media, or in the media as a whole, remain
low.
Also, the merger of UPN and CBS, due to the special
circumstances of the broadcast industry, does raise important
competitive questions that need to be considered.
Now, from a diversity of voices perspective, I think the
same general criteria should apply. That is, concentration
within individual industry segments or local market areas, but
I also recognize the media as a whole, is important. What the
right thresholds of ownership concentration are, I think, is a
different matter. They should probably be stricter than
economic criteria. I think that diversity of voices is more
important than competition and efficiency, and this is
especially true regarding news and information. But where those
thresholds fall is really a matter of political judgment on
which I claim no particular expertise. But I think a historical
perspective is again useful. Media chains and cross-ownership
are growing, but the media outlets are themselves growing, I
think, as fast, or probably faster.
Let me turn briefly to the question of vertical
integration. The merging of Viacom's substantial TV production
and programming resources with the CBS network has attracted a
lot of attention. The concern there is that CBS network would
favor the programming produced by the suppliers that it owns to
the exclusion of independent or unaffiliated producers. This is
an important concern, because free entry and programming supply
promote both economic welfare and a diversity of voices.
I think we can, in fact, expect a TV network to lean toward
exhibition of programs in which it has an ownership interest. I
doubt, though, that the merger would result in very serious
vertical foreclosure effects from either an antitrust
perspective or diversity of voices perspective.
First, unaffiliated program suppliers retain substantial
alternative channels of distribution. Also, and I think this is
perhaps most important, there are very powerful constraints on
self-dealing in this type of market. From the network's
perspective, it is self-destructive to exhibit programs that
will not attract the highest or most valuable audience
possible, and vice-versa from the producers' perspective. They
need the best and most appropriate outlets for their programs.
More generally, I think, broadcast networks have no way of
predicting where the best ideas from their programs will come
from and they cannot afford to close or restrict those
channels.
To summarize, in general, I just want to say that I think
that the most important step in any merger analysis is to begin
by asking the right questions. The main one, again, should be
about the extent to which they create excessive concentration
within particular markets, however appropriately defined. Their
sheer size or breadth of operation are not, in my opinion, of
very much significance. Also, while vertical integration can
have important harmful effects under certain circumstances, the
amount of attention it receives in the public forum is, in my
opinion, out of proportion to its real consequences. Thank you
very much.
Senator DeWine. Thank you.
[The prepared statement of Mr. Waterman follows:]
Prepared Statement of David Waterman
My name is David Waterman. I am Associate Professor in the
Department of Telecommunications, Indiana University, Bloomington. I
have spent most of my career studying the economics of media
industries.
I share the view of many others that media mergers should be
subject to especially close policy scrutiny. Like mergers in other
industries, they may have adverse effects on prices, output levels, and
other elements of economic welfare. I believe that there is also an
overriding need to preserve a diversity of voices, or a free
``marketplace of ideas,'' in our society.
Generally speaking, I think that the CBS-Viacom merger is unlikely
to pose a serious threat either to economic welfare or to a free
marketplace of ideas. Necessarily, my analysis of this merger is
preliminary. Pending a more detailed analysis, which both the Justice
Dept. and the FCC will no doubt conduct, I will therefore speak as much
about what I regard as the appropriate criteria for evaluating media
mergers, as about the CBS-Viacom combination itself.
Much concern has been expressed about the sheer size and range of
media interests that media conglomerates, notably CBS-Viacom, are now
attaining. It is important, however, to consider the growth of media
firms relative to growth of the media industries themselves. In 1977,
CBS, Inc. was by far the largest media conglomerate in the United
States, having annual media revenues of $2.3 billion, mainly from
television and radio broadcasting, music publishing, and magazines.
Twenty years later, in 1997, the combined media revenues of CBS and
Viacom were $14.4 billion, approximately 6.2 times that of the old CBS.
During that same 20 year period, however, total consumer plus
advertiser spending on media in the United States rose from
approximately $40 billion to $234 billion, a 5.9 fold increase.\1\
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\1\ Media are considered to include broadcast television and radio,
cable television, other multichannel video distributors, home video
rentals and sales, movie theatres, newspapers, magazines, books,
records and Internet advertising. Source: Annual 10-K reports, U.S.
Dept. of Commerce, Newspaper Publishers Association, Paul Kagan
Associates, Benjamin Compaine.
---------------------------------------------------------------------------
Thus, the new CBS-Viacom would not only account for a fairly minor
proportion of total media revenues in the U.S. It would, in these
terms, be only slightly larger than the CBS of 20 years before.\2\
Several of the media industries that CBS or Viacom are now involved in,
notably videocassette distribution and cable networking, barely existed
two decades ago. And in spite of all the new competition, most of the
established media--including broadcasting--have expanded briskly over
that time period as well.
---------------------------------------------------------------------------
\2\ Media revenues of the largest media conglomerate in the United
States, Time-Warner, were approximately $22.3 billion in 1997, half
again as large as CBS + Viacom, although a relatively high proportion
of its revenues are derived from foreign markets.
---------------------------------------------------------------------------
What is most important from a policy standpoint is in any case not
the overall size of a media conglomerate. Rather, we should be mainly
concerned with how a media merger changes the degree of ownership
concentration within individual media industry segments. For example,
does concentration in broadcast networking, broadcast station
ownership, cable networking, magazine publishing, etc., reach levels
that risk anticompetitive behavior or jeopardize a free marketplace of
ideas?
Consider first the economic perspective. It seems unlikely that the
concentration increases in television station or television network
ownership due to the proposed CBS-Viacom merger would raise serious
antitrust concerns, at least at the national level. Justice Dept.
scrutiny of these combinations is important, however, especially at the
local market level. It is impossible that excessive cross-ownership of
radio, television, and other media outlets would have adverse effects
on competition for advertising within particular local market areas. We
need to ensure that local market shares in each of the individual media
(and among the media as a whole) remain low. If they do, harmful
economic effects on advertising prices or other economic measures are
unlikely to result.
From a market-place-of-ideas perspective, the concentration of
media ownership within particular industry segments (or within certain
local market areas) is also the appropriate criteria for merger
evaluation. Most important in my opinion is diversity of ownership of
news and information outlets.
In general, I think that such diversity concerns before efficiency.
The proper thresholds of market concentration may be quite different on
the marketplace-of-ideas vs. economic criteria. What the appropriate
limits on the number of independent voices in television, radio, or
broadcasting more generally, are, is a matter of political judgement
upon which I claim no special expertise. Some historical perspective,
however, is again useful. While television, radio, and other media
chains are becoming larger, and media cross-ownership has increased,
the number of media outlets that citizens have available, including
those offering news and information, appear to be growing as fast or
faster.
One feature of this proposed merger that has attracted much
attention is the vertical integration of substantial television
production and programming resources owned by Viacom with the
distribution facility of the CBS television network. A widely expressed
apprehension is that after the merger, the CBS network would favor
programming produced by the suppliers that it owns, to the exclusion of
independent or unaffiliated producers. This is an important concern
because free entry in programming supply promotes both economic welfare
and a healthy marketplace of ideas.
We can, in fact, expect a television network to lean toward
exhibition of programming in which the firm has an ownership interest.
From a marketplace-of-ideas perspective, such favoritism is of inherent
concern. I doubt, however, that the CBS-Viacom merger would result in
very serious foreclosure effects from either an antitrust or diversity
of voices perspective. First, unaffiliated program suppliers would
retain substantial alternative channels of distribution. Also, the
competitive environment imposes powerful constraints on self-dealing in
this market. From the network's perspective, exhibiting programs that
are not expected to attract the highest or most valuable audience
possible is self-destructive. From the producer's perspective,
accepting distribution on any less than the best or most appropriate
outlet is equally costly. More generally, broadcast networks have no
way of predicting where the best ideas for their programs will come
from, and they cannot afford to close or restrict those channels. The
power of these incentives is demonstrated by the high degree to which
prime time network programs are now bought from independent suppliers
or are cross-traded between vertically integrated network and
programming suppliers.
In summary, the main policy concern with media mergers, including
CBS-Viacom, should be the degree to which they may create excessive
horizontal market concentration within particular media industry
segments (e.g., broadcast television networking) or within local market
areas. Their sheer size or breadth of operation are not in my opinion
of much significance. Also, while vertical integration can have
important harmful effects on economic or social welfare, the amount of
attention that vertical ownership receives in the public forum is out
of proportion to its real consequences. The most important step in any
merger analysis, therefore, is to begin by asking the right questions.
Senator DeWine. Thank you all very much. That is very
helpful.
Mr. Redstone and Mr. Karmazin, that was quite a press
conference you all had. You got everybody's attention. It has
been quoted here four or five times today. I wonder if you
would respond to Mr. Grossman's comment and others' comments in
regard to the fact that at this press conference, there was no
mention about quality as far as children's programming, no
mention about the quality of news.
Mr. Redstone. Let me comment just for a moment.
Senator DeWine. You can take issue with the premise, even,
if you want to.
Mr. Redstone. And then I will turn this over to my new
boss.
Senator DeWine. You need to pull that closer, sir. We need
to hear you.
Mr. Redstone. As I said, let me comment about this and then
I will turn it over to my new boss, Mr. Karmazin. We did not
intend to cover every subject, and I do not see how anyone
could raise questions about the quality of children's
programming. Nickelodeon is hailed by teachers, by parents, and
also by the children themselves as a wonderful contribution to
children's programming. That is why it has more than 50 percent
of all the rating points, not because of any kind of power, but
because of the quality of the programming.
So when you look at Nickelodeon and you talk about the
issues you have raised, you think about Nickelodeon's programs
like ``Big Help,'' where children are empowered to commit their
time to their communities rather than to be on the streets.
So I just want to comment briefly on that aspect of the
subject. We were not purporting to cover the world in that
limited press conference, but I do not think anybody could take
a contrary view to the one I expressed, that Nickelodeon stands
for quality programming.
Let me turn this over to Mel.
Mr. Karmazin. I did not say I love America, either, and I
do. Quality programming and integrity of news is something that
is so obvious when you are a trustee of a license that you do
not need to say that. It goes with the territory. We have all
been broadcasters for a long time and we know what that
responsibility means.
Senator DeWine. Let me follow up with that. Mr. Grossman
had some, I would say, fairly critical comments about what has
happened with broadcast news. This has been a drumbeat that we
have heard for some time as far as shutting off foreign outlets
or shutting off foreign bureaus, et cetera. I just wondered if
you would want to comment on that.
Mr. Karmazin. Sure. Mr. Chairman----
Senator DeWine. What I want to do is, first, give you an
opportunity to answer some of these things that have been
stated here.
Mr. Karmazin. Mr. Chairman, I will do anything that you
want me to do. This merger has nothing to do with CBS News.
Viacom is currently not in the news business at all, so that
any changes that we wanted to make within CBS News, we could
have made within CBS News. But the facts support just the
contrary. If there is anything going on, we are supporting and
putting more money and investing more into CBS News. We are
very proud of ``60 Minutes'' and ``60 Minutes II.'' Dan
Rather's evening news is still being broadcast, and we spend a
considerable, an incredible amount of money to do that half-
hour program. On Monday, we are going to start a new morning
news show, hopefully to be competitive with the other networks,
that would star Bryant Gumbel.
So I would support that the facts are to the contrary, that
there is more of an investment, more of a commitment on the
part of CBS in news, and the fact that--I heard some reference
earlier to Shadow and Metro. It seems to me that there are more
people now doing news. So on one hand, it is worse if there are
less, but when new entries come in to do news, that, too, many
not be perceived by some people as being good.
I will give you another great example of where this merger
is benefiting the public, is that there is an awful lot of
Paramount stations that do not do news at all. They currently
are not doing news in markets where CBS has a television
station and we obviously do do news. The opportunity exists for
us to serve the public by providing a 10 o'clock news on a UPN
station or Viacom station and an 11 o'clock news on a CBS
station. So it is just the opposite. I think there are great
public service advantages to this merger.
Senator DeWine. You mentioned Metro. I was sort of
intrigued by the comments about Metro. Do you want to tell us a
little bit about that, your side of that story?
Mr. Karmazin. I am not sure I know what there is to tell
about it. Certainly, a company called Westwood One, which is a
separate publicly-traded company with separate shareholders and
had Shadow Traffic, acquired Metro. It went through the
Department of Justice. Obviously----
Senator DeWine. Well, no, excuse me. We are not talking
about the legalities here. We are talking about the statement
that was made by Mr. Schwartzman in regard to this that,
basically, you are getting the same news on station after
station after station in the same market. It is different
stations, yes, maybe different people with different title of
news director, but the allegation was--and we are not saying
there is anything illegal about it. What we are here today to
talk about is public policy. Is that true, and what is your
comment about the public policy?
Mr. Karmazin. I think as a public policy, it has served the
country well to have the Telecommunications Act of 1996,
because the radio business was suffering and losing money.
There were 5,000 stations losing money, so stations were
cutting news because they could not make money. The fact is
that there are more stations doing news today since the
Telecommunications Act passed because they now have the
services of companies that were created to provide news for
stations that were not in the news business.
It was mentioned earlier that CBS and Westinghouse
combined. The record is clear, because someone can go to New
York City and they can see that we own WCBS Radio and WINS
Radio, two all-news stations, totally separate newsrooms, not
consolidated, not even at the same location. Neither one of
them are at the same location as our television stations, each
with individual news directors.
So the fact is that in any market in the country, I believe
that there is more news being presented. It may, in fact, be
done by few people because the economics are such that you
cannot have 20 people doing news for radio because the radio
business was a bad business in those days and stations were
going dark.
Senator DeWine. So your bottom line--I do not want to
belabor this point, but your bottom line is, I can pick it up
on more stations. I might have XYZ station. None of the three
of them might be carrying news but for this. What you are
saying is I am better off as a consumer to be getting news on a
whole bunch of different stations, some of them which would not
have had any news, even if the news is all the same, even if it
comes basically from the same source.
Mr. Karmazin. I think what I am saying is that if given the
alternative for radio stations to fully staff a news
organization or, as an alternative, they will not present news
at all, so the fact that there are outside sources that are
able to provide the press conference coverage--I mean, it is a
little bizarre to me to see all of these people here taking
individual pictures and a lot of companies cannot afford to
have photographers here. So the fact that somebody is going to
take the picture and sell it to a bunch of newspapers, I think
that makes a whole lot of sense. If not, they would not get the
picture. It is not like----
Senator DeWine. With all due respect, that is a little
different. That is a little different than how the news is
presented over the air, and this is not a major point of this
hearing. I just was trying to get it clarified. But I want to
go back to what I asked you, and I was trying to be fair to
you. All you are saying is, I am better off as a consumer
having it on 10 different stations, whereas if but for what you
are doing with Metro, I might only be getting it on five. The
only counterpoint to that is, it is coming out of the same
source and we just accept that.
Mr. Karmazin. Possibly, Mr. Chairman, but what I am also
saying is that each of these radio stations have separate
licensees and separate people who are there to serve their
community. If the news product that they were presenting on
their radio station was not what they wanted to present to
their audience, it would not be on. It is not a decision on the
part of Metro----
Senator DeWine. Well, that is stating the obvious, I think.
Mr. Karmazin. OK; as long as we agree with that, then that
is fine.
Senator DeWine. I am just trying to get what the basic
facts are and taking what Mr. Schwartzman said and whether you
agree with his basic facts or not.
Mr. Karmazin. I do not agree because of the relevancy and
the size of Metro traffic, Metro news or sports news, is so
minimal. There are just not a lot of major television stations
or radio stations that are doing it. They are using it as a
source. They are getting some content.
Senator DeWine. Again, I think you are protesting too much.
It is, again, not that huge, central part of this hearing. But
he went beyond that. He said other forms of content of news
coming out. It was not just the sports or traffic. It was
everything that he was talking about. I was just trying to get
what the facts are.
Mr. Karmazin. I will not protest anymore, then.
Senator DeWine. No, you can protest. I am just trying to
get you to give me the facts and tell me where his facts are
wrong.
Mr. Karmazin. The facts are that there is a company that is
called Metro Traffic and Shadow Traffic, Shadow Services and
Metro Services, and one of the services that they provide to
the broadcasting industry is that they provide news, sports,
and certain type of entertainment programming. I cannot tell
you in every single market the number of stations. But I also
should say that that is not part of CBS and it is not part of
Viacom.
Senator DeWine. One last question and then I will turn to
Senator Kohl. Mr. Redstone and Mr. Karmazin, you have made
clear in your written testimony and in your comments here today
that you believe this deal will pass muster with the antitrust
agencies and with the Federal Communications Commission, and I
can certainly appreciate this point of view. There is limited
overlap in the markets that you currently serve and it does
seem likely that you will be able to comply with the FCC
regulations one way or the other.
Still, putting aside any issues of antitrust law, as a U.S.
Senator from Ohio and as a consumer, I still have some concerns
about what this deal means in the long run. Mr. Redstone, you
yourself have stated that the merged Viacom/CBS will be the
``king of content,'' and that leaves a perception, at least,
that Viacom in some sense will be part of a very small group of
companies that has very significant control over the flow of
information to American citizens. I wonder if you can address
those concerns for us----
Mr. Redstone. I would like to----
Senator DeWine [continuing]. And if I could finish, and
what are the long-term implications for the entertainment and
media industry.
My point, gentlemen, is that this committee is the
Antitrust Committee. It is also the Competition Committee. I
think there are some very significant issues of public policy
that are at stake here that go beyond whether or not there is a
technical compliance with the antitrust law or whether you can
make the changes that the Justice Department may require you to
make.
Mr. Redstone. I would be glad to answer that, but I would
like to start with a small subject matter which bears on this
that was raised before, and it deals with this general issue,
and that is whether independent programmers, for example, will
be denied access to, say, CBS because of its relationship with
Paramount. That goes to the heart of the matter.
That course of action would be totally self-destructive. If
CBS confined its purchase of programming to Paramount
programming, it would be destructive of CBS. CBS's job is to
get the best programming it can from anybody, from an
independent program, from somebody with a new idea, and
Paramount's job is to sell its programs to the highest bidder.
So you will see none of that in this merger and that is one
issue that has been raised about the merger. There are other
companies that look at this differently. We do not. This is not
an area for synergy.
As far as the long-range implications of this merger, I
think it will only enhance competition. Why? Because when you
look at each element of our business, CBS is subject to
enormous competition. CBS has competition from three major
networks and from two minor networks. Paramount is subject to
enormous competition, and by whom? Not small companies--Time
Warner, Columbia, Seagrams, Newcorps. Take every one of our
single businesses we have. It is true that CBS has a prominent
position in radio. They own one-and-a-half percent of the radio
stations in the United States. They may do better than others,
but that is because of the quality of the programming on there.
We have no interest in outdoor advertising. They do. It is hard
for me to see, and there are many businesses that I have said
that we are in, like publishing, like parks, like video
rentals--Blockbuster is very important to us--they have nothing
to do with that.
So it is hard to see why there would be any long-range
difficulties, long-range negatives to this kind of a merger.
Unlike other mergers, we are not concentrating anything. As was
pointed out, we may be a big company, but the media industry is
very big. Look at who our competitors are. The major companies
in the media industry all compete with us on an overall basis.
Senator DeWine. Mr. Karmazin.
Mr. Karmazin. No, I think in every one of our individual
businesses, I think the relevant thing is that we have an awful
lot of competition, whether it be in the television business,
in the outdoor business, in the radio business. But I cannot
underestimate and talk about the importance of the new
technology that is coming out there. There are currently 1,800
radio stations on the Internet, and there are all kinds of
ideas coming out every day about broadband and streaming video
and the importance of that.
So the competitive landscape is moving so rapidly--so
rapidly--that it is unfair to not consider that when they are
competing with us for advertising dollars, for viewers.
Washington has not figured out a way to expand the day beyond
the 24 hours. So if you believe that people are using the
computer more, then the time that they are spending on that
computer is taking it away from something, and it is taking it
away from television, it is taking it away from watching radio,
and it is making our business more competitive.
So I think that there are existing FCC regulations, as
someone who has gone through it a long time, there are existing
DOJ regulations, and all of them deal with the issues that this
committee is also concerned about. I think that there is plenty
of competition for this new company. We are not even the
biggest company in the media business, let alone that the
biggest company in the media business is not really a big
company in the scope of bigness.
Mr. Redstone. May I also add, because I think you want to
know what the advantages are. Is there not an advantage to this
country where the export of information and entertainment is so
important that MTV is now in 300 million households around the
world? That Nickelodeon is now in 140 countries. It just went
into India, for example. I see that as an advantage, not as a
disadvantage, in terms of the public interest of this country,
and to the extent that we become stronger as a company and
enabling us to do that more.
For example, some of the CBS product, could not Paramount
help in distributing that product? The infrastructure of
Paramount is all over the world.
I am saying, I think that it is OK and it is appropriate to
look at possible concerns about this merger, although we say
they are little because we have such competition in every area
of the business. I think we should also look at the advantages
of the merger.
Senator DeWine. Senator Kohl.
Senator Kohl. Thank you. Continuing on, Mr. Redstone and
Mr. Karmazin, obviously, you both contend that this merger does
not violate any antitrust concerns. Where do we draw the line
in the sand? What kinds of mergers, what companies would you
suggest whose merger would violate antitrust concerns?
Mr. Redstone. Well, I certainly would not identify any
particular companies, but I think where you have a merger,
where you have competing parties and you are going to eliminate
competition, I certainly think that would be a merger that
would not fly and should not fly, and I doubt that the
regulatory authorities would permit it to fly.
Where you have a merger where you have one business and you
are going to end up with more concentration in that business,
which is unlike this because the business is different, I think
that kind of a merger would warrant scrutiny. And, frankly,
where you have a merger which would, in your view, impede the
free flow of information, and there are some mergers that have
historically run that risk. I testified here on one of them
some time ago. Then I think you have to take a good look at
that, but I do not think that exists here.
Senator Kohl. Your partner, who is the chairman of CBS,
said when he was the chairman of CBS that he would like to buy
NBC. How does that strike you?
Mr. Redstone. He was on the wrong track. What he should
have been looking to buy----
Senator Kohl. He was on the wrong track?
Mr. Karmazin. He wanted me to buy UPN. What I was saying
then, and I believe today, is that there is so much
competition, there is so much competition, to preserve free
over-the-air broadcasting, which I think should be an important
agenda, needs to have some consolidation. The number of
channels that we have now, CBS is allowed to have one. There
used to be only 5, or 6, or 7 channels. There are now--talk
about 500, but I know I have 76 channels that are available to
me.
If we were to take the UPN network--it is not ours, but if
we were to take the UPN network and put it on cable, the only
people who would get hurt are the poor people that do not have
cable, because there is no rule that says we cannot do that. If
we were to create a new CBS network, CBS II, there are no rules
that say we cannot create a second network. As a matter of
fact, that would be looked upon as being procompetitive, to
have another network.
What exists today are these rules that were done in
different times and with no consideration to broadband, no
consideration to what has happened in cable, no consideration
to the new technology, and we think that the, what I was saying
at that time, is the ability to own two networks is not an
unreasonable position. But that is not what we are here
proposing. We are proposing----
Senator Kohl. We are trying to get at when do you believe
we step over the line.
Mr. Karmazin. I believe that you are in a better position
and the DOJ is in a better position to determine that. But I
know that on this deal, we have not, for the reasons that we
have submitted.
Senator Kohl. Any comment on that, Mr. Grossman?
Mr. Grossman. First of all, I am delighted to hear the
commitment to maintain and, in fact, expand CBS News and its
quality. I think we have to start looking underneath. There
certainly is plenty of competition, but the reality is that in
the news gathering, and radio is a prime example of that, there
are some 15 all-news radio stations, of which CBS now owns
four, two in Los Angeles and two in New York, but by and large,
there are no radio stations in the country that have their own,
or very few that have their own independent news staffs left.
So while there is much competition, there is a tightening
of that pipeline in terms of the actual gathering of news.
People are spilling out, as we see with the O.J. Simpson
phenomenon and the other stories that so dominate the
headlines, the same stories over and over again. The emphasis
on news has been increasingly in the areas that make money, do
not cost money, which is entertainment, in effect, the prime
time news magazines, which largely do not cover the major
issues around the world.
I think we have to look very hard at the quality of the
information that American society is being given through this
most important medium, and I think we have to start addressing
the issues of the diversity of sources of news, because while
there is much competition, there are very few companies that
are doing major jobs in the news reporting and news gathering
in the broadcasting area.
Senator Kohl. Does he not make good sense?
Mr. Karmazin. No; his facts are wrong. I think we can argue
opinion, but not facts. In talking about New York City, in New
York City, there are, as was mentioned, we have two all-news
stations. There is a separate news department at the Chris-
Craft TV station, at the Tribune TV station, at the Disney TV
station, at the Fox TV station, and at the NBC TV station.
There are, in addition to the all-news stations, radio stations
that operate separate news operations that do not get their
news from the Metro Traffic services or from Shadow traffic
services.
So I do not know if there is a number that somebody wants
to say is the right number, but in the markets that we are
talking about on our deal, there are plenty of news gathering
companies.
We spend, and I find it is just so peculiar, the amount of
money that we spend covering the world, not for the half-hour
of nightly news but just in case war breaks out, or just in
case, God forbid, there is a tragedy--and I am proud of the job
that CBS does. And again, this merger and what we are here to
talk about is not about--if we wanted to cut the news costs at
CBS, we could have long done that. This has nothing to do with
Viacom. There is no cost there.
The only thing that is coming in and the only thing that I
think this committee should be concerned about is Viacom is
bringing in a very healthy company, something that has some
very profitable cable networks, a profitable studio, and that
could make CBS stronger. And if CBS is stronger, then we can
provide more news and operate more bureaus and operate more
programming devoted to news, and that has been our track record
and we can demonstrate that.
Senator Kohl. What is your participation in CBS News?
Mr. Karmazin. My participation in CBS News is that when I
see--Andrew Hayward is the president of CBS News. Dan Rather is
the managing editor. Don Hewitt and Mike Wallace and all those
guys are there. I say hello to them and I thank them. But if
the question is, am I involved in the process of selecting
stories, deciding, no, I have not, and there has not been one
example, not one example in my 30 years of involvement in
broadcasting, where I would interfere with news. It just does
not go in line with being a broadcaster. I think that----
Senator Kohl. Are you comfortable with that statement, Mr.
Grossman?
Mr. Karmazin. I think if you know those people, and I know
he does, that he is aware that Don Hewitt is running ``60
Minutes'' and Andrew Hayward is running that.
Mr. Grossman. I think one of the great virtues of Mr.
Karmazin's experience as a broadcaster is that he knows the
limits and is aware of the sensitivity and is concerned about
not interfering with news. I will not say that about all new
owners of television or broadcast companies. But eventually,
they learn.
I still think there is a major problem. I will give you a
very good example. We are talking about radio. When NBC Radio
was sold to Westwood One, it was given the right to use NBC
Radio News on the air and identify itself as such, even though
NBC News had absolutely no editorial oversight or
responsibility for it. And the fact is that it came out of a
central pipeline, as Andrew Schwartzman very accurately
described it, so that what people were getting was not NBC News
at all. They were getting some syndicated service that was
simply slapped on the identification of NBC News. I think we
have to be very careful about looking at the authenticity and
the diversity of news sources, not just news broadcasting.
Senator Kohl. Mr. Waterman.
Mr. Waterman. You asked originally, what are the limits. I
think a good example of a bad merger would be CBS and NBC
because of the concentration that creates in not only news
delivery but in broadcast television networking, or how about
Viacom and Time Warner. These are things that create a large
concentration within particular market segments, like cable TV
programming.
Just another comment, though. All the news may look the
same, but there is certainly an awful lot more of it. What is
really important is the number of separate owners. I do not
think the stories, that you hear about the fact that one
company owns two networks in one market and they tell you a
story about how the news is very different and independent from
one station to another. I do not think that those are really
relevant comparisons.
I think that what your role has to be and the Antitrust
Division of the FCC is to make sure there are enough separate
owners of outlets of news and information so that that problem
is not at risk.
Senator Kohl. One other question. Gentlemen, I have a
friend who owns a couple of radio stations in Milwaukee. As a
result of the radio consolidation that we have seen, and
especially the pending Clear Channel AM-FM merger, my friend
worries that he will not be able to compete and sell
advertising on his stations, particularly when he is faced with
the large market clout offered by large conglomerates. He gets
a lot of offers to sell his stations to the ``big guys,'' but
he does not want to. He likes being part of the local community
and feels a responsibility as an African-American to ensure
that minority voices are represented on radio.
Mr. Karmazin, are my friend's concerns, and they are well-
documented and long-standing--he has been in business for a
long, long time--are his concerns legitimate? Are small radio
station owners today doomed in the marketplace? Will small
broadcasters be able to compete with your multimedia
conglomerates in the battle for listeners and advertisers?
Mr. Karmazin. Yes; I believe that if, in fact, somebody has
some good programming ideas and are operating their radio
stations well, they can compete. Senator, I do not know if you
are familiar with Beaver Dam, WI. It is just right outside of
Madison. I have a son who owns four radio stations there and he
is competing with a company called Clear Channel and my son is
making an awful lot of money as an independent operator, with
no help for his father, that is for sure----
Senator Kohl. Does he live there?
Mr. Karmazin. He lives there, yes, and votes there.
[Laughter.]
Just joking. But he is a resident of Beaver Dam, WI, and he
competes with Clear Channel.
It is interesting to note that you mentioned the Clear
Channel merger, and it has gotten a lot of attention and has
some 800 or 900 radio stations. Of that number of stations, 540
of them have revenues of under $2 million, and that is the
problem of the radio business, is that it is a very fragmented
business and one that there were so many stations that were
losing money that the consolidation was necessary.
If there is one newspaper, and again talking about local
advertising in a market, in a given market, the Washington Post
here in Washington, if you were to take the amount of
advertising that somebody would have owning a bunch of radio
stations and having some outdoor, and if you were to aggregate
all of the advertising in Washington, which would include the
Post and the Times and everything else, you would see that this
company is a very, very small piece, even in the local market
of total advertising, when you look at the newspapers.
So, no, I think that newspapers get 22 percent. The
advertising pie in America is a little over $200 billion.
Newspapers get 22 percent of that pie, and in most markets, it
is the newspaper that really has the monopoly. We are not
complaining about that, but what was necessary was
consolidation to be able to go after some of the advertisers
that are in the newspapers, and it is very hard to talk about
concentration when the radio business is today 7 percent of the
advertising pie, the outdoor industry is 2 percent of the
advertising pie, and the cable business is 7 percent of the
advertising pie.
On competition, the FCC made it very clear on these local
ownership rules that when they are allowing to operate, when
they are going to allow two stations, there needs to be at
least an independent television station voice in that market,
and they have also said that two of the top four stations
within a market cannot combine. So even where somebody is going
to own two television stations in a market, they are not going
to have the two top stations, because they cannot do that under
the regulation.
Senator Kohl. Mr. Schwartzman.
Mr. Schwartzman. Yes; as to that last, with respect to the
independent voices, the independent television stations and the
National Association of Broadcasters last week asked on
reconsideration for the FCC to abolish those eight-voice tests,
and I guess I hear Mr. Karmazin disagreeing and wanting to
support them, and I look forward to seeing CBS file at the FCC
in support of retaining those eight-voice limits.
I would like to say, I thought the example of Mr.
Karmazin's son is kind of interesting because it also addresses
some stuff that came up earlier. I do not think that anybody
needs to say much to the competitors of those radio stations
that Mr. Karmazin's son owns, for them not to face especially
aggressive or really strong-arm tactics. I can just see the
discussion.
His father is Mel Karmazin. I am not sure we really want to
fool around with him. Mr. Karmazin does not have to do
anything. There is nothing wrong. His son should be in
business. It is just that his son is blessed because there is a
kind of self-restraint, and that is the problem in the news
area, as well.
I do not think for a minute that Mr. Karmazin is going to
interfere with a news operation. He knows better. But there are
lots of people in the newsroom who may not realize that. The
biggest problems, and Larry Grossman has written about and
cited numerous examples he could explain to you, is self-
censorship.
Suppose, for example, one of these horrible nightmares, a
parent's nightmare, a teenage kid involved in an accident and
there is alcohol and cars and this kind of thing, and the guy
sitting in the TV station newsroom says, you know, that kid is
the owner's son, or even the owner's next-door neighbor. I am
not sure we really need to lead the newscast with this story.
What do you think? There is no need for any kind of
interference.
Now, if you take Shadow Traffic, now Shadow Broadcast
Services, Metro Traffic, now Metro Networks, which as best as I
know it provides full turnkey services--it is the complete news
department for over half the radio stations in Baltimore, and I
invite Mr. Karmazin to give me real numbers so that I cannot
try to have to pull them together on my own--if you have got
that situation, so you do not have 23 different radio stations
and 23 news directors each making their own news judgment and
you are dependent on one person making that news judgment and
that one news judgment is an erroneous one, the assumption that
they should shade the news in favor of the boss, or the boss's
best friend or the boss's business partner, that is the
problem.
Senator Kohl. Thank you very much. Your son, Mr. Karmazin.
Mr. Karmazin. My son.
Senator Kohl. Is he a good Democrat? [Laughter.]
Mr. Karmazin. Listen, I do not want to get in trouble.
Senator DeWine. Good answer.
I have a statement by Senator Leahy which we will insert in
the record, without objection, at this point.
[The prepared statement of Senator Leahy follows:]
Prepared Statement of Hon. Patrick J. Leahy, a U.S. Senator From the
State of Vermont
Mr. Chariman: Thank you for holding this hearing.
My guess is that we are going to hear a lot about synergy today.
This merger, indeed, may end up being a good example of vertical
integration making the merged entity far more efficient. However, there
should be more to this story.
When you can make a product like a computer or a TV set more
cheaply through vertical integration--consumers benefit. It is clear
how the new Viacom will benefit in this case, it is not as clear how
consumers or buyers of billboard advertising, or radio listeners, or
movie goers, or TV watchers will benefit by this merger.
I want to raise some larger concerns--which are harder to measure
but potentially more serious.
Ultimately, as these types of huge media mergers continue to create
ever larger media giants will there be a cost to society? Will there be
a loss of different viewpoints?
Will there be less vigorous press activity or a reduction in the
free flow of ideas offered by the media as fewer news sources are
distributed more widely.
Indeed, some suggest that this merger could provoke ``defensive''
mergers of other media companies--which can led to more defensive
mergers, and more defensive mergers. Where does this end?
Will independent producers have less chance of being carried by CBS
when CBS has big production studios--Paramount, Viacom and Spelling
Entertainment--in the corporation? And if the new Viacom owns
``competing'' radio and TV stations how aggressively will they compete
for news scoops?
Will the reduction in different media outlets make it more
difficult for some to negotiate deals for advertising?
I think we should look beyond the traditional antitrust analysis
and get answers to larger questions which is the reason for this
hearing.
Thus the major question: At what point does the FCC, or the Justice
Department, draw the line and say enough is enough? In my view, it will
have to be drawn at some point to protect the free flow of ideas, news
and creativity.
Senator DeWine. I also have three questions that Senator
Hatch has asked that we ask on his behalf, which I will now
read.
The first question is for Mr. Redstone and Mr. Karmazin. An
article last month in the New York Times called the proposed
CBS/Viacom a ``virtual monopoly for online music,'' and said
that it would create a formidable and potentially
anticompetitive force in the sale, distribution, and promotion
of music over the Internet. Analysts have described the
proposed merger as a ``music sales promotion and distribution
powerhouse that looks to play a leading role in mainstreaming
the Internet radio format and potentially the selling of music
online, both through mail order and digital downloads.''
Senator Hatch continues, I am concerned that one large
company like a merged CBS/Viacom might become a virtual
monopoly for online music and negatively impact the emerging
online music distribution market. Will others be able to
compete in this new market with a company that owns mtv.com,
vh1.com, and popular music websites, as well as hundreds of
radio stations?
Mr. Redstone. Well, I cannot help it if the quality of our
music is such that people are interested in it. But I would
like to point out that one of the great things about the
Internet is it provides a voice for practically everybody, and
right now, we have one music site. There are 100,000 music
sites on the Internet. So I do not see the basis for that
concern.
Mr. Karmazin. And it is a great recognition that the
Internet is a competitor, and I think that Senator Hatch is
correct. The Internet is a competitor. I think Mr. Redstone
said it, there is MP-3 technology. There are just a ton of
people that are able to provide content on there. We do not
sell music today. It is the record companies that have the
control on the content. We need their content for our
programming. So I do not see the concern there.
Senator DeWine. Senator Hatch's second question is, it is
my understanding that a merged CBS/Viacom will push into the
online radio broadcasting market and soon begin offering
streaming audio versions of its radio content through CBS's
infinity.com website. Will not a merged CBS/Viacom, with its
MTV, VH1, and radio station assets, be able to prevent entry by
competitors into the market for online radio broadcasting?
Mr. Karmazin. I think I covered that earlier. There are
currently 1,800 radio stations online right now, and by the
way, none of our radio stations are streaming audio at all.
Senator DeWine. This question is the third question by
Senator Hatch, and this is for the entire panel, anyone who
would like to respond. It has also been reported that MTV,
which is owned by Viacom, has a ``huge influence over record
companies,'' which could intensify if it obtains access to
CBS's TV network affiliate stations and national radio and
outdoor advertising exposure. Will this huge influence over
record companies that a merged CBS and Viacom will have be good
for musicians and good for consumers, and how?
Mr. Redstone. May I?
Senator DeWine. Mr. Redstone.
Mr. Redstone. I have a lot of respect for the Senator,
Senator Hatch, but, in fact, we live at the mercy of the record
companies. They do not live at the mercy of MTV. We get our
videos from the record companies. Without the record companies,
there is no MTV. So I do not see that concern, if I may suggest
it.
Senator DeWine. Mr. Karmazin.
Mr. Karmazin. No, I think Mr. Redstone said it. There are
these digital channels. There are all of these number of cable
channels. We certainly think that there is plenty of
competition in that area.
Mr. Grossman. I certainly am no expert in the music
business, and there is not a reason, it seems to me, to oppose
the merger on that grounds. But I do think we have to be
careful in citing the Internet and all the new technology as
making available thousands of channels. We always cite new
technology, whether it was FM or UHF in radio or television as
the source of increasing diversity. The problem is that you are
getting these major players that have tremendous marketing and
promotional clout through radio stations, through their music
sources, through their ownership of cable channels, that so
completely can dominate a field that it makes it very hard for
others to break in, even though they have access, but they
really do not have any mainstream way of reaching their
potential consumers, and I think that is a matter that has to
be analyzed and carefully considered.
Senator DeWine. Professor.
Mr. Waterman. Well, very briefly, I agree with Mr. Grossman
on this. I think it is a very natural process, though, as new
media develop, for existing conglomerates to quickly move into
those areas to diversify risk and for other purposes. I agree
it is very important to watch the way that market structure
develops in those areas and the relationship that they have
with established firms in other media.
Mr. Redstone. I do not want to disagree, but it has not
stopped America Online, a relatively new company, from
dominating maybe the Internet. It has not stopped companies
like Yahoo. These companies have bigger capitalizations than
Viacom has. So it does not seem to me that there is any
inhibition from people establishing new businesses on the
Internet, and competitive businesses, indeed.
Senator DeWine. Mr. Schwartzman.
Mr. Schwartzman. I would like to echo the observations
about the role of the Internet. I would like to make two short
additional points in that regard.
First, CBS in particular, is, as with the other major media
companies, is aggressively using its clout to acquire
circulation in the Internet. If you are a sports fan, I think
you have an idea that there is something called CBS Market
Watch and there is something called Sports Zone. As a matter of
fact, if you watch television sports, they are ramming it down
your throat relentlessly in huge multimillion-dollar tradeout
arrangements. That is good business, but it is acquiring
dominance in a new medium by using the dominance of the old
medium to get there.
Second, the Television Bureau of Advertising, in
particular, but the broadcasting industry, in general,
aggressively argues that as the media fragment, as there are
more and more sources of information, broadcasting,
particularly over-the-air television, becomes more important
and more powerful. It is the only way to reach a mass audience.
It is a smaller piece of a much bigger pie. The cost per
thousands are doubling and tripling.
If you look at the TVB, the Television Bureau of
Advertising's own promotional information, they brag that
everybody else is fragmented. If you want to get into every
home of America, 100 percent of the nation's TV homes, there is
one way to do it and it is network television, not cable, not
the Internet, not direct broadcast satellite. It is network
television, and that is frequently overlooked.
Senator DeWine. Senator Kohl.
Senator Kohl. Thank you, Mr. Chairman.
I just have one question and I hope we will agree. Can we
all agree that media mergers need to be held to a different and
perhaps a higher standard?
Mr. Redstone. Absolutely.
Mr. Grossman. Yes.
Mr. Waterman. Yes.
Senator Kohl. Thank you. Thank you, Mr. Chairman.
Senator DeWine. Let the record reflect that all of the
witnesses have said yes, I believe. Thank you very much.
Mr. Schwartzman, what impact does this deal have, in your
opinion, on advertisers? There appears to be competition in
almost every local advertising market, so why can advertisers
not just buy their ads from somebody else? Why does it matter
if Viacom has a broad national presence?
Mr. Schwartzman. First, I find it interesting that the
advertising community quietly complains, but advertisers are
scared to pursue their concerns aggressively because of the
clout that broadcasters have and the fact that they need them.
It magnifies their power.
Mr. Karmazin told Barron's magazine, it used to be that
stations competed, that media buyers would play them off
against each other. Now, we have the CBS ad sales managers talk
to each other every morning. That is higher prices and better
margins.
They use the multiple stations in the market to do format
squeezes. You get on one side or the other side of a station
with a similar format. You drive their numbers down. You put
them out of business. You buy them out, and you raise the
prices. That is what is going on in market after market.
This economy has grown on small entrepreneurs. This economy
is built on low barriers of entry. Local radio is one of the
most important advertising media for people with a few bucks
trying to reach a targeted audience. It is becoming harder and
harder to do that. Even if you are on the Internet and you are
in the dot-com business, the way you get to the general public
is broadcast advertising. Listen to the radio. Watch TV. All
the dot-coms have to advertise to make themselves known, and
those rates are going up on a cost per thousand basis.
So this consolidation, particularly at the local level,
which is what I have tried to stress today--I can speak to the
national issues, but I have tried to stress the local issues
today--within markets, the increase in cost, the bulk deals,
the cross-promotions, being able to sell national advertisers
to localities by aggregating them with the large chains--when
you have a couple hundred radio stations, you can do that--all
those things are making it much harder for small advertisers to
get their share.
Senator DeWine. Does anybody else want to comment on that?
Mr. Karmazin. Mr. Chairman, on this Viacom/CBS deal, the
only local advertising that is affected, because Viacom, as Mr.
Redstone pointed out, is not in the local radio business, so
that is not changing it. They are not in the local outdoor
business. The only effect on the local advertising aspect is on
the television station side, and in all of the markets, in
every single one of the markets, there are rigorous rules, both
from the FCC and DOJ, on concentration in television, which we
talked about. So somebody may not like it, but this merger has
nothing to do with what he is talking about.
Senator DeWine. Mr. Grossman.
Mr. Grossman. Senator DeWine, I just wanted to make one
comment. It is, I think, appropriate, oddly enough, that we are
ending up talking so much about radio, because I think radio,
in many ways, is a precursor of what is happening in the other
more modern fields. Is it not interesting that the most
significant, important, useful, serious news is being offered
in radio by public radio, and it is the one major national news
network left in radio. I think that that suggests the direction
that is going to happen in television, and I am afraid also on
the Internet. And as I say, it is not----
Senator DeWine. Excuse me. That the direction----
Mr. Grossman. Will be that, somehow or other, we need an
alternative public service to focus on the things that are
important to our democracy, like civic information, free
political time, service to arts and culture, particularly
education, because increasingly, we are becoming the old
fashioned public trusteeship notion in this new merger media
environment. It is really broken and I do not think it is going
to be fixed.
Senator DeWine. Mr. Schwartzman.
Mr. Schwartzman. I might add, Senator DeWine, that I think
Mr. Karmazin today has made a terrific case for Chairman
Kennard's initiative to start microradio stations, to create
new intensely local neighborhood radio stations to serve the
communities that the big chains are abandoning.
Senator DeWine. Anybody else? Mr. Waterman?
Mr. Waterman. Thank you. Just briefly, I agree this is very
important. It is basically an antitrust question and the local
market level is particularly important here, and each one of
the markets has to be examined. But I think it is fair to say
that, and I agree with Mr. Schwartzman on this, that the
individual media probably are distinct markets, like television
and radio advertising are a previous strength. But the
important thing is just to make sure that the market share of
those individual media are sufficiently low, and then I think
that the problem will tend to disappear.
So it may be more difficult in the future for independently
owned radio stations or television stations, for example, to
compete in the market, but to some extent, that is going to be
an inevitable problem because of the greater efficiencies of
combining resources at the local level under common ownership.
So those forces have to be balanced. But the key thing is to
keep the shares low within the individual media at the local
market level.
Senator DeWine. Mr. Karmazin, I would like to get back to
something I believe you stated in your opening statement. I
wrote it down. You talked about this merger creating more free
over-the-air competition. Could you tell us about what goes
over the air, not on cable, but what poor people can see,
people who cannot afford cable? How does this merger help that?
Mr. Karmazin. Because I believe that it makes the CBS
company a stronger company and CBS is very committed to free
over-the-air broadcasting, and that you need to be a very
viable company to be able to operate expensive news bureaus
across the world and to be able to provide the kind of
programming that we want to provide.
Everyone who owns content right now have alternatives as to
where they put that content. Because we want to preserve our
business, we need to compete with other technology that is out
there offering money, like cable, as an example. If, in fact,
there is an alternative sometimes for a sporting event to be on
cable or to be on free over-the-air broadcasting, the more
successful a company is, the more they can afford to pay for
content. The more successful we are as a broadcaster, the more
we can have the news departments that everyone is talking about
being so important to maintain. When the time comes that free
over-the-air broadcasting gets hurt, that is when we start
running reruns of shows instead of doing news.
So right now, a lot of our television stations, in addition
to the network news, are doing hour or 2-hour, even, local news
in the market, gathering the news with reporters independently.
That is expensive and we need to be a viable business up
against the competition.
We do not have 90 percent--in spite of what Mr. Schwartzman
says about the Television Bureau of Advertising, there was a
time, and it seems logical, that we had 90 percent of the
audience. Now, that audience is down to 40 to 50 percent with
an awful lot of choices. There was a time when there was just
CNN as a competitor. Now there is CNBC, there is MSNBC, there
is just a lot of competition out there that broadcasters are
competing with and we need to be viable.
Senator DeWine. Following up on that, Mr. Grossman and Mr.
Schwartzman have both stated, talked about the decrease in the
international news bureaus. Do you agree that this is a trend,
and will this trend continue, and does it matter?
Mr. Karmazin. I think technology has contributed toward
that, not our ability to have bureaus. We need to gather the
news, but obviously, when satellites are there to be able to
make it easier to cover the news, so, in fact, we may--not we
may, we do have fewer news bureaus, but we are still--I mean,
if you watch Dan Rather's evening news tonight, you will see us
covering the world. So I do not believe that the number of
different news bureaus is as critical as making sure we are
gathering the news, and I will give you an example. If, in
fact, we do not have a San Francisco news bureau but we put
somebody on an airplane because there are planes going between
Los Angeles and San Francisco, and in the old days there were
not as many planes, we can get to these places.
Senator DeWine. Sure, and you can cover it. This is your
business and certainly not my business and you are the expert
here today, but it seems to me that while you can get there and
cover it, is there not some advantage in the news industry to
have someone there who is digging up news every day, who is not
just reacting to a coup or an earthquake or something, where
you drop people in and you do the news.
It seems to me that there is something as far as the
quality to be said for having a bureau there, a person who
becomes the person who reports from Rome and who knows Italy
and who knows the region. I do not want to argue with you about
it, but it just seems to me that there is something to be said
for that and I just wonder if you agree.
Mr. Karmazin. Mr. Chairman, I agree with you, and CBS News
has over 1,500 employees, and it is not 1,500 employees
necessary to do a half-hour program each day. So we agree,
particularly in areas of where we are a licensed broadcast
station, because that is all about the local news and being
able to cover what is going on in that local community.
But once again, and I am happy to answer any questions
about any subject, but that has nothing to do with the Viacom
merger. I mean, as I said, I am happy to deal with it, but by
the combination with Viacom----
Senator DeWine. We do not get you up here very often. We
appreciate your coming and there are some questions that,
frankly, I think, are public interest, and they were raised by
other panelists, in all fairness.
Mr. Karmazin. And, Mr. Chairman, if I were invited more
often, I would be here more often. So thank you for the
opportunity----
Senator DeWine. We will take care of that, I guarantee it.
Mr. Karmazin. Thank you. But, no, I do think it is fair to
talk about it. I love talking about it. It is something that I
am proud of.
Senator DeWine. It is important. It is the quality of news
which is a vibrant part of our democracy, and so this is what--
--
Mr. Karmazin. And please watch CBS News this week and
report to me on what you feel we are not doing, because we do
spend an unbelievable amount of money. Next year, because there
is very little advertising revenue, and I do not know if this
will surprise you, but very little advertising revenue that is
chasing the conventions and that is chasing all of the speeches
that we cover. But you will find somebody from CBS News out
there. By the way, I respectfully say the same thing about my
competitors, NBC and ABC and CNN.
So, once again, I know there are philosophical issues that
some people have, but CBS News is committed to the kind of
quality network news that we have always done, and our local
news--I mean, it is just strange that when we are the company
that is really providing local news in these markets, and there
is no example of where Mr. Grossman is able to report--I do not
know where he lives, but he could certainly listen to our two
all-news radio stations and see how different those two all-
news stations are, with separate general managers
editorializing and totally controlling those news operations
and gathering news themselves.
So maybe somebody feels it is better to have 10, but this
merger has nothing to do with that.
Senator DeWine. Anybody else on that question? Professor
Waterman.
Mr. Waterman. Well, there has been a lot of discussion
about news content and its quality and I share all those
concerns. But I think the changes we are observing in news and
information are overwhelmingly driven by technology and
competition and not ownership, in particular, conglomerate
ownership.
I am saddened, as Mr. Grossman is, about the fact that news
producers no longer seem to have the same sense of public
responsibility, but I do not think there is anything that you
can do about that except try to keep the ownership separate.
Finally, I would reiterate again that I do not think the
relevant issue is, as Mr. Karmazin said, whether or not their
commonly owned news stations have different news programs or
they are independently operated or that the radio stations they
have currently are not in the local market or whatever. By
allowing common ownership, you have raised a potential for all
sorts of things to proceed in the future that you cannot
predict, and I think there is really nothing you can do but
just try to keep the ownership diverse enough without worrying
too much about who it is that owns these media.
Senator DeWine. Mr. Schwartzman.
Mr. Schwartzman. Senator, let me see if I can get you on
the same side as Mr. Karmazin. I brought a lot of papers today
with me, but I did not bring this week's Broadcasting and
Cable, which has a story featuring how the coming season looks
to be just a huge revenue bonanza, fueled in no considerable
small part, the article says, by the bonanza of political
advertising revenue that is expected. This is a major component
in the prospects for a very favorable year ahead.
Mr. Karmazin says that we need to make broadcasting viable
and get these stations viable. Mr. Karmazin, you have had some
dialog about whether there is going to be some independence in
the news and there are going to be some different voices.
Some of us this weekend are going to challenge the networks
to take some of this viability and some of this revenue and
provide 5 minutes of free time to the major candidates for
public office before the election. I think that is a terrific
dividend, and I certainly advocate, and I believe that the FCC
has the power to require it. I think the FCC should require it.
But what we are saying is, you are looking for a lot, you
are doing pretty well, why do you not just do it, and that is
what we are going to be asking this weekend. I think that this
is really part of the solution. If we are not getting these
voices out, if we are not getting some opportunity to hear some
different things, let the candidates speak directly to voters.
Let them use the time. I think Mr. Karmazin could do that very
easily.
Senator DeWine. Mr. Karmazin, do you want to make news
today?
Mr. Karmazin. No, thank you. I just want to go home.
[Laughter.]
The fact that we get a lot of political advertising, I wish
we did not. We can sell our advertising to people at higher
prices than we can sell to political candidates, so it would
not really trouble us at all if, in fact, there was no
advertising dollars that were from political candidates. We
think we do a great job at CBS, and again, we can only speak
for ourselves on our radio stations and our television network,
in having candidates there.
We are always open to hear any new ideas and we certainly
are openminded on the subject, but I totally disagree with the
subject that says we are asking a lot. We are not asking for
anything. We are going to conform to the laws as the laws are
existing. So I am not sure what we are asking for.
Senator DeWine. It has been alleged in this panel that this
deal is going to push other companies to merge. I wonder, Mr.
Redstone and Mr. Karmazin, if you can respond to that. The
allegation has been made, not just on this panel but it was in
the print media and other people have written that what this
will do is it is going to set off a wave of mergers. You are
just going to have to be bigger to compete.
Mr. Redstone. I do not really think that I agree with that,
unless there are people who irrationally believe that bigger is
better. In this case, neither CBS nor Viacom were driven at all
by a desire to be bigger. Each company was doing wonderfully
and each company will continually to do wonderfully if kept
separate. We just thought that the combination was a very good
combination.
I do not see that kind of irrational point of view driving
mergers which do not on their merits make sense. Maybe there
are some people who are looking for bigness. We were not.
Senator DeWine. Mr. Grossman, I understand your concerns
about news programming, but it appears that the economic
efficiencies are moving media companies towards the
streamlining of their news budgets and relying on a single all-
purpose source for news. First, do you agree with that, and if
you do, is that a bad trend, and if it is, can that trend be
altered?
Mr. Grossman. Yes; I think it is not a healthy trend in a
democracy. I agree with Professor Waterman that the more
diverse sources, not only diverse ownerships, which are
important, but diverse sources of news, the stronger we will
be, and it is no accident that we are having what seems to be
an excessive sameness on single stories that so dominate our
news, partly because they are all coming out of the same pipe.
I think one of the things that can be done is to take--or
not the same pipe, but a very narrowly constricted pipe. One of
the things that can be done, and I go back to my own concerns,
is there are many major elements of free political time, public
service time, outlets, that these companies which are basically
in the entertainment business, as has constantly been said, we
have got to look hard, in the digital world, as well, at our
public broadcasting system, to provide the kinds of things that
our democracy needs that the marketplace is not providing.
It is the stuff that costs money rather than makes money,
and part of that has to do with news gathering. Some of it has
to do with education. A lot of it has to do with free political
time and public discussions of major issues that do not attract
large audiences. It is a matter of our public policy, I think,
being reexamined in this digital age to conform to what is
obviously inevitable, namely, these enormous multimedia global
companies, highly competitive, to be sure, but we are seeing
some of the major elements that we require that used to be done
under the Public Interest Doctrine, with news being a
centerpiece of a broadcast company, beginning to be shunted
aside. I think we have to look hard at some new public policy
to deal with it, and I think that one of the ways to deal with
it is to look hard at a strong public broadcasting system.
Senator DeWine. Mr. Karmazin and Mr. Redstone, a lot of
mergers look good on paper, but in practice, it is difficult to
many times meld corporate cultures, maybe different ways of
doing business. I know you obviously looked at that before you
made this decision. Both of you have certainly had a lot of
success being in charge of your own independent operations. How
are you going to make this work?
Mr. Redstone. Do you mind, Mel? OK; see, I always refer to
him. That is one way to make it work. [Laughter.]
You know, we really come from the same cloth, if I may say
so. I started with a couple of drive-ins, and I kind of like
where I am today. Mel is the same kind of entrepreneur that I
am. Both of us are committed to driving our revenues and to
driving our bottom line and, hopefully, to see our stock go up,
and only in an appropriate way because we expect to perform
well. I think we have a lot in common. We are both pretty good
guys, as a matter of fact.
At Viacom, we have a very, very unique atmosphere. I cannot
even refer to the people who work there as employees. We are
all associates. We like each other. We are driven by the same.
We are really a family company. And I expect that Mel will join
the family.
Mr. Karmazin. I think that we have distinct businesses with
distinct management teams that are going to work well together
because there really is not a lot of overlap. I think the
biggest change that I can see is that Mr. Redstone is going to
have to get used to riding the shuttle instead of his private
plane. [Laughter.]
But other than that, I do not think there will be much of a
change.
Senator DeWine. Well, on that happy note, we will end the
hearing. I appreciate the testimony from all five of our
witnesses. I think it has been very instructive and very
helpful. This obviously is a merger that has significance well
beyond the affected shareholders, and that is why we held this
hearing. We appreciate it. Thank you very much.
The subcommittee is adjourned.
[Whereupon, at 3:30 p.m., the subcommittee was adjourned.]