Global Media Giants 2016001248, 9781138927704, 9781138927711, 9781315682334

Table of contents :
Cover
Half Title
Title Page
Copyright Page
Table of Contents
About the Contributors
Introduction
Part I Global Giants
1 The Walt Disney Company
2 National Amusements
3 Time Warner
4 Comcast Corporation
5 News Corporation
Part II Regional and Geolinguistical Giants
6 Grupo Televisa
7 América Móvil
8 Bertelsmann SE & Co.
9 Vivendi
10 Mediaset (Gruppo Mediaset)
11 Telefónica
12 Grupo Prisa
13 Grupo Globo
14 Sony Corporation
Part III Regional Overviews
15 South America
16 The Middle East
17 Sub-Saharan Africa
18 Eastern Europe
19 South Asia
20 East Asia and China
21 Australia and New Zealand
Part IV Internet Giants
22 Apple
23 Microsoft Corporation
24 Google: Information Organizer
25 Amazon.com
26 Facebook
Part V Global Ratings and Advertising Giants
27 Nielsen Holdings
28 Interpublic Group of Companies
Conclusion: Reflections on Media Power
Index

Citation preview

GLOBAL MEDIA GIANTS

Global Media Giants takes an in-depth look at how media corporate power works globally, regionally, and nationally, investigating the ways in which the largest and most powerful media corporations in the world wield power. Case studies examine not only some of the largest media corporations (News Corp, Microsoft) in terms of revenues, but also media corporations that hold considerable power within national, regional, or geolinguistic contexts (Televisa, Bertelsmann, Sony). Each chapter approaches a different corporation through the lens of economy, politics, and culture, giving students and scholars a thoughtful and data-driven guide with which to interrogate contemporary media industry power. Contributors: Luis A. Albornoz, Sandra Bašić Hrvatin, Martín Becerra, Jörg Becker, Daniel Biltereyst, Philippe Bouquillion, Benedetta Brevini, Andrew Calabrese, Christopher Chávez, Scott Fitzgerald, Christian Fuchs, Martin Hirst, Yu Hong, Wayne Hope, Gholam Khiabany, William Kunz, Micky Lee, Gabriela Martínez, Guillermo Mastrini, Richard Maxwell, Lee McGuigan, Eileen R. Meehan, Toby Miller, Graham Murdock, Brankica Petković, Victor Pickard, Tyler Rollins, Lennart Soberon, Gabriel Sosa Plata, Joseph D. Straubhaar, Lukasz Swiatek, Pradip Ninan Thomas, Peter Thompson, Téwodros W. Workneh Benjamin J. Birkinbine is an assistant professor at the Reynolds School of Journalism and the Center for Advanced Media Studies at the University of Nevada, Reno. Rodrigo Gómez is an associate professor at the Universidad Autónoma Metropolitana-Cuajimalpa and is the chair of the Political Economy section of the International Association of Communication Research. Janet Wasko is the Knight Chair in Communication Research at University of Oregon and serves as the President of the International Association for Media and Communication Research.

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GLOBAL MEDIA GIANTS

Edited by Benjamin J. Birkinbine, Rodrigo Gómez, and Janet Wasko

First published 2017 by Routledge 711 Third Avenue, New York, NY 10017 and by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Routledge is an imprint of the Taylor & Francis Group, an informa business © 2017 Taylor & Francis The right of the editor to be identified as the author of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloging in Publication Data Names: Birkinbine, Benjamin J., editor. | Gómez, Rodrigo, editor. | Wasko, Janet, editor. Title: Global media giants / edited by Benjamin J. Birkinbine, Rodrigo Gómez, and Janet Wasko. Description: New York; London: Routledge, 2016. Identifiers: LCCN 2016001248| ISBN 9781138927704 (hardback) | ISBN 9781138927711 (pbk.) Subjects: LCSH: Mass media—Economic aspects. | Mass media—Management. | Mass media and globalization. Classification: LCC P96.E25 G573 2016 | DDC 338.4/730223—dc23 LC record available at http://lccn.loc.gov/2016001248 ISBN: 978-1-138-92770-4 (hbk) ISBN: 978-1-138-92771-1 (pbk) ISBN: 978-1-315-68233-4 (ebk) Typeset in Bembo and Stone Sans by Florence Production Ltd, Stoodleigh, Devon, UK

CONTENTS

About the Contributors Introduction Benjamin J. Birkinbine, Rodrigo Gómez, and Janet Wasko

viii 1

PART I

Global Giants

9

1 The Walt Disney Company Janet Wasko

11

2 National Amusements Eileen R. Meehan

26

3 Time Warner Scott Fitzgerald

51

4 Comcast Corporation Lee McGuigan and Victor Pickard

72

5 News Corporation Graham Murdock

92

PART II

Regional and Geolinguistical Giants 6 Grupo Televisa Rodrigo Gómez

109 111

vi

Contents

7 América Móvil Gabriel Sosa Plata

125

8 Bertelsmann SE & Co. Jörg Becker

144

9 Vivendi Philippe Bouquillion

163

10 Mediaset (Gruppo Mediaset) Benedetta Brevini and Lukasz Swiatek

181

11 Telefónica Gabriela Martínez

191

12 Grupo Prisa Luis A. Albornoz

206

13 Grupo Globo Joseph D. Straubhaar

226

14 Sony Corporation William Kunz

239

PART III

Regional Overviews

255

15 South America Guillermo Mastrini and Martín Becerra

257

16 The Middle East Gholam Khiabany

273

17 Sub-Saharan Africa Téwodros W. Workneh

287

18 Eastern Europe Sandra Bašić Hrvatin and Brankica Petković

312

19 South Asia Pradip Ninan Thomas

326

20 East Asia and China Yu Hong

340

Contents

21 Australia and New Zealand Martin Hirst, Wayne Hope, and Peter Thompson

vii

351

PART IV

Internet Giants

367

22 Apple Toby Miller and Richard Maxwell

369

23 Microsoft Corporation Benjamin J. Birkinbine

383

24 Google: Information Organizer Micky Lee

398

25 Amazon.com Andrew Calabrese and Tyler Rollins

413

26 Facebook Christian Fuchs

428

PART V

Global Ratings and Advertising Giants

445

27 Nielsen Holdings Daniel Biltereyst and Lennart Soberon

447

28 Interpublic Group of Companies Christopher Chávez

464

Conclusion: Reflections on Media Power Benjamin J. Birkinbine, Rodrigo Gómez, and Janet Wasko

477

Index

484

ABOUT THE CONTRIBUTORS

Luis A. Albornoz is a founding partner and former president (2007–2013) of the Latin Union of Political Economy of Information, Communication and Culture (ULEPICC), a scientific association. He is a researcher at the Argentinian National Scientific and Technical Research Council (CONICET) at the Gino Germani Research Institute, University of Buenos Aires. He is a member of research group Television-Cinema: Memory, Representation and Industry at the University Carlos III of Madrid and author of Periodismo digital (2007), La televisión digital terrestre: Experiencias nacionales y diversidad en Europa, América y Asia (2012), and Power, Media, Culture: A Critical View from the Political Economy of Communication (2015). Sandra Bašic´ Hrvatin (Ph.D., Faculty of Social Sciences, University of Ljubljana, 1997) is a professor at the University of Primorska, Slovenia. Her scientific and research work focuses on the issues of media policy, political communication, communication law and practice, and international communication. She is author of several books on media policy, public service broadcasting, and media ownership. She regularly publishes the results of her research work in national and international scientific magazines. Prof. Bašić Hrvatin is also a member of the editorial board of the Media Watch journal in Slovenia and is a regular contributor. She served, inter alia, as a chairperson of the Slovene Broadcasting Council, a member of the Independent Media Commission in Kosovo, and a member of the Slovene Advertising Ethics Commission. Since 2000, she has worked as an independent expert for the Council of Europe, OSCE, and the European Commission in the field of media regulation. She is also a media and human rights activist and columnist for several newspapers. Martín Becerra is professor of the School of Communication at National University of Quilmes and the University of Buenos Aires. He also is a researcher at the Argentinian National Scientific and Technical Research Council (CONICET). Becerra’s most recent book is De la convergencia a la concentración: Políticas de Medios en Argentina y América Latina (2015) and he is co-author of ‘WikiMediaLeaks: la relación entre medios y gobiernos en América Latina bajo el prisma de WikiLeaks’ (2012), and many other articles. Jörg Becker is an honorary professor of political science at Marburg University and Managing

Director of the KomTech Institute for Communication and Technology Research in Germany. His work focuses on international and comparative media, and culture and technology policy. Daniel Biltereyst is a professor in film and media studies at Ghent University, Belgium, where

he leads the Centre for Cinema and Media Studies. He has published widely on media culture

Contributors

ix

and history, mainly in academic journals and volumes. He recently edited Silencing Cinema (2013), Moralizing Cinema (2015), and is now preparing The Routledge Companion to New Cinema History (with Richard Maltby and Phillippe Meers). Benjamin J. Birkinbine is an assistant professor at the Reynolds School of Journalism and the Center for Advanced Media Studies at the University of Nevada, Reno. He holds a Ph.D. in Media Studies from the University of Oregon, and his research focuses on the political economy of communication and digital technologies. Recently he has been researching the increasing involvement of corporations in free and open-source software communities. Philippe Bouquillion is professor of communication at Université Paris 13 (France), member of LabSic (http://labsic.univ-paris13.fr/En/index.php/bouquillion-philippe), and head of the Observatory of Transformations of the Cultural Industries (www.observatoire-omic.org/). He is working on the industrialization and commodification of culture and communication, using methods developed in the political economy of communication. His work focuses on concentration and financialization in the cultural and communication industries, public policies towards the creative industries, collaborative Internet, cultural diversity, telecommunications industries in Japan, design and crafts in India, as well as theories of the cultural and creative industries. Benedetta Brevini is a lecturer in communication and media at the University of Sydney, Visiting

Fellow of Centre for Law Justice and Journalism at City University, and Research Associate at Sydney Democracy Network. She is co-editor of the volume Beyond WikiLeaks: Implications for the Future of Communications, Journalism & Society (Palgrave Macmillan, 2013) and the author of Public Service Broadcasting Online: A Comparative European Policy Study of PSB 2.0 (Palgrave Macmillan in August 2013). Before joining academia, she was working as a journalist in Milan, New York, and London. Andrew Calabrese is a professor of media studies at the University of Colorado. His research emphasizes the relevance of critical social and political theory in explaining issues of media and citizenship, media policy at national and transnational levels, and uses of media for social movement activism. His publications focus on the role of media in twentieth and twentieth-first century concepts of civil society and the public sphere; the politics and activism related to media reform, communication rights and social justice; social mobilizations that rely on digital communication; and uses of digital media in nonviolent civil disobedience. His current research focuses on media and food politics. Christopher Chávez (Ph.D., University of Southern California) is an assistant professor at the

University of Oregon and his research lies at the intersection of globalization, media, and culture. He is author of Reinventing the Latino Television Viewer: Language Ideology and Practice and is coeditor of Identity: Beyond Tradition and McWorld Neoliberalism. His work has appeared in peerreviewed journals including Consumption, Markets and Culture, International Journal of Communication, and Critical Studies in Media Communication. Prior to his doctoral research, Chris worked as an advertising executive at several advertising agencies including TBWA Chiat/Day, Goodby, Silverstein & Partners, and Publicis & Hal Riney. Scott Fitzgerald is a senior lecturer in the Curtin Business School, Curtin University, Perth,

Australia. His research interests cover cultural industry corporations, creative work, public services, and new public management. He has recently published Corporations and Cultural Industries: Time Warner, Bertelsmann and News Corporation. Christian Fuchs is a professor at the University of Westminster, where he is director of the Communication and Media Research Institute (CAMRI) and director of the Westminster Institute

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for Advanced Studies. He is the co-editor of the journal tripleC: Communication, Capitalism & Critique (www.triple-c.at) and a member of the European Sociological Association’s Executive Committee. Rodrigo Gómez is an associate professor at the Universidad Autónoma Metropolitana-Cuajimalpa. His research addresses the interactions of the communications policies and cultural industries in the Americas. He is former president of the Mexican Association of Communication Research (AMIC) and currently is the chair of the Political Economy section of the International Association for Media and Communication Research (IAMCR). Martin Hirst is associate professor in journalism at Deakin University, Melbourne, Australia. He is a former journalist with research interests is political economy and journalism studies. Yu Hong is an assistant professor in the Annenberg School of Communications at University of Southern California. Her research focuses on the political economy of Chinese media and communications, most recently on the development of the Internet. She is the author of Labor, Class Formation, and China’s Informationized Policy of Economic Development (2011) and is completing a new book titled Networking the Nation: Communication and Economic Restructuring in China. Wayne Hope is associate professor in the School of Communication Studies, Auckland University

of Technology, New Zealand. He is a researcher, teacher, blogger, and media commentator across the areas of New Zealand media history, New Zealand media ownership, public sphere analysis, the political economy of communication, sport–media relationships, globalization, and time. On the latter theme, Time, Communication and Global Capitalism has been published. Wayne’s other published work has appeared in Media, Culture and Society, the International Journal of Communication and Time and Society. He is joint editor of the online IAMCR journal, Political Economy of Communication. Gholam Khiabany teaches in the Department of Media and Communications at Goldsmiths,

University of London. He is the author of Iranian Media: The Paradox of Modernity and co-author of Blogistan, with Annabelle Sreberny. He is an editor of the Middle East Journal of Culture and Communication and is a member of the Council of Management of the Institute of Race Relations. William Kunz is an associate professor in the Interdisciplinary Arts and Sciences Program at the University of Washington Tacoma. His research is grounded in the critical political economy of communication, examining ownership and regulation in media industries. His first book, Culture Conglomerates: Consolidation in the Motion Picture and Television Industries, was an analysis of how changes in regulations and policies resulted in fewer and fewer voices in the television and film marketplace. Currently, he is focusing on sports television through a book-length project that focuses on the analysis of national and regional sports networks, broadcast and cable, and the regulations and policies that impact ownership, distribution and carriage rates. Micky Lee (Ph.D. Oregon) is an associate professor of media studies at Suffolk University, Boston.

She has published one book, 18 journal articles and numerous essays on feminist political economy; telecommunications, new information, and communication technologies; and media, information, and finance. Gabriela Martínez is associate professor at the School of Journalism and Communication at

the University of Oregon. Her research focuses on global telecommunications, Latin American media industries, and media and memory. She is the author of Latin American Telecommunications: Telefónica’s Conquest (2008). In addition, Martínez is a documentary filmmaker whose work focuses on human rights issues and socio-political events in Latin America. Among her latest works are Women, Media, and Rebellion in Oaxaca (2008) and Keep Your Eyes on Guatemala (2013).

Contributors

xi

Guillermo Mastrini has a Ph.D. in Communication Studies from Universidad Complutense de

Madrid. He is professor of international communication policies and introduction to political economy of Communication at Universidad Nacional de Quilmes. He is also a professor at Universidad de Buenos Aires. Together with Martín Becerra, his published books include Los dueños de palabra and Los monopolios de la Verdad (both 2009) and Periodistas y magnates: Estructura y concentración de las industrias culturales en América Latina (2006). He has also published Mucho ruido, pocas leyes: Economía y política en la comunicación en la Argentina (1920–2004) (2005) and Las políticas de comunicación del Siglo XXI (with Ana Bizberge y Diego de Charras), among others. He was the president of the Argentine Federation of Social Communication Careers and head of the Communication Science School at Universidad de Buenos Aires. Richard Maxwell is a professor of media studies at Queens College, City University of New York. His recent publications include The Routledge Companion to Labor and Media (edited, 2015), Media and the Ecological Crisis (co-edited with Jon Raundalen and Nina Lager Vestberg, 2014), and Greening the Media (co-authored with Toby Miller, 2012). Lee McGuigan is a Ph.D. student at the Annenberg School for Communication at the University

of Pennsylvania. He studies the business and cultural histories of television and advertising, the sociology of markets and consumption, and the political economy of technology. Lee is co-editor (with Vincent Manzerolle) of The Audience Commodity in a Digital Age: Revisiting a Critical Theory of Commercial Media. His work has been published in New Media & Society, Media, Culture & Society, Television & New Media, Journal of Communication Inquiry, and Canadian Journal of Communication. Eileen R. Meehan is a professor in the Radio, Television, and Digital Media Department and a member of the graduate faculty in mass communications and media arts at Southern Illinois University. Her research examines intersections of political economy and materialist cultural studies. She is the author of Why TV Is Not Our Fault, and co-editor of Sex and Money and Dazzled by Disney. Recent publications analyze Dog the Bounty Hunter, the history of the commodity audience, and trends in media conglomeration. She is featured in Key Thinkers in Critical Communication Research (John A. Lent and Michelle Amazeen, eds.). Toby Miller is an emeritus distinguished professor, University of California, Riverside; Sir Walter

Murdoch Professor of Cultural Policy Studies, Murdoch University; profesor invitado, Escuela de Comunicación Social, Universidad del Norte; professor of journalism, media and cultural studies, Cardiff University/Prifysgol Caerdydd; and director of the Institute of Media and Creative Industries, Loughborough University in London. His work has been translated into Spanish, Chinese, Portuguese, Japanese, Turkish, German, Italian, Farsi, and Swedish. His most recent volumes are The Sage Companion to Television Studies (co-edited, 2015), The Routledge Companion to Global Popular Culture (edited, 2015), Greening the Media (co-authored with Richard Maxwell, 2012), and Blow Up the Humanities (2012). Graham Murdock is a professor of culture and economy at Loughborough University. He is a

pioneer in the study of the political economy of media and culture. His research is grounded in a distinctive approach to critical inquiry which combines insights and methods from across the social sciences and humanities to explore questions around change, power, inequality, risk, and representation. His recent publications include co-editorship of Money Talks: Media, Markets, Crisis (2015), The Handbook of Political Economy of Communication (2011), The Idea of the Public Sphere (2010), and Digital Dynamics: Engagements and Discontinuities (2010). Brankica Petkovic´, M.A. in sociology of culture, is a researcher and project manager at the Peace Institute–Institute for Contemporary Social and Political Studies in Ljubljana. She is editor of the Media Watch book series and Media Watch journal in Slovenia. Her work is focused on research,

xii

Contributors

advocacy, and publishing activities in the field of media accountability, communication rights of citizens and minority groups, media ownership, and media pluralism. She is author of articles and research reports, and co-author of books on the above-mentioned topics. She has been a project leader of national and regional research and advocacy projects on media and communication rights of citizens, including the project Media Ownership and Its Impact on Media Independence and Pluralism in 18 countries of central, eastern and south-eastern Europe (2003–2004), and a current regional initiative South East European Media Observatory–Building Capacities and Coalitions for Monitoring Media Integrity and Advancing Media Reforms (2012–2016). Victor Pickard is an associate professor at the Annenberg School for Communication at the

University of Pennsylvania. He has published over 50 scholarly articles and book chapters on the history and political economy of media and media activism, and his op-eds have appeared in news outlets such as The Guardian, The Huffington Post, and The Atlantic. He is the editor of Will the Last Reporter Please Turn Out the Lights (with Robert McChesney) and The Future of Internet Policy (with Peter Decherney), and the author of America’s Battle for Media Democracy. Tyler Rollins is a Ph.D. candidate in Media Studies at University of Colorado, Boulder. His

dissertation is a historical examination of domestic surveillance programs carried out by the U.S. government during the mid-20th century, with a focus on the intersection of surveillance, communication, law, and society. This work examines the arbitrary application of surveillance practices and the justifications used by federal agencies to intercept lawful communications of U.S. citizens, finding that surveillance is not a post-9/11 phenomenon but a perpetual State practice. Tyler specializes in surveillance studies, media law, research methods, communication history, alternative media, and social movements. Lennart Soberon works as a researcher and teaching assistant for the faculty of Communication

Sciences at the University of Ghent, where he is a member of the Centre for Cinema and Media Studies (CIMS). His research concerns the representation of contemporary conflicts in cinema and focusses on the construction of enemy images in American war and action films. Gabriel Sosa Plata is full-time professor and researcher at the Universidad Autonoma Metropolitana-Xochimilco. He has published more than 30 academic articles and chapters in collective books. He is author of Technological Innovations of the Radio (Manuel Buendía Foundation, 2004) and The 1001 Radios (McGraw Hill, 1997). Sosa was formerly Audiences Advocate for the Mexican Institute for the Radio from 2011–2013 and for Noticias MVS from 2013–2015. He is also member of the consultant board of Article 19 association for Mexico and Central America. Joseph D. Straubhaar is the Amon G. Carter Centennial Professor of Communications in the Department of Radio–TV–Film at the University of Texas at Austin. His primary teaching, research, and writing interests are in global media, digital media, and the digital divide in the U.S. and other countries; Brazilian and Latin American television, media, and migration; and global television production and flow. Lukasz Swiatek is a Ph.D. candidate in the Department of Media and Communications in the

Faculty of Arts and Social Sciences, at the University of Sydney in Australia. His doctoral research examines awards and prizes from the perspective of media and communications. He has taught in a range of undergraduate and postgraduate courses in the department—including media globalization, public relations, and Australian media—as well as in the Bachelor of International and Global Studies. Pradip Ninan Thomas is at the School of Communication and Arts, University of Queensland.

Contributors

xiii

He has written extensively on the media in India, including a trilogy published by Sage between 2009 and 2012. His latest (2015) co-authored book (with Elske van de Fliert) is Interrogating the Theory and Practice of Communication for Social Change: The Basis for a Renewal. Peter Thompson is a senior lecturer in media studies at Victoria University of Wellington in

New Zealand. His broad area of research concerns the political economy of media, with specialist interests in media policy (especially public service and funding issues) and also communication processes in financial markets. Janet Wasko is the Knight Chair in Communication Research at University of Oregon in Eugene, Oregon, USA. She is the author, co-author, or editor of 19 books, including Understanding Disney: The Manufacture of Fantasy and How Hollywood Works. Her research and teaching focuses on the political economy of media, especially the political economy of film, as well as issues relating to democracy and media. She currently serves as the President of the International Association for Media and Communication Research. Téwodros W. Workneh is a postdoctoral fellow at the School of Journalism and Communication,

University of Oregon. Dr. Workneh broadly studies global media flows and the role of transnational media industries in the production, distribution and consumption of content through critical political economy and postcolonial approaches. His latest project involves an investigation on the global telecommunications ecosystem from various perspectives including policy, political economy, and technology.

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INTRODUCTION Benjamin J. Birkinbine, Rodrigo Gómez, and Janet Wasko

During the last three decades, media industries have generally been growing faster than most other industrial sectors. With the business opportunities afforded by technological convergence with telecommunications, as well as the rise of companies within information services, these industries are some of the most productive and profitable sectors of the world economy. In addition, these industries have been increasing their lobbying activities to bring about communication policy reforms as a way to support and expand their business models. Meanwhile, the level of concentration in media/communication industries is growing, with media and telecommunications consolidation evident in many nations and regions. As a result, scholars and policymakers around the world have expressed their concerns about the impact of media concentration, specifically as it relates to cultural diversity and political pluralism. More specifically, the power of media corporations has been increasing in different, complex, and, at times, contradictory ways around the world. The power of these companies in economic, political, and symbolic terms has been a concern within national contexts as well as at the regional and global level. Thus, the importance of understanding media corporations is essential to understand the political, economic, and socio-cultural dimensions of contemporary societies. To that end, this volume addresses these issues by offering an in-depth look at how media corporate power works globally, regionally, and nationally. The book also contributes to the growing body of research on these topics, as well as to the policy process in some countries.

Why This Book? And Why Now? Despite the challenges associated with undertaking this ambitious task, we are convinced that the time is right for such a project. The past ten years have been marked by significant changes in technology, including the growth and maturation of the so-called “Web 2.0” era, which is characterized by companies providing services rather than packaged software, controlling robust data sets that expand as more people use them, trusting users in the co-creation of products and services, harnessing collective intelligence, relying on customer self-service, providing software across multiple devices, and featuring lightweight user interfaces, development models, and business models.1 In other words, technology companies have focused on providing interactive services to customers and gathering information about those users as a way to sell those users to advertisers. The shift from packaged software to interactivity, as well as the companies that led this shift—exemplified by Google, Facebook, and other social media sites—were heralded as great

2

Benjamin J. Birkinbine, Rodrigo Gómez, and Janet Wasko

disrupters of the global economy. Indeed, these companies have enjoyed a significant rise to economic power, as well as those companies that provide the hardware necessary to access these services, exemplified by Microsoft, Apple, Sony, and others. The manufacture of smartphones, laptop computers, and other portable devices for accessing media content and information services has ushered in an era of convergence, whereby the lines of previously separate business activities become blurred or altogether broken down. Thus, a symbiotic relationship has emerged between more traditional content producers (i.e., Disney, News Corporation, Time Warner, National Amusements, Bertelsmann, etc.) and the information-service companies that provide platforms for the delivery of digital content (i.e., Google, Facebook, Amazon, etc.). But beyond this somewhat crude distinction between media content production and digital distribution platforms and services, many companies have sought to explicitly incorporate both within their corporate structures (i.e., Comcast, Tencent, Telmex, Telefonica, Televisa, and others). The effectiveness of these strategies has been varied, however, with some companies finding success whereas other still struggle to earn profits for shareholders. Nonetheless, as these lines have converged, diverged, or simply blurred, we need a reassessment of media power, particularly as it is practiced within differing national and international contexts. Furthermore, such an analysis is needed precisely because increasing technological convergence, digital (economic) disruption, and increased interconnectivity have been heralded as harbingers of an entirely new epoch in human history, whether economically, politically, or culturally.2 Yet despite these celebratory accounts, the global economy still struggles to find even a modicum of sustainable growth after the Great Financial Crisis that began in 2007–2008, when the burst of the speculative housing bubble in the United States sent shockwaves throughout the global economy, leaving many countries financially stressed at best, if not completely locked in the grips of indebtedness without any hope for repayment. The crisis and its aftermath have had profound implications for the global economy, and the crisis constitutes a critical juncture, whereby diverging viewpoints have vied for support from those who are most affected by the crisis. On the one hand, the centers of global financial capital urged austerity as a way to cut back state spending as a precondition for receiving additional loans to temporarily prop up the state. On the other hand, popular movements demanded an end to the vicious cycle of predatory lending that placed the state and its constituents within a seemingly never-ending cycle of indebtedness to international lenders.3 This struggle to find alternatives to austerity has been acutely important for those who have been most affected by the financial crisis. And, as wealth becomes increasingly concentrated in the hands of fewer than 100 billionaires worldwide, the number of people affected by the shameful inequalities of the global capitalist system continues to grow. Indeed, recent estimates indicate that the richest 1% of people in the world own 48% of global wealth, and their share is projected to surpass 50% of global wealth by 2016. These figures become even more egregious when one considers that the richest 80 people in the world saw their wealth double during 2010–2014, and these 80 individuals hold the same amount of wealth as the poorest 3.5 billion people on earth. In 2010, one would need to include the wealth of 388 billionaires to equal the combined wealth of the bottom 50% of the global population, but that number decreased to only 80 in 2014.4 Such figures cry out for alternatives to the gross inequalities of the global capitalist system, and yet austerity and the expansion of corporate rights continue to define the present era. This is not to say that countercurrents have not tried to ebb the flow of these powerful waves. Yet, the countercurrents seem only to create temporary tidal pools that are eventually washed over by the flows of global financial capital. In assessing the current state of affairs, then, one wonders why a more widespread uprising against the inequalities of global capitalism struggles to take hold? Such questions are not new, however, and those of us who conduct critical studies of global media and communication systems

Introduction

3

find it useful to interrogate the ways that particular ideologies, imaginaries, and perspectives are communicated to audiences around the world. Indeed, we argue that the terrain upon which the struggle for available alternatives takes place is within the creation, distribution, and access of mediated content. Although the global economy is propped up by key sectors like finance, insurance, real estate, and extractive industries, the media, telecommunications, and information service sectors play a key role in determining which type of information is available at certain times and in certain locations. As such, a detailed and comparative analysis of media and communication companies becomes vitally important because they control (to varying degrees) not only the terrain upon which the struggle for alternative viewpoints takes place but the ways in which such information is presented. Therefore, a comparative analysis and ongoing reassessment of the world’s largest and most powerful media corporations’ changing structures and practices is vitally important.

Defining Corporations Corporations have become the dominant form for organizing collective and productive economic activity in many societies today, although this has not always been the case.5 Prior to the 17th century, corporations often represented not-for-profit institutions that contributed to the public good by building hospitals, universities, etc. After the 17th century, businesses with similar interests came together to monopolize a specific type of product or trade, and the profit motive became the major goal of corporations. Companies such as the East India Company or the Hudson’s Bay Company were organized to finance colonial expansion, and they became significant enterprises in controlling various parts of the world. For example, the East India Company maintained control of India’s trade with its own private army. In the United States, the first corporations were similar to the early British model in that they performed public tasks under limited government charters. However, in the mid-1800s, corporations began to take on a different role, as they moved away from state control in both the U.S. and Britain. The British model of corporations allowed companies to define their own purpose, with “limited liability” as a legal principle. In the U.S., corporations eventually began to be granted various rights. For instance, in 1886, corporations were declared to be “artificial persons” under law with “individuality and immortality.” By the end of the 19th century, corporations had moved into important positions of power in many countries. In the U.S., monopolies and cartels controlled key industries, such as railroad, steel, coal, oil, and chemicals, as well as the telegraph, telephone, and newspapers. Despite regulatory attempts to tame corporate excess, corporations continued to grow and evolve during the 20th century. Boosted in the 1970s by a free-market ideology of neoliberalism, which especially increased privatization of formerly public- or state-owned entities, for-profit corporations now play dominant roles in many economies around the world. Contemporary corporations are business structures and legal constructs that are still based on a charter granted by the state to a group of investors for a specific purpose, but they differ from companies owned by individuals or partnerships, which typically involve personal liability and risk. Corporations have limited liability and thus shareholders are not responsible for a corporation’s liabilities (debts or other obligations). And since corporations are given “individuality,” they are legal persons, existing separately or independently from their owners. For instance, in the U.S., corporations can own property, incur debts, enter into contracts, sue, and be sued. In addition, corporations are “immortal,” existing beyond the lifetime of shareholders, managers or employees. Corporations are organized to seek profit, but they also raise capital by issuing stock or shares, which are purchased by stockholders or shareholders, who then hold equity or ownership in the company. Shareholders hope to receive dividends if the corporation makes a profit—which is

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what remains after expenses have been deducted from the revenues of a firm. Furthermore, corporations are considered “public” when shares are traded on a stock exchange and thus available for sale to the public. It is important to note that “public” corporations are not in the public sector, but part of the private sector. When the shares of a corporation are held by individuals and not sold on a public stock exchange, the corporation is said to be “privately held.” While corporations are involved in many different types of activities, from manufacturing products to offering services, the goal of a corporation is to generate a profit and to increase shareholder value. It might also be noted that corporations may not always succeed in their goals. Their strategies may be faulty, other companies may be more successful, or economic and political contexts may change. Whatever the reasons, corporations are not infallible, and they are shaped to a certain degree by the regulatory context within which they operate.

The Study of Media Corporations Corporations operating within the information, communication, and entertainment industries have significant influence on the production, circulation, consumption, and access to media content. As such, studying media corporations is vitally important to understanding the informational ecosystem. We have already noted here that the control of media corporations can provide a means to promote certain ideas and values. Thus an understanding of corporate ownership may help to alert the public to the ways in which information is produced and, more importantly, why it is produced. Therefore, a thorough understanding of communication companies also serves as an essential beginning for understanding media content and its reception. While many forms of textual analysis dissect, deconstruct and critique media content, an understanding of producers’ motivations and goals can also contribute useful insights for cultural analysis. Moreover, such an understanding can dispel some of the popular rhetoric used to describe media content that is infinitely varied, ubiquitous, and representative of diverse tastes, audiences, and interests. To be sure, a wealth of mediated content does exist, but tracing the ownership patterns of such content can often reveal the vast corporate structures of the media giants and the way they leverage their multiple holdings to create synergy or cross-promotion between their properties. In this sense, audiovisual and information products are placed within their corporate structure to determine how mediated content may be affected by the structure within which it is produced. To get a sense for how media corporations are structured and how they behave, critical researchers typically rely on a range of research methods. One kind of analysis is often called power structure research, which focuses on “the importance of formal and informal social networks as the means by which power is concentrated and institutionalized.”6 Clearly, there are opportunities for interconnections and overlapping areas of influence within a capitalist class or power elite, whether through formal business relationships, interlocking directorships, or more informal social connections, such as social club memberships, etc. By analyzing these relationships, researchers can get a sense for how particular interests are represented within the corporation and, perhaps, understand why the corporation decides to behave in particular ways (i.e., lobbying efforts, executing certain strategies, or producing particular content). If structural analysis rather than instrumental analysis is used, then we are more concerned with those structures that limit or constrain the behavior of the institution. For example, we might argue that the basic structural imperatives for corporations are associated with profit maximization. Whether a manager or owner (and often, managers are owners) makes decisions, profit is the goal. As Graham Murdock has explained: “it does not particularly matter who the key owners and controllers are. What is important is their location in the general economic system and the constraints and limits that it imposes on their range of feasible options.” Thus, a complete analysis of control is necessary, both of the individual corporation as well as the general structural context

Introduction

5

in which it exists. Murdock calls for “analysis of the complex interplay between intentional actions and structural constraint at every level of the production process.” 7 However, even though we can usually conclude that the benefits (profits) from a corporation flow to the owners, we cannot always make assumptions about who controls a corporation, as corporate owners and organizations may behave differently. As Connell points out: Studies of networks of directors and family ownership provide evidence not of organization itself, but of the potential for organization. From inferring that they could function as systems of power within business, it is a long step to showing that they do. This requires case-bycase study.8 This project is specifically concerned with the type of case-by-case analysis proposed by Connell. The intention was to capture the diverse ways that media corporations exercise power within their respective domains. It’s also important to note at this point that the focus of this collection is media corporations in the private sector. While public media companies are significant, valuable and (sometimes) powerful, private media corporations are currently dominant features of the global media landscape and thus demand closer scrutiny and analysis.

Positioning Global Media Giants While there have certainly been studies that address issues of corporate concentration as well as case studies that have been written about single media companies or a small group of media companies, it is more difficult to find a comprehensive book that collects data and analyzes the largest and most powerful media companies around the world. Many scholars, including Ben Bagdikian, Edward Herman and Robert McChesney, Thomas McPhail, and Dal Yong Jin, to name just a few, have addressed the general theme of media concentration/convergence. However, these authors have not provided a systematic global overview of the most powerful media corporations. Issues related to corporate ownership are often assumed to be at the heart of a political economic analysis of media, as well as general political economic analysis. Indeed, it is vital to know who owns media companies and resources, as well as how corporate ownership and control works. It is not only relevant to know which corporations own specific media outlets, but who owns and controls those corporations. If media are controlled by corporations, we need to know who makes decisions—about what media are made available, what media content is offered, at what price, and who is able to receive it. Only a few studies have considered detailed analysis of media ownership. For instance, Benjamin Compaine’s collections consider media ownership, but they are organized by industries, they do not focus specifically on media corporations, and they are somewhat dated. Meanwhile, Eli Noam’s two books on media ownership present detailed analyses of media ownership but, as the titles suggest, they are more related to markets and not companies, and they do not fully address issues of political and cultural influences.9 Other authors have focused on specific industries, such as Janet Wasko, Eileen Meehan, Randy Nichols, and William Kunz.10 While these studies consider issues related to corporate organization and control, they are focused on individual industries and thus do not capture the issues related to concentration and convergence in media industries as a whole. Fewer studies have examined specific media corporations in terms of their economic and political power. Wasko has conducted such an analysis of the Walt Disney Corporation, while Scott Fitzgerald compared three media conglomerates.11 The analysis presented by Fitzgerald is similar to this project, but is limited to three corporations.

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Organization of Global Media Giants While a look at the top 50 media corporations in the world would yield a list that is mostly dominated by North American and European firms, we recognize that economic performance is just one measure of corporate power. This is particularly true in media industries where companies are involved in the production, circulation, and consumption of cultural artifacts that can affect the ways that people understand the world. In other words, media corporations do not simply circulate commodities, but they circulate cultural commodities that can influence the way that people make sense of the world, while also placing limits on the range of available perspectives. To adequately address the varied ways in which media companies exercise power, this book contains in-depth case studies on some of the largest media corporations in terms of revenues, but it also includes chapters on those media corporations that hold considerable power within national, regional, or geolinguistic contexts. To capture the nature of corporate media power around the world, the book is divided into five main parts: I Global Giants, II Regional and Geolinguistic Giants, III Regional Overviews, IV Internet Giants, and V Global Ratings and Advertising Giants. In general, certain pragmatic decisions were made about how to capture the complexities of media companies’ exercise power within their respective domains. Therefore, these groupings should not be taken as mutually exclusive, particularly because the activities or influence of certain companies undoubtedly extend beyond the categories we’ve imposed. The Global Giants will probably be familiar to many readers, as their businesses and activities have massive influence across vast expanses of the globe. The Regional and Geolinguistic Giants are those companies that have significant influence within either specific regions or linguistic audiences. As one example, Telefonica is a recognizable name within many Spanish-speaking parts of the globe. On the one hand, the Regional Overviews part includes those companies that may not earn large revenues when compared with the global giants, but still exercise power within their respective regions, whether through connections with the state or other institutions of global capitalism, or from a dominant presence in everyday culture. On the other hand, the Regional Overviews also reveal how some global media giants interact within certain regions. The Internet Giants are those companies that have risen to power with the growth of the Internet and digital technologies. Although they may not be “media” giants (yet?), they undoubtedly play a large role in the circulation, consumption and/or access to mediated content. Finally, the Global Ratings and Advertising Giants part provides two case studies that are instrumental in measuring audiences and delivering advertising to those audiences. These activities are vitally important to the cultural industries value chain and support the business activities of other corporations. The overall purpose of the book is to interrogate the notion of “media power.” In recognizing the multifaceted ways that power can be exercised, authors were asked to conduct studies of either specific media companies or to provide overviews of particular regions and to address three primary axes of power: economy, politics, and culture. The chapters are organized similarly according to the following outline, although differences abound in terms of exceptions, variations, and interpretations: • • •

Introduction History Economic Profile – Financial Data and Market Share – Corporate Structure and Properties – Typical Strategies – New Developments

Introduction

•

•

•

7

Political Profile – Ownership – Ties to the State and Lobbying Efforts – Board of Directors and Interlocks – Labor – Social Marketing Cultural Profile – Symbolic Universe and Ideology – Popular Products/Services and Everyday Life – Cultural Imports/Exports to/from Other Countries Concluding Remarks

The concluding chapter will summarize the themes identified by the contributors, discuss the limitations of the project, and suggest future research directions.

Notes 1 Tim O’Reilly, “What is Web 2.0?: Design Patterns and Business Models for the Next Generation of Software.” O’Reilly.com, September 30, 2005. Accessed October 9, 2015 from http://oreilly.com/ pub/a/web2/archive/what-is-web-20.html?page=all 2 While the celebratory literature about digital technologies is indeed vast and varied, we note the following for a brief overview of each area we have identified. For an account of economic digital disruption, see Don Tapscott and Anthony D. Williams, Wikinomics: How Mass Collaboration Changes Everything, New York: Portfolio/Penguin, 2006. Although his analysis is more broad than the purely political changes enabled by networked technologies, see Yochai Benkler, The Wealth of Networks, New Haven, CT: Yale University Press, 2006, especially Chapters 6–7 on political transformations. For cultural changes, see Henry Jenkins, Convergence Culture: Where Old and New Media Collide, New York: New York University Press, 2006. 3 These social movements were also numerous and multifaceted, but we note the Occupy Wall Street (OWS) movement and the Movimento 15-M or Los Indignados in Spain as just two examples. 4 Oxfam International, Wealth: Having it All and Wanting More, January 2015, last accessed November 6, 2015 from www.oxfam.org/sites/www.oxfam.org/files/file_attachments/ib-wealth-having-all-wantingmore-190115-en.pdf 5 See David Korten, When Corporations Rule the World, Boulder, CO: Kumarian Press, 1995. 6 Val Burris, “What is Power Structure Research?” An Internet Guide to Power Structure Research, last accessed December 19, 2015, from http://pages.uoregon.edu/vburris/whorules/ 7 Graham Murdock, “Large Corporations and Communication,” in Culture, Media & Society, Michael Gurevitch, Tony Bennett, James Curran and Janet Woollacott, eds., London: Methuen, 1982, p. 125. 8 R. W. Connell, Ruling Class, Ruling Culture, London: Cambridge University Press, 1978, p. 46. 9 Benjamin M. Compaine, ed., Who Owns the Media: Concentration of Ownership in the Mass Communication Industry, New York: G. K. Hall, 1982; Benjamin M. Compaine and Douglas Gomery, eds., Who Owns the Media: Concentration of Ownership in the Mass Communication Industry, 3rd ed., New York: Routledge, 2000; Eli M. Noam, Media Ownership and Concentration in America, New York: Oxford University Press, 2009; Eli M. Noam, Who Owns the World’s Media?: Media Concentration and Ownership Around the World, New York: Oxford University Press, 2016. 10 Janet Wasko, How Hollywood Works, London: Sage, 2003, Eileen Meehan, Why TV Is Not Our Fault, Lanham, MD: Rowman & Littlefield, 2005 and William Kunz, Cultural Conglomerates: Consolidation in the Motion Picture and Television Industries, Lanham, MD: Rowman & Littlefield, 2006. 11 Janet Wasko, Understanding Disney: The Manufacture of Fantasy, Cambridge: Polity Press, 2001; Scott W. Fitzgerald, Corporations and Cultural Industries: Time Warner, Bertelsmann, and News Corporation, Lanham, MD: Rowman & Littlefield, 2015.

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PART I

Global Giants

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1 THE WALT DISNEY COMPANY Janet Wasko

The Walt Disney Company began as an independent company in the late 1920s producing cartoons distributed by other companies. More recently, it has developed into one of the largest entertainment conglomerates in the world. In 2014, Hoover’s dubbed Disney the world’s largest media conglomerate. But the Walt Disney Company is not only valuable in terms of revenues; it also rates highly in other areas. For instance, it was the highest ranked entertainment company on the Fortune 500 in 2014 (#61) and the only media corporation listed on the Most Admired Companies list (#7). The Disney brand is regularly ranked in the top ten of numerous lists, including the Global RepTrak 100 (first in 2014) and the Top 150 Global Licensors.1 In 2013, the Disney Company was ranked first in the 100 Most Loved Companies rankings and second in Moms’ Most Loved Brands.2 How has the Walt Disney Company been able to achieve and maintain this kind of success and popularity? What are the goals and policies that contribute to this success? To answer these questions, it is necessary to understand the company’s organization and strategies. Disney describes itself as “a diversified worldwide entertainment company,” so it is important to understand their wide-ranging products and services. This chapter will begin with a brief history of the Disney Company, followed by a more recent overview of the company’s economic, political, and cultural activities.3

Historical Background Walt Disney began creating cartoons in Kansas City with a series called Alice’s Wonderland (1923).4 Not long thereafter he and his brother founded the Walt Disney Studio in Hollywood. In 1927, the company developed an all-animated series called Oswald the Lucky Rabbit. After losing the rights to the character, Walt and his chief animator, Ub Iwerks, developed Mickey Mouse, the character that came to symbolize the company. Mickey’s cartoons utilized synchronized sound, and the company also began producing another series, Silly Symphonies, to feature sound and animation innovations. In 1932, the studio produced the first full-color cartoon (Flowers and Trees), winning the first Academy Award for Best Cartoon. Disney also developed merchandising connected to its cartoon characters, beginning with a $300 license to put Mickey Mouse on writing tablets in 1929. Other products quickly followed, including dolls, toys, dishes, etc., generating revenue for new productions.

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The company expanded into feature-length animation with Snow White and the Seven Dwarfs in 1937. Although Disney continued to produce animated cartoons, it also made other feature films (e.g., Pinocchio and Fantasia). The small company’s resources were continuously strained, especially during World War II, when Disney produced films for the U.S. State Department and the U.S. military. After the war, the company moved into live-action films, such as 20,000 Leagues under the Sea and Treasure Island, as well as introducing a new style of nature films. Disney embraced television with the Disneyland anthology series in 1954, which eventually appeared on all three U.S. television networks under six different titles. The Mickey Mouse Club debuted in 1955, introducing the popular Mouseketeers. These shows created new products, as well as providing an outlet for promoting existing Disney commodities. In 1955, the company opened the Disneyland theme park, featuring Disney characters and stories, continuously adding attractions from its new films, and providing another major outlet for all of the company’s products. Disney had previously distributed its films through other Hollywood companies, but started its own distribution unit (Buena Vista Distribution) during the 1950s. Walt Disney died in 1966, not long after the release of Mary Poppins in 1964. By the 1960s, the Disney brand was firmly established in live action, animation, television, theme parks, and merchandise. The firm also re-released its already amortized feature films every few years, for instance, Snow White and the Seven Dwarfs was re-released in 1952, 1958, and 1967, amassing additional revenues. However, during the 1970s and into the 1980s, the company seemed more oriented to recreation and real estate than entertainment. Walt Disney World opened in 1971 and Tokyo Disneyland in 1983, while the film division mainly turned out formula-driven box-office failures. By the early 1980s, Disney’s domestic box-office share was under 4%, and the company was only slowly moving into new media outlets. It launched the Disney Channel in 1983, and an adult-oriented film label, Touchstone, in 1984. However, most analysts agreed the company’s leaders were basically “sitting on its assets.” In 1984, the management was challenged by a group of outside investors and eventually lost control of the company. Corporate raiders accumulated huge blocks of Disney stock and jockeyed for position. In the end, Bass Brothers Enterprises invested nearly $500 million in Disney and ended up with nearly 25% of the company’s stock, enough to control the company and to appoint their own managers. The new management team (dubbing itself “Team Disney”) was led by CEO Michael Eisner, former Paramount head. Immediately, the team proceeded to break a Disneyland strike and fire 400 employees, as well as introducing new cost-cutting measures and strategies. From 1983 to 1987, annual revenues more than doubled, profits nearly quintupled, and the value of Disney’s stock increased from $2 billion to $10 billion; by 1994, it was worth $28 billion. By 1999, company revenues totaled nearly $23 billion, assets were over $41 billion, and net income was $1.85 billion. The new managers then revived the classic Disney (repackaging existing products and creating new animated features), modernized some Disney characters, implemented fierce cost cutting (especially on features), introduced dramatic price increases at the theme parks, and deployed new technological developments (such as computer animation). Team Disney also emphasized corporate partnerships, limited exposure in new investments, diversified expansion, and further developed its corporate synergy. Not only was Disney busy diversifying, but the company became perhaps the quintessential master of synergy. During the early years of the 1990s, the company continued to expand and prosper utilizing these strategies. In 1991, the company ranked in the top 200 U.S. corporations in terms of sales and assets and was 43rd in terms of profits, while stock was worth $16 billion. Despite some challenges in the mid-1990s, the company recovered dramatically by taking over Capital Cities/ABC in 1995 for $19 billion. This greatly enhanced the company’s position in

The Walt Disney Company

13

television, sports programming, and international marketing, in addition to publishing and multimedia. At the turn of the century, Disney claimed to be the world’s largest media company.

Economic Profile Financial Data Since the turn of the century, the company has continued its diversification and synergy strategies, the integration of new technologies, and the expansion of its international businesses. Under the leadership of CEO Bob Iger since 2005, the company’s revenues have continued to grow (Table 1.1). As the company explains on its website: “Disney’s exceptional entertainment experiences, widely diverse content, and unique skill in managing businesses in an integrated manner have led to strong results.”5 The company reported total revenues of over $48.8 billion and net income of over $8 billion in 2014. The Disney Company is undoubtedly one of the major entertainment companies, dominating many of the markets it participates in and sharing dominant positions in other markets. For instance, Disney was second in market share for domestic box office revenues for 2014, with 16% of the market (Table 1.2). It might be noted that the six major Hollywood studios regularly exchange places at the top of the annual box office charts as their total revenues consistently represent around 90% of the market (Table 1.3).

TABLE 1.1 Walt Disney Company Revenues, 2005–2014

TABLE 1.2 Hollywood Studio Box

(in $ millions)

Office Market Shares, 2014

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Revenues

Net Income

Total Assets

31,944 34,285 35,510 37,843 36,149 38,063 40,893 42,278 45,041 48,813

2,460 3,304 4,674 4,427 3,307 4,313 5,258 6,173 6,636 8,004

53,158 59,998 60,928 62,497 63,117 69,206 72,124 74,898 81,241 84,186

Distributor

Market Share (%)

1. 20th Century Fox 2. Buena Vista (Disney) 3. Warner Bros. 4. Sony/Columbia 5. Universal 6. Paramount

17.1 16.0 14.2 12.6 11.0 10.4

Source: www.boxofficemojo.com/studio/?view= company&view2=yearly&yr=2014&p=.htm

Sources: Walt Disney Company, Form 10-K, 2014. http://thewalt disneycompany.com/sites/default/files/reports/fy14-form-10k.pdf, p. 25. Walt Disney Company, Form 10-K, 2009. http://thewalt disneycompany.com/sites/default/files/reports/fy09-form-10k.pdf, p. 26.

Corporate Structure The Walt Disney Company is currently divided into five segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products, and Interactive. It is important to provide some details about these divisions to understand the scope of the company. Revenues and income contributed by each of these segments are summarized in Table 1.4, while more information follows on the various activities of these divisions as they were constituted at the end of 2014.6

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TABLE 1.3 Hollywood Studio Box Office Market Shares, 2004–2014

Distributor

2014

2013

2012

2011

2010

2009

2008

2007

2006 2005

2004

Fox Disney Warner Bros. Sony/Columbia Universal Paramount

1 2 3 4 5 6

6 2 1 4 3 7

6 3 2 1 4 7

6 4 2 3 5 1

3 4 1 5 6 2

4 5 1 3 6 2

5 6 1 3 4 2

6 3 2 4 5 1

3 2 4 1 6 5

5 3 2 1 6 7

2 4 1 5 3 6

Source: www.boxofficemojo.com/studio/?view=company&view2=yearly&yr=2014&p=.htm

TABLE 1.4 Walt Disney Company Business Segments, 2014 (in $ millions)

Media Networks Parks and Resorts Studio Entertainment Consumer Products Interactive TOTAL

Revenues ($)

Operating Income ($)

21.152 15,099 7,278 3,985 1,299 48,813

7,321 2,663 1,549 1,356 116 13,005

Source: Walt Disney Company, Form 10-K, 2014. http://thewaltdisneycompany.com/sites/default/files/reports/fy14form-10k.pdf, p. 32.

Media Networks When Disney acquired Capital Cities/ABC in 1995, the company firmly established itself as one of the dominant U.S. media industry players. At the end of 2014, the Disney Company’s Media Networks segment included: • • • • • • •

television production and distribution; broadcast television network; domestic television station ownership; domestic and international cable networks; domestic broadcast radio networks and stations; distribution of film and television content on the Internet; publishing and digital operations connected to some of these media outlets.

Network television is still important in the media landscape and ABC is a valuable asset for Disney. The ABC network produces television programming, distributing it through its network of 239 affiliated local stations (reaching 99% of all U.S. television households) including eight stations owned and operated by the Disney Company. Online sites and mobile services also carry ABC content, including ABC.com, the Watch ABC app, and ABCNews.com. The company produces prime time television series, late night shows, news, and syndicated programming. A wide range of cable networks are either fully or partially owned by the Disney Company. One of the most successful has been ESPN, obtained in the Capital Cities/ABC takeover and described as “a multimedia, multinational sports entertainment company.” Disney owns 80% of ESPN Inc., in partnership with the Hearst Corporation. The franchise is highly diversified and includes six domestic cable networks, regional syndication, international networks, radio, Internet, retail, print, and location-based dining and entertainment (Table 1.5).

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TABLE 1.5 ESPN

Domestic cable television

International networks

ESPN 16 international sports networks ESPN2 reaching households in 62 countries ESPNEWS and territories in four languages ESPN Classic ESPN Deportes 30% equity interest in CTV (Spanish language) Specialty Television, Inc., which ESPNU (college sports) owns television networks in Longhorn Network Canada, including The Sports (University of Texas Network, The Sports Network 2, athletics) Le Réseau des Sports, ESPN Classic SEC Network (South Canada, the NHL Network and East Conference Discovery Canada [SEC] college athletics) High-definition television (simulcast) ESPN HD ESPN2 HD ESPNEWS HD ESPNU HD ESPN Deportes HD

Other holdings ESPN.com ESPNBoston.com ESPNChicago.com ESPNDallas.com, ESPNDeportesLos Angeles.com ESPNLosAngeles.com ESPNNewYork.com ESPN3 – broadband service ESPN Mobile Properties WatchESPN ESPN Regional Television The ESPN Radio Network (including 4 ESPN-owned stations in New York, Dallas, Chicago and Los Angeles) ESPN The Magazine ESPN Enterprises espnW ESPN Wide World of Sports (230-acre sports complex)

Source: Walt Disney Company, Form 10-K, 2009. http://thewaltdisneycompany.com/sites/default/files/reports/fy09form-10k.pdf

At the end of 2010, ESPN owned, or had equity interest in or distribution agreements with, 46 international sports networks in more than 200 countries. Disney’s other cable holdings include the Disney Channels Worldwide, which includes over 100 channels available in 34 languages and 166 countries/territories, as well as programming prepared for these outlets. The company also owns ABC Family and SOAPnet (a 24-hour soap opera channel). In India, Disney operates the Bindass, UTV World Movies, UTV Action, UTV Movies, and UTV Stars cable television channels. Other domestic and international cable channels include Disney Junior and Disney XD, as well as Disney Cinemagic, Hungama (in India), and DLife. Disney holds interests in the A&E Networks, including A&E, HISTORY, BIO, H2, Lifetime, LMN and Lifetime Real Women. Most of these channels also involve websites. Meanwhile, Radio Disney is a 24-hour radio network devoted to kids, tweens, and families, available on 24 domestic terrestrial radio stations, RadioDisney.com, TuneIn Radio app, TuneIn.com/RadioDisney, SiriusXM, iTunes Radio Tuner, mobile phones, the Radio Disney iPhone, iPad and Android apps, and the Radio Disney Facebook page. Radio Disney is also available throughout Latin America on two owned terrestrial stations and through licensing agreements with third-party radio stations. Disney also partners with Fox and NBCUniversal in Hulu, a joint venture that distributes film and television content via the Internet. In May 2014, the company also acquired Maker Studios, Inc., a leading network of online video content. Another joint venture was with Univision and featured Fusion, a news, pop culture and lifestyle television and digital network targeted at Englishspeaking Hispanic Millennials started in 2013. Disney sold its stake in Fusion in April 2016.

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Parks and Resorts The Disney Company owns and operates the Walt Disney World Resort in Florida; the Disneyland Resort in California; Aulani, a Disney Resort and Spa in Hawaii; the Disney Vacation Club (a vacation-ownership program); the Disney Cruise Line; and Adventures by Disney (guided family tours). The company manages and has effective ownership interests of 51% in Disneyland Paris, 48% in Hong Kong Disneyland Resort, and 43% in Shanghai Disney Resort, and licenses the operations of the Tokyo Disney Resort in Japan. The Shanghai park was planned to open in 2016, although the schedule date has changed several times. The Walt Disney Imagineering unit designs and develops new theme park concepts and attractions as well as resort properties. The company also has interests in Celebration, the neo-traditional, planned community located south of Disney World in Florida.

Studio Entertainment The Studio Entertainment segment produces and acquires live-action and animated motion pictures, direct-to-video content, musical recordings, and live stage plays. Disney distributes produced and acquired films (including its film and television library) in the theatrical, home entertainment, and television markets primarily under the Walt Disney Pictures, Pixar, Marvel, Touchstone, and Lucasfilm banners. In addition, Disney distributes live-action motion pictures produced by DreamWorks under the Touchstone Pictures banner. The company also produces and distributes Indian movies worldwide through its UTV banner. The Disney Company expanded its reach in the last years with the purchase of several wellknown companies. The company purchased the animation studio Pixar in 2006 for $7.4 billion, the comic book company Marvel Entertainment in 2009 for around $4 billion, and Lucasfilm (including the lucrative Star Wars franchise) in 2012 for $4.06 billion (cash payment of $2.21 billion and around 37.1 million Disney shares). The company also distributes entertainment products to home entertainment markets under each of the motion picture banners, while Disney Theatrical Productions presents theatrical versions of their films. The Disney Music Group coordinates Disney’s various recorded music businesses, which include Walt Disney Records, Hollywood Records (including Mammoth Records and Buena Vista Records labels), Lyric Street Records, Buena Vista Concerts, and Disney Music Publishing. It is interesting to note the number of active films that the Disney Company owns. As of September 2013, the company reported approximately 1,400 produced and acquired titles, including 1,000 live-action titles and 400 animated titles, in the domestic home entertainment marketplace and approximately 2,700 produced and acquired titles, including 2,200 live-action titles and 500 animated titles, in the international marketplace.

Consumer Products Disney claims to be the world’s largest licensor of intellectual property and the world’s largest publisher of children’s books and magazines. The Consumer Products segment deals with licensees, publishers, and retailers throughout the world to design, develop, publish, promote, and sell a wide variety of products based on Disney’s intellectual property. In addition to licensing and earning royalties from the company’s properties, Consumer Products also develops its own products, which are used across the company’s businesses. The company’s publishing activities include the sale of books, magazines, digital books, comics, and applications. These activities are part of Disney Publishing Worldwide, which includes

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Disney Global Books, Disney Global Magazines, and Disney English (which operates 44 Englishlanguage learning centers in China). Revenues also are generated from the sale of Marvel comic books. The Consumer Products segment also markets Disney, Marvel, and Lucasfilm products through retail stores operated under the Disney Store name and through Internet sites in North America (DisneyStore.com and MarvelStore.com), Western Europe, and Japan, through the Disney catalogue, and at theme park outlets.

Interactive Media Though the Interactive division is the smallest segment of the Disney Company, it is growing rapidly and includes the creation and distribution of Disney content across interactive media platforms, especially games and online services. Disney.com integrates many of the company’s Disney-branded Internet sites and the company claims that it has been consistently rated one of the most popular online sites.

Corporate Strategies and New Developments From this brief overview, it is clear that the Disney Company represents a diversified, global corporation that is motivated by profit and many of its strategies have been in place for decades. The company continues to produce and distribute a wide range of entertainment commodities, as its businesses span entertainment and media markets across the globe. But diversification is only part of the story. The company continues to excel in coordinating and exploiting its products across its various divisions, representing some of the best examples of synergy in the entertainment industry. The release of films is accompanied by the sale of merchandise, video games, music, and books. In addition, many films, characters, or properties are developed into theme park/resort/ cruise line attractions, television programs, and mobile/video games. The three strategies that have guided the company since Iger took charge have been: investing in creative content, international expansion, and technological innovation. The purchases of the companies mentioned above represent a strong investment in content that is expanding the corporation’s scope. As previously noted, the company has continuously extended the Disney brand, moving into adult-oriented films, news and sports programming, etc. With the addition of Pixar, Marvel, and Lucasfilm, the traditional Disney brand has been reinforced (especially with Pixar), but has also expanded into various un-Disney type products (e.g., comic book heroes). The franchises obtained in these purchases have huge carryover value in the company’s parks and merchandise business. But this move also brings into question the Disney Company’s dependence on already established (and mostly, successful) franchises, rather than the creation of new characters and stories. Again, international expansion has continued, as represented by the Shanghai theme park and numerous other global activities discussed above. And finally, the company has moved much more aggressively into new technological developments since Bob Iger moved into the CEO position. In addition to the shift to computer animation and new forms of distribution, Disney has been especially active in producing content for new media formats, including online sites, social media, and mobile phones. After a slow start, Disney has finally become successful in the gaming area. They are also incorporating drones in various ways (with cameras to cover football games, for instance). In addition, they are working on new ideas for the theme parks: attractions based on virtual reality and 3-D, as well as RFIDenabled wristbands (“MagicBands”) that make access and purchasing easier for park guests.7

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Political Overview Corporate Ownership The Disney Company has shifted from mostly family ownership in the early years to a publicly traded corporation since the 1950s. Still, the company is typical of many others, with large blocks of stock owned by a few individuals. Currently, the largest block is held by Steve Jobs’ widow, Laurene Powell Jobs, who owns 130.8 million shares (7.3% of total shares) through the Laurene Powell Jobs Trust. Steve Jobs acquired the stock as part of the Pixar deal in 2006 and became active as one of Disney’s directors. However, Powell Jobs is not on the Disney board nor does she appear to be involved in the operation or direct management of the company. She has been active in philanthropic and political activities, for instance, serving on the board of the Teach for America program. She also has been among the top donors to Ready for Hillary, a super PAC that raised around $6 million to support a Clinton presidential run. As noted above, George Lucas received just under 37.1 million Disney shares in the sale of Lucasfilm to Disney in 2012. At the time, this represented around 2.2% of total shares. Lucas also is not on the Disney board, but has been involved as a creative consultant on Star Wars films. Meanwhile, CEO Robert Iger owns 1 million shares, with 2.5 million shares “acquirable within 60 days,” i.e., shares that can be purchased by exercising options. This is in addition to Iger’s executive pay, which totaled $34.3 million in fiscal 2013, the first year that Iger’s pay had actually decreased since 2009.

Board of Directors Similar to many U.S.-based corporations, the Walt Disney Company’s Board of Directors represents a range of individuals who make allocative decisions about the company.8 These individuals may represent dominant shareholders, legal firms, or financial organizations. They often are key managers of other corporations and thus provide corporate interlocks between the companies. Table 1.6 presents the Walt Disney Board of Directors, as it was constituted at the end of 2014. Notable are a number of directors who provide links to companies that may have potential value to Disney’s various businesses, for instance, Procter & Gamble, McDonald’s, Sears, Twitter, Facebook, Apple, Starbucks, and others. Also notable is that CEO Robert Iger also serves on the Disney board, again, similar to many other corporations.

Labor Force/Workers As of 2011, over 156,000 people worked for Disney in some capacity. These jobs cover a wide range of positions, from animators to theme park and office workers. While attracting employees with themes of creativity and magic, working for the company isn’t always so magical. Lay-offs and closures of units are often features of large companies like Disney. Although some treasure the opportunity to work for the company, a survey of the best U.S. companies to work for ranked Disney 41st on the list. All four branches of the U.S. military ranked higher than Disney. The dissatisfaction seems often to surface at the theme parks, which employees sometimes call Mousewitz, Duckau or the unhappiest place on earth. Historically, the Disney Company has been known for the control it has generally exerted over its labor force. Only one example will be mentioned here, but one that has sometimes defined the company: animation production. Disney built a labor-intensive cel-animation factory in the 1930s that became a focal point of the company. Training classes for animators were organized

The Walt Disney Company

TABLE 1.6 Walt Disney Company Board of Directors, 2014

Director

Positions Held/Director Interlocks

Susan Arnold

• The Carlyle Group, (equity investment firm)/operating executive • Procter & Gamble/President, Global Business Units, and other positions • McDonalds Corporation/director

John S. Chen

• • • •

Jack Dorsey

• Twitter Inc./Chairman of the Board of Directors • Square Inc. (payment processing services)/co-founder and Chief Executive Officer

Robert A. Iger

• • • •

Walt Disney Company/Chairman and CEO ABC Group/Chairman Walt Disney International/President Apple Inc./director

Fred H. Langhammer

• • • •

Estée Lauder Companies Inc./Chairman, Chief Executive Officer, President Central European Media Enterprises, Ltd./director Shinsei Bank Ltd./director AIG/director

Alwyn B. Lewis

• • • • • •

Potbelly Sandwich Works/President and Chief Executive Officer, director Sears/President and Chief Executive Officer, director Kmart/President and Chief Executive Officer of Kmart since 2004, director YUM! Brands, Inc./Chief Operating Officer Pizza Hut/ Chief Operating Officer Starwood Hotels & Resorts Worldwide director

Monica C. Lozano

• • • • •

U.S. Hispanic Media, Inc./Chair of the Board Impremedia LLC/CEO La Opinion/Publisher Bank of America Corp./director Rockefeller and Weingart Foundations director

BlackBerry, Ltd./Executive Chairman of the Board and CEO Silver Lake (private investment firm)/Senior Advisor Sybase Inc./ Chairman of the Board, Chief Executive Officer and President Wells Fargo and Company/director

Robert W. Matschullat • Private equity investor • Seagram Company Ltd./Vice Chairman of the Board of Directors and Chief Financial Officer • Morgan Stanley & Co. Inc./head, director • Clorox Company/Interim Chairman of the Board, Interim Chief Executive Officer, Lead Director • Visa, Inc./ Chairman of the Board, director Sheryl Sandberg

• • • • • •

Facebook, Inc./Chief Operating Officer, director Google, Inc./Vice President of Global Online Sales and Operations United States Treasury Department Chief of Staff McKinsey & Company management consultant The World Bank economist Starbucks Corp. director

Orin C. Smith

• Starbucks Corp./President and Chief Executive Officer, President and Chief Operating Officer, Vice President and Chief Financial Officer, director • Deloitte & Touche management consultant • Nike, Inc. director • Washington Mutual, Inc./board member

Source: http://thewaltdisneycompany.com/about-disney/leadership/board-of-directors

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to remove personal styles. Also, the labor process was divided and subdivided into an assemblyline approach. Some have argued that Disney developed the most rigid model of labor control in animation production. More recently, computer animation has been introduced across the industry, offering new systems of production but also eliminating jobs. Wan-Wen Day noted that more than 1,400 jobs were eliminated in animation across the U.S. film industry from 2002 to 2007, and wages of traditional animators were reduced by as much as 50%. While costs are typically lower, revenues for computer-animated films are considerably higher.9 Disney followed this trend with lay-offs of hand-drawn animators in April 2013, and lay-offs at Pixar in November 2013. Around the same time, LucasArts (game publishing) was closed, eliminating around 150 employees and other units of the company were hit with lay-offs, which were attributed to “rapidly changing technologies.”10

Government Relations A complete analysis of any corporation needs to pay attention to relationships with the State. These include various ways that companies try to influence government activities as well as government support of corporate activity. One common practice of corporations in the U.S. is to contribute to political campaigns, political parties, and Congressional committees. Disney contributed over $2.6 million to miscellaneous campaigns in 2013 (mostly in California and Florida),11 and $1,119,420 in 2014.12 (See Table 1.7 for a summary of some of Disney’s political contributions and lobbying expenditures in 2014.) The company directly hires lobbying organizations, as indicated in Table 1.7, but lobbying for the Disney Company is also accomplished through the Motion Picture Association of America (MPAA), a trade organization that serves the six major Hollywood studios in various ways. The organization was formed in 1922 and has a wide range of functions. Domestic lobbying is achieved through various strategies, including campaign and political party contributions and personal influence (the MPAA head has always been a Washington “insider”). Interestingly, the MPAA (and perhaps the industry as a whole) has shifted recently from supporting mostly the Democratic Party and candidates to reaching out to Republican Party and conservative forces. In fact, one of Disney’s own lobbyists organized a group called “Entertaining Republicans,” to encourage Hollywood companies to support more conservative legislators, an effort that apparently helped pass the 20-year extension of copyright terms in 1998.13 The MPAA is also quite active in the global arena, representing Hollywood around the world and serving as “a little State Department” when it negotiates directly with foreign governments.14 As described on the MPAA website: We are the voice and advocate of the motion picture and television industry around the world. . . . a global organization with commercial and regional offices working to protect TABLE 1.7 Walt Disney Company Political Contributions and Lobbying Expenditures, 2014 ($)

Contributions to candidates Contributions to Leadership PACs Contributions to parties Contributions to 527 committees Contributions to outside spending groups Lobbying

516,817 90,750 351,128 5,575 130,150 2,600,000

Sources: www.opensecrets.org/orgs/toprecips.php?id=d000000128&cycle=2014; www.opensecrets.org/orgs/lobby.php? id=d000000128

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the film industry around the world. We also partner with content protection organizations in over 30 countries . . . MPAA has evolved with the times in order to promote the success of our core mission: advancing the business and art of filmmaking, protecting the creative and artistic freedoms of filmmakers, and ensuring the satisfaction of our audiences worldwide.15 It might be noted that the MPAA is mostly an advocate for the U.S. entertainment industry, and more specifically, its members, the Hollywood studios, and thus active in protecting the business and creative “freedoms” of these six companies. The organization explains further: The key to continuing this success is to work to avoid protectionism, counterfeiting and online piracy overseas. Keeping markets open enables people around the world to enjoy the movies they love, and strong intellectual property rights protect millions of jobs worldwide supported by the industry. This involves participating in activities related to the World Trade Organization (WTO) and their global trade rules, as well the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and the World Intellectual Property Organization (WIPO) Internet treaties and the Berne Convention. The MPAA also is involved with various U.S. bilateral and regional trade agreements such as the Trans-Pacific Partnership (TPP), a regional pact that would encompass much of the AsiaPacific region, including standards for the protection and enforcement of intellectual property rights, and the Transatlantic Trade and Investment Partnership (TTIP) Agreement, which would cut tariffs, improve regulatory cohesion, and strengthen cooperation on intellectual property rights. The MPAA states that it “work(s) closely with the U.S. Trade Representative to protect creators worldwide, identifying trouble spots listed on the annual Special 301 report and the Notorious Markets List. These lists are important tools for improving enforcement and market access among our trading partners.”16 Some of the activities of Disney’s CEO, Robert Iger, are also illustrative of the company’s political connections. In June 2010, President Barack Obama appointed him to the President’s Export Council, which advises the President on how to promote U.S. exports, jobs, and growth. He has been a board member of the U.S.–China Business Council since June 2011. Mr. Iger is also a member of the Partnership for a New American Economy, a coalition of mayors and business leaders from across the United States that supports comprehensive immigration reform.17

Corporate Responsibility In the 1990s, The Disney Company was sometimes criticized as being excessively interested in profits and serving its shareholders. However, it seems that the company has increased attention to its corporate image over the last decade, with an increase in charitable activities and support of socially relevant projects. While these efforts may have philanthropic or socially beneficial motivations, it might be noted that they also serve as promotion for the company and are accompanied by extensive public relations efforts. In addition, there are potential tax benefits connected to some of these donations and projects. The company sometimes traces these activities to its historical roots: “Giving back to communities is one of Disney’s founding principles.”18 The Walt Disney Company’s “legacy of charitable giving” is sometimes connected to its founders, Walt and Roy Disney, who formed

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relationships with Boys Clubs of America, now known as the Boys and Girls Clubs of America, as well as the U.S. Marine Corps’ Toys for Tots program. Walt Disney also contributed to St. Joseph’s Hospital, across the street from the studio, where he eventually died.19 The more recent company’s overall philosophy in this area is dubbed “Disney Citizenship,” and is described as follows: Disney Citizenship is our continuing commitment to be among the most admired companies in the world—a recognition of both the integrity of our people and the quality of our entertainment experiences. This guides our actions as a company and our efforts to promote the happiness and well-being of kids and families by inspiring them to join us in creating a brighter tomorrow.20 The Disney Company is involved with a wide range of activities related to this stated commitment to citizenship, including what they call “Strategic Philanthropy,” which includes “dedicating financial resources and in-kind gifts to enrich the lives of children and families.”21 Disney has five major charitable partnerships: the Marine Toys for Tots Foundation and Boys & Girls Clubs of America, as well as the Make-A-Wish Foundation, Starlight Starbright Children’s Foundation, and First Book,22 but the company is said to give to a wide range of recipients. It is sometimes difficult to sort out the nature or amount of these gifts, as well as whether the contributions have been made by the company or its employees. For instance, in 2012 the company reported charitable giving that totaled more than $292 million worldwide, which included: Cash $56.5 million; Product $101.5 million; In kind $54 million; and 586, 259 volunteer-hours through VoluntEARS,23 a program that developed at Disneyland in 1983 but is now a corporatewide program described as follows: Our mission is to develop opportunities . . . to contribute personal time, expertise and effort to make a positive impact on our community while furthering the ideals of The Walt Disney Company.24 The program involves employees assisting nonprofit organizations and participating in various community projects—examples include removing trash and debris from areas in need; rebuilding houses, cleaning and feeding communities—on their own time, without pay, “furthering the ideals” of the company, and providing valuable promotional potential. As reported above, employees at Disney were reported to contribute 586,259 volunteer-hours to nonprofit organizations in 2012. Other examples of Disney’s Citizenship efforts include Jiminy Cricket’s Environmentality Challenge (helps promote Disney’s interests in being environmentally safe, and encourages students to think and act the same way); Disney Harvest program (donates thousands of pounds of food per month to those in need); and the Disney Teacher Awards. Over the last decade or so, the company has been paying special attention to promoting ethical corporate behavior, developing what they call “Disney Ethics”: Acting responsibly is an integral part of our brand. It strengthens the connection we have with consumers, makes our company a more desirable place to work, and helps us attract the very best and brightest to join our global cast. It builds goodwill in the communities in which we operate. All of these things contribute to The Walt Disney Company’s continued growth and success [Emphasis added].25 They further specify the areas that are involved in acting responsibly or in an ethical manner: Ethical Conduct, Responsible Content, Environmental Stewardship, Civic Engagement,

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Respectful Workplaces, and Responsible Supply Chain. Disney has been criticized in these areas over the years and thus it is interesting to see how the 21st century Disney Company is deliberately attempting to change that image.

Cultural Considerations Symbolic Universe/Ideology The Disney Company developed a reputation of being conservative, patriotic, and “All American”—descriptions often connected to the company’s namesake, Walt Disney. In addition, the meaning of Disney is still tied (not least, by the company itself) to the notions of fantasy, imagination, and happiness. Indeed, the role of pleasure is a natural and important element in human nature, as some media analysts have noted. We have a natural inclination to seek pleasure and escape, and to look for utopian experiences. The Disney brand of fantasy is a ready-made, highly promoted, and powerfully seductive option, often assumed to be one of the few “acceptable” options available. However, the problem with Disney’s version of fantasy, imagination, and pleasure is the direct connection with a specific set of values. In other words, the products are hardly “innocent”— whether one is considering the proliferation of Disney products in our consumer culture or the mainstream American values represented by those products. Disney’s fantasies are offered as commodities, produced and manufactured in accordance with definite commercial parameters. While this is never forgotten by those who control the Disney Company, the consumers who experience the pleasure, fun, and magic often overlook these motivations. Increasingly, with the expansion of consumer culture and marketization, many people’s lives revolve around the accumulation of an enormous array of commodities and engagement in commercial activities that come to signify basic human relations—hence the association of warm family memories with visits to Disneyland, and the fond recollections of Disney characters and products. Pleasures and memories often become associated with activities that have lost their connection to their original motivation or their inherent commercial nature. It also might be noted that Disney’s products have received ongoing criticism, often for problematic presentations of women and minorities, Americanization of folk and fairy tales, as well as for the company’s excessive commercialization and merchandising.

Popular Products/Services and Cultural Significance Disney has developed a highly recognized brand, most often identified with children, even though the company has always produced commodities that also appeal to adults, either directly or through families. The current corporation is a diversified conglomerate and thus tries to appeal to many audiences through a wide range of content. The Disney Company continues to play a somewhat unique role in popular culture. It has an extensive history that has been mystified and reified over the years. The popularity of the company and its products continues, as indicated by the rankings cited in the introduction to this chapter. How has Disney developed and maintained such a sacred aura that many refuse to criticize? It has to have something to do with the link to childhood and innocence. Disney products typically become a part of many children’s lives, in one form or another (at least in the U.S.A). Thus, they are intimately and strongly associated with childhood and retain a special place in people’s memories of childhood. The Disney Company has grown and expanded globally by vigilantly controlling its products, characters, and images, plus developing its reputation as a company and as a brand. The company

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promotes itself as special and different. Again, its brand recognition has been built and zealously protected, allowing the company to expand into whatever new areas develop, drawing on its strong reputation and resources. The current company has been built on a strong historical base, taking advantage of global trade opportunities that have expanded the empire far and wide, to the point where it is possible for company representatives and others to claim that Disney and Mickey Mouse are universal, despite the company’s American roots. This assumption is sometimes accepted even by international audiences, who view Disney stories and characters as either homegrown or universal.26 But we also need to remember that this “universality” is not necessarily automatic or natural. It has been and continues to be deliberately manufactured and carefully controlled.

Conclusion Why is the Walt Disney Company important? As one of the largest entertainment companies in the world, its size and scope are significant. And the company and its revenues continue to grow. Similar to other media/entertainment companies, it is a strong influence on the building and reinforcement of consumer culture, producing and distributing massive numbers of commodities, promoting and marketing them effectively, and aggressively protecting their ownership rights. Disney’s power is related to the ability to define childhood and family life, as well as its control over widely popular and successful media and entertainment franchises. It is an active player in the concentrated media business and thus is active in shaping our cultural universe. Ultimately, we must insist that it is not merely a “Mickey Mouse” company and deserves serious and careful analysis.

Notes 1 Ranking the Brands, “Rankings per Brand,” accessed December 22, 2014, www.rankingthebrands.com/ Brand-detail.aspx?brandID=33 2 Ranking the Brands, “Brand Rankings,” accessed December 22, 2014, www.rankingthebrands.com/TheBrand-Rankings.aspx?rankingID=332&year=705 3 Some of this chapter is from Janet Wasko, Understanding Disney: The Manufacture of Fantasy (Cambridge: Polity Press, 2001), which draws on a wide range of sources on the Walt Disney Company and Walt Disney. 4 There are numerous biographies of Walt Disney and histories of the Walt Disney Company. Some have been produced by the company itself; others by those enamored with Disney. A few of the more interesting accounts include Richard Schickel, The Disney Version: The Life, Times, Art, and Commerce of Walt Disney, 3rd ed. (New York: Simon & Schuster, 1997); Steven Watts, The Magic Kingdom: Walt Disney and the American Way of Life (Boston: Houghton Mifflin, 1997); Michael Barrier, The Animated Man: A Life of Walt Disney (Berkeley, CA: University of California Press, 2007). 5 The Walt Disney Company, “About Disney,” accessed December 20, 2014, http://thewaltdisney company.com/about-disney/leadership/board-directors/robert-iger 6 Information in this section is drawn from various 2014 reports, including the company’s Form 10-K submitted to the Securities and Exchange Commission, September 27, 2014. See The Walt Disney Company, “Investor Relations,” accessed December 19, 2014, http://thewaltdisneycompany.com/ sites/default/files/reports/fy14-form-10k.pdf 7 Michal Lev-Ram, “Disney CEO Bob Iger’s Empire of Tech,” Fortune, December 29, 2014. Available online at http://fortune.com/2014/12/29/disney-ceo-bob-iger-empire-of-tech/ 8 See Graham Murdock, “Large Corporations and Communication,” in Culture, Society & the Media, eds. Michael Gurevitch, Tony Bennett, James Curran, and Janet Woollacott (London: Metheun, 1982), 118–150. 9 Wan-Wen Day, “Commodification of Creativity: Reskilling Computer Animation Labor in Taiwan,” in Knowledge Workers in the Information Society, eds. Catherine McKercher and Vincent Mosco (Lanham, MD: Lexington Books, 2008), 85–99. 10 Paul Bond, “Disney to Lay Off 150 in Film Division,” Hollywood Reporter, April 4, 2013. Available online at www.hollywoodreporter.com/news/disney-lay-150-film-division-434820

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11 Accessed November 20, 2014, http://cdn.media.thewaltdisneycompany.com/cdnmedia/corporate citizenship/documents/TWDC2013Contributions.pdf 12 OpenSecrets.org, “Walt Disney Co,” accessed November 20, 2014, www.opensecrets.org/orgs/toprecips. php?id=d000000128&cycle=2014 13 Brody Mullins and Ben Fritz, “Movie Industry, In a Switch, Is Courting the GOP,” Wall Street Journal, February 26, 2014. Available online at www.wsj.com/articles/SB1000142405270230407100457940 7254151830912 14 Thomas. H. Guback, The International Film Industry: Western Europe and American Since 1945 (Bloomington, IN: Indiana University Press, 1969). 15 Motion Picture Association of American, “Our Story,” accessed December 14, 2014, www.mpaa.org/ourstory/ 16 Motion Picture Association of America, “Access to Global Markets,” accessed December 14, 2014, www.mpaa.org/access-to-global-markets/ 17 The Walt Disney Company, “Robert Iger,” accessed December 20, 2014, http://thewaltdisney company.com/about-disney/leadership/board-directors/robert-iger 18 The Walt Disney Company, “Charitable Giving,” accessed December 20, 2014, http://thewaltdisney company.com/citizenship/act-responsibly/community/charitable-giving 19 Mark Goldhaber, “Giving Back,” MousePlanet, July 19, 2006, www.mouseplanet.com/7151/Giving_Back 20 The Walt Disney Company, “Citizenship,” accessed December 20, 2014, http://thewaltdisneycompany. com/citizenship 21 The Walt Disney Company, “Charitable-giving,” accessed December 20, 2014, http://thewaltdisney company.com/citizenship/act-responsibly/community/charitable-giving 22 Mark Goldhaber, “Giving Back,” MousePlanet, July 19, 2006. Available online at www.mouseplanet.com/ 7151/Giving_Back 23 Double the Donation, “Spotlight on Disney: A Leader in Corporate Giving,” accessed November 14, 2014, https://doublethedonation.com/blog/2013/02/spotlight-on-disney-a-leader-in-corporate-giving/ 24 Disneyland Public Affairs, “Disney VoluntEARS,” accessed November 20, 2014, http://publicaffairs. disneyland.com/voluntears/ 25 The Walt Disney Company, “Citizenship,” accessed December 20, 2014, http://thewaltdisney company.com/citizenship 26 See Janet Wasko, Mark Phillips, and Eileen R. Meehan, eds., Dazzled by Disney? The Global Disney Audience Project (Leicester, U.K.: Leicester University Press, 2001).

2 NATIONAL AMUSEMENTS Eileen R. Meehan

Among the major media companies in the United States, National Amusements Incorporated (NAI) is an anomaly historically, geographically, and structurally. Historically, NAI was not a major player in the formation of either the Hollywood film industry or the broadcasting industry. Geographically, it was far removed from the power centers of Hollywood and New York City. NAI was first known as the Northeast Theater Corporation (NTC) and founded in Dedham, Massachusetts, where NAI’s main office remains. NAI’s structure and function depart from that of the major media companies in the United States. While Time Warner, Disney, Comcast, News Corporation, and 21st Century Fox are transindustrial media conglomerates, NAI is a horizontally integrated firm focused on film exhibition that also functions as a holding company. The current CEO, Sumner Redstone, uses NAI to hold his stock in CBS Corporation and Viacom Inc., both of which are transindustrial media conglomerates. This chapter explores NAI, CBS, and Viacom with reference to Sumner Redstone and his daughter Shari Redstone, who are, respectively, the majority and minority owners of voting stock in NAI.1

Historical Background NAI’s history is rooted in NTC, but CBS and Viacom emerged from the original Columbia Broadcasting System (CBS). Each will be discussed in turn.

Northeast Theatre Corporation and National Amusements Incorporated NTC was founded in 1936 as a family business by Sumner’s father, Michael Redstone.2 By 1954, Michael and his younger son Edward oversaw three drive-in theaters. The turning point for NTC occurred that same year when Sumner left the Washington law firm Ford, Bergson, Adams, Borkland and Redstone to join NTC. A Harvard-educated lawyer, Sumner represented Leonard Goldenson’s United Paramount Theaters in its successful bid to acquire the American Broadcasting Company from 1951 to 1953.3 This gave Sumner considerable expertise in antitrust law vis-àvis theater chains and the legalities of running a national theater chain. Apparently, Goldenson also mentored Sumner in the art of valuing and acquiring the real estate needed to strategically expand a theater chain.4

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Returning to Dedham in 1954, Sumner used his expertise to strengthen NCT. He filed a successful anti-trust suit forcing the Hollywood studios to license first-run films to drive-ins like those owned by NCT. He acquired indoor theaters across New England and New York State, making NCT a regional chain. The emphasis on indoor theaters meant higher ticket prices and thus increased revenues. In 1967, he became NTC’s president and chief executive officer, renamed it National Amusements Incorporated, and expanded NAI’s holdings to 1,400 indoor screens. He pioneered the building of multiplex theaters in suburban areas. In the 1970s, Sumner’s multiplex theatres became the model for film exhibition. With the Paramount Decision still in force, Sumner could not purchase a studio to feed his theaters. Instead, he diversified NAI by acquiring intellectual properties like Charlie Chan and the pinball machine manufacturer Midway Games.5 The upshot was NAI’s emergence as a profitable national theater chain controlled by a wealthy Sumner Redstone. In the 1970s, Sumner accrued the financial reserves necessary to become a media mogul.6 When stock prices for film studios fell, he bought into Twentieth Century Fox, Columbia Pictures, and MGM/UA. When prices rose, he sold strategically, earning profits of $20 million from Twentieth Century Fox (1981), $25 million from Columbia Pictures (1982), and $15 million from MGM/UA (1985). That facilitated his purchases of Viacom stock and subsequent acquisition of the company in 1987, rumored to have cost more than $3 billion. This deal gave Sumner control of a media conglomerate owning radio and television stations, cable systems, and cable channels. The reversal of the Paramount decision and deregulation made this legal. Sumner acquired Paramount Pictures (1994), Blockbuster Video (1994), and CBS (2000), expanding Viacom into film production, videocassette rentals, and broadcast networking. The impact of deregulation on corporate structure is also evident in the history of the Columbia Broadcasting System.

The Columbia Broadcasting System/CBS In 1928, William Paley acquired the Columbia Phonographic Broadcasting System, renaming it the Columbia Broadcasting System.7 Paley built the old CBS into a vertically integrated radio company with owned-and-operated stations and affiliated stations, comprising the CBS network as well as radio production facilities and CBS Laboratories conducting radio research. CBS’s structure mirrored that of Radio Corporation of America (RCA, founded 1926) except that RCA owned two networks (NBC Red and NBC Blue).8 As the new network, CBS lacked NBC’s established radio artists and sponsors. RCA’s networks dominated the ratings with a line-up of sponsored programs headlined by radio stars on one network and, on the other, news, documentaries, plays, and other genres that sponsors avoided. In 1948, CBS took steps to undercut that dominance. Paley persuaded NBC’s major stars to switch to CBS and incorporate themselves, thereby decreasing their Federal taxes.9 The migration of major radio stars to CBS, followed by the migration of CBS and those stars to television, put CBS at the top of broadcast ratings from 1948 to 1969.10 For television, RCA and CBS experimented with filming live shows. CBS created a new division, CBS Films, as a repository for its filmed television programs. CBS Films licensed old television series to local television stations on a market-by-market basis. The practice was called syndication. CBS Films also contracted with independent producers to syndicate their programs. For example, Desilu produced I Love Lucy (1951–1957) for CBS and contracted with CBS in 1951 to syndicate the series in the U.S. and globally. In 1960, Desilu sold I Love Lucy to CBS Films, which continued syndicating it.11 Syndication was an early form of corporate synergy. In 1971, the Federal Communication Commission declared it anticompetitive. CBS Films was renamed Viacom and spun off.

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Viacom had two types of property: a library of old television programs and syndication contracts with independent producers. Viacom continued its relationship with Desilu, syndicating cancelled programs like Star Trek (1966–1969),12 and bought global syndication rights from hit producers like MTM Productions (The Mary Tyler Moore Show 1970–1977) and Tandem Productions (All in the Family, 1971–1979). With considerable programming on hand, Viacom expanded into basic cable channels, pay cable channels, and cable systems. This guaranteed that Viacom’s syndicated programming would be shown on Viacom’s cable channels front-loaded on Viacom’s cable systems. By 1986, Viacom moved into video production, continued proliferating cable channels, and invested considerable money in maintaining and updating its cable systems. Those costs, plus the erosion of pay cable subscriptions due to videocassette recorders, generated a $9.9 million revenue loss and $2 billion in debt, leaving Viacom vulnerable for takeover. A bidding war resulted, with noted capitalists like Carl Icahn and Ivan Boesky fighting over Viacom. In 1987, Sumner leveraged his stock profits to buy Viacom for $9.9 million. Sumner sold Viacom’s cable systems and rebranded and synergized Viacom’s operations, returning Viacom to profitability. He then purchased Paramount Pictures and CBS, integrating them into Viacom. By merging CBS into Viacom, Sumner achieved full vertical and horizontal integration in the radio and broadcast television industries. Further, Sumner could co-ordinate Paramount’s operations in film production and distribution with NAI’s theater chains, thereby achieving full vertical integration. Selling Viacom’s cable systems ended Viacom’s full integration in cable television. The sale eliminated an operation that was generating losses, produced an influx of cash, and presumably stabilized Viacom. But in 2005, Sumner announced that “the age of the media conglomerate is dead” and hence he would separate CBS from Viacom.13 CBS would concentrate on television and dividends, thus appealing to conservative investors; Viacom would focus on growth and innovation, attracting investors seeking a dynamic company.14 The separation was duly achieved, although CBS’s earnings were initially more dynamic than Viacom’s. Despite initial resistance from Sumner, CEO Les Moonves expanded CBS’s operations into film production in 2007 with the goal of releasing a limited number of films budgeted at $50 million or less.15 If that goal is attained, releases from CBS Feature Films should complement blockbusters released by Viacom’s Paramount, feeding NAI’s theaters, CBS’s network, and CBS’s and Viacom’s cable channels.

Economic Profile The market capitalization for CBS is $37.5 billion and for Viacom $37.99 billion. The Forbes Global 2000 List, which ranks the world’s largest publicly traded companies, shows CBS as 368th and Viacom as 380th.16 Table 2.1 shows nine years of CBS revenues. For 2014, CBS’s revenues and profits increased, respectively, by 6.9% and 19.4%, the latter reaching $1.879 billion.17 Table 2.2 shows Viacom’s revenues for the same period. For 2014, Viacom’s revenues were down –0.7% and profits up, reaching $2.395 billion.18

Corporate Structure NAI is a horizontally integrated corporation focused on film exhibition and the ninth largest owner of movie theatres in the U.S. and Canada, with 424 screens located in 32 sites.19 It operates three chains: Showcase Theaters, Multiplex Cinemas, and Cinema de Lux. The last is an upscale chain that Shari developed with fine dining, bar service, and valet parking. NAI is also an equal partner in MovieTickets.com. Because it is privately held, NAI files no annual or quarterly reports with the Securities Exchange Commission (SEC). Sumner and Shari Redstone respectively own 80% and 20% of NAI’s stock. NAI holds 79.7% of CBS’s voting stock and 79.5% of Viacom’s.20

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TABLE 2.1 CBS Corporation Revenues,

TABLE 2.2 Viacom Inc. Revenues, 2006-2014

2006–2014 (in $ millions)

(in $ millions)

29

Year

Revenues

Net Earnings Total Assets

Year

Revenues

Net Earnings Total Assets

2006 2007 2008 2009 2010 2011 2012 2013 2014

14,320 14,072 13,950 13,014 12,271 12,381 12,820 14,005 13,806

1,660 1,247 (11,673) 226 724 1,305 1,574 1,879 2,959

2006 2007 2008 2009 2010 2011 2012 2013 2014

11,351 13,186 13,947 13,257 9,337 14,914 13,887 13,794 13,783

3,140 3,229 2,531 3,333 2,360 4,329 4,730 4,856 4,856

43,225 40,322 26,975 26,869 26,164 26, 220 26,466 26,387 24,072

Sources: CBS Corporation 10-K, 2010, p. II-3 & CBS Corporation 10-k 2014 (filed on 2015, p. II-3); http://investors.cbscorporation.com/phoenix.zhtml?c =99462&p=irol-sec

21,797 22,904 22,487 21,900 22,096 22,801 22,250 23,829 23,117

Sources: Viacom, Inc. 10-K, 2010, p. 29 & Viacom 10-K, 2014, p. 29, available from http://ir.viacom.com/ sec.cfm

CBS’s and Viacom’s stocks are publicly traded so they file the full complement of SEC-mandated documents. When Sumner split CBS from Viacom in 2005, each firm’s 10-K annual report stated that Sumner could require each company to act against its self-interest.21 The 10-K filings for CBS and Viacom in 2014 noted that overlaps between their boards of directors and NAI’s board posed “actual or potential conflicts of interest.”22 Because Sumner cut CBS out of Viacom in 2005, I focus on each company from 2006 to 2014.

CBS Corporation CBS spans multiple media industries and divides itself into four parts: Entertainment, Cable Networks, Publishing, and Local Broadcasting. Table 2.3 shows each segment’s contribution to consolidated revenues and operating income.

Entertainment This segment is comprised of the CBS Television Networks (CBS and CW), CBS Television Studios, CBS Interactive, CBS Films, and CBS Global Distribution Group. The Global Distribution Group has two operations: CBS Television Distribution and CBS Studios International. The CBS network has 16 owned-and-operated stations and 200 affiliated stations. It has three programming arms—CBS Entertainment, CBS News, and CBS Sports—which feed its broadcast networks, websites, subscription streaming service, and advertiser-supported streaming service. CBS

TABLE 2.3 CBS Business Segments Total Revenues and Operating Income, 2014 (in $ millions)

Segment

Revenues

% of Total Revenues

Operating Income

% of Total Operating Income

Entertainment Cable Networks Publishing Local Broadcasting

8,309 2,176 778 2,756

60 16 6 20

1316 974 101 878

45 34 3 28

Source: CBS Corporation, Form 10-K, 2015 (covers only 2014), pages I–2, 5, 7, and 9.

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and Time Warner equally co-own CW network, which runs CBS programs like Jane the Virgin and America’s Next Top Model. The CW and CBS networks primarily earn revenues from advertising and affiliation fees. CBS Television Studios and CBS Global Distribution Group also focus on programming and distribution, earning revenues by licensing programs for first-run broadcast on the CBS and CW networks, other networks, individual television stations, basic cable channels, and premium channels. These units also deal with post-network syndication in the U.S. and globally. In the United States, Star Trek, Hawaii Five-O, and other old CBS series are routinely licensed to the Me-TV broadcast network, specializing in nostalgia. Programs are also licensed to major companies operating Internet-based subscription services, on-demand services and electronic-sell-through services. Table 2.4 provides select examples of these Internet-based distribution services. Founded in 2007, CBS Films produces, acquires, and distributes movies for theatrical exhibition in the U.S. and globally as well as for distribution on CBS’s pay cable channels. The maximum budget per film is $50 million, excluding advertising and marketing. Besides box office revenues, these films earn revenues through the usual combination of release on DVD and Blu-ray; electronic rental and digital purchasing; licensing to pay-per-view and video-on-demand; and premieres on CBS’s premium cable channels, basic cable channels, and television networks. Revenues from licensing and merchandising are also pursued. Some acquired films have won accolades at events like the Cannes Film Festival or Toronto International Film Festival.23 In November 2014, CBS Films and Lions Gate Films contracted for Lions Gate to distribute CBS Films’ movies. Despite rumors at the time regarding CBS buying Sony’s Columbia Pictures, Sumner dismissed that as “pure nonsense,” presumably given Paramount’s focus on blockbusters.24 CBS Interactive provides access to CBS content on a global basis via the Internet. Table 2.5 lists the CBS Interactive properties. CBS Interactive reported attracting 294 million unique visitors during December 2014, citing comScore Media Metrix as the source for that number. Earnings come from advertising and sponsorship, and “fees derived from search and commerce partners, licensing fees, subscriptions, e-commerce activities, and other paid services.”25

Cable Networks In the split from Viacom, CBS got the basic cable channel CBS Sports, emphasizing college sports, and majority ownership of the Smithsonian Channel and its website. The Smithsonian Institution has a minority share in both. CBS and Lions Gate equally co-own the POP cable channel (formerly TV Guide Network). CBS also got Showtime Networks comprised by the pay cable channels Showtime, The Movie Channel, and Flix. However, CBS was not given a film studio and not guaranteed access to Viacom’s Paramount Studio. With the creation of CBS Films producing less

TABLE 2.4 Selected Firms Delivering CBS Programming by Internet

Company

Area

Amazon Apple Canal Play DLA Netflix Nippon TV Telefonica Telecom NZ

U.S., Germany, U.K. U.S., Canada, Australia France Caribbean, Latin America U.S., Canada, Europe, Latin America Japan Spain New Zealand

Source: CBS, Corporation, 10-K, 2014, p. I-3, available from http://investors.cbs corporation.com/phoenix.zhtml?c=99462&p=irol-sec

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TABLE 2.5 Selected CBS Interactive Digital Properties

Site

Focus

CBS.com CBS All Access CBS Audience Network

Current programs on the CBS television network On-demand access to more programs than on CBS.com Provides new and recycled content from other Entertainment operations to third-party websites News, sports, feature stories, human interest stories Sports news, information, fantasy sports, e-commerce Technology, consumer electronics: reviews, previews, downloads, eSports CNET content in Spanish Game reviews, previews, downloads, eSports, webcasts Music, recommendations, social networking Song lyrics Information about most U.S. programs, social networking Schedules, information about current programs Technology news and information, new products

CBSNews.com CBSS Sports CNET CNET en Espanol GameSpot Last.fm MetroLyrics.com TV.com TVGuide.com ZD Net

expensive films, CBS announced that Showtime’s costs for film acquisition would decrease as the channel featured CBS Films products.26 CBS participates in four international joint ventures involving co-owned subsidiaries delivering cable/satellite channels on a regional basis. CBS holds 49% of an AMC Networks subsidiary that delivers six channels to Ireland and the U.K. as well as 30% of another subsidiary delivering nine channels to Africa, Europe, and the Middle East. Each subsidiary distributes three CBS channels: CBS Action, CBS Drama, and CBS Reality. CBS also owns a 33% stake in Ten Network Holdings (TNH) and provides programming to TNH’s digital television service ELEVEN. CBS owns 30% of the RTL Group’s channels—RTL CBS Entertainment and RTL CBS Extreme—distributing programs to Southeast Asia in English and local languages.

Publishing Simon & Schuster publishes print, audio, and electronic books on a global basis with subsidiaries in Australia, Canada, India, and the United Kingdom. Among its imprints are Pocket Books, Scribner, Atheneum Books for Young Readers, and Aladdin. In 2014, it published 294 books that became New York Times best-sellers and 26% of its revenues came from digital sales. It also “develops special imprints and publishes titles based on the products of certain CBS businesses as well as that of third parties.”27 Simon & Schuster publishes a book series for each of the five Star Trek live action television shows, novelizations for the Star Trek movies, Star Trek-inspired book series targeting young readers or teens, and non-fiction books. Also appearing in numerous publications are characters from Viacom’s Nickelodeon channel like SpongeBob SquarePants and Dora the Explorer. In 2001, Simon & Schuster published A Passion to Win, Sumner’s biography written with Peter Knobler (2001).

Local Broadcasting CBS owns a total of 106 radio stations and 28 television stations. Of these, 58 radio stations and 14 television stations are in the top ten broadcasting markets, which are listed in Table 2.6. Table 2.7 shows that the remaining 48 radio stations and 16 television stations are in lesser markets that have considerable populations and thus less appeal for advertisers.

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TABLE 2.6 Broadcast Stations Owned by CBS in the Top Ten U.S. Markets

Market

TV Rank

New York City Los Angeles Chicago Philadelphia Dallas/Fort Worth San Francisco/Bay Area Boston Washington, DC. Atlanta Houston

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th

Total number of stations

–

# TV Stations 2 2 1 2 2 2 2 0 1 0 14

Radio Rank 1st 2nd 3rd 8th 5th 4th 10th 7th 9th 6th –

# Radio Stations 7 6 7 6 6 6 5 6 3 6 58

Source: CBS, Corporation, 10-K, 2014, p. I-11–13, available from http://investors.cbscorporation.com/phoenix.zhtml ?c=99462&p=irol-sec

TABLE 2.7 Remainder of U.S. Broadcast Stations Owned by CBS

Market

TV Rank

Phoenix Detroit Tampa/St. Petersburg Seattle/Tacoma Minneapolis Miami/Ft. Lauderdale Denver Orlando Cleveland Sacramento St. Louis Pittsburgh Baltimore Indianapolis San Diego Riverside/San Bernardino

11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 26th 27th 28th (rank not shown)

Total number of stations

–

#Stations 0 2 1 1 3* 2 1 0 0 2 0 2 1 1 0 0 16

Radio Rank 14th 12th 19th 13th 16th 11th 18th 33rd 31st 28th 22nd 26th 21st 39th 17th 25th –

#Stations 3 6 0 4 3 3 0 3 4 5 3 4 4 0 2 4 48

*Of the 3 Minneapolis stations, two are satellite stations. Source: CBS, Corporation, 10-K, 2014, pp. I-11–13, http://investors.cbscorporation.com/phoenix.zhtml?c=99462&p=irol-sec

CBS television stations generally receive programming through affiliation: 14 are affiliated with the CBS network, 8 with CW, and 2 with 21st Century Fox’s MyNetwork. The remaining 4 stations rely on syndicated programming (Table 2.8). Radio stations follow pre-set formats, i.e., popular music for adults on 49 stations; news, sports, and talk on 38; country music on 12; Spanish programming on 3; and urban or alternative music on 2. For its last station in the San Francisco–San Jose market, CBS contracts with Cinemaya Media, which programs for South Asian listeners. CBS also syndicates its news, sports, and talk programs to 300 affiliated stations located in the U.S. and Canada (Table 2.9).

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TABLE 2.8 Affiliation Status of 28 CBS-owned Television U.S. Stations Excluding 2 Satellite Stations

Tied to a CBS Affiliate Top 10 Markets Other Markets

CBS

CW

Unaffiliated

MyNetworkTV (21st Century Fox)

7 7

3 5

3 1

1 1

Source: CBS, Corporation, 10-K, 2014, pp. I-11–13, http://investors.cbscorporation.com/phoenix.zhtml?c=99462&p=irol-sec

TABLE 2.9 CBS Radio Formats & Number of U.S. Stations Using Those Formats*

In-House Programming

# in the Top 10

# in the Rest

News/News-Talk Sports Adult Contemporary Top 40 Classic Hits Country Spanish Classic Rock Urban Alternative

13 11 10 8 5 3 3 1 1 1

4 10 13 6 4 9 0 2 0 0

*CBS owns Station KZDG-San Francisco, but contracts with Cinemaya Media for music and talk programing focused on India and Indian-Americans. Source: CBS, Corporation, 10-K, 2014, pp. I-11–13, http://investors.cbscorporation.com/phoenix.zhtml?c=99462&p=irol-sec

Corporate Structure: Viacom, Inc. Viacom also spans multiple media industries and its 10-K filing identifies two segments: Media Networks and Filmed Entertainment.

Media Networks This segment earns revenues from content-based advertising and marketing as well as affiliation fees from companies running cable systems, satellite-delivery systems, video-on-demand services, telecommunications services, etc. Ancillary revenues are generated by sales of DVDs and Blu-ray discs, download-to-own or rental services, television syndication, and licensing and merchandising. Advertising provided 49% of the of total revenue for Media Networks, whereas fees provided 46% and ancillary operations 5%. Four branded groups of cable channels comprise Media Networks, operating in the U.S. and globally: BET Networks, Entertainment Group, Music Group, and Nickelodeon Networks. Four channels comprise BET Networks, all targeting African-Americans (Table 2.10). BET runs general programming, BET Gospel focuses on gospel music and inspirational programs, and BET Hip Hop mixes music videos with comedy. These channels target the 18–49-year-olds. Centric addresses African-American women.28 Two channels in the Entertainment Group cater to men (Table 2.11). Comedy Central specializes in contemporary humor for men, 18–34. SPIKE targets men, 18–49 with action-adventure, sports, male-oriented reality shows. Viacom launched SPIKE using prime-time reruns of Star Trek: The Next Generation and Deep Space Nine. Currently, TV Land’s target audience is being expanded by

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TABLE 2.10 Viacom BET Networks’ Channels

Channel

Programming

Target Audience

BET BET Gospel BET Hip Hop CENTRIC

General programming Gospel music videos, inspirational programs Rap, hip hop, & classic music videos; stand-up comedy General programming

African-Americans, 18–49 African-Americans, 18–49 African-Americans, 18–49 African-American women

Source: Viacom, Inc., 10-K,2014, pp. 8–9, http://ir.viacom.com/sec.cfm

TABLE 2.11 Viacom Entertainment Group Cable Channels

Channel

Programming

Targeted Audience

Comedy Central SPIKE TV Land

Comedy Action-adventure, reality, sports Reruns, 1950s–2000s

Men, 18–34 Men, 18–49 Adults, 25–45

Source: Viacom, Inc., 10-K,2014, pp.7–8, http://ir.viacom.com/sec.cfm

adding new comedies targeting Generation-X to its line-up of nostalgic television series aimed at baby boomers.29 The Music Group has 9 channels with 8 focused on music videos and reality shows (Table 2.12). Those channels and their target audiences are: MTV and MTV2, males, 12–34; MTVu, college students, 18–24; Tr3s, bicultural Latinos, 18–34;30 VH1 and VH1 Classic, adults, 18–55; CMT, country music fans; and Palladia, technophiles and audiophiles. The ninth channel, Logo, has programs with LGBT themes, which suggests an interest in both LGBTQ communities and millennials who are generally LGBTQ-tolerant.31 Nickelodeon Networks has four channels (Table 2.13). Two channels are straightforward. Teen Nick runs comedy series and cartoons for persons aged 12–24, while Nicktoons offers cartoons for boys aged 2–11. The other two channels each run two distinct programming blocks. On one, the daytime block is Nickelodeon, targeting children with cartoons and game shows, while the evening block is Nick at Nite, rerunning comedy series to attract adults. On the other channel, the daytime block is Nick Jr., running cartoons and games for preschool children aged 2–5, while the evening block is NickMom, with comedy series and talk shows for mothers of preschoolers.32 Nielsen ratings treat each block as if it was a separate channel.33 According to Viacom, these networks together reach approximately 700 million households in 165+ countries and territories. That reach involves television channels, online sites, mobile TABLE 2.12 Viacom Music Group

Channel

Programming

Target Audience

MTV MTV2 MTVu Tr3s VH1 VH1 Classic CMT Palladia

Music videos, reality Music videos, reality Music videos, reality Music videos, reality Music videos, reality Music-themed shows Country music themed shows Music recorded via high definition technology General programming with LGBT themes

Males, 12–34 Males, 12–34 College students, 18–24 Bicultural U.S. Latinos, 18–34 Men and women, 18–49 Fans of popular music from the 1960s–1990s Country music fans Owners of high-definition-receiving sets

LOGO

Lesbian, gay, bisexual, and transgendered people

Source: Viacom, Inc., 10-K, 2014, pp. 4–5, http://ir.viacom.com/sec.cfm

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TABLE 2.13 Viacom Nickelodeon Networks

Channel

Programming

Targeted Audience

Nickelodeon *Nickelodeon (daytime) *Nick at Nite

2 line-ups *Cartoons, games *Comedy series, reruns

2 targets *Children *Adults

Nick Jr *Nick Jr (daytime) *NickMoms

2 line-ups *Cartoons, games *Comedy series, talk

2 targets Preschoolers, 2–5 Mothers

Teen Nick

Comedy series, cartoons

Persons, 12–24

Nicktoons

Cartoons

Boys, 2–11

Source: Viacom, Inc., 10-K, 2014, pp. 6–7, http://ir.viacom.com/sec.cfm

access, and computer/telephone applications. Online sites were visited by 62 million unique users on a monthly basis in 2014. Also in the Entertainment Group is a subscription service, Epix, delivering films and television programs via cable channel, online, or video-on-demand. A joint venture between Viacom, MetroGoldwyn-Mayer, and Lions Gate Entertainment, Epix has access to 15,000 titles drawn from the partners’ libraries. Viacom Media Networks conducts its global business through Viacom International Media Networks (VIMN), which distributes channels based on its U.S. channels: MTV Asia, MTV Europe; VH1 Arab World, VH1 Romania; Nickelodeon Africa, Nickelodeon Czech Republic; Comedy Central Israel, Comedy Central U.K. and Ireland, etc. Viacom is particularly active in China with its MTV China channel and provision of Nickelodeon-based content to China Central Television’s Children’s Channel, the Shanghai Media Group, China Mobile, and the Tsinghua Tongfan computer company.34 Viacom also owns or co-owns five international channels. For all these channels, VIMN is trying to expand their coverage. Synergies are expected between Channel 5’s children’s programming and Nickelodeon’s. Most channels draw on Paramount’s library and J-One synergizes with MTV Asia. Viacom partnered with Mumbai’s Network 18 in the co-equally owned joint venture Viacom 18, which owns the Colors and Rishtey channels. Overall, Media Networks earns revenues from theatrical releases of its films; distribution of other producers’ films; licensing fees paid by television, cable, or digital licensees for use of films or television programs; fees paid by advertisers; sales of DVDs and Blu-ray discs; on-demand and download-to-own transactions; and ancillary revenues including licensing for merchandise and to theme parks. Films are marketed using one of four identifiers: Paramount Pictures, Paramount Animation, MTV Films, and Nickelodeon Movies. Television programs are identified as products of Paramount Television.

Filmed Entertainment Filmed Entertainment finances, produces, acquires, and distributes content that consumers access through traditional media, playback technologies, Internet-based media, and mobile devices. This includes live-action movies, theatrical and television animation, networked and syndicated television programming, computer games, and computer applications. These products are distributed through multiple media outlets including theaters, pay television services, premium television channels, basic cable channels, network television broadcast, DVD/Blu-ray, streaming, down-load-to-own, video-on-demand (regular, transactional, subscription), syndicated television,

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airlines, hotels, among others. Filmed Entertainment also exploits its intellectual properties through merchandising, which can involve synergy with CBS (e.g., Simon & Schuster publishes novelizations of Paramount’s new Star Trek films). While branded and franchised films are stressed, Viacom’s annual line-up of films contains movies from varied genres, made in different styles, and ranging in cost and risk. Viacom uses seven brands to market films: Paramount Pictures, Paramount Vantage, Paramount Classics, Insurge Pictures, MTV Films, and Nickelodeon Movies. Some are released in IMAX and 3-D formats. Its film library is estimated to have 3,400 movies and an unspecified number of television series. The library includes all of the Star Trek films. However, because Sumner gave the Star Trek television rights to CBS, Viacom needed CBS’s permission to use the original characters for the Paramount film rebooting the franchise (Star Trek, 2009). CBS granted permission and did not charge Viacom for using its intellectual property. Subsequently, CBS gave the character rights to Viacom. This seems counter to CBS’s inherent interests in earning revenues by licensing intellectual properties or in generating profitable film franchises via CBS Films.

Strategies Aside from Sumner’s and Shari’s personal agendas pursued through NAI, the overall strategy behind CBS and Viacom involves diversification, conglomeration, corporate cooperation, synergy, and globalization. CBS and Viacom integrate their operations vertically and horizontally across multiple media industries. Within and across CBS and Viacom, properties in their media libraries are used to feed current operations in film, television, publishing, licensing, etc. New properties are similarly synergized, resulting in a plethora of brands and franchises that again feed as many current operations as possible. Those operations span the Americas, Europe, Africa, and Asia, with particular attention to markets in China.

Political Overview Sumner Redstone currently holds the majority of voting stock in NAI, Viacom, and CBS, thereby exercising absolute control over these three companies as well as the selection of these firms’ boards of directors. Shari’s minority ownership in NAI gives her only minor influence over corporate policies and the selection of directors.35 Given Sumner’s domination of NAI, Viacom, and CBS, his choice of a successor takes on particular significance. Over the decades, Sumner has named various executives to succeed him, but either he has eventually fired them or they have quit. He recruited Shari and his son Brent into the family business in an apparent competition to be named successor.36 Shari won and, for several years, Sumner and Shari worked together, praising each other publicly.37 In 1999, as part of his divorce settlement with Phyllis Raphael Redstone (Shari and Brent’s mother), Sumner created an irrevocable trust, which has been a subject of speculation. Initially, it was believed to name Shari as his successor on the condition that she was a corporate director of NAI, Viacom, or CBS at the time of his retirement or death.38 In 2006, Sumner published a letter in Forbes magazine claiming that Shari made no contribution to their companies.39 That event triggered private negotiations between their lawyers, resulting in Shari remaining on the boards of NAI, Viacom, and CBS and not selling her stock in these companies. Subsequently, Sumner claimed variously that Shari would not succeed him,40 that the boards of CBS and Viacom would choose his successor,41 and that Viacom’s CEO, Philippe Dauman, would succeed him.42 During an interview in January 2014, he stated “I have no intention of dying! So nobody will succeed me!”43 Information regarding the trust has changed over time.

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Initially, Shari, along with one of Sumner’s five grandchildren and three members of NAI’s Board— Dauman, George S. Abrams, and David R. Andelman—would select a successor by a simple majority vote.44 Dauman’s sale of $140 million worth of Viacom stock in November 2014 gave rise to rumors that Sumner favored Shari over Dauman.45 By May 2015, reports indicated that Shari and her son Tyler Korff would serve as the family’s trustees and the non-family trustees would be Dauman, Abrams, Andelman, Norman Jacobs, and Leonard Lewin (who handled Phyllis’s divorce from Sumner).46 The trust per se will own 80% of NAI, 79.6% of CBS voting rights, and 79.5% of Viacom voting rights.47 At this writing, Sumner is 92 and physically weak; 48 Shari is 61. Both serve on the NAI, Viacom, and CBS boards, and their relationship continues to attract media attention.49

Ties to the State and Lobbying Efforts Sumner has called himself a liberal Democrat 50 and his biography has two stories about politics. The first describes his participation in Edmund Muskie’s 1972 presidential campaign as a donor, fund-raiser, and occasional advisor. The second discusses MTV’s “Choose or Lose” and “Rock the Vote” campaigns during the 1992 election cycle.51 Noting that MTV invited both Democrats and Republicans to appear on the channel, Sumner praised Bill Clinton’s appearances and blamed George H. W. Bush’s initial refusal for making MTV look biased.52 In the 2004 election, Sumner endorsed George W. Bush’s re-election, stating: “I vote for what’s good for Viacom . . . from a Viacom standpoint, the election of a Republican administration is a better deal.”53 Sumner’s political contributions are similarly mixed. He donated to the Democratic presidential campaigns of Jimmy Carter, Michael Dukakis, Edmund Muskie, Al Gore, and John Kerry (2004). He also donated to the Republican presidential campaigns of George H. W. Bush (1992), John McCain (1998 and 2000), and Rudy Giuliani (2008).54 Between 1998 and 2004, Sumner donated $50,000 to the Democratic Party and to individual Democratic candidates.55

Shari Redstone Shari also mixes Democrats and Republicans but with more generosity for Republicans. In 2014, she donated $25,000 to the Republican Party’s Massachusetts Victory Committee and $5,200 to David Cicilline, a Rhode Island Democrat in the House of Representatives.56 In 2012, she donated $20,800 to Romney Victory Incorporated and $15,000 to the Republican organization Committee to Elect an Effective Congress. In 1999, her donations went to the Democratic National Committee ($500) and two Democratic candidates for the Senate: Hillary Rodham Clinton ($1,000) and Rhode Island’s Richard A. Licht ($2,000).57 For both Redstones, no ideology seems to guide their mix of candidates.

Viacom International Inc. Political Action Committee Sumner, Shari, and employees of CBS and Viacom contribute to this PAC, which supports candidates running for federal office. The Center for Responsive Politics has aggregated data from the Federal Election Commission identifying the amount donated to Democrats and Republicans and the percent donated to candidates from each party by election cycle from 1998 to 2014.58 Table 2.14 summarizes those data for nine election cycles. The Viacom PAC gave equally to Democrats and Republicans in two cycles, gave more to the Democrats in two cycles, and more to the Republicans in five cycles. This suggests Republicans mirror the corporate self-interests of NAI, CBS, and Viacom more than Democrats.

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TABLE 2.14 Viacom Political Action Committee Contributions to Federal Candidates (in Two-year

Campaign Cycles) Year

Democrats (%)

Republicans (%)

Total Amount ($)

2014 2012 2010 2008 2006 2004 2002 2000 1998

44 50 58 61 37 39 49 50 48

56 50 42 39 63 61 51 50 52

295,500 330,000 237,200 161,000 149,000 253,500 278,050 235,961 173,038

Source: Viacom, Inc., 10-K,2014, pp. 6–7, http://ir.viacom.com/sec.cfm

Boards of Directors: NAI, CBS, and Viacom NAI Besides Sumner and Shari, NAI’s board includes Abrams, Andelman, and Dauman.59 Their service on the CBS and/or Viacom boards interlocks NAI with its satellite corporations (Table 2.15). The NAI interlocking directors have a long history together. When Sumner took over Viacom in 1987, he put himself, Abrams, and Dauman on its board. In 1994, Sumner put Shari and Frederic V. Salerno on Viacom’s board. When he split CBS and Viacom, Sumner put Salerno on CBS’s board. Dauman left Viacom in 2000, was rehired in 2006, and placed on the NAI and Viacom boards. The interlocked directors also serve on other boards, as illustrated in Table 2.16.

CBS: Non-Interlocking Directors Ten directors are not interlocked with NAI or Viacom (Table 2.17). However, Salerno and Bruce Gordon are connected. Salerno and Gordon were employed by Verizon and its predecessor company Bell Atlantic from 1997 to 2002.60 Salerno was chief financial officer and vice-chair while Gordon was vice-president of marketing in 1988. After the Bell Atlantic–GTE merger in 2000, Gordon became the president of Verizon’s retail marketing groups and Salerno was Verizon’s chief financial officer and vice chair (2000–2002).

TABLE 2.15 Interlocking Members of the NAI, CBS, and Viacom Boards

Individual

NAI

CBS

Viacom

Sumner Redstone

Chair board, CEO

Chair board, CEO

Chair board, CEO

Shari Redstone

Director NAI President

Non-executive vice-chair

Non-executive vice-chair

Philippe Dauman

Director

(no role)

Director, President, CEO

George S. Abrams

Director

(no role)

Director

David R. Andelman

Director

Director

(no role)

Frederic V. Salerno

(no role)

Director

Director

Source: Open Secrets, Viacom International PAC, www.opensecrets.org/pacs/lookup2.php?strID=C00167759

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TABLE 2.16 Interlocked Directors’ Participation in Other Institutions

Individual

Selected Institutions and Roles

Sumner Redstone

Academy of Television Arts & Sciences, Advisory Council/member NATO, Executive Committee/member Paley Center for Media/trustee Board of Overseers, Boston Museum of Fine Arts/member John F. Kennedy Library Foundation/director Dana-Farber Cancer Institute/trustee Corporation of the Massachusetts General Hospital/member

Shari Redstone

MovieTickets.com (joint venture)/co-chair, co-CEO CineBridge Ventures (luxury multiplexes)/chair, CEO Advancit Capital/co-founder, managing partner NATO, Board of Directors & Executive Committee/member John F. Kennedy Library Foundation/director Dana-Farber Cancer Institute/trustee

Philippe Dauman

DND Capital Partners/co-founder, co-chair, co-CEO Lafarge SA (international building materials)/director NCTA, Executive Committee/member Paley Center for Media/trustee Kipp Foundation (charter schools)/director Lenox Hill Hospital, Executive Committee/member

George S. Abrams

Winer & Abrams (law firm)/senior partner HPT SN Holding (investing information)/director Sonesta International Hotels/director Board of Overseers, Boston Museum of Fine Arts/member

David R. Andelman

Lourie & Culter (law firm)/senior partner, director, treasurer

Frederic V. Salerno

Akami Technologies (computing, networks)/director IntercontinentalExchange (financial, commodity markets)/director Magfusion (micro electromechanical systems)/director, advisor Gabelli Entertainment & Telecommunications Acquisition Corp./director Popular Inc. (diversified bank holding company) director

Sources: “About CBS: Board of Directors,” “Viacom: Board of Directors,” respectively at: www.cbscorporation.com/ ourcompany-board.php?id=118&member=109 and http://thepub.viacom.com/about/pages/boardofdirectors.aspx

Viacom: Non-Interlocking Directors Eight directors on the Viacom board do not interlock with NAI or CBS, and are listed in Table 2.18.

Labor Force/Workers Information is not available regarding the number of people working for NAI, but 10,000 people work for Viacom and 24,700 for CBS.61 Relevant unions include the recently merged Screen Actors Guild–American Federation of Television and Radio Artists; the National Association of Broadcast Employees and Technicians; and the International Association of Theatrical Stage Employees, Moving Picture Technicians, Artists and Allied Crafts.

Government Relations NAI can rely on four trade organizations to lobby for its industrial interests: the Motion Picture Association of America (MPAA), National Association of Theatre Owners (NATO), National

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TABLE 2.17 CBS Non-Interlocking Directors

Leslie Moonves

President, CEO/director ZeniMax Media, Inc./director American Film Institute/trustee Paley Center for Media/trustee

Joseph A. Califano, Jr.

Director National Center on Addiction and Substance Abuse at Columbia University/ founder, chair emeritus National Academy of Sciences, Institute of Medicine/member Century Foundation (think tank)/emeritus trustee

William S. Cohen

Director Cohen Group (business consulting)/chair, CEO U.S.-China Business Council/vice-chair, member Center for Strategic & International Studies/counselor, trustee Partnership for a Secure America/member advisory board

Gary L. Countryman

Director Liberty Financial Companies/president, director NSTAR (energy company)/director Unisource Worldwide (marketing, logistics supplies)/director Dana-Farber Cancer Institute/vice-chair

Charles K. Gifford

Director Bank of America/chairman, CEO Fleet/Boston Financial Corporation/chairman, CEO NSTAR/presiding trustee Eversource Energy/trustee Dana-Farber Cancer Institute/member

Leonard Goldberg

Director Mandy Films, Panda Productions (television series, made-for-TV- movies, films)/president

Bruce S. Gordon

Director ADT (security)/chairman Northrop Grumman (aerospace, security, defense)/director

Linda M. Griego

Director Griego Enterprises (business management)/president, CEO AECOM (management, support services)/director Capital Group’s American Funds/director David & Lucille Packard Foundation/director

Arnold Kopelson

Director Kopelson Entertainment/co-chair, co-president Academy of Motion Picture Arts & Sciences, Producers Branch, Executive Committee/member

Doug Morris

Director Sony Music Entertainment/chair, CEO VEVO (music video on-demand)/founder Motown: The Musical/lead financier, co-producer Rock-N-Roll Hall of Fame/board member Cold Spring Harbor Laboratory (cancer research)/member Robin Hood Foundation (anti-poverty)/member

Source: CBS Corporation, “About CBS: Board of Directors,” at: www.cbscorporation.com/ourcompany-board. php?id=118&member=109

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TABLE 2.18 Viacom Non-Interlocking Directors

Director

Positions Held on Viacom’s Board; Other Connections

Thomas E. Dooley

Senior executive vice president, COO, director DND Capital Partners/co-founder, co-chair, co-CEO

Alan C. Greenberg

Director JPMorgan Chase & Co/vice chair emeritus

Robert K. Kraft

Director Kraft Group/chair, CEO (professional sports) Rand-Whitney Group (containers, waste)/chairman, CEO International Forest Products/founder Dana Farber Cancer Institute/director

Blythe J. McGarvie

Director Leadership for International Finance (global profits, corporate growth)/president Harvard School of Business/senior lecturer Accenture Ltd. (global management, technology, outsourcing)/ director The Travelers Companies (insurance)/director

Deborah Norville

Director Inside Edition (CBS tabloid news magazine)/anchor

Charles E. Phillips, Jr.

Director Infor Global Solutions (enterprise software)/CEO

William Schwartz

Director Cadwalader, Wickersham, & Taft/law firm counsel

Christina Falcone Sorrell Director World Economic Forum/senior advisor Inter-American Development Bank, Office of Outreach & Partnership/principal consultant Paley Center for the Media/trustee Source: “Viacom: Board of Directors,” at: http://thepub.viacom.com/about/pages/boardofdirectors.aspx

Association of Broadcasters (NAB), and National Cable and Telecommunications Association (NCTA). Before deregulation, each association had a distinct membership: the MPAA for film studios and production companies; NATO for theatre owners; NAB for radio and television broadcasters; and NCTA for cable systems and channels. Under the regulatory model, each media industry was an oligopoly in which each firm was a rival, as in the network television industry where ABC, CBS, and NBC each tried to be number one. Each industry competed with the others, e.g. television competed with film. Thus, each industry needed its own trade association to lobby for its distinct industrial self-interests.62 Deregulation opened the way to transindustrial conglomeration, which integrated media industries. Together, NAI, CBS, and Viacom integrate operations in film production, distribution, and exhibition as well as the production and distribution of radio and televisual programming; ownership of radio stations, television stations, and broadcast networks; cable channels, cable networks, and, for some time, cable systems. However, trade organizations continue to address legal and regulatory issues as if each industry and its constituent parts were separate. Each organization lobbies Congress and the relevant Federal agencies to get advantages for one constituency, i.e., MPAA for film studios, NAB for broadcasters, etc. This masks the fact of transindustrial conglomeration through which National Amusements, Time Warner, News Corporation/21st Century Fox, Disney, and Comcast meld together media industries that were once distinct.

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Corporate Responsibility and Charitable Giving Charitable Giving Sumner controls the Sumner M. Redstone Charitable Foundation, which reflects his eclectic interests.63 Germane here are his contributions to medical institutions and universities. Having survived a devastating hotel fire in 1979 followed by five reconstructive surgeries and multiple grafts at the Burn Center of Massachusetts General Hospital, Sumner became a major donor to the Center, eventually renamed in his honor. In 2007, he donated $35 million to the Center and $35 million each to the Cedars-Sinai Prostate Cancer Center and the Faster Cures Foundation. Sumner survived prostate cancer with the support of fellow survivor Michael Milken, who founded Faster Cures.64 Together, these donations totaled $105 million and were attributed to Sumner’s foundation. However, the money came from NAI’s sale of stock in WMS Industries. That sale and the attribution to his foundation required approval by NAI’s board. Only Shari dissented, arguing that NAI should get credit.65 Sumner’s foundation also supports higher education in law and media studies. After funding the Boston University Redstone Film Festival for over 30 years, Sumner donated $18 million for the Law School’s new Sumner M. Redstone Building in 2012. A year later, he donated $10 million to the University of Southern California’s School of Cinematic Arts for the Sumner R. Redstone Production Building. In 2014, Sumner donated $10 million to the Harvard Law School to expand funding for his Redstone Fellowships in public interest law.66

Corporate Responsibility Viacom and Viacommunity Viacom’s website discusses corporate responsibility projects and Viacommunity, a series of projects featured in the 132-page Viacommunity Annual Report (VAR) for 2014.67 VAR’s introduction describes social responsibility as “inextricably linked to our core business,”68 with Viacom donating goods and services valued at $116 million and employees volunteering 40,000+ hours of unpaid labor. The 11 Viacommunity projects featured in the 10-K are shown in Table 2.19, with a brief excerpt from the 10-K’s description in Table 2.20. Overall, the projects focus on individuals and personal actions without regard for structural impediments. A similar focus undergirds the achievements noted in VAR sections titled “Impact Quantified” and “Building Inclusive Societies.”69 VAR’s statements regarding these outcomes can be vague, often failing to identify who donated what, what action was taken, and how an action was a direct outcome of a particular Viacom program. For example, the VAR states that instruments valued at $1.7 million were donated in 2013–2014 to public schools. The VH1 Save the Music website states that these school districts must commit “to funding certified music teachers’ salaries, providing maintenance and supplies, and scheduling instrumental music classes throughout the school day.”70 Apparently, Viacom only deals with districts that have the budgets, faculty, and class offerings to qualify for the gift.

CBS as a Public Trust According to CBS’s social responsibility webpage: CBS Corporation strives to use its power and reach for the public good. Its commitment to quality news coverage, community outreach and support, public service announcements,

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TABLE 2.19 Viacommunity Projects

Project Name

Description in Viacom’s 10-K, p. 13-14

Sponsor

CMT Empowering Education

“tools to aid in tackling and overcoming the most common perceived obstacles to education.”

CMT

Get Schooled Foundation

“leverages the power of pop culture to inspire and empower students to graduate from high school and succeed in college.”

Viacom, Gates Foundation

Paramount’s Kindergarten to Cap & Gown

“supports students through their educational experience targeting three partner schools in Paramount’s Los Angeles Neighborhood.”

Paramount

VH1 Save the Music

“restoring instrumental music education in American public schools”

VH1

MTV Staying Alive

“fighting the stigma, spread, and threat of the HIV and Aids epidemic”

MTV

Nickelodeon’s The Big Help

“engages kids to make a difference in the world by moving their bodies and minds . . . through . . . its annual Worldwide Day of Play.”

Nickelodeon

Rap-It-Up

“informs, educates, and empowers African-American men and women about HIV/AIDS.”

BET

Veterans Operation Wellness (VOWS)

“lead a healthier life through physical fitness, healthier diet, and veteran community activities.”

SPIKE

CMT One Country

“harnesses the collective power of individual actions, promoting civic partnership and inspiring CMT viewers to bring about important change in their communities.”

Green. It’s Paramount to Us

“encourages eco-friendly behavior and business practices in the work-place.”

Paramount

MTV Look Different

“help America’s youth better recognize and challenge hidden racial, gender, and anti-LGBT biases, empowering them to create a more equal future.”

MTV

Source: Viacom, Inc., 10-K, 2014, pp. 13–14, at http://ir.viacom.com/sec.cfm

diversity efforts and socially responsible content across all its divisions has earned CBS the distinction of being a public trust.71 The site’s navigation bar has a diversity tab featuring a diversity blog, company programs to increase diversity among employees, and other diversity activities. The webpage has two links. The first is CBS’s Social Responsibility Report, which provides 125 pages of photographs and descriptions of the company’s community service. Included is news coverage of events like Hurricane Sandy, sporting events like basketball games, and episodes of television series addressing social issues. Also included are public service announcements (PSAs) about diseases like breast cancer; corporate grants for The First Tee, which introduces youth to golf; meet-and-greets hosted by CBS Strategic Sourcing to expose CBS executives to “diverse suppliers;” and events designed to encourage employees to give blood, volunteer, and participate in charity events like the Aids Walk. The report’s overview states: “CBS has made community service a part of our DNA.”72 The second link is to the website CBS Cares, which has information about diseases featured in its PSAs. The PSAs’ monetary value was set at over $200 million in 2013.

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TABLE 2.20 Selected Outcomes of Viacom Corporate Responsibility Projects

Project

Outcome (Time Frame)

Donated in-kind goods & services Employees volunteer Viacommunity Day

$116 million (1 year) 40,000+ hours (1 year) 5,500 employees volunteer in 31 countries with partner organizations (1 day) 300,000 pamphlets distributed (1 year) Website visits up by 154% (1 year) “450,000 actions were taken by young people” (5 months) Delivered “145,454 meals to 36,000 school-age children” (6 years) “1.7 million worth of musical instruments delivered to schools . . .” (1 year) “. . . for a total of $51 million worth for 1,900 schools since 1997.” (18 years) “50,000 involved in 2,000 outdoor events” in 15 countries (1 day)

BET’s Rap-It-Up Get Schooled MTV Look Different CMT One Country VH1 Save the Music VH1 Save the Music Nickelodeon’s The Big Help: Worldwide Day of Play SPIKE Veterans’ Operation Wellness

Honor roll of “20 most veteran friendly companies & non-profits” (unspecified)

Source: Viacommunity Annual Report, 2013–2014, “Impact Quantified,” pp. 10–12, http://issuu.com/viacommunity/ docs/141450_book_final?e=14736229/10532528

Cultural Considerations Symbolic Universe/Ideology Unlike the Walt Disney Company and News Corporation, neither NAI nor CBS nor Viacom is associated with a particular worldview. However, Sumner’s comments on his dealings with the Chinese government are suggestive. He stated that NAI would “cooperate with the Chinese government to see if they have any concerns, to see how we can satisfy them,” noting that he expected few problems given that CBS and Viacom programming “is not political; it’s entertaining.”73 That notion is common in the U.S. media industries and shared by many Americans. However, social research indicates that mediated entertainment shapes the dominant culture, communicates social norms, and influences people’s lives. Certainly, corporations paying for advertisements, product placements, and ad campaigns believe that ‘mere’ entertainment can persuade people to buy advertised goods, adopt consumerist lifestyles, and buy only brand names.74 Regardless of national context, NAI’s products and services remain deeply commercialized and focused on the goals of earning strong revenues while decreasing operational costs. That—in tandem with the legalization of vertical and horizontal integration within and across media industries— encourages the practice of corporate synergy in which every movie, television program, website, etc., feeds as many operations as possible across the many industries embedded in the structures of NAI, CBS, and Viacom. Synergy also fosters the design of franchises and cultivation of fandoms so that even a failed television series like Star Trek can become a multi-decade source of revenue.

Popular Products/Services and Cultural Significance Historically, CBS and Viacom have been associated with many products and services that had and continue to have cultural resonance. I discuss only two here: MTV and the Star Trek franchise.

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“I Want My MTV!” In 1985, Viacom’s purchase of the MTV Networks from Warner-Amex gave Viacom control over a true phenomenon: the original MTV with its seemingly endless stream of music videos and transgressive performers. Part of MTV’s original mission was to promote artists signed to Warner Communication’s music operations, which spanned recording, song publishing, song licensing, and artist management. Among them were Devo (“Whip It”), Prince (“Let’s Go Crazy”), ZZ Top (“Legs”), and Madonna (“Like a Virgin”). Rounding out MTV’s playlist were non-Warner artists like Michael Jackson (“Thriller”), Run-DMC and Aerosmith (“Walk This Way”), and the Eurythmics (“Sweet Dreams Are Made of This”). Viacom had no music operations to promote but it had television production units. Viacom used that capacity to generate new programming, starting with Spring Break in 1986. Formats included award shows (MTV Music Awards), concerts (Live Aid), and hosted programs about specific music genres (Headbangers Ball and Yo! MTV Raps). In the 1990s, MTV’s hosted programs ran the gamut, from MTV Live’s mix of celebrity interviews, music news, live performances, and to Say What?, running subtitled versions of music videos with hard-to-understand lyrics. Much of MTV’s schedule was filled with reality shows like The Real World (1992–present), animations such as Beavis and Butthead (original series 1993–1997, revival series 2011), and sketch comedies like Snoop Dogg’s Doggie Fizzle Televizzle (2002–2003). More recently, MTV has rerun programs that premiered on BET, VH1, and other properties controlled by NAI. As a result, MTV has become just another basic cable channel.

“To Go Where No Man Has Gone Before” As noted, Sumner’s acquisition of Paramount in 1994 included the Star Trek franchise with its films, television programs, official websites, various book series, merchandising deals, etc. Tables 2.21 and 2.22 below identify the television programs and films comprising the franchise.75 From a business perspective, fans are reliable consumers committed to assembling complete collections of products emblazoned with the words Star Trek. From a cultural perspective, fandoms are a socio-cultural phenomenon comprised by individuals organizing their social lives, cultural endeavors, and consumption choices around the symbolic universe of Star Trek. Called Trekkers or Trekkies, Star Trek fans are a persistent, multi-generational community. Fans ritually watch Star Trek television programs and films, collect licensed Star Trek merchandise, join official fan clubs, and attend licensed events, thus contributing regularly to Viacom’s Trek revenues. They also proliferate independent organizations, hold their own events, and generate scads of cultural material in homage to Star Trek including fan fiction, websites, artwork, costumes, videos,76 and scholarly research.77 Fans’ unlicensed use of Trek’s symbolic universe is problematic for Viacom, yet Viacom documented fans’ Trek-based consumption in the films Trekkies (1997) and Trekkies 2 (2004).

TABLE 2.21 Star Trek Franchise: Television Series

Title

Years

Episodes

Star Trek Star Trek: The Animated Series Star Trek: The Next Generation Star Trek: Deep Space Nine Star Trek: Voyager Enterprise

1966–1969 1973–1974 1987–1994 1993–1999 1995–2001 2001–2005

79 22 178 176 172 98

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TABLE 2.22 Star Trek Franchise: Films by Sub-franchise

Star Trek

1979–1991

Star Trek: The Motion Picture The Wrath of Khan The Search for Spock The Voyage Home The Final Frontier The Undiscovered Country

1979 1982 1984 1986 1989 1991

Star Trek: The Next Generation

1994–2002

Generations First Contact Insurrection Nemesis

1994 1996 1998 2002

Star Trek Reboot

2009–2016

Star Trek Star Trek into Darkness Untitled 50th anniversary sequel

2009 2013 2016

Social values implicit in the franchise have varied over time. The original Star Trek drew from liberal views of the mid-1960s, including racial and gender integration in the workplace and recognition that men and women have a right to consensual sexual relationships outside of marriage. While such ideas have persisted, they have been reworked and renegotiated, culminating in Star Trek reboot film (Star Trek, 2009) with a social vision more akin to post-feminist and neoliberal ideology.78 Given the combination of agency and structure within which individual media artists work and transindustrial media corporations operate, that ideological shift in the Star Trek franchise is indeed noteworthy.

Concluding Remarks Although at first glance seemingly separate, NAI, CBS, and Viacom are linked through Sumner’s majority ownership of NAI and majority ownership of voting stock in CBS and Viacom. As indicated by Sumner’s decision to cut CBS out of Viacom, his personal goals have strongly influenced the three corporations’ structures. But neither Sumner nor Shari nor any of the voting stockholders have an interest in CBS or Viacom becoming competitors, for example, CBS creating or buying a major film studio producing blockbusters. Corporate stability and transcorporate synergy offer more possibilities to exploit old media properties through recirculation across media outlets, reboots, licensing and merchandising, etc. Despite apparent independence, contemplating NAI, CBS, and Viacom together illuminates an indirect path to achieving horizontal integration, vertical integration, and transindustrial conglomeration. As long as the news media, trade press, and financial press treat Viacom and CBS as independent companies, then NAI’s corporate significance for U.S. and global media industries will remain hidden. Until that occurs, National Amusements remains an invisible giant in the U.S. and global media industries. But is this giant threatened by the imminent death of Sumner Redstone, the man who built three drive-in theaters into a media empire? Speculation varies, with some projecting that the surviving Redstones will be forced to sell CBS and Viacom to pay estate taxes, others that Shari can depend on her son’s support but will have to carefully court the non-family trustees to keep the empire running, still others that Sumner’s four other grandchildren may want to cash out

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quick. How the relevant individuals will exercise their agency, within the context of the immediate corporate structures and global capitalism—and how those contexts will shape individual choices—remains to be seen.79

Notes 1 Sumner is 77th on the Forbes list of U.S. billionaires, 225th on the list of global billionaires, and worth $6.3 billion. Forbes, “The World’s Billionaires.” Available at www.cbsnews.com/news/viacom-makessplit-official/2/; www.forbes.com/profile/sumner-redstone/. Shari is not listed but has achieved billionaire status according to David Callahan, “Shari Redstone and Philanthropy: Why We Should Pay Attention,” Inside Philanthropy, 2014. Available at www.insidephilanthropy.com/home/2014/5/27/shari-redstone-andphilanthropy-why-we-should-pay-attention.html 2 When Sumner Murray Rothstein was 17, his father, Michael Rothstein, changed the family’s surname to Redstone, which is the literal translation of Rothstein. 3 Sumner Redstone with Peter Knobler, A Passion to Win (New York: Simon & Schuster, 2001). David Marc, “Sumner M. Redstone 1923–,” Reference for Business, Encyclopedia of Business, 2nd edition. Available at www.referenceforbusiness.com/biography/M-R/Redstone-Sumner-M-1923.html 4 David Marc, “Sumner M. Redstone 1923–,” Reference for Business, Encyclopedia of Business, 2nd edition. Available at www.referenceforbusiness.com/biography/M-R/Redstone-Sumner-M-1923.html 5 Midway moved into video games, including Mortal Kombat and Tron, which were licensed for films: Time Warner’s Mortal Kombat (1995) and Disney’s Tron (1982). 6 Sumner Redstone with Peter Knobler, A Passion to Win. 7 The Columbia Phonographic Broadcasting System was comprised by the United Independent Broadcasters Incorporated. These 16 independent radio stations were assembled by Arthur Judson, a noted impresario, after RCA backed out of a deal to have Judson provide a radio programming bloc focused on music. Columbia acquired them in 1926 to promote its artists and records. See James M. Doering, The Great Orchestrator: Arthur Judson and American Arts Management (Urbana: University of Illinois Press, 2013). 8 RCA’s vertically integrated structure had been accepted by the Federal Radio Commission, itself established in 1926 to support and regulate the industry. See Erik Barnouw, A Tower in Babel: A History of Broadcasting in the United States to 1933 (Oxford, UK: Oxford University Press, 1966). 9 Erik Barnouw, A Tower in Babel. 10 Eileen R. Meehan (Ed.), “A History of the Commodity Audience” in A Companion to the History of American Broadcasting, Wiley-Blackwell, forthcoming. 11 Before deregulation began in 1981, independent producers retained their intellectual property rights in the television series that they produced. Deregulation allows networks to force producers to sign over their rights in order to get a series on television. Benjamin M. Compaine and Douglas Gomery, Who Owns the Media?: Competition and Concentration in the Mass Media Industry (New York: Routledge, 2000). 12 Star Trek aired from 1966–1969 on NBC and Mannix from 1967–1975 on CBS. 13 Seth Sutel, “Age of the Media Conglomerate Is Over, Viacom’s Redstone Says,” Associated Press, August 11, 2005. Available at www.frankwbaker.com/viacom_split.htm. Also: Pamela McClintock, “Viacom Board Oks Spinoff,” Variety, June 14, 2005. Available at http://variety.com/2005/scene/news/sumnerscores-split-decision-1117924408/ 14 Joel Arak, “Viacom Makes Split Official,” CBS News. Available at www.cbsnews.com/news/viacommakes-split-official/ 15 Claudia Eller and Amy Kaufman, “CBS takes a Shot at the Risky Business of Hollywood Films,” Los Angeles Times, January 11, 2010. Available at http://articles.latimes.com/2010/jan/11/business/ la-fi-ct-cbsfilms11–2010jan11 16 Information for CBS from Forbes, “Global 2000 CBS.” Available at www.forbes.com/companies/cbs/; for Viacom from Forbes, “Global 2000 Viacom.” Available at www.forbes.com/companies/viacom/ 17 Forbes, Fortune 500 2014. Available at fortune.com/fortune500/CBS-corporation-182/. 18 Forbes, Fortune 500 2014. Available at fortune.com/fortune500/Viacom-inc2014. 19 National Association of Theater Owners, “Top 10 U.S. and Canadian Circuits,” 1 July 2014. Available at http://natoonline.org/data/top-10-circuits/ 20 William D. Cohen, “Who Controls Sumner Redstone?,” Vanity Fair, May 20, 2015. Available at www.vanityfair.com/news/2015/05/sumner-redstone-health-fortune 21 CBS, Annual Report (10-K), Securities Exchange Commission, 2006 and Viacom, Annual Report (10-K), Securities Exchange Commission, 2006. 22 CBS, Annual Report (10-K), Securities Exchange Commission, 2014, p. II-15; Viacom, Annual Report (10-k), Securities Exchange Commission, 2014, p. 22.

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23 Notable for their thematic difference is Pride, the true story of U.K. gay rights activists supporting the National Union of Mineworkers strike, which won a Queer Palm at Cannes in 2014, and Afflicted, a vampire-tale-with-a-twist, honored by a special citation at Toronto in 2013. 24 Lindsay Flans and Kim Masters, “Sumner Redstone Isn’t Quite Finished Fighting,” Hollywood Reporter, January, 14, 2014, vol. 420, issue 2, 62–67. 25 CBS, Annual Report (10-K), Securities Exchange Commission, 2014, I–4. 26 Frank Ahrens, “CBS Plans Foray into Film with New Studio,” Washington Post, March 8, 2007. Available at www.lexisnexis.com.proxy.lib.siu.edu/hottopics/lnacademic/? 27 CBS, Annual Report (10-K), Securities Exchange Commission, 2014, I-8. 28 Viacom, Inc., 10-K, 2014, 8–9. Available at http://ir.viacom.com/sec.cfm 29 Viacom, Inc., 10-K, 2014, 7–8. Available at http://ir.viacom.com/sec.cfm and Cynthia Littleton, “TV Land Unveils New Logo, Branding Campaign Aimed at Gen Xers,” Variety, June 23, 2015. Available at http://variety.com/2015/tv/news/tv-land-unveils-new-logo-branding-campaign-aimed-at-gen-xers1201526440/ 30 Tr3s is pronounced like the Spanish word for three: tres. 31 Viacom, Inc., 10-K, 2014, 4–5. Available at http://ir.viacom.com/sec.cfm. See also the Public Religion Research Institute, Executive Summary, “Survey: Generations at Odds—The Millennial Generation and the Future of Gay and Lesbian Rights.” Available at http://publicreligion.org/research/2011/08/ generations-at-odds/#.Ve791kLZfdk 32 Viacom, Inc., 10-K, 2014, 6–7. Available at http://ir.viacom.com/sec.cfm 33 Scott Collins, “Nickelodeon Squeezes 2 Ratings Out of 1 Very Diverse Network,” Los Angeles Times, March 25, 2005. Available at http://articles.latimes.com/2004/mar/25/business/fi-nick25 34 Georg Szalai with Jonathan Landreth and Alex Woodson. “Cultural Exchange: Viacom Chief Has Made Doing Business with China a Priority.” Hollywood Reporter —International Edition, October 25, 2005, vol. 391, issue 26. Available at www.hollywoodreporter.com/thr/international/feature-display.jsp?.vnu_ content, accessed 10 February 2015. 35 Luke O’Brien, “Trouble in the House of Redstone,” Boston Magazine, December 2009. Available at www.bostonmagazine.com/2009/11/trouble-in-the-house-of-redstone/ 36 Geraldine Fabrikant, “Inside a Media Mogul’s Closet, a Son Sees Dirty Laundry,” New York Times, February 23, 2006. Available at www.nytimes.com/2006/02/15/business/media/15viacom.html?pagewanted= all&_r=0 37 Geraldine Fabricant, “Redstone Heir Steps Deeper into Viacom Territory,” New York Times, May 10, 2004. Available at http://nytimes.com/2004/05/10/business/redstone- heir- steps-deeper-into-viacomterritory.html?pagewanted+all&scr+pm 38 Robert Lenzner with David Pendleton, “Family Feud,” Forbes, November 12, 2007, 108–115. 39 Sumner Redstone, “Sumner Redstone Letter to Forbes,” July 20, 2007. Available at www.forbes.com/ 2007/07/20/redstone-viacom-letter-cx_0720redstoneltr.html The letter was addressed to Robert Lenzner. 40 Tim Arango and Andrew Ross Sorkin, “Redstone Says No to Anointing His Daughter,” New York Times, July 10, 2008. Available at http://nytimes.com/2008/05/07/business/media/10redstone.html?dbk&_r=0 41 Robert Lenzner with David Pendleton, “Family Feud,” Forbes, November 12, 2007, 108–115. 42 Amy Chozick, “The Man Who Would Be Redstone,” New York Times, September 23, 2012, BU1. 43 Lindsay Flans and Kim Masters, “Sumner Redstone Isn’t Quite Finished Fighting,” Hollywood Reporter, January 17, 2014, vol. 420, issue 1, 62–67. 44 David Lieberman, “What Happens to Sumner Redstone’s Empire When He Goes—The Answer,” Deadline, February 3, 2015. Available at http://deadline.com/2015/02/sumner-redstone-empire-afterdeath-viacom-cbs-1201365355. See also Claire Atkinson, “Eager Buyers Hoping for Early Sumner’s End to Viacom reign,” New York Post, December 4, 2014. Available at http://nypost.com/2014/12/04/eagerbuyers-hoping-for-early-sumners-end-to-viacom-reign/ 45 Claire Atkinson, “Viacom’s CEO Stock Dump Has Wall Street Buzzing,” New York Post, December 12, 2014. Available at http://nypost.com/2014/12/12/viacom-ceo-stock-dump-has-wall-street-buzzing 46 In 1999, Leonard Lewin handled Phyllis Redstone’s divorce from Sumner. Norman Jacobs is also a lawyer who has had Sumner as a client. Christopher Palmeri, “Sumner Redstone Sets Up a Legacy of Conflict at Viacom, CBS,” Bloomberg News, May 21, 2015. Available at www.bloomberg.com/news/articles/ 2015-05-21/redstone-receding-could-lead-to-conflict-enveloping-cbs-viacom 47 See Palmeri. 48 See Lenzer with Pendleton and also Flans and Masters. 49 “Who Controls Sumner Redstone,” Vanity Fair, September, 2015. Available at www.vanityfair.com/ news/2015/05/sumner-redstone-retirement-health-viacom-future; Christopher Palmeri, “Shari Redstone Pulled to Hollywood Power Circles as Her Father Fades,” BloombergBusiness, May 31, 2015. 50 “Guess Who’s a Republican Booster?,” Wall Street Journal, September 24, 2004. Available at www.wsj.com/articles/SB109597935862226625

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51 Sumner Redstone with Peter Knobler, A Passion to Win, 170–172. 52 Redstone with Knobler, 171. 53 “Guess Who’s a Republican Booster?,” Wall Street Journal, September 24, 2004. Available at www.wsj. com/articles/SB109597935862226625, accessed September 24, 2004. 54 See “Sumner Redstone,” Notable Names Data Base (NNDB). Available at www.nndb.com/people/ 631/000024559/ 55 See “Sumner Redstone,” NNDB. Available at www.nndb.com/people/631/000024559/ 56 NAI owns theaters in Rhode Island. 57 Shari Redstone, campaignmoney.com. Available at www.campaignmoney.com/political/contributions/ shari-redstone.asp?cycle=12 and www.campaignmoney.com/political/contributions/shari-redstone.asp? cycle=00 58 Center for Responsive Politics, Viacom Inc.: Summary. Available at www.opensecrets.org/pacs/look up2.php?strID=C00167759 59 BloombergBusiness lists Sumner, Shari, Dauman, and Abrams. The CBS website on its Board of Directors identified David R. Andelman as a board member who also serves on NAI’s board. Given NAI’s status as a non-reporting private company and its ownership of CBS, I include Andelman as a member of both boards. See BloombergBusiness, NAI board of directors at: www.bloomberg.com/research/stocks/ private/people.asp?privcapId=846508, and CBS’ “David R. Andelman” at www.cbscorporation.com/ ourcompany-board.php?id=118&member=111 60 “Business Makers: Bruce Gordon,” The History Makers. Available at www.thehistorymakers.com/ biography/bruce-gordon. 61 Forbes, “Viacom at a Glance” and “CBS at a Glance.” Last checked 7 April, 2015. Available, respectively, at www.forbes.com/companies/viacom/ and www.forbes.com/companies/cbs/financial/CBS/. 62 Eileen R. Meehan “A Legacy of Neoliberalism: Patterns in Media Conglomeration,” in Jyotsna Kapur and Keith B. Wagner, Neoliberalism and Global Cinema: Capital, Culture, and Marxist Critique (New York: Routledge, 2011), pp. 38–58. 63 See Lenzner with Pendleton and Marc. 64 “George Washington University receives $80M donation from Redstone, Milken,” CBSNews.com, March 11, 2014. Available at www.cbsnews.com/news/george-washington-university-receives-80m-donationfrom-redstone-milken/. Milken was central to the creation of so-called junk bonds in the 1980s, was indicted for securities fraud in 1989, and served 22 months in federal prison. Subsequently, the SEC issued a lifelong ban on any involvement in the securities industry. Forbes lists Milken at #737 among global billionaires and #259 among U.S. billionaires, and estimates his worth at $2.5 billion (www. forbes.com/profile/michael-milken/). 65 See Lenzer with Pendleton, 114. 66 Colin A. Young, “Redstone Donates $18 Million to BU’s School of Law, The Boston Globe, September 14, 2012. Available at www.bostonglobe.com/business/2012/09/13/redstone-donates-million-lawschool/u8W5cTjTgiu0U51Ex6VzkM/story.html; Debra Cassens West, “Media Mogul Donates 10M for Harvard Law Fellowships,” ABA Journal, January 10, 2014. Available at www.abajournal.com/ news/article/media_mogul_donates_10m_for_harvard_law_fellowships/?utm_source=feedburner&utm_m edium=feed&utm_campaign=ABA+Journal+Daily+News; U.S.C School of Cinematic Arts, “Sumner Redstone Makes Major Donation to SCA,” Available at http://cinema.usc.edu/news/article. cfam?id=13250 67 Viacom, “Viacommunity.” Available online at www.viacommunity.com/Pages/default.aspx 68 Viacommunity Annual Report 2014. Available at issu.com/viacommunity/docs/141450_book_final?e= 14736229/10532528; Viacom, Annual Report (10-k), Securities Exchange Commission, 2014, 13. 69 Viacommunity Annual Report, 2013–2014, “Impact Quantified,” and “Building Inclusive Societies,” respectively, 9–10 and 11. Available at www.viacommunity.com/impact/Annual%20Reports/141450_ BOOK_FINAL.pdf 70 VH1 Save the Music Foundation Annual Report, both quotations p. 3. Available at http://vh1stm. s3.amazonaws.com/STM_AR_2012.pdf; The web page for donations is www.vh1savethemusic. org/donate 71 CBS Corporations, “About CBS: Corporate Responsibility.” Available at www.cbscorporation.com/ ourcompany.php?id=212 72 CBS Social Responsibility Report, 2014, unpaginated (third page counting the cover page), “Letter from the President and CEO,” attributed to Les Moonves. Available at www.cbscorporation.com/ _uploads/mce_files/CBS_SRR%202014.pdf 73 Georg Szalai with Jonathan Landreth and Alex Woodson. “Cultural Exchange: Viacom Chief Has Made Doing Business with China a Priority.” Hollywood Reporter — International Edition, October 25, 2005. Volume 391, Issue 26. Available at www.hollywoodreporter.com/thr/international/featuredisplay.jsp?. vnu_content. Accessed February10, 2015.

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74 The same can be said of other organizations purchasing advertising including political action committees, political parties, churches, trade unions, etc. 75 Eileen R. Meehan, “Star Trek, Synergy, and the Transindustrialization of Tribbles,” Why TV Is Not Our Fault, 2005, Rowman & Littlefield, Lanham, MD, 89–116. 76 To watch the web episode “The Tressaurian Intersection” of the Starship Exeter fan series, see www.starshipexeter.com. 77 For example, Cassandra Amesley, “How to Watch Star Trek,” Cultural Studies, vol. 3, issue 3, (1989) 323–339; Camille Bacon-Smith, Enterprising Women: Television Fandom and Popular Myth (Philadelphia: University of Pennsylvania Press, 1991). 78 Deborah Tudor and Eileen R. Meehan, “Demoting Women on the Screen and in the Boardroom,” Cinema Journal, vol. 53 issue 1, 2013, 130–136. 79 Lindsay Flans and Kim Masters, “Sumner Redstone Isn’t Quite Finished Fighting,” Hollywood Reporter, January, 14, 2014, vol. 420, issue 2, 62–67; Brian Sternberg, “Questions over Sumner Redstone’s Health Draw More Scrutiny for Viacom, CBS,” Variety, May 22, 2015. Available at http://variety.com/ 2015/tv/news/sumner-redstone-health-questions-viacom-cbs-1201503644/

3 TIME WARNER Scott Fitzgerald

Time Warner remains one of the leading corporations in the global media industry. For the majority of the last decade of the 20th century and the first decade of the new millennium, this U.S.-based firm ranked as the world’s largest media corporation. This position built on a history of corporate acquisitions and expansion in a range of communication and cultural industries, which appeared to be secure at the beginning of the 21st century following the formation of AO–Time Warner. Yet over the last decade Time Warner has stepped back from the forms of conglomeration that were synonymous with its growth and divested many of its operations. While remaining highly successful and culturally significant, its current operations, adjusting for inflation, only produce approximately half of its 2001 revenues. Its 2014 revenues ($27.36 billion) ranked 8th behind Comcast, Google, The Walt Disney Company, News Corp/21st Century Fox, DirecTV, and National Amusements (Viacom/CBS).1 In 2014, Rupert Murdoch’s 21st Century Fox sought to acquire more critical mass in a rapidly consolidating media and communications environment by making an $80 billion bid for Time Warner and its cable networks, filmed entertainment operations, and sports rights. Time Warner quickly rejected the bid: Jeffrey L. Bewkes, the corporation’s current CEO and Chairman, reassured its stockholders that such a “game-changing transaction” was unnecessary: “Our scale, our brands, [and] the management . . . put us in a position to capitalize on the trends in the world . . . [especially] a very strong growing demand for highquality video content.”2 How is Time Warner positioned today in terms of the size of its operations and the scope of its cultural commodities? What are the goals and strategies of its management? How has Time Warner’s de-conglomeration affected both the type of operations it runs and the power it has within international commodity chains? To answer these questions, it is necessary to review the company’s current organization and development. This chapter starts with a brief history of Time Warner and the two companies from which it emerged, Time Inc. and Warner Communications Inc. It then presents an overview of the company’s more recent economic, political, and cultural activities.

Historical Background Time Inc. began in 1922 as the publishing company for Time magazine which, after its debut in 1923, quickly set the standard for the national news magazine. Warner Bros.’ history also begins in the early 20th century with the emergence of commercial film industry in the U.S. It developed

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into one of Hollywood’s Big Five vertically integrated studios in less than a decade after it was incorporated in 1923, thanks in part to the introduction of sound technology (The Jazz Singer in 1927), but more importantly due to access to large-scale investment capital. Warner Bros. established a production firm in the United Kingdom and competed in U.S.-dominated international film markets. As well as consolidating its ownership of movie theatres, in the 1930s Warner Bros expanded into music publishing and radio broadcasting by producing a range of gangster, musical, and swashbuckling films featuring “contracted players” such as James Cagney, Edward G. Robinson, Olivia de Havilland, Bette Davis, Humphrey Bogart, and Errol Flynn.3 Time Inc. also launched Fortune magazine in 1929, Life magazine in 1936, and amassed enormous profits through its Time news magazine. In the early 1960s, Time Inc. and Warner Bros. developed conglomerated corporate structures that were consistent with other corporations within the media and cultural industries, as well as the wider U.S. economy. In part, this was in response to the emergence of television as a new competitor.4 Yet Warner Bros.’ expansion into television production (Cheyenne, Maverick, 77 Sunset Strip) and the burgeoning recorded music industry (Warner Bros. Records) also addressed the need to strategically position itself to finance and distribute films after the antitrust Paramount Decree (1948) ended the vertical Hollywood studio system.5 The growth of television and the Paramount Decree also destabilized the previously successful Warner Bros. Cartoons, which produced famous characters like Porky Pig, Daffy Duck, and Bugs Bunny. Time Inc.’s search for new profit drivers included magazines (Sports Illustrated in 1954), television broadcasting, and a large paper manufacturer. In the early 1960s the company’s diversification continued with television production, book publishing (Time-Life books), and the cable television industry (via Sterling Manhattan Cable). A series of acquisitions through the mid to late 1960s saw Warner Bros. in 1969 also become part of a diversified conglomerate, Kinney Services Corporation, headed by Steven J. Ross. Throughout the 1970s Kinney Services Corporation, restructured and renamed Warner Communication Inc. (WCI), set about becoming a fully vertically integrated entertainment conglomerate with operations in music (Warner Bros., Reprise, Atlantic, Elektra), publishing (Warner Books), cable television (Warner Amex cable, including briefly MTV), video (Warner Home Video), and video games (Atari). Using these assets, Warner established the model for the cross-promoted movie franchise with the launch of the Superman movie in 1978. During this period, Time Inc. amassed full ownership of Sterling Manhattan Cable and its innovative premium cable channel, Home-Box Office (HBO). Having survived a corporate collapse triggered by the implosion of its most profitable division, Atari, and an attempted acquisition by Rupert Murdoch’s News Corporation in 1983, WCI reestablished itself throughout the 1980s on the basis of its music, film, and cable operations. Pressed for growth by shareholders and confronted by activist investors, Time Inc.’s management viewed WCI as a logical acquisition in the context of a rapidly consolidating media industry.6 Despite legal challenges and enormous debt, the strategy was realized. The formation of Time Warner in 1989 produced the world’s largest media corporation with leading operations in the music industry, magazine and book publishing, and filmed entertainment. However, it was its cable systems and networks that gave Time Warner an unmatched presence within the Hollywood mediaindustrial complex, a position reinforced by its 1996 acquisition of Turner Broadcasting System, which owned several major cable networks, including TBS, TNT, and CNN. Changes in financial logics and investment, as glossed by the term financialization, played a conspicuous role in the formation of the heavily debt-laden Time Warner and subsequently in the emergence of the dot-com bubble at the end of the 20th century. In this context, Time Warner announced it was being acquired by the comparatively small but highly valued America Online (AOL) in 2000. For Time Warner, the deal offered the apparent opportunity to fulfill its attempts

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to extend its existing business models into the new digital systems. However, AOL’s proprietary model of dial-up Internet access proved spectacularly unsuitable to the task, and the speculative nature of its valuation was soon revealed. Within three years of the merger, AOL-Time Warner’s stock fell by nearly 90% and its debt had reached $29 billion. In a process of corporate triage and treatment, the corporation divested the Warner Music Group (WMG) and dropped AOL from its name in 2003. It then divested its book publishing operations in 2006. As media conglomerates fell out of favor with investors, Time Warner faced continuing pressure to be broken up as a way to release “shareholder value.”7 In 2009 AOL was spun off, as was the much more substantial cable division to form Time Warner Cable. In 2014 its enormous magazine publishing company, Time Inc., was also spun off as a separate publicly traded company. Bewkes argued that the AOL-Time Warner merger had been “the biggest mistake in corporate history”8 and that the company had entered “a new era” in 2014 with a “unique combination of global scale and at the same time an intense focus on global video content.”9 While Bewkes had previously declared that convergence and synergy were corporate “bull,”10 he signaled that Time Warner would pursue transindustrial operations on a scale that would allow the company to compete in the new digital media landscape.11

Economic Profile To outline the scale and economic power of Time Warner, this section will review the company’s financial profile and its corporate structure and major holdings. It also reviews the broad strategies it is employing to expand its video content production, internationalize its operations, and profit from new distribution methods; all while providing higher rates of return for its shareholders.12

Financial Data As noted, Time Warner has steadily divested divisions that once housed core operations. As Table 3.1 indicates, under Bewkes’ command the company’s total assets have been nearly cut in half and its total revenues and net income have been reduced. The corporation’s return on capital, however, has increased. The company’s Turner Broadcasting, Home Box Office, and Warner Bros. properties have all experienced a number of years of increasing profitability (measured in terms of profit margin, earning per share, and return on

TABLE 3.1 Time Warner Company Revenues,

TABLE 3.2 Cable Networks in the U.S.—

2005–2014 (in $ millions)

Market Share, 2015 (%)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Revenues

Net Income

Total Assets

41,835 43,690 46,482 46,984 25,388 26,888 28,974 28,729 29,795 27,359

2,671 6,552 4,387 (13,402) 2,501 2,596 2,882 2,922 3,691 3,827

123,541 132,719 133,830 113,896 66,214 66,732 67,801 68,089 67,994 63,259

Sources: Time Warner Inc., Form 10-K, 2015, p. 140; Time Warner Inc., Form 10-K, 2013, p. 132; Time Warner Inc., Form 10-K, 2008, p.130.

The Walt Disney Company Time Warner NBCUniversal 21st Century Fox Viacom Inc. Other

21.6 14.7 13.5 10.4 10.3 29.5

Source: data from N. Petrillo, “IBISWorld Industry Report 51521: Cable Networks in the U.S.,” (IBISWorld, 2015), 24.

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equity). Despite de-conglomeration, Time Warner maintains a dominant position in many of the remaining markets in which it participates. For instance, in 2014 Time Warner was second in market share for Cable Networks in the U.S. with almost 18% of the market (see Table 3.2).

Corporate Structure Time Warner maintains approximately 900 subsidiaries. In 2013, the corporation separated its network division into Turner Broadcasting Systems and Home Box Office. Warner Bros. Entertainment Inc. is Time Warner’s third segment. Revenues and income for each of these segments is summarized in Table 3.3, while more information follows on the various activities of these divisions as they were constituted at the end of 2014.

Turner Broadcasting Systems This segment includes U.S. and international cable networks, digital media properties (primarily websites), international television station ownership, and program production. The Turner segment operates entertainment cable networks (TBS, TNT, Cartoon truTV, Turner Classic Movies, Network/Adult Swim, and Boomerang) and news networks (CNN and HLN). For 2014, TBS and TNT ranked in the top five cable networks in terms of both total audience and 18–49-yearold viewers in the United States. In the same year CNN moved ahead of MSNBC to be second in terms of cable news networks’ audience, though well behind the conservative Fox News Network. Turner’s social media-based news network, HLN, remained in 4th place.13 Turner International distributes its global entertainment and news brands and its regional entertainment brands in over 200 countries around the world via three main subsidiaries: • • •

TBS Europe, which currently transmits 17 branded channels via 53 feeds in 27 languages to over 100 European, Middle Eastern and African (EMEA) territories; TBS Asia Pacific, which runs 46 channels in 13 languages in 38 countries. Turner also distributes and sells advertising for Home Box Office and WB in India; TBS Latin America, which runs 15 branded channels via 44 feeds in 16 Latin American countries (plus anglophone Caribbean islands). Turner also operates a free-to-air broadcast channel in Chile (Chilevisión) and manages the Warner Channel in the region. Turner is the number one provider of multichannel television in all of Latin America and distributes internationally to networks in over 40 countries.

Home Box Office The Home Box Office segment operates premium cable and satellite television networks, HBO, and Cinemax. Although still heavily dependent on feature films, documentary, and sports broadcasting, since the mid-1990s HBO has sought to reinforce the overall market appeal of its

TABLE 3.3 Time Warner Company Business Segments, 2014 (in $ millions)

Turner Home Box Office Warner Bros.

Revenues

% of Total Revenues

Operating Income

% of Total Operating Income

10,396 5,398 12,526

36.7 19 44.2

2,954 1,786 1,159

50.1 30.3 19.6

Source: Time Warner Inc., Form 10-K, 2015. pp. 116–117.

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subscription service through a costly focus on high-quality original drama and comedy content. Over a ten-year period (2002–2012), subscriptions to HBO and Cinemax have fluctuated around 40.5 million subscribers. However, in the last five years domestic subscription has grown steadily from 41 to 46 million (See Table 3.4).14 While behind Encore’s subscription total, HBO claims to be the most widely distributed multi-channel premium pay television service and is recognized as the market leader. Within the U.S., however, HBO has been overtaken by Netflix, the rapidly developing “over-the-top” (OTT) film-streaming service. Netflix even announced that HBO is its primary long-term competitor.15 Nonetheless, HBO still retains a substantially larger global subscription base than Netflix, with premium paid and basic tier television services in over 60 countries in Latin America, Asia, and Europe. In 2014, HBO’s international subscriber base reached 92 million.16

Warner Bros. Entertainment Inc. The Warner Bros. Entertainment Inc. segment produces and distributes motion pictures, television programming, videogames, and live stage plays. It also distributes home video products and licenses rights to the corporation’s related intellectual property. These activities take place through its three divisions: Motion Pictures (Warner Bros., New Line Cinema); Warner Bros. Television Group (WBTVG) (Warner Bros. Television and five other U.S. television production outfits); and Home Entertainment. The segment also contains DC Comics, which continues to produce comics such as Batman and Superman and license these characters to the rest of Warner Bros. and Turner. Through its Warner Bros. Consumer Products, Time Warner exploits such brands via 3,700 merchandise licensees. Notably, Time Warner’s relationship with Lego, the world’s largest toy company, has emerged as significant in this area.17 Based on total studio revenues, Warner Bros. was the largest television and film studio in the world in 2014. Starting in 2008, the Motion Pictures division significantly streamlined its structure by closing its specialty film units (Warner Independent Pictures and Picturehouse) and merging its independent unit (New Line Cinema) with Warner Bros. Under the Warner Bros. and New Line Cinema brand names, the corporation manages its risks by co-financing the majority of the films it produces (especially expensive blockbusters) with partners such as Village Roadshow Pictures and RatPac-Dune Entertainment. It maintains worldwide distribution rights for most of the films it co-finances and also distributes films financed and produced entirely by others such as with the U.S. film company, Alcon Entertainment. In 2014, Warner Bros. distributed some 20 Englishlanguage films and 29 local-language films that it either produced or acquired for theatrical release TABLE 3.4 Premium Cable Networks Subscribers 2014 (Millions)

U.S. Operations HBO Cinemax Starz Encore Showtime The Movie Channel/Flix Netflix

Subscribers 31.4 14.6 23.3 33.9 22.8 53.2 39.1

Global Operations

Subscribers

HBO/Cinemax Netflix

138 57.3

Sources: CBS Form 10K 2014, p.6; Netflix Form 10-K 2014, p. 62; Starz Form 10-K 2015, p. 5; Time Warner Form 10K, 2014, p.6.

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in more than 170 territories outside the U.S. In the same year, Warner Bros. announced an expanded annual production schedule of 21–23 films focused primarily on three global franchises: at least 10 films based on DC comics, three Lego-branded films, and three Harry Potter tie-in films in partnership with J.K. Rowling. In 2014, Warner Bros.’ films generated over $4 billion in revenues at the global box office for the sixth year in a row. WBTVG had more than 70 programs on the air during the 2014–15 television seasons and at least two series on each of the five U.S. broadcast networks. Warner Bros. is the leading external supplier to the other U.S. networks and is the only studio to have at least one new series on each network. WBTVG expanded its overseas production operations in 2014 when it acquired 15 local production units of Netherlands-based Eyeworks for more than $273 million. Eyeworks is a significant producer of unscripted television programs. Similarly, in 2014 the company took full control of Shed Media, one of Britain’s largest production companies, which it renamed Warner Bros. Television Productions U.K. Together with the 2011 purchase of a majority stake in the Dutch/Belgium production company BlazHoffski, these acquisitions gave Warner Bros. a global network of local production companies in 16 countries (located across Europe, South America, and Australasia) and a means to exploit an enlarged suite of global TV formats.18 The WBTVG also houses Warner’s 50% stake in The CW television network, a joint venture with CBS Corporation. Formed in 2006, the CW owns and operates 8 stations and is affiliated with some 200 stations in the U.S., and its content is targeted at young adult female viewers.19 Warner Bros. still generates significant revenues from the distribution of DVDs and Blu-ray discs. However, as with other media conglomerates, its Home Entertainment division has faced a steep decline in DVD sales since their peak in 2004: in 2014 Americans spent more on digital video providers than physical discs.20 In response, Warner has developed new ways to distribute content digitally, such as Electronic Sell-Through or Download-to-Own (EST or DTO) services, which tend to offer significantly higher profit margins (60–70%) for content owners. In 2008, Warner was the first studio to offer all its films simultaneously on DVD and Video on Demand (VOD).21 It has established licensing relationships with VOD services, such as Amazon, Apple iTunes, and Google Play and promotes the UltraViolet digital locker that allows consumers to download or stream copies of the filmed content. While new release DVD sales have declined, back catalog DVD sales have remained more resilient. To this end, Warner Bros. has sought to exploit its intellectual property, which consists of more than 7,000 feature films and 5,000 television programs, on DVD format. The company also negotiated a deal to distribute 600 films from Paramount Picture’s catalog on DVD in the U.S. and Canada until 2016.

Television Network Assets As well as Chilevisión and The CW, Time Warner holds a significant stake in Central European Media Enterprises (CME) (approximately 49% voting interest and 75% economic interest). This Bermuda-based company operates leading television networks in Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic, and Slovenia. Within these six countries the company operates a total of 33 television channels, which broadcast to approximately 50 million viewers. CME also produces content for its television channels and third parties.

Corporate Strategies and New Developments Industrial concentration based on economies of scale and scope has been the standard mode of organization for the media industries and, as evidenced by the overview above, Time Warner continues to pursue forms of industrial rationalization, concentration, and control of bottlenecks (scarce and critical resources that confer market power and competitive advantage)22 based on

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creative content. Nonetheless, the strategy and structure of Time Warner has clearly changed; rather than the gargantuan AOL-Time Warner and its digital “walled gardens,” today’s company partly resembles the combination of video assets from Time Inc., Warner Communications, and TBS that was first suggested by Time Inc. senior executives in 1987.23 Financial investors had supported the subsequent formation of Time Warner, which was proposed on a view that by the year 2000, five or six transnational media corporations would create an international oligopoly; however, their loss of patience with low profits, minor revenue increases, and depressed stock prices has driven a shift in the logics of financialization and the current splintering of media conglomerates. Moreover, whereas the 1987 strategic plan was premised on Time Inc. and Warner Communication’s sizable cable distribution assets, Time Warner currently operates in an environment defined more sharply by communication industry actors (telecommunication firms, Internet service providers, software manufacturers, and Internet intermediary companies) and their attempts to interlink consumers’ access to cultural commodities into their own commodity chains.24 Time Warner’s current strategy has four main components:25 •

•

•

•

Use leading scale and brands to create the best content: Time Warner has announced that it will continue to increase investment in production, programming, and marketing from $14.5 billion to $19 billion per annum.26 The Turner segment will double its yearly investment in original programming to $1 billion by 2018 and has allocated $10.5 billion to secure National Basketball Association rights until 2025. Time Warner is also attempting to deepen content synergies between its divisions such as the Global Kids initiative, which seeks to expand its international children’s business via collaboration between Turner’s Cartoon Network and Warner Bros.’ DC Comics.27 Expand internationally in faster-growing territories: as indicated above, Time Warner is increasing its ownership and control of TV production firms and networks. Between 2010–2013 Time Warner gained full control of the majority of its international HBO partnerships (HBO Europe, HBO Asia, HBO South Asia, HBO Nordic) and established and extended its control elsewhere (HBO Brasil, HBO Olé, HBO Latin America, and HBO Nederland). As compared to 2004, when approximately 80% of its revenues ($42 billion) was produced in the U.S. and Canada, in 2014 approximately 70% was produced in this region.28 Lead digital transition of media industry: the command and leverage of “prized content”29 is crucial for Time Warner because it is now more dependent on technological and distribution developments elsewhere. Following deals with major cable providers, Time Warner launched HBO GO in 2010 which has allowed U.S. viewers with cable or satellite subscriptions to watch content online as per the “TV Everywhere” model. In 2015, Time Warner sought to confront OTT services such as Netflix directly with HBO Now, a standalone streaming service available to U.S. customers without cable or satellite subscriptions. While it has initially outsourced its technological capacity to stream HBO Now to MLB Advanced Media, it is investing in new digital delivery capabilities for HBO GO and other TV Everywhere services such as Cnnx.30 However, to further develop new business models (including billing, marketing, and customer-service functions) the company will be reliant on the oligopolistic Internet intermediaries or the consolidating network operators (e.g. Comcast, Time Warner Cable, AT&T-DirecTV). Although Time Warner has downplayed the concerns of some network operators regarding its OTT business plans, HBO and Turner, which generate over half of Time Warner’s operating income, are dependent on cable and satellite companies.31 Focus on operating and capital efficiency: rather than investing in acquisitions, Time Warner has returned billions of dollars to stockholders through dividends and share repurchases in the last decade (the latter concentrates earnings per share and dividend per share and supports stock prices). Since 2005, when it recommenced paying a dividend, the company has paid

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out $9.173 billion in dividends and it has repurchased $42.6 billion in common shares—in this period Time Warner’s total shares have been reduced to one fifth of the initial amount.32 Having announced a total of $4.7 billion in new share repurchases at the beginning of 2014, the corporation announced an additional $5 billion of share repurchases following 21st Century Fox’s acquisition offer.33

Political Profile Time Warner’s expansion has been based on the use of political power. This is reflected in its ability to influence economic development and state policies via both overt and covert channels of influence such as interlocking corporate boards, lobbying efforts, and public relations campaigns. It is also reflected in its ability to assert managerial authority and shape the organization of labor processes it controls. The purpose to which this political power is put is in turn shaped by the nature of Time Warner’s ownership and control within the context of wider class relations.

Corporate Ownership From the mid-1970s Time Inc. and Warner Communications Inc.’s dispersed ownership ensured that the maintenance of share price and the managers’ de jure control were central drivers of corporate strategy. Given the changing relations of intra-class power encompassed in the notion of financialization, Time Warner’s dispersed ownership did not lead to “managerial control” as understood by Berle and Means; rather, Time Warner represents an impersonal form of ownership and control under a system of polyarchic financial hegemony.34 Table 3.5 presents Time Warner’s major shareholders in 2014. In 2014, the top ten listed shareholders held 43.7% of the Time Warner; the top 20 held 55.3%. The top ten shareholders are all institutional investors, predominantly mutual funds, finance companies, and banks. Whereas previously investors from outside the United States held significant shares, such as Barclays (U.K.) or AXA (France), in 2014 the top ten fund managers were all from the United States. This ownership pattern of concentration with liquidity is characteristic of what has been described as the “new financial capitalism.”35 Indeed, it is the financial, rather than strategic investment orientation of the large institutional investors that gives a particular tempo to the drumbeat of Wall Street whereby a public company with an open share registry, such as Time

TABLE 3.5 Top Ten Shareholders of Time Warner, 2014

Name

Percentage of TW Shares 2014

Funds Global Ranking*

Assets as of December 2013 ($ millions)

Capital Group Companies Blackrock, Inc. Massachusetts Financial Services Vanguard Group Inc. Capital World Investors JPMorgan Chase & Co Dodge & Cox State Street Corporation FMR LLC Morgan Stanley

5.6 5.53 4.4 5 4.9 4.8 4.39 4.21 2.11 1.74

9 1 30 2 390 6 79 4 5 34

1,338,805 4,324,088 430,608 2,752,919 4,130 1,601,983 224,417 2,344,789 2,159,845 608,045

* Global ranking based on total worldwide institutional assets under management. Sources: Orbis Database Time Warner Inc. Company Report; “The World’s 500 Largest Asset Managers.” Towers Watson, 2014. www.towerswatson.com/

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Warner, now operates. In the decade before the formation of Time Warner in 1989, the corporation’s management had become accustomed to the edicts of the “shareholder value” movement. During this period, large institutional investors, through the use of explicit sharevoting guidelines and through personal access and informal communication with corporate executives, played a central role in shifting corporate governance in the United States from a model of retain-and-invest towards a model of downsize-and-distribute to maintain stock prices and meet quarterly return expectations of analysts.36

Board of Directors Time Warner’s Board of Directors comprises 12 individuals that make allocative decisions about the corporation and tie the corporation into crucial corporate ownership interlocks and financial–industrial relations such as its ties with BlackRock Inc., which has been described as “easily the biggest investor in the world.”37 The directors’ interlocks are maintained through their directorships or managerial roles in other corporations. The Board of Directors also links Time Warner into a state–corporate nexus; indeed, “legal, regulatory and/or government relations experience” is a central prerequisite for the Board.38 Table 3.6 displays the Time Warner Board of Directors, as it was constituted at the end of 2014. Under Time Warner’s current by-laws, the majority of directors must be independent; however, they are expected to own shares in the corporation so as to better represent shareholders. In 2014, only CEO and Chairman Bewkes was deemed to be an “insider.” However, with a strong business background, Bewkes rose through the ranks of Time Inc.’s HBO, where a cadre of managers epitomized the new focus on financial metrics and the dictates of Wall Street. Shortly before assuming the CEO role, Bewkes argued that whether Time Warner “is the biggest is not the main thing. It needs to be the most profitable . . . We’re not waiting three years for the stock to go up. It has to go up now.”39 Certainly, Bewkes’ remuneration package was tied to these ends: in 2008 over half of his $21.5 million package constituted stock options and performance stock units, $5.3 million of which was dependent on Time Warner’s total stockholder return outperforming that of other companies in the Standard & Poor’s 500-stock index over the term of his 5-year contract.40 His 2012–17 contract increased the part of his remuneration package tied “directly and solely” to financial performance and shareholder returns, reinforcing the affinity between Bewkes’ outlook and that of Time Warner’s shareholders.41 Share options and remuneration packages are one key reason why financial goals have become the primary concern among senior executives in publicly held companies.42

Labor At the end of 2002, the businesses of AOL-Time Warner had approximately 91,250 employees. At the end of 2014, this number had dropped to approximately 25,600. While this dramatic reduction of the corporation’s labor force is primarily the outcome of divestment and deconglomeration, it is also an outcome of established and ongoing processes of workforce reduction and the drive to increase productivity across the different entities that Time Warner controls. How this has occurred has varied from operation to operation and according to the forms of labor involved. It has included both “standard” processes of industrial rationalization and “numerical flexibility” (e.g. reduction in “hum-drum” or “back-office” staff) and the offshoring of production (in the 1980s, the Atari division led the way in the establishment of global electronics commodity chains) as well as the use of more flexible and precarious contracts. For instance, the U.S. Department of Labor sued Time Inc. in 1998 for violating the Employee Retirement Income Security Act

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TABLE 3.6 Time Warner Board of Directors, 2014

Director

Positions Held/Director Interlocks

James L. Barksdale

• • • • • • • • •

William P. Barr

• • • • • • • • •

Jeffrey L. Bewkes

•

•

Stephen F. Bollenbach

• • • • • • • • • •

Independent Director since July 2009 Compensation and Human Development – Committee Chair Time Warner Nominating and Governance Committee/member Dominion Resources (power and energy company)/director Kirkland & Ellis LLP (International commercial law firm) /counsel (2009) Verizon Communications/Exec VP & General Counsel (2000–2008) GTE Corporation/Exec VP & General Counsel (1994–2000) 77th Attorney General of the United States (1991–1993) Shaw, Pittman, Potts & Trowbridge/partner (1984–1989, 1993–1994) Prior Professional Experience: Mr. Bewkes served as President and Chief Executive Officer of the Company from January 2008 through December 2008; President and Chief Operating Officer of the Company from January 2006 through December 2007; Chairman, Entertainment & Networks Group, of the Company from July 2002 through December 2005; Chairman and Chief Executive Officer of the Home Box Office division of the Company from 1995 to July 2002; and President and Chief Operating Officer of the Home Box Office division of the Company from 1991 to 1995. Public Company Directorships: During the past five years, Mr. Bewkes served as a director of AOL Inc. (from November 17, 2009 to December 8, 2009) when it was a subsidiary of the Company

•

Lead Independent Director since May 2012; Director since May 1997 Compensation and Human Development – Committee Member KB Home (building company)/Chairman of the Board Macy’s, Inc./director Mondeléz International, Inc./director Los Angeles World Affairs Council/director Ludwig Institute For Cancer Research Ltd/director Moelis & Company/director Staples Inc/Administrator Hilton Hotels Corporation/Co-Chairman/President/CEO (1996–2004, 2004–2007) Walt Disney Company, Senior Executive Vice President/CFO (1995–1996) Host Marriott Corporation President/CEO (1993–1995)

• • • •

Independent Director since January 2004 Audit and Finance Committee Member Nominating and Governance Committee Chair Harvard University/Distinguished Service Professor

•

Robert C. Clark

Independent Director since January 2001 Time Warner Nominating and Governance Committee/member Barksdale Management Corporation (private investment management corporation)/Chairman and President Federal Express Corporation/director Mayo Clinic/director U.S. President’s Foreign Intelligence Advisory Board/member (2001–2009) Netscape Communications Corp./President and CEO (1995–1999) AT&T Wireless Services/COO, CEO (1992–1994) Federal Express Corporation/Exec VP and COO (1983–1992)

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TABLE 3.6 continued

Director

Positions Held/Director Interlocks • •

Mathias Döpfner

• • • • • • • •

Jessica P. Einhorn

• • • • • • • • • • •

Carlos M. Gutierrez

• • • • • • • • • • • • • •

Fred Hassan

• • •

Omnicom Group, Inc. (global advertising agency holding company)/director Teachers Insurance and Annuity Association (TIAA) (higher ed. pension fund)/trustee Independent Director since July 2006 Time Warner Compensation and Human Development Committee/member Axel Springer SE (digital publishing corporation)/Chairman and CEO RHJ International SA (financial services group)/supervisory board member Warner Music Group/director Axel Springer SE/Management Board Member and Head of Electronic Media/Multimedia (2000– 2005) Die Welt (German national daily newspaper)/Editor in Chief (1998–2000) Hamburger Morgenpost (Hamburg daily newspaper)/Editor in Chief (1996–1998) Independent Director since May 2005 Audit and Finance Committee Member Nominating and Governance Committee Member Blackrock, Inc/director Peter G. Peterson Institute for International Economics/director National Bureau of Economic Research/director Rock Creek Group/advisory board member Johns Hopkins University, Paul H. Nitze School of Advanced International Studies (SAIS)/Dean (2002–2012) Clark & Weinstock (strategic communications and public affairs consulting firm)/consultant (2000–2002) International Monetary Fund/Visiting Fellow (1998–1999) World Bank/various executive positions (1978–1979, 1981–1999) Independent Director since October 2013 Audit and Finance – Committee Member Albright Stonebridge Group (global strategy firm)/chair of board MetLife, Inc./director Occidental Petroleum Corporation/director Viridis Learning/director Meridian International Center/trustee University of Miami/trustee U.S.–Mexico Foundation/board member George W. Bush Institute, Human Freedom Advisory Council/ member Citigroup Inc., Senior Strategic Advisory Group/Vice Chair (2011– 2013) APCO Worldwide (large political PR firm), Global Political Strategies division/Co-Chairman, (2010–2011) 35th Secretary of the U.S. Department of Commerce (2005–2009) Kellogg Company/Chairman and Chief Executive Officer and other executive and non-executive positions (1975–2005) Independent Director since October 2009 Audit and Finance Committee Member Compensation and Human Development Committee Member

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TABLE 3.6 continued

Director

Positions Held/Director Interlocks • • • • • •

Warburg Pincus (private equity firm)/Partner and Managing Director Warburg Pincus/Advisor (2009–2010) Schering-Plough Corporation (now Merck & Co., Inc.)/Chairman and CEO (2003–2009) Pharmacia Corporation/Chairman and CEO (2001–2003) Pharmacia Corporation/CEO (2000–2001) Pharmacia & Upjohn Inc. CEO (1997–2000)

Kenneth J. Novack

• • • • • • • •

Director since January 2001 Nominating and Governance Committee Member Appleton Partners, Inc./director Leerink Swann Holdings, LLC/director General Catalyst Partners/advisory board member AOL-Time Warner/Vice Chairman ( 2001–2003) America Online/Vice Chairman (1998–2001) Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC/Counsel, and various executive positions (1972–2001)

Paul D. Wachter

• • •

Independent Director since October 2010 Compensation and Human Development Committee Member Main Street Advisors (investment and financial advisory company)/Founder, CEO Beats Electronics, LLC/member of board of managers Beats Music, LLC/member of board of managers Content Partners, LLC /director Haworth Marketing and Media Company/director Oak Productions, Inc./director Avalanche Biotechnologies, Inc./director University of California, Board of Regents/director Schroder & Co. Incorporated’s Lodging and Gaming Group/Managing Director (1993–1997) Bear, Stearns & Co. Inc./Investment Banker (1985–1997) Kidder Peabody/Managing Director (1987–1993) Paul, Weiss, Rifkind, Wharton and Garrison/Tax Attorney (1982–1985)

• • • • • • • • • • • Deborah C. Wright

• • • • • • • • • • • • • •

Independent Director since May 2005 Audit and Finance Committee Chair Carver Bancorp, Inc./Non-Executive Chairman Voya Financial Inc. (financial, retirement, investment and insurance company) /director The Partnership for New York City/director Sesame Workshop/director Memorial Sloan-Kettering Cancer Center/member of board of managers New York State Tax Reform and Fairness Commission/member Kraft Foods Inc./director (2001–2011) Carver Bancorp, Inc. and Carver Federal Savings Bank/President and CEO (1999–2014) Upper Manhattan Empowerment Zone Development Corporation (a redevelopment fund)/President and CEO (1996–1999) Department of Housing Preservation and Development/Commissioner (1994–1996) New York City Housing Authority Board/Member (1992–1994), New York City Planning Commission/ (1990–1992)

Source: Time Warner Inc., Proxy Form Schedule 14A, 2014. p.4.

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by improperly employing contract and temporary workers in a manner that made them ineligible for benefits.43 The divestiture of the Music, AOL, Cable, and Publishing divisions had turned Time Warner, according to one investment analyst, into a “lean, mean TV machine.”44 While Time Warner Cable and AOL reduced their workforces by 1250 and 2500, respectively before these divisions were spun-off in 2009, the corporation’s remaining operations were also further restructured to reduce costs—in 2008 Warner Bros and Time Inc. eliminated 800 and 600 jobs, respectively.45 The restructuring and downsizing of the workforce continued at Time Inc., as the malaise in the magazine sector was compounded by Bewkes’ demand that the division reduce costs by $100 million prior to its spin-off.46 In late 2013, Time Inc. announced that it would change its structure so that newsroom staff would report to business executives, formally ending the separation of editorial and publisher functions that had existed since the time that its co-founder Henry Luce had run the company. As an instance of this change, the new performance ranking of “writereditors” at Sports Illustrated included the criterion “Produces content that [is] beneficial to advertiser relationship.”47 Such performance rankings were used in a further round of job cuts: Time Inc. announced in 2014 that it was eliminating approximately 480 positions through buyouts (generous redundancy packages) and layoffs, the largest job loss since 2008. “We’re very lean and mean here anyway. It’s concerning,” an employee observed.48 From approximately 11,300 employees in 2007, the workforce of Time Inc. was reduced to approximately 7,300 in 2014, a 35% reduction.49 During this period, the employees’ union, the Newspaper Guild, lodged a complaint with National Labor Relations Board (NLRB) alleging the company acted in “bad faith” by initially offering renewed employment contracts that provided no guaranteed wage increases, cut severance pay, and altered health coverage.50 In 2014, the Newspaper Guild rejected a renewed three-year contract proposal from Time Inc. which, in return for modest wage increases, sought “operational efficiencies . . . through global sourcing of staff,” an outsourcing scheme that the Guild claimed would affect 160 editorial jobs.51 With the formal separation of Time Inc. looming in mid-2014, Time Warner’s senior management set out to further reduce labor costs in the former Network and Filmed Entertainment divisions. Bewkes argued that staff changes and “edgier” programming was needed at TBS, where increases in operating income had failed to keep pace with those of the overall corporation. This strategy was formalized by TBS’s new CEO, John Martin, through the Turner 2020 initiative, which proposed cutting costs and reallocating resources to focus on programming that was more expensive but promised increased profits, specifically live sports broadcasts and original content. In August, TBS offered buyouts to 600 staff and in October announced that in total 1475 or 10% of positions would be abolished through buyouts, layoffs, and the elimination of unfilled positions. The majority (975) would be eliminated in Atlanta.52 At the same time that CNN announced it would eliminate 300 jobs and consequently “do what [it does] with less,” the NLRB ruled that CNN had been motivated by overwhelming “anti-union animus” in 2003 when it replaced 300 unionized technicians with non-union workers. The NLRB ordered CNN to rehire about 100 of the fired workers and to compensate the other 200 who had been rehired on lower non-union wages and benefits.53 Time Warner’s CFO remarked that job losses at TBS were “consistent with our companywide strategy to limit non-programming expense growth in order to fund investments and drive continued [profit] margin expansion.”54 In October 2014, HBO announced it would dismiss over 150 employees (or 7% of the company’s 2,400);55 in November 2014 Warner Bros started layoffs that will ultimately eliminate approximately 1,000 jobs, or 12.5% of the studio’s staff as the division sought a $200 million reduction in annual costs principally from its home entertainment segment and from its marketing, finance, and technical operations.56

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Government Relations Corporations require that the state not only facilitate growth and profits through establishing the broad “rules of the game,” but the companies’ strategies usually require specific state intervention and support. In this sense, profitability is closely tied to the political capacity to place pressure on governments to enact policy in a manner that is consistent with their profit-making interests. Hence, companies try to influence government activities and achieve, if possible, forms of regulatory capture. Contributing to U.S. Congressional committees, political parties and campaigns, lobbying and leveraging networks of personal connections are all central to this work (Table 3.7). As one of the biggest overall donors, Time Warner is considered a “heavy hitter” in terms of its political contributions. As Table 3.7 indicates, Time Warner contributed over $1.3 million to federal candidates and parties in 2014, 73% of which went to the Democratic Party. Its campaign contributions for the period 1989–2014 totaled over $25 million.57 During this period, the majority of its contributions (75%) went to the Democrats. The corporation has dropped down the list of contributors from thirty-first to fifty-seventh among the “heavy hitters,” in 1989–2012 to the 1989–2014 periods.58 In part, this is due to the divestiture of Time Warner Cable, which made $3.1 million in contributions the 2010–2014 electoral cycles, split increasingly evenly between the Democrats and Republicans. While television, movie, and music companies together donated nearly $29.4 million in 2014, cable companies donated $14.1 million in the same period. With expenditures of over $69 million, Time Warner was a significant lobbying force among the U.S. television, film, and music industries during the 1998–2014 period. Although this period covers the time when rivals such as Disney and Microsoft lobbied heavily against the formation of AOL-Time Warner, the corporation’s largest outlay occurred in 2005 and coincided with the further consolidation of the cable industry as well as the introduction of changes in telecommunication and cable regulation (including early conflict over net neutrality provisions). Indeed, the lobbying expenditure of the cable industry has increased steadily during this period. As Table 3.7 indicates, in 2014 Time Warner spent over $3.3 million on lobbying government agencies and elected officials on issues such as corporate taxes, advertising to children, net neutrality, and copyright protection, making it within the top 10 lobbying organizations among U.S. TV, film, and music industries and behind entities such as the National Association of Broadcasters (NAB), National Cable & Telecommunications Association (NCTA), Comcast Corp, National Amusements, and Time Warner Cable. (In 2014 the TV, film, and music industries spent some $113,671,296 on lobbying.) Time Warner’s efforts to influence government activities are strengthened by the close personal connections between its management, its chief lobbyists, and state representatives. Time Warner’s Executive VP for global public policy, Carol Melton, is in charge of government-relations efforts both in the United States and internationally. She previously held this role at Viacom and spent two years as chief legal advisor on cable, broadcast, and other mass media issues to the proderegulation chairman of the Federal Communications Commission (FCC), Mark Fowler. Prior to this, she was the NCTA’s Assistant General Counsel. She is a member of the Council of Foreign TABLE 3.7 Time Warner Political Contributions and Lobbying Expenditures, 2014 ($)

Contributions to candidates Contributions to Leadership PACs Contributions to parties Contributions to 527 committees Contributions to outside spending groups Lobbying Source: www.opensecrets.org/orgs/summary.php?id=D000000094#invested

804,091 83,550 347,139 3,025 11,950 3,341,000

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Relations and a previous member of the Committee for Economic Development, which is among the most influential policy-planning organizations in the United States.59 These roles interlock with Bewkes’ membership in the Business Council, a quasi-governmental advisory group centrally positioned in the policy-planning network.60 Exhibiting the common practice of “revolving door” connections, 32 out of 34 Time Warner lobbyists in 2013–2014 had previously held government jobs. Time Warner’s lobbying efforts are also reinforced by its membership in trade associations, such as the Motion Picture Association of America (MPAA). However, the lobbying space for media conglomerates and their trade associations has become more contested as giant broadband companies and Internet intermediaries have significantly increased their lobbying efforts over the last decade (Google and Facebook spent $16.8 million and $9.3 million, respectively on lobbying in 2014). These lobbyists, in conjunction with nonprofit allies, were able to derail the stringent online copyright policing legislation that Time Warner and the MPAA had sought in the U.S. via the Stop Online Piracy Act (SOPA) in 2012.61 The MPAA responded with Project Goliath, a “carefully orchestrated lobbying campaign,” to convince state attorneys-general to pursue Google in what the Mountain View corporation viewed as an attempt “to revive the failed SOPA legislation through other means.”62 Elsewhere, the MPAA continues to seek to enforce intellectual property of media conglomerates through international agreements, such as the Trans-Pacific Partnership (TPP). While the protection of intellectual property is a chief area of concern for Time Warner, the corporate lobbying environment has also shifted rapidly in terms of the governance of digital distribution. Recalling the battle over the SOPA legislation, Internet activists supported by the Obama administration were able to leverage public concern about net neutrality—an issue long pushed by the Internet Association and the lobbyists of the giant Internet intermediaries—to shift the FCC’s position and ensure that the Internet is treated as a public utility under Title II of the Communications Act on 1934, effectively banning the introduction of “fast” and “slow lanes.”63 However, Google, Facebook, and even Netflix appeared at best ambivalent that net neutrality had taken this form of public regulation, whereas the NCTA and other cable and ISP trade associations promised extensive lobbying and legal campaigns against the FCC.64 Time Warner announced that HBO, like other Web TV initiatives such as CBS’s Showtime and Sony, would seek to have its HBO Now treated like “managed” services provided by ISPs, sidestepping the FCC restrictions on fast/slow lanes and avoiding the congestion of the public Internet.65

Corporate Responsibility In 2006, Time Warner became the first major U.S.-based media company to issue a “comprehensive” corporate social responsibility (CSR) report. Often critically viewed as a part of the process of “rolling-out” neoliberalism by militating against particular forms of state regulation,66 the commitment to CSR has become de rigueur for multinational corporations, with 93% of the world’s largest 250 companies issuing reports according to KPMG analysis. The telecommunications and media sectors now have some of the highest levels of CSR reporting (75% in 2013, up from 47% in 2008).67 Time Warner produced only one more CSR report in 2008 before suspending reporting due to its corporate restructuring. Analysis of these reports indicates that during this period Time Warner was one of only three major U.S. media corporations (including Comcast and Walt Disney) that reported on employee relations, human rights, and a business code of ethics.68 However, a U.S. research institute placed Time Warner well behind Disney (and Bertelsmann) in terms of the quality of its CSR reporting, particularly with regards to measures of social reporting (discussion of relationships with employees and contractors) and intent (social vision, goals, and

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targets).69 It should be noted that Time Warner had been the recipient of various awards for CSR throughout this period, such as from the Ethisphere Institute for being one of the “World’s Most Ethical Companies.”70 This discrepancy in the evaluation and the rating of the corporation indicates just how haphazard and diverse the CSR accreditation landscape appears to be. In 2012, following individual and collective shareholder lobbying and resolutions, Time Warner resumed reporting via an online system that purported to address the gaps in its previous reporting and action but provided, by comparison, less information than its earlier reports. The online system continues to detail how, inter alia, Time Warner has sought to “green” its operations and pursue ethical sourcing and supply chain relationships. Following shareholder requests for a “clear sustainability vision that demonstrates the ways corporate responsibility is embedded in the company’s overall business strategy,”71 Time Warner sought to emphasize that its “citizenship activities” are based on the view that it “can create economic and social value through . . . content”:72 Our basic beliefs in journalistic integrity, freedom of expression, diversity of viewpoints and responsible content are at the heart of what we do. By aligning our businesses with these beliefs, we’re able to drive the growth of our businesses in a responsible and ethical manner, strengthen our reputation, and help create a better connected and well-informed world.73 Following the divestiture of Time Inc., the corporation was able to unambiguously state that its commitment to journalistic integrity means that we do not let our financial interests determine the topics we cover. Our reporters, producers, writers and editors cover issues that are newsworthy and of interest to our readers and viewers, not because an issue may be of interest to advertisers.74 Nonetheless, Time Warner’s vision continues to be underpinned by what has been referred to as the reductionist view of corporate responsibility”:75 [O]ur goal is to deliver superior returns to our stockholders and exceptional value to our customers in a sustainable and long-term way. Time Warner’s commitment to corporate social responsibility is one of many ways we achieve long-term growth.76 A clear example of this is in its discussions of content diversity, which are couched in terms of the need to tap new and developing market across different demographics. Similarly, Time Warner’s commitment to workforce diversity is described as “not just as a cultural good but as a business imperative, one that leads to developing new voices whose stories can resound throughout an increasingly multicultural world.”77 The development of “new voices” and “future audiences” drives Time Warner’s community investment initiatives, which are principally focused on non-profit arts organizations in New York. The company has funding relationships with the Brooklyn Academy of Music, the City Park Foundation, Harlem Stage, the Lincoln Center, the New York Philharmonic, Pregones Theater, and the Apollo Theater. It also subsidizes visits to New York City’s museums for its staff and guests. Between 2010 and 2013, the Time Warner Foundation (established in 2001) granted in total $5,050,000 to 20 different artistic and performance organizations as part of its New Works/New Voices initiatives.78 Time Warner’s online reporting system no longer documents the level of total community investment; its 2008 report noted that the corporation made cash contributions to nonprofit organizations of $59 million, $50 million, and $45 million in 2005, 2006, and 2007, respectively. Its in-kind contribution to nonprofits during this three-year period totaled $714 million, a figure that includes public service announcements.79

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Cultural Profile Symbolic Universe/Popular Products/Services and Cultural Significance Although it could be argued that a rise of corporate managers with MBA backgrounds brought a more unified symbolic universe to the running of Time Warner,80 analyses of the corporation’s historical development often emphasize that its different divisions never developed a unified corporate culture. Neither has Time Warner developed a unified corporate “meta-brand” like the Walt Disney Company; instead it remains a “house of brands,” albeit one guided by a growing focus on transindustrial practices. The development of the brands and associated franchises and their commercial intertextuality is shaped by competitive and profit-driven strategies. As with other film studios, Time Warner’s output is increasingly dominated by fantasy/sci-fi blockbusters. Since the early part of the new millennium, three film franchises—Lord of the Rings (LOTR), Harry Potter, and DC Comics—have anchored its films schedule and produced the number one grossing film for 12 of 14 years; in some years these films have underpinned two of the corporation’s three top films. As noted, Warner Bros. has plans to expand this symbolic universe. It is launching a series of DC Comics “shared universe” films to compete with Disney’s Marvel Cinematic Universe and 21st Century Fox’s X-Men franchise, and the company is also set to deepen the shared universe of the Harry Potter franchise. Warner Bros. is working on strengthening broader cultural awareness of the DC universe and create future audiences by producing new TV series, such as Gotham, and also through its Lego DC Universe Superheroes line of videogames and toys. Fantasy films and the symbolic universes they engage and develop are ideally placed to attract the crucial teenage film audience, produce tie-in merchandise, and engage with and energize a fan base whose “bottom-up ecosystem” of activities drives further consumption. They also readily offer the possibility of sequels, spinoffs, and “reboots.” The fantasy genre has increasingly been associated with the fusion of traditions of independent, art cinema and blockbuster films by which an industrial auteurism integrates brand-name directors into the marketing of the value of films.81 This combination has helped to draw critical recognition of the films’ quality from film associations and other key cultural intermediaries—led by LOTR, the three franchises have, for example, attracted 58 Oscar nominations and 20 awards including a best picture award for LOTR’s The Return of the King. Industrial auteurism is also associated with HBO’s development of its programming strategy around “quality TV” since the mid-1990s as a means to distinguish itself from commercial networks and basic cable.82 Series such as Deadwood and The Sopranos brought a stability and regularity of viewership to HBO’s schedule. However, the encouragement of subscriber loyalty requires an enormous investment in both “unique” content production and extensive and intense promotional and branding efforts. HBO actively promotes industry and press recognition of its commitment to quality and artistic risks, as epitomized in the efforts of auteur-star showrunners such as David Milch and David Chase to creatively rework standardized western or gangster television genres. Its desire to retain a competitive point of distinction underpins its commitment to production quality and the search for critical acclaim and/or artistic awards in both small- and big-budget series. HBO’s successful strategy has inspired competitors and, in turn, compelled larger investment in edgy yet commercially astute series. Notable here are HBO’s recent series in the horror and fantasy genre (Alan Ball’s True Blood, David Benioff’s Game of Thrones or GoT), which have provided the same opportunities as Warner Bros. for leveraging pre-existing successful source texts and committed fan bases for marketing and cross-promotional purposes. GoT has surpassed The Sopranos as HBO’s most watched series, and the DVD box sets and legal digital downloads have been HBO’s highest selling to date. Indeed, while HBO emphasizes its continuing dominance of Primetime Emmy Awards since it embraced its “quality TV” strategy, CEO Bewkes has also

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remarked that Game of Thrones’ reigning status as the most illegally downloaded series was “better than an Emmy,” a facetious remark that nevertheless points to the importance of developing a “buzz” and cultural awareness around content which reinforces the value of the HBO brand to subscribers and distributors alike.83 Cultural-symbolic and economic power here are inextricably linked: in what one Time Warner executive refers to as “the arms race in original programing,” the wider cultural significance of such products reinforces both the potential for commercial intertextuality and the position of Time Warner within shifting commodity chains.

Conclusion While once leading the development of conglomeration and concentration in the media industries, Time Warner has reduced its size and scope of operations and now epitomizes the processes of restructuring driven by of financialization and the destabilizing effects of new competitors such as Amazon and Apple, Google and Netflix. And yet, the company continues to operate one of the six major Hollywood studios that control approximately 90% of the market and is one of the seven corporations that control an estimated 95% of U.S. television viewing hours.84 Time Warner’s comparative size places it at the center of international commodity chains linked into a television and video industry whose pre-eminence, if anything, has been reinforced by “digital disruption.” It is this economic power, buttressed by political power, which permits it to negotiate the transitions in this industry from a position of strength. Although Time Warner has retreated from the ownership of different media and cultural industries, its success is still reliant on expanding the value of its intellectual property through the various cultural commodity forms that emanate from its media and entertainment franchises and form a conspicuous part of contemporary consumer culture. The production, distribution, and marketing of these commodities, including those differentiated as “quality,” is guided by an abiding commitment to profit and the creation of relatively short-term shareholder value.

Notes 1 This comparison is based on information contained within these companies’ 2014 Form 10-K documents submitted to the U.S. Securities and Exchange Commission (SEC). See “EDGAR Company Filings,” www.sec.gov/edgar/searchedgar/companysearch.html, accessed March 31, 2015. 2 “Time Warner Investor Meeting—Final,” CQ FD Disclosure October 15, 2014. 3 “Contracted players” refers to the star performers that, as opposed to supporting, stock, and featured performers, provided the principal basis to differentiate and market films to audiences. While the term contract may imply the formally equal contracting parties, Warner Bros. and other studios sought to control these “imperfectly substitutable” workers through nominally seven-year long contracts that could be extended at the discretion of the studios. In the 1944 De Haviland [sic] v. Warner Bros. Pictures case, the Los Angeles Superior Court found that such contracts were illegal because they were susceptible to imposing the conditions of “life bondage” on star performers. Key films produced by Warner Bros. during this period included Little Caesar (1930); The Public Enemy (1931); I Am A Fugitive From A Chain Gang (1932); Lady Killer (1933); 42nd Street (1933); Captain Blood (1935); The Adventures of Robin Hood (1938); Maltese Falcon (1941); Mildred Pierce (1945); and The Big Sleep (1946). See Matt Stahl, “Employee in a Cage? Olivia De Havilland, Warner Bros. Pictures, and the ‘Limit Case’ of Star Employment,” Entertainment and Sports Law Journal 12 (2014); Searle Kochberg, “Industrial Contexts of Film Production,” in Introduction to Film Studies, ed. Jill Nelmes (New York: Routledge, 2012). 4 Curtis Prendergast, The World of Time Inc.: The Intimate History of a Changing Enterprise, vol. 3: 1960–1980 (New York: Antheneum, 1986); Connie Bruck, Master of the Game: Steve Ross and the Creation of Time Warner (New York: Simon and Schuster, 1994). 5 Nicholas Garnham, “The Economics of the U.S. Motion Picture Industry,” in Capitalism and Communication: Global Culture and the Economics of Information (London: Sage Publications, 1990). 6 Herbert I. Schiller, “Behind the Media Merger Movement: World Information Cartel,” The Nation 240 (1985).

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7 “Wolf at the Door—Time Warner,” Economist 377 no. 8448 (2005); Matthew Karnitschnig, “Time Warner, Icahn Reach Accord,” Wall Street Journal, February 18, 2006; Dimitra DeFotis, “Betting on a Happy Ending,” Barron’s, July 7, 2008. 8 Mimi Turner, “Jeff Bewkes: Beware of Apple, Amazon deals,” Hollywood Reporter, September 28, 2010. 9 Cynthia Littleton, “Time Warner Chief Jeff Bewkes Promises to Double Earnings Growth,” Daily Variety, October 15, 2014. 10 Matthew Karnitschnig, “That’s All Folks: After Years of Pushing Synergy, Time Warner Inc. Says Enough,” Wall Street Journal, June 2, 2006; Alex Ben Block et al., “What Rupert’s $80 Billion Bid Means for Hollywood,” Hollywood Reporter 420 no. 26 (2014). 11 Georg Szalai, “Time Warner Has ‘More Than Sufficient Scale,’ Will Double Earnings, Jeff Bewkes Says,” Hollywood Reporter, October 15, 2014; Eileen R. Meehan, “Transindustrialism and Synergy: Structural Supports for Decreasing Diversity in Commercial Culture,” International Journal of Media and Cultural Politics 1, no. 1 (2005). 12 Unless otherwise indicated, information in this section draws from various 2014 reports, including the company’s Form 10-K submitted to the Securities and Exchange Commission, February 26, 2015. See Time Warner, “Investor Relations,” accessed March 31, 2015, http://ir.timewarner.com/phoenix. zhtml?c=70972&p=irol-sec 13 Rick Kissell, “Cable News Ratings: MSNBC Tumbles, While Fox, CNN and HLN All Rise,” Daily Variety, March 31, 2015; “ESPN No. 1 in Cable Ratings for 2014,” Variety, January 2, 2015. 14 These figures derive from Time Warner’s annual Form 10-K documents for the years 2002–2014. See Time Warner, “Investor Relations,” accessed March 31, 2015, http://ir.timewarner.com/phoenix. zhtml?c=70972&p=irol-sec 15 Emily Steel, “Eye on Rivals, HBO Unveils New Service for Streaming,” New York Times, October 16, 2014; Todd Spangler, “HBO Now Launches with Apple, Cablevision—No Cable TV Needed,” Daily Variety, April 7, 2015. 16 Nicole LaPorte, “Bring It On,” Fast Company, no. 195 (2015). 17 Although Time Warner has a long and close association with Hasbro, Time Warner’s relationship with Lego has rapidly expanded since its first licensing agreement to manufacture Harry Potter toys in 2000. The relationship now extends to The Hobbit, The Lord of the Rings, and DC Universe superheroes franchises, a separate Lego movie franchise, as well as the basis for highly successful digital games. Sam Thielman, “How Lego Became the Most Valuable Toy Company in the World “ Adweek 54, no. 15 (2013). 18 Steve Clarke, “WB TV Arm Snaps Up BlazHoffski; Deal Continues Warner’s Push into International TV,” Daily Variety, September 28, 2011. 19 See www.warnerbros.com/studio/divisions/television/cw-television-network. 20 Max Willens, “Home Entertainment 2014: U.S. DVD Sales And Rentals Crater, Digital Subscriptions Soar,” International Business Times (2015). 21 Elissa Nelson, “Windows Into The Digital World,” in Connected Viewing: Selling, Streaming, & Sharing Media in the Digital Era, ed. Jennifer Holt and Kevin Sanson (New York: Routledge, 2014). 22 Tom Evens, “Platform Leadership in Online Broadcasting Markets,” in Handbook of Social Media Management, Media Business and Innovation, ed. M. Friedrichsen and W. Muhl-Benninghaus (SpringerVerlag, 2013); Paul Thompson, Rachel Parker, and Stephen Cox, “Labour and Asymmetric Power Relations in Global Value Chains: the Digital Entertainment Industries and Beyond,” in Putting Labour in its Place: Labour Process Analysis and Global Value Chains, ed. Kirsty Newsome, et al., Critical Perspectives on Work and Employment (Basingstoke: Palgrave Macmillan, 2015). 23 Bruck, Master of the Game, 236. 24 Scott Fitzgerald, “Structure of the Cultural Industries—Global Corporation to SMEs “ in The Routledge Companion to the Cultural Industries, ed. Kate Oakley and Justin O’Connor (London: Routledge, 2015); Dan Schiller, Digital Depression: Information Technology and Economic Crisis Geopolitics of Information (Urbana: University of Illinois Press, 2014). 25 See www.timewarner.com/company/strategy, accessed March 31, 2015. 26 The announcement of this figure at an investor conference was prompted by news that Netflix was committed to spending almost $3 billion on TV and film content in 2014 and more than $6 billion over the next three years. See Mark Sweney, “Netflix to Spend $3bn on TV and Film Content in 2014,” Guardian, February 6, 2014. 27 Matthew Garrahan, Shannon Bond, and Roger Blitz, “NBA Lines up $24bn TV Deal as Demand for Live Sports Escalates,” Financial Times, October 7, 2014; Deborah Yao, “Time Warner CEO: Boosting Investments Outside Pay-TV Ecosystem,” SNL Kagan Media & Communications Report, February 12, 2015; Szalai, “Time Warner Has ‘More Than Sufficient Scale,’ Will Double Earnings, Jeff Bewkes Says.” 28 These figures derive from Time Warner’s 2004 and 2014 annual Form 10-K documents. See Time Warner, “Investor Relations,” accessed March 31, 2015, http://ir.timewarner.com/phoenix.zhtml?c=70972&p= irol-sec

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Scott Fitzgerald

29 Amanda D. Lotz, The Television Will Be Revolutionized, 2nd ed. (New York: New York University Press, 2014). 30 Keach Hagey, “Behind Time Warner Chief’s ‘Cord-Cutter’ Pitch; CEO Jeff Bewkeswants to Sell HBOonline But Must Win Over Pay-TV Providers,” Wall Street Journal, April 13, 2015. 31 As the service was launched via Apple TV and Cablevision Systems’ Optimum Online, HBO sought to reassure its major cable partners, Comcast, DirecTV, and Time Warner Cable, that HBO Now would be an “additive service” and drive their premium broadband packages. Brian Steinberg, “HBO’s Plepler: New Broadband Project Will Not Cannibalize Customer Base,” Daily Variety, November 20, 2014; Shannon Bond, “HBO Homes in on Online Streaming,” Financial Times, October 16, 2014; LaPorte, “Bring It On.” 32 These figures derive from Time Warner’s annual Form 10-K documents for the years 2005–2014. See Time Warner, “Investor Relations,” accessed March 31, 2015, http://ir.timewarner.com/phoenix. zhtml?c=70972&p=irol-sec 33 Brent Lang, “Time Warner Unveils $5 Billion Stock Buyback, Earnings Rise Thanks to HBO,” Daily Variety, August 6, 2014. 34 Berle and Means asserted that in the era of the corporation the separation of ownership and control had meant that the rights of dispersed individual stock owners had been usurped by a cadre of professional, salaried managers who determined corporate policy. See Adolf A. Berle, Jr and Gardiner C. Means, The Modern Corporation and Private Property (New York: Macmillan, 1932). As Scott argues, polyarchic financial hegemony involves numerous large financial institutions determining the broad conditions under which corporations must decide their corporate strategies. This is achieved via their collective control of the provision of capital rather than through direct control. John Scott, Corporate Business and Capitalist Classes (Oxford: Oxford University Press, 1997), 139. 35 Gregory Jackson, “A New Financial Capitalism? Explaining the Persistence of Exit over Voice in Contemporary Corporate Governance,” European Management Review 5, no. 1 (2008). 36 William Lazonick and M O’Sullivan, “Maximising Shareholder Value: A New Ideology for Corporate Governance,” Economy and Society 29, no. 1 (2000); W. Lazonick, “The financialization of the U.S. Corporation: What Has Been Lost, and How It Can Be Regained,” Seattle University Law Review 36 (2013). 37 “The Rise of BlackRock,” The Economist 409, no. 8865 (2013). 38 Time Warner, “DEF 14A Proxy Filings,” (2015). 39 Lloyd Grove, “Lord of These Things,” New York Magazine, January 13, 2008. 40 Ryan Nakashima, “Time Warner CEO Awarded $21.5M 2008 Pay Package,” Associated Press Newswires, April 9, 2009; Time Warner, “DEF 14A Proxy Filings” (2009). 41 Paul Bond, “New Deal Could Net Time Warner’s Jeff Bewkes $30 Million in Stock Bonuses Over Five Years,” Hollywood Reporter, November 26, 2012. 42 Nuria Almiron, “Board Compensations in the Media Industry: Global Elite Networks and Financialization,” The Political Economy of Communication 1, no. 2 (2014). 43 “The Newspaper Guild/CWA Applauds Labor Department Suit Against Time Warner Over Treatment of Freelancers,” PR Newswire, October 29, 1998. 44 Paul Bond, “Time Warner’s Looming Split: Why TV Holds the Key,” Hollywood Reporter, May 9, 2014. 45 Peter Sanders and Merissa Marr, “Warner Bros. Shutters Two Indie Film Labels — Move Is Part of Bid To Slash Overhead, Trim Film Output,” Wall Street Journal, May 9, 2008; Brook Barnes, “800 Jobs To Be Cut At Warner Brothers,” New York Times, January 21, 2009; Shira Ovide, “Time Inc. Overhaul Threatens 600 Jobs,” Wall Street Journal, October 29, 2008. 46 Keith J. Kelly, “Time Inc. Layoffs Hit Mastheads Hard,” New York Post, January 30, 2012. 47 “Time Inc. Rates Writers on How ‘Beneficial’ They Are to Advertisers,” http://gawker.com/time-incrates-writers-on-how-beneficial-they-are-to-1623253026 48 Alexandra Steigrad and Nina Jones, “Memo Pad,” WWD 207, no. 18 (2014). 49 “Time Inc. Slashes Jobs, Cuts Nearly 500 Staffers,” MediaPost.com, February 5, 2014; “Time Inc. Plans Layoffs Of 289 Employees,” Dow Jones News Service, January 19, 2007. 50 Alexandra Steigrad and Lisa Lockwood, “Memo Pad,” WWD 208, no. 112 (2014); Keith J. Kelly, “Witkoff Playing Personnel Hardball with News,” New York Post, June 26, 2015. 51 Tom McGeveran, “Time Inc. and Union Hit Another ‘Impasse’ Over Contract,” Capital New York, October 11, 2014. 52 Emily Steel, “In a Revamping, Turner Broadcasting Will Cut 1,475 Jobs,” New York Times, October 6, 2014. 53 Jonathan Handel, “CNN Ordered to Rehire Over 100 Union Techs, Compensate Many More,” Hollywood Reporter, September 16, 2014; “Feds Cite CNN’s ‘Anti-Union Animus,’ Reject Latest Appeal In Worker Firings,” Deadline.com, March 24, 2015. 54 Steel, “In a Revamping, Turner Broadcasting Will Cut 1,475 Jobs.” 55 Andrew Wallenstein, “HBO to Lay Off Over 150 Employees This Week,” Daily Variety, October 28, 2014.

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56 Brooks Barnes, “Warner Bros. Begins Layoffs to Cut Costs,” New York Times, November 5, 2014. 57 Details in this section for expenditures for lobbying and political contributions by Time Warner, Time Warner Cable, and the TV, movie, music, and cable industries and lobbyist connections are derived from The Center for Responsive Politics’ website. See www.opensecrets.org/, accessed March 31, 2015. 58 Ronald V. Bettig and Jeanne Lynn Hall, Big Media, Big Money: Cultural Texts and Political Economics (Plymouth: Rowman & Littlefield Publishers, 2012). 59 See www.timewarner.com/company/management/senior-corporate-executives/carol-a-melton, accessed March 31, 2015. 60 Val Burris, “The Interlock Structure of the Policy-Planning Network and the Right Turn in U.S. State Policy,” Research in Political Sociology 17 (2008). Bewkes is also a member of The Creative Coalition, an American entertainment industry advocacy group. 61 Schiller, Digital Depression: Information Technology and Economic Crisis. 62 Eric Lipton and Conor Dougherty, “Sued by Google, a State Attorney General Retreats,” New York Times, December 20, 2014; Kent Walker to, 2014, http://googlepublicpolicy.blogspot.com.au/2014/12/thempaas-attempt-to-revive-sopa.html; Richard Waters, “Google Accuses Hollywood of Secret Censorship Campaign,” Financial Times, December 19, 2014. 63 Dominic Rushe, “Net Neutrality Activists Score Landmark Victory in Fight to Govern the Internet,” Guardian, February 27, 2015; “‘Nipplegate’ Dethroned by Net Neutrality at Top of FCC’s Comments List,” Guardian, September 11, 2014. 64 Indeed the cost and complexity of lobbying for corporate interests has deepened and Google and Facebook have already begun to form alliances with European telecoms to avoid similar legislator outcomes. Sam Schechner and Rory Jones, “Google: Tech, Telecom Must Work Together,” Wall Street Journal, March 3, 2015. 65 Shalini Ramachandran and Keach Hagey, “Streaming TV Services Seek to Sidestep Web Congestion: HBO, Sony and Showtime Want Separate Lanes, Spurring Net Neutrality Concerns,” Wall Street Journal, March 20, 2015. 66 Subhabrata Bobby Banerjee, “Corporate Social Responsibility: The Good, the Bad and the Ugly,” Critical Sociology 34, no. 1 (2008); David Sadler and Stuart Lloyd, “Neoliberalising Corporate Social Responsibility: A Political Economy of Corporate Citizenship,” Geoforum 40, no. 4 (2009); D. Kinderman, “‘Free Us Up so We Can Be Responsible!’ The co-evolution of Corporate Social Responsibility and neoliberalism in the U.K., 1977–2010,” Socio-Economic Review 10, no. 1 (2011). 67 KPMG, “KPMG International Survey of Corporate Responsibility Reporting,” (2013). 68 Jiran Hou and Bryan H. Reber, “Dimensions of Disclosures: Corporate Social Responsibility (CSR) Reporting by Media Companies,” Public Relations Review 37, no. 2 (2011). 69 J. Emil Morhardt et al., Entertainment Sector Analysis -Pacific Sustainability Index Scores, (Claremont: Claremont McKenna College -Roberts Environmental Center, 2009). 70 See http://ethisphere.com/worlds-most-ethical/wme-honorees 71 See www.timewarner.com/company/corporate-responsibility 72 Ibid. 73 Ibid. 74 See www.timewarner.com/company/corporate-responsibility/telling-the-worlds-stories/journalisticintegrity 75 M. Sandoval, “Corporate Social (Ir)Responsibility in Media and Communication Industries,” Javnost— The Public 20, no. 3 (2013). 76 See www.usasean.org/sites/default/files/uploads/aboutus/csr/members-reports/TimeWarner.pdf 77 Time Warner, “Annual Report,” (2013), 13. 78 These figures are derived from reports on the Time Warner Foundation website: www.timewarner foundation.org/grants 79 Time Warner, “Corporate Social Responsibility Report,” (2008), 42. 80 Robert R. Locke and J. C. Spender, Confronting Managerialism: How the Business Elite and Their Schools Threw Our Lives Out of Balance (London: Zed Books, 2011). 81 Kimberly Ann Owczarski, “Batman,” Time Warner, and Franchise Filmmaking in the Conglomerate (The University of Texas at Austin, 2008). 82 D. L. Jaramillo, “The Family Racket: AOL Time Warner, HBO, The Sopranos, and the Construction of a Quality Brand,” Journal of Communication Inquiry 26, no. 1 (2002); “AMC: Stumbling Toward a New Television Canon,” Television & New Media 14, no. 2 (2012); Jonathan Hardy, “Mapping commercial Intertextuality: HBO’s True Blood,” Convergence 17, no. 1 (2011). 83 Ramon Lobato and Julian Thomas, The Informal Media Economy (Cambridge: Polity Press, 2015). 84 Schiller, Digital Depression: Information Technology and Economic Crisis; Lotz, The Television Will Be revolutionized.

4 COMCAST CORPORATION Lee McGuigan and Victor Pickard

Comcast is the largest media company in the world.1 In the United States it commands a dominant position in multiple markets, both locally and nationally. It is a corporate media conglomerate and a shrewd political player. Despite its famously poor customer service standards and numerous public embarrassments, Comcast has managed to maintain dominance in several communication industries. It is the largest Internet service provider in the U.S., holding more than a 20% share of the national market. With over 22 million video customers, Comcast is also the largest multichannel television distributor. Only Netflix serves more video subscribers—and it pays to deliver its service through Comcast’s transmission lines. In its home city of Philadelphia, Comcast holds tremendous influence on a wide range of business and civic operations, and by all definitions is a monopolistic Internet service provider. Its national reach is equally impressive. At the end of 2014, its infrastructure passed more than 54 million homes and businesses, with operations in 39 States and the District of Columbia.2 Had it succeeded in its attempt at purchasing Time Warner Cable, Comcast would have been the only option in high-speed Internet provision for more than 80% of the households in its coverage area—nearly two-thirds of the population3—and controlled 54% of the national market in cable broadband and video.4 In this chapter, we contextualize Comcast’s market dominance. To demonstrate how Comcast has achieved and exercised its power, we focus on the company’s organization, business strategies, and political influence. Drawing from publicly available data and other documentation, we provide a political economic analysis of Comcast and the structures—policies, discourses, and lobbying operations—that enabled its ascendency.

A Brief History of Comcast’s Rise to Power Comcast’s rise to power over the last 50 years is astonishing.5 Tracing how it evolved from its humble beginnings with the purchase of a 1,200-subscriber cable system in Tupelo, MS in 1963 to become the global giant that it is today can easily be seen as a triumphalist narrative of bold entrepreneurialism. Beginning in 1963, Comcast Corporation (then called American Cable Systems, a division of Ralph Roberts’s International Equity) acquired cable systems in Mississippi and then across the U.S.6 Its subscriber base doubled in 1986 when it acquired a portion of Westinghouse’s cable properties, and in 1988 it became the fifth largest cable company in the country, with two million customers, by purchasing half of Storer Communications.7 It absorbed close to one million subscribers in buying E.W. Scripps’s cable operations in 1995, the same year

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it took full control of the lucrative QVC home shopping network, which it sold for almost $8 billion in 2003.8 It received a boost from Bill Gates in the late 1990s when he invested $1 billion in Comcast.9 In 2001, Comcast acquired systems from Adelphia and AT&T,10 and the next year it completed its acquisition of AT&T’s cable properties. With the $51 billion purchase of AT&T Broadband, Comcast doubled in size, up to 21 million customers.11 Just within the last decade, its profits have increased ninefold, up to $8.3 billion in 2014, and its stock price has quintupled since 2009. As “family companies” go, Comcast’s expanse approaches that of an empire. Reminiscent of Ma Bell in the 1960s, whose operations imitated nationhood with its flag, dignitaries, and orchestra,12 the Roberts family designates its seat of power as “Comcast Country.”

Economics In this section we present a sketch of Comcast’s financial profile and business operations. We extract information on Comcast’s performance indicators from the company’s latest SEC filings; we introduce its business segments and describe their operations within the whole of the company; and toward the end of the section we focus on the company’s recent mergers and acquisitions to identify some of Comcast’s strategies for growing its enterprises.

Financial Data Comcast has prospered especially over the last decade. Since 2005, its revenues trebled and its total assets increased by 54%, up to $159.3 billion. In 2014, the company reported $8.38 billion in profit on revenues of almost $69 billion (see Table 4.1). Comcast’s operating income before depreciation and amortization—its preferred metric for judging business performance—has ballooned from $7.9 billion to $22.9 billion during this timeframe.13 Comcast leads the highly concentrated industries in which it operates. Serving 22 million broadband Internet customers, it commands 20.5% of the market for Internet service provision (see Table 4.2) and accounts for 42% of Internet users accessing the Internet by cable (see Table 4.3). In its latest filings at the end of 2014, Comcast claimed more than 27 million customer relationships.14 TABLE 4.1 Comcast—NBC/Universal, 2005–2014

TABLE 4.2 U.S. Internet Service Provision

(in millions)

by Market Share, 2014 (%)

Year

Revenues

Net Income

Total Assets

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

21,075 24,966 30,895 34,256 35,756 37,937 55,842 62,570 64,657 68,775

928 2,533 2,587 2,547 3,638 3,635 4,160 6,203 6,816 8,380

103,400 110,405 113,417 113,017 112,733 118,534 157,818 164,971 158,813 159,339

Sources: Form 10-K, 2014, p. 45, www.sec.gov/Archives/edgar/ data/902739/000119312515068526/d817352d10k.htm#toc817352 _8; Form 10-K, 2013, p. 45, www.sec.gov/Archives/edgar/data/ 902739/000119312514047522/d666576d10k.htm; Form 10-K, 2008, p. 21 www.sec.gov/Archives/edgar/data/1166691/0001 19312509033975/d10k.htm

Comcast Corporation AT&T Inc. Verizon Communications Inc. CenturyLink Inc. Time Warner Cable Inc.

20.5 18.6 18.1 16.9 12.5

Source: IBIS World, U.S. Industry Reports: Internet Service Providers, accessed January 15, 2015

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TABLE 4.3 U.S. Cable Broadband Internet Subscribers,

TABLE 4.4 Video Service Subscription (in

Q3 2014

millions of viewers)

Company

Number of Percent of Subscribers Total (in thousands)

Comcast Time Warner Charter Cablevision Suddenlink Mediacom WOW (WideOpenWest) Cable ONE Other major private companies Total

21,586 12,073 4,956 2,756 1,136 997 730 486 6,505 51,225

42.14 23.57 9.67 5.38 2.22 1.95 1.43 0.95 12.70 100.00

Netflix Comcast DirecTV Dish Time Warner Cable Hulu AT&T U-verse Verizon FiOS Charter Cox

36.2 22.6 20.3 14.1 11.4 6 5.7 5.3 4.4 4.3

Source: NCTA, “Industry Data,” www.ncta.com/ industry-data, accessed January 14, 2015

Source: www.statista.com/statistics/217348/us-broadband-internetsusbcribers-by-cable-provider/, accessed January 14, 2015

In the highly concentrated pay-TV industry, the top four firms account for more than twothirds of U.S. subscribers, and the top ten represent well over 90% of market.15 Ending 2013 with 22.6 million video service subscribers (see Table 4.4), Comcast claimed 51.9% of the cable market and approximately 26% of the entire pay-TV market.16 At the end of 2012, its monthly average revenue per video customer was $149.17 All of its offerings boast significant penetration of the U.S. market for potential consumers (see Table 4.5). Twenty-three percent of customers in the home communications market receive at least one service from Comcast, second only to AT&T (32%) which leads home phone service.18 Had it been successful in its bid to acquire Time Warner Cable, Comcast would have controlled over 30% of the pay-TV market (impelling it to divest 3.9 million subscribers to stay closer to 30%, historically the maximum allowance for horizontal concentration). Under the FCC’s newly adjusted definition of broadband (download speeds of 25 Mbps and upload speeds of 3 Mbps, up from 4 and 1 Mbps, respectively), pro forma Comcast-TWC would have controlled more than 50% of the high-speed Internet market and served 30 million managed subscribers.19 TABLE 4.5 Comcast Cable Communications, Customers,

TABLE 4.6 Market Capitalization of Media,

and Market Penetration, 2014

Technology, and Telecommunications Companies (in billions $)

Service Video Digital Video High-Speed Internet Voice

Customers (in millions)

Penetration (%)

22.4 22.2 22.0 11.2

40.9 99.4 40.2 20.5

Source: Form 10-K, 2014, p. 3.

Apple Google Verizon Facebook AT&T Amazon Walt Disney Comcast Fox Time Warner Time Warner Cable DirecTV

477 405 194 174 173 173 142 129 74 59 38 37

Source: National Cable & Telecommunication Association, “Industry Data,” www.ncta.com/ industry-data, accessed January 14, 2015

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In March of 2014, Comcast’s market capitalization of $129 billion—since then reported to be $152 billion20—was the highest among cable companies (see Table 4.6).

Corporate Structure Comcast operates two primary businesses: Comcast Cable and NBCUniversal (NBCU). Comcast Cable manages the Cable Communications operations. NBCU comprises four business segments: Cable Networks, Broadcast Television, Filmed Entertainment, and Theme Parks. The Cable Communications and NBCU segments reported revenues of $44.1 billion and $25.4 billion, respectively, in 2014 (see Table 4.7). Through its Cable Communications segment, Comcast offers video, high-speed Internet, and voice services to residential customers (see Table 4.8). Its infrastructure passes 54.7 million homes and businesses in 39 contiguous states and the District of Columbia.21 At the end of 2014, 22.4 million, 22 million, and 11.2 million subscribed to the respective services.22 Historically, video service has accounted for over half of the revenue from residential subscribers, but an increasing percentage of earnings comes from Internet customers and from offering special business services. The Cable Communications segment also collects revenue by selling the commercial time allocated to Comcast according to its distribution agreements to local, regional, and national advertisers.23 In addition to serving as sales agents for other multichannel video providers,24 Comcast sells the use of satellite feeds to its own Cable Networks.25 Cable Communications earnings account for approximately 65% of revenue over the past three years, and some assessments figure Comcast’s profit margin on high-speed Internet service at 70–80% or more.26 Some estimates, of TWC especially, see these cable giants running Internet services at an “almost comically profitable” margin of 97%.27

TABLE 4.7 Comcast Corporation—NBC/Universal Business Segments, 2011–2014

Revenue (in millions $) Year

2011

Total

55,842 62,570 64,657 68,775

2012

2013

2014

% of Total Revenues

Operating Income* (in millions $)

2011

2011

2014

2012

2013

2014

18,357 19,977 21,434 22,923

Cable Communications Video (Residential) High-Speed Internet (Residential) Voice (Residential) Business Services Advertising Other

19,464 19,952 20,535 20,783 34.9 8,743 9,544 10,334 11,321 15.7 6.3 3.5 3.6 2.8

5.3

Total

37,226 39,604 41,836 44,140 66.6

64.2

3,503 1,953 2,001 1,562

3,557 2,565 2,284 1,702

3,657 3,241 2,189 1,880

3,671 3,951 2,442 1,972

30.2 16.4

3.5 2.8 15,288 16,255 17,205 18,112

NBCUniversal Cable Networks Broadcast Television Filmed Entertainment Theme Parks Total

8,061 5,982 4,239 1,874

8,727 8,200 5,159 2,085

9,201 7,120 5,452 2,235

9,563 14.4 8,542 10.7 5,008 7.6 2,623 3.4

13.9 12.4 7.3 3.8

3,199 124 27 830

3,303 358 79 953

3,501 354 483 1,004

3,589 734 711 1,168

19,260 23,812 23,650 25,428 34.4

37.0

3,462

4,107

4,732

5,588

*Before Depreciation and Amortization Sources: Form 8-K, 2014, pp. 3–4; Form 10-K, 2013, pp. 53, 57, www.sec.gov/Archives/edgar/data/902739/00011 9312514047522/d666576d10k.htm

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TABLE 4.8 Comcast Market Share by

TABLE 4.9 Top 10 TV Station Groups, 2013

Product Type, 2014 (%) Pay-TV Subscribers Home Internet Subscribers Truly High-Speed Internet Subscribers Double-Play Subscribers Triple-Play Subscribers

33 36 47 55 49

Source: www.freepress.net/comcast-time-warnercable-too-much-control, accessed February 23, 2015

Fox CBS Sinclair Gannett NBCUniversal Tribune ABC/Disney Media General Hearst Univision

Revenues Number of (in billions $) Stations

Number of Markets Served

1.67 1.50 1.34 1.30 1.29 1.23 1.02 .972 .726 .697

18 18 78 30 20 32 8 46 26 25

29 30 162 38 27 51 8 100 36 61

Source: Tuna N. Amobi, “Industry Surveys: Broadcasting, Cable & Satellite,” Standard & Poors Capital IQ, October 2014, p. 9.

NBCU’s operations derive revenue from various sources. The Cable Networks segment generates income from subscriptions to channels distributed by multichannel video providers, advertising sales, and program licensing fees.28 Revenue for the Broadcast Television segment owes largely to advertising, as well as program licensing and fees following from retransmission consent agreements. At the end of 2013, Comcast was operating 16 national cable networks, six of which had more than 90 million subscribers.29 Its regional sports and news networks reach more than 35 million subscribers, and Comcast markets programming from its Cable Networks internationally through multichannel video providers as well as over-the-top distributors, including Netflix, Amazon, Apple, and Hulu (of which NBCU owns 32%). Comcast’s nine regional Sportsnet channels serve fans of professional teams in Philadelphia, Washington, Chicago, New York, New England, and California.30 NBC’s broadcast network distributes more than 5,000 hours of programming annually to “virtually all U.S. television households.”31 More than 200 affiliated stations, including 10 local stations, broadcast content produced by NBC or acquired from third parties. NBC owns the rights to transmit sporting events through contractual agreements with the National Basketball Association (NBA), National Football League (NFL), National Hockey League (NHL), Major League Baseball (MLB), PGA Tour, NASCAR, and the English Premier League (soccer). Comcast owns Telemundo, which operates 17 local television stations that collectively reach almost 60% of Hispanic television households in the U.S.32 Table 4.9 presents an overview of broadcast station groups in the U.S. The Filmed Entertainment segment earns revenue from producing and distributing film content and related assets. Universal Pictures, Focus Features, and Illumination represent the primary production holdings, and NBCU owns a film library of more than 5,000 titles.33 Movie theatres are the primary window for exhibition, after which films are sold and licensed through homevideo retailers and television networks, among other distribution channels. The Theme Parks business generates revenue from box office sales, intellectual property, and spending on food, beverages, and merchandise.34 Universal Studios’ attractions in Orlando and Hollywood comprise most of the Theme Parks segment. Along with these locations, and Universal’s Islands of Adventure, the company operates themed hotels and dining and retailing complexes. NBCU also licenses the Universal Studios brand to attractions globally. In addition to operating theme parks and resorts in Japan and Singapore, Comcast has constructions planned or ongoing in cities such as Dubai, Moscow, and Beijing.

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Finally, Comcast Corporation owns substantial sporting and entertainment properties through a subsidiary, Comcast Spectacor, including an NHL franchise (the Philadelphia Flyers) and the Wells Fargo Center, home to the Flyers and the NBA’s Philadelphia 76ers (previously owned by the company). Comcast has used its ownership stake in these teams, as well as the bargaining clout from its sports networks and large subscriber base, to make exclusive licensing agreements with Philadelphia sports franchises that deny satellite providers the rights to transmit coverage of the Flyers, Phillies, and 76ers.35 Comcast Spectacor is also the principle owner of Global Spectrum, a firm managing numerous entertainment and public assembly venues, including the University of Phoenix Stadium, host of the NFL’s Arizona Cardinals and the 2015 Super Bowl. Set in a Comcast-owned venue and broadcast exclusively by NBC, the Super Bowl, which attracted 120.8 million viewers at its peak—a record for U.S. television—and generated an estimated $360 million in revenue by selling 30 seconds of advertising time for an average price of $4.5 million, was almost entirely under the province of Comcast.36

Typical Strategies and Monopoly Power In 1984, Philadelphia awarded Comcast a cable franchise, which essentially ensures a local monopoly. On the national level, Comcast has faced frequent allegations of wielding monopolistic market power, most strongly in Susan Crawford’s 2013 book, Captive Audience. Others point to the detrimental impact Comcast has had on American Internet services. As the Financial Times puts it, Comcast’s “meteoric rise in the past decade parallels the relative decline of Internet service in the U.S.” From its global supremacy in the late 1990s, the U.S. fell to 16th on the OECD’s list of top Internet speeds by country in 2013; its average speed of 27 megabits per second was approximately one quarter that of Japan and the Netherlands, and the average cost of $1.10/Mbps in 2013 compared unfavorably with its peers, such as the U.K. ($0.42/Mbps) and South Korea ($0.21/Mbps).37 Studies have found that in the few places in the U.S. where cable companies compete head-to-head, subscriber fees are significantly lower.38 Yet Comcast has used its political clout to menace even those putative challengers qualified to surmount the financial barriers to entering the cable business. When RCN Corporation sought to wire Philadelphia with fiber, the city’s top officials (with encouragement from Comcast lobbyists) dismissed a proposal that would have created hundreds of jobs, injected $250 million in direct investment, and almost certainly provided consumers with better service at lower prices.39 After establishing local monopolies, Comcast has reaped significant profits by continually raising subscription prices above competitive market levels. Unchecked by competition or rate regulation, Comcast has felt little pressure to improve its services or relax its pricing structure. However, Comcast’s most effective strategy, one might argue, is its drive to absorb all challengers. Over the past several decades Comcast has achieved its favorable position in markets for service provision and content distribution through strategic mergers and acquisitions. After a series of aggressive acquisitions in the early 2000s, Comcast came under increasing criticism from some policymakers and consumer advocates for allegedly becoming a monopoly with the market power to suppress competition and extract undue tolls. Nonetheless, Comcast proceeded unabated, with support from Republican FCC Chairman Michael Powell. It set its sights even higher with its unsuccessful bid to buy the Walt Disney Company for $66 billion in 2004.40 In 2006, Comcast and TWC acquired and divided Adelphia Cable’s assets for $17.6 billion in cash and stock.41 Since 1998, Comcast has completed 87 “communication” mergers and acquisitions, with total transaction value of more than $111 billion; and since 2003, its thirty “media and entertainment” acquisitions represent $41.4 billion in total transaction value.42 Vertical and horizontal integration have expanded Comcast’s market power considerably. Its control of pay-TV infrastructure (and concomitantly the size of its potential subscribers) and

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its vast programming assets (its national and regional networks and NBCU) afford Comcast a strong bargaining position from which to dictate terms in transactions with both distributors and content producers.43 The attempted Comcast – TWC merger would have created the largest multichannel video provider in 87 of the 133 Designated Market Areas in which the companies operate.44 By controlling more infrastructure and more content to license or to leverage toward TV Everywhere services, consolidation has also prepared the firm for competition from over-the-top and IPTV programmers. Reviews of its two most spectacular recent merger activities, with NBCU and TWC, demonstrate how strategic acquisitions advance its interests in both programming and service provision. In 2009, Comcast announced its intention to acquire NBCU from General Electric.45 After the FCC approved the $30 billion bid in January 2011,46 Comcast took possession of 51% of the company and it claimed GE’s remaining common equity interest in March of 2013.47 According to trade magazine Variety, the merger consolidated “an unprecedented combination of cable, Internet, studio and broadcast assets.”48 Already the largest cable provider in the U.S.,49 with the acquisition of NBCU Comcast became the fourth-largest owner of cable networks, with “access to a whole new slate of marketer relationships.”50 Advertising Age described Comcast’s purchase as a “bet on [the] future of advertising.”51 The deal represented “a calculated move to seize the reins in shaping the future of TV-viewer behavior and a bid to assume the lead in figuring out how to advertise to the new-media consumer.”52 Through the merger, Comcast assumed control of approximately 20% of U.S. television viewing hours.53 In the six years preceding its acquisition by Comcast, NBCU averaged annual profits of $2.79 billion and revenues of $15.9 billion (see Table 4.10). The FCC’s approval, however, was not unanimous. Commissioner Michael Copps, the lone dissenter, feared that the merger “confers too much power in one company’s hands” and “grievously fails the public interest.”54 Pursuant to these concerns, the FCC stipulated several conditions to preserve competition in markets for content and services. One provision restricts Comcast Cable from favoring NBC content at the expense of other networks. Comcast also must offer NBC programming to satellite, telecom, and online video distributors at competitive prices in “appropriate” circumstances. Other conditions of the merger prohibit discriminatory treatment of online content providers, such as Netflix, which could prevent market entrants from accessing the content necessary to sustain their businesses, and preclude Comcast from using its position as a distributor to “disadvantage” these content providers.55 To please regulators, Comcast also vowed to extend its services to low-income citizens by establishing the “Internet Essentials” program. However, by May of 2014, Comcast had enrolled a mere 12% of eligible families, failed to meet the FCC’s minimum required speeds, and disqualified many constituents—including anyone who is a current or recent Comcast customer. The Consumers Union writes, “this program offers a low-cost, low-level service for some eligible new customers, not help for existing low-income customers, or for struggling seniors, singles, TABLE 4.10 NBC Universal, Financials (in millions $)

Year

Revenues

Profits

Total Assets

2005 2006 2007 2008 2009 2010

14,689 16,188 15,416 16,969 15,436 16,901

3,092 2,919 3,107 3,131 2,264 2,261

34,139 42,242

Sources: General Electric Company, Form 10-K, 2010, p. 38; General Electric Company, Form 10-K/A, 2005, p. 38; SNL Kagan, NBCUniversal Media, LLC, accessed January 29, 2015

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couples without children, or couples whose children are not school-age.”56 While its failure to satisfy the terms of this mega-merger has fueled critics, Comcast stands by its claim that absorbing its competitors will help “bridge the digital divide.”57 In February 2014, Comcast arrived at a deal to acquire Time Warner Cable (TWC), the second largest cable company in the U.S., for $45.2 billion in stock.58 TWC operates clustered cable systems in five geographic regions, which contributed to $22.1 billion in revenue in 2013.59 In commandeering these cable systems, Comcast would have appropriated 8 million managed customers. Comcast denied that “plausible horizontal harms” could have resulted from the merger and portrayed its voluntary divestiture of 3.9 million subscribers as a gesture of good will.60 Beyond currying favor with the U.S. Department of Justice and the FCC—the agencies that determine whether mergers violate antitrust law or betray public interests—the divestiture would have earned Comcast $7.3 billion from selling and exchanging subscribers from Charter Communications, thereby replacing TWC as the second-largest cable operator.61 The deal would have yielded $1.5 billion in operating efficiencies as well as improved economies of scale, which proponents argued were necessary for Comcast to compete with direct broadcast satellite (DirecTV and DISH) and telecommunications companies (AT&T and Verizon), as well as “disruptive” services offered by Netflix and Amazon.62 They also argued that these size effects would afford increased investment toward innovation in the public interest.63 Opponents countered that the merger would further erode competition in the market for broadband Internet provision and award Comcast undue market power in negotiating upstream with programmers.64 A merger of such media giants would have increased tendencies toward both monopoly and monopsony: Comcast could dictate terms and prices to the buyers of its services—i.e., Internet and television customers—and it could dictate terms and prices to the sellers of the content it distributes—i.e., television programmers and Internet publishers. Furthermore, Comcast could discourage market entry for firms competing with its programming assets and use its control over the data “pipes” to favor certain content providers, extracting tolls from customers needing (or willing) to pay for service sufficient to support data-intensive content, such as streaming video sites or lightning-fast search engines. In addition, critics of the merger worried that more size and power would make Comcast even less responsive to complaints about its increasing subscription costs and much-maligned customer service.65 As of 2012, among the top six pay-TV service providers, Comcast and TWC charged the highest per-channel subscription fees across three tiers of service (see Table 4.11). Echoing these concerns, The Economist denounced the union, urging policymakers to “reject a merger that would reduce competition, provide no benefit to consumers and sap the incentive to innovate.”66 The cost of cable subscriptions has increased at a rate of almost 6% annually since 1995, more than double

TABLE 4.11 Comparison of Subscription Costs, 2012

Comcast Time Warner Cable Cox DirecTV DISH Network AT&T U-verse Verizon FiOS

Tier 1

PerRank channel price

Tier 2

Perchannel price

Rank

Tier 3

Perchannel price

Rank

$29.99 33.99 34.99 29.99 19.99 57.00 64.99

$0.75 1.70 0.35 0.21 0.36 0.44 0.31

$39.99 49.99 65.99 34.99 24.99 72.00 74.99

$0.25 0.25 0.24 0.23 0.13 0.27 0.26

4 4 3 2 1 6 5

$84.99

0.42

6

70.99 44.99 34.99 87.00 89.99

0.21 0.16 0.12 0.24 0.23

3 2 1 5 4

6 7 3 1 4 5 2

Source: FCC 15th Report on Video Competition (2013), p. 59, https://apps.fcc.gov/edocs_public/attachmatch/FCC13–99A1.pdf, accessed January 22, 2015

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the rate of inflation.67 At the beginning of 2014, Comcast’s fastest Internet service offered barely more than one-tenth the download speed of Chattanooga, TN’s municipal broadband network, for a price nearly 50% higher.68 Since then, Comcast has announced plans to make a 2 GB per second service via fiber-to-the-home available to residential customers in Atlanta.69 To counter the claims of its critics, Comcast argued that since it does not compete with TWC in individual markets, the merger would not decrease competition: “This absence of horizontal overlap in local markets means that the transaction will not harm competition or reduce consumers’ choice in any way.”70 Notably, this argument suggests a collusive embargo with other cable providers to avoid direct competition by dividing U.S. markets into local monopolies. Even where duopolies exist, insofar as cable firms compete with telecoms, the burden of competition has been eased by the tacit agreement that AT&T and Verizon would curtail expansion of their fiber infrastructure and instead devote efforts to their wireless businesses, which complement rather than compete with broadband service.71 In the few places where there is “overbuild” of Comcast and Verizon services, “they act as a cozy ‘duopoly,’ keeping prices well above their costs.”72 Unmoved by such allegations, Comcast insisted that the proposed merger would enhance competition and consumer welfare,73 and help maintain and expand “capital-intensive, high-fixedcost” enterprises “in a space where competition is intense.”74 Although Comcast withdrew from the attempted merger once it became clear that it would likely not pass regulatory muster, the company’s long-term agenda has not been entirely thwarted. Already there are signs that it will continue to expand its footprint, its business offerings, and its array of assets. Comcast’s vertical integration and its subscriber base give it leverage in developing new ventures. For example, Comcast hopes to improve its systems for using precise, real-time information about customers to deliver personally targeted advertising messages and interactive marketing offers.75 Comcast has long been invested in developing a direct marketing business for digital television, both through its target-marketing subsidiary Comcast Spotlight, and as part of cable industry consortia trying to use direct marketing to derive more revenue from content via video-on-demand (VOD) services.76 By fortifying its ability to bargain for content and monetize its program catalogue through VOD, Comcast hopes to seize customers from Netflix—a long-term agenda already enabled by NBCU. Service providers control a small amount of advertising time (about two minutes per hour); NBCU has agreed to sell some of its commercial time for experiments with advanced advertising formats.77 With data collected from set-top boxes, and its leverage to negotiate carriage deals with programmers who cannot afford to neglect 22 million households, Comcast hopes to strengthen its market position within the digital advertising business. Toward this goal, Comcast is diversifying its digital portfolio through strategic partnerships with online publishers. In addition to considering a deal with VICE, NBCU made a $200 million equity investment in Vox Media, which operates eight online brands (and was already partially owned by Comcast), and a $200 million equity investment in BuzzFeed.78 The sum of these strategies is to make Comcast’s infrastructure indispensable to the delivery of information services and entertainment content to increasing numbers of Americans. At the same time, it seeks to exploit these content assets and the company’s full technical capacity to defend against edge providers and over-the-top services that would threaten to reduce Comcast to the maintenance of simple data conduits, or “dumb pipes.”

Political This section details some of Comcast’s tactics and instruments for wielding political power. We survey the company’s internal corporate structure before focusing on Comcast’s prodigious lobbying efforts, facilitated through enormous (and shrewdly targeted) expenditures as well as intimate professional relationships among key political actors and Comcast executives and advocates.

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Ownership Comcast’s ownership structure is labyrinthine. The LexisNexis database of corporate affiliations lists 1,150 companies in Comcast’s family tree, ranking the cable giant 8th among U.S. companies in number of subsidiaries.79 By incorporating “hundreds of state tax-retardant Delaware subsidiaries,” Comcast has ensured that its annual reports rival the thickness of “a small city’s phone book.”80 Resisting the business strategy popular in the cable industry of building up a system under shelter of incentives and tax relief and then selling at a hefty profit, Ralph and now Brian Roberts have retained dominant voting authority even as their share of the company has been diluted (see Table 4.12). Wielding “all the Class B supervoting shares of Comcast stock,” Brian Roberts, like his father did before him, enjoys “effective control over its every step.”81 Comcast executives and board members are well compensated (see Table 4.13). According to data compiled by the AFL-CIO, Brian Roberts was the 24th highest paid CEO in the U.S. in 2014.82

Ties to the State and Lobbying efforts A Philadelphia Inquirer reporter observed, “Ralph [Roberts] had no great world-improving personal agenda” for his cable enterprise “beyond the imperative to make it larger and more profitable.”83 However, these ambitions are aided by clever political maneuverings. Comcast contributes generously to both major parties, and it bankrolls an “army of lobbyists” to pedal influence in Washington (see Table 4.14). In 2014, Comcast apportioned $3,123,980 to federal candidates, split fairly evenly between Democrats and Republicans.84 While the firm spent more on Democratic candidates, Republican Congressional and Senate committees enjoyed more financial support ($276,625) than parallel Democratic causes ($168,970); and Comcast funded the Speaker of the House of Representatives, John Boehner (R-OH), to the tune of $107,775. Boehner, like his predecessor, Nancy Pelosi (D-CA), is a Comcast shareholder.85 Comcast also operates a Political Action Committee, which totaled disbursements of $3,916,190 from 2013 to the end of 2014

TABLE 4.12 Shares Held by Insiders (0.53% of Company Shares) (%)

Julian A. Brodsky Brian L. Roberts Ralph J. Roberts Stephen B. Burke Michael C. Armstrong 19 people < 2%

8.42 8.09 6.05 4.13 3.85 8.47

Source: Mergent Online, Comcast Corp, accessed May 15, 2015

TABLE 4.13 Key Executives and Board Members, 2014 ($)

Brian L. Roberts Ralph J. Roberts Michael Angelakis Stephen Burke David L. Cohen Neil Smit

Position(s)

Salary

Total Compensation

Chairman, President, Chief Executive Officer Chairman Emeritus, Executive Finance Vice-Chairman, Chief Financial Officer Executive Vice-President, Division Officer Executive Vice-President Vice-President, Division Officer

2,857,315 332,846* 1,759,331 2,652,500 1,399,137 1,568,546

32,961,056 22,683,121* 18,874,452 33,915,860 13,513,179 23,117,973

* For year 2008 Sources: Mergent Online, Comcast Corp, accessed May 15, 2015; SNL Kagan, Comcast Corporation Officers and Directors, accessed February 24, 2015; Bloomberg Business, www.bloomberg.com/research/stocks/people/people.asp?ticker= CMCSA, accessed May 15, 2015

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(see Table 4.15).86 Of Comcast’s nearly $5 million in political contributions during the 2014 election cycle, $3,123,980 went to candidates, and more than two-thirds of that money passed through PACs.87 The Roberts family has a long history of Democratic patronage, and Brian Roberts continues this tradition, with personal donations of $76,000 since 2006 (compared to the $13,500 he has given to Republicans).88 On the other hand, Comcast hosted the 2000 Republican National Convention, providing a venue as well as free and favorable news coverage. While Comcast has always acted shrewdly—playing both sides and acting primarily out of competitive interest and not ideological allegiance—the company retains deep ties to Democratic leadership. These relationships bring into focus the profound influence of David Cohen. Formally, David Cohen is Comcast’s Executive Vice President and a top shareholder. It is a well-known secret, however, that Cohen is Comcast’s primary power broker.89 In 2000, the same year he represented Philadelphia in negotiating Comcast’s propitious 15-year franchise agreement, Cohen served as co-chair of the Republican National Convention. Soon after, Comcast invented the position of “executive vice president for policy”90 for Cohen, who was chief of staff to Ed Rendell, then Mayor of Philadelphia and later Governor of Pennsylvania.91 These affiliations indicate Cohen’s stature in local politics. Since 2008 he also has been Chairman of the Board of Trustees of the University of Pennsylvania. This research institution has a $9.6 billion endowment and strategic property holdings, and it is the largest private employer in Philadelphia. Cohen has become well known as one of President Barack Obama’s most invested benefactors. Since 2007, Cohen has raised $2.22 million for the President’s election campaigns.92 In 2011, the year “Cohen successfully sheparded [sic] the regulatory review of Comcast’s merger with NBCUniversal,” he hosted a dinner fundraiser at his home in Philadelphia at which each of the roughly 120 guests reportedly donated at least $10,000 toward Obama’s re-election.93 Cohen subsequently repeated similar feats; on one such occasion in 2014, President Obama remarked, “I have been here so much the only thing I haven’t done in this house is have seder.”94 While Cohen has donated to far-Right politicians like Tom Corbett, Eric Cantor, and Orrin Hatch, and Fred Upton, the Republican Chairman of the House Committee on Energy and Commerce (which oversees telecommunications policy),95 Comcast’s “top lobbyist”96 has earned his reputation as a Democratic Party sweetheart. Yet, Cohen, whom Susan Crawford describes as “the political genius pulling the strings on behalf of Comcast,”97 is not a registered lobbyist— a technicality that affords Cohen considerable latitude in pursuing legislative objectives outside normal procedures of documentation and oversight.98 Even discounting Cohen’s considerable influence, Comcast commands one of the most powerful lobbies in the United States. It spares little expense in aggressively advocating for a lighttouch regulatory framework for telecommunications industries, including tax exemptions for

TABLE 4.14 Comcast Corporation—NBC/Universal Political Contributions and Lobbying, 2014 Election Cycle ($)

TABLE 4.15 Comcast Corporation and NBCUniversal Political Action Committee, 2013–2014 ($)

Contributions to candidates Contribution to Leadership PACs Contributions to Parties Contributions to 527 committees Contributions to outside spending groups Lobbying

Total Receipts Total Disbursements Cash on hand

3,123,980 930,500 787,535 79,575 6,400 35,780,000*

*Sum of 2013 and 2014 lobbying expenditures Source: www.opensecrets.org/orgs/summary.php?id=D000000461

4,282,975 3,916,190 955,077

Source: Federal Election Commission, www.fec. gov/fecviewer/CandidateCommitteeDetail.do?can didateCommitteeId=C00248716&tabIndex=1

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TABLE 4.16 Comcast Corporation Lobbying Expenditures ($)

2010 2011 2012 2013 2014

12,937,000 19,615,000 14,750,000 18,810,000 16,970,000

Sources: http://soprweb.senate.gov/; www.opensecrets.org/lobby/clientsum.php?id=D000000461&year=2010; www.opensecrets.org/lobby/clientsum.php?id=D000000461&year=2011; www.opensecrets.org/lobby/clientsum.php?id=D000000461&year=2012; www.opensecrets.org/lobby/clientsum.php?id=D000000461&year=2013; www.opensecrets.org/lobby/clientsum.php?id=D000000461&year=2014

Internet service providers, freedom to integrate vertically and horizontally through mergers and acquisitions, and exclusion from common carrier status and network neutrality obligations. Since 2010, Comcast’s lobbying expenditures total more than $83 million (see Table 4.16), with the largest outlays not surprisingly in years in which the firm was seeking regulatory approval (of NBCU and TWC mergers) or protection (against net neutrality). Its $18.8 million in federal lobbying expenses ranked 6th nationally in 2013.99 Comcast increased its spending in each quarter of 2014, with $5 million of the nearly $17 million annual total coming in the fourth quarter.100 Comcast deployed approximately 76 lobbyists across 24 firms to advocate for its failed merger with TWC.101 Registered among these lobbyists were 28 “former congressional and White House staffers”102 who have “deep ties to the committees that will evaluate the deal.”103 The patronage between industry and regulators is even more dramatic in full view; according to the Center for Responsive Politics’ assessment of compiled public filings, 116 out of 141 lobbyists working for Comcast Corporation in 2013–2014 “have previously held government jobs.”104 Members of organizations funded by Comcast, including the American Enterprise Institute and the University of Pennsylvania’s Center for Technology, Innovation, and Competition, lined up to advocate for FCC approval of the TWC merger.105 Comcast’s political donations and fundraising for specific legislators raises many concerns about undue political influence, but the “revolving door” phenomenon in particular suggests “regulatory capture.” It was not lost on critics that within months of the NBCU merger’s approval, one of the FCC commissioners presiding over the decision, Meredith Attwell Baker, went to work as a lobbyist for Comcast-NBCU.106

Corporate Board Members and Interlocks with Other Organizations Comcast board members are well connected in the business world. According to Bloomberg’s business database, Brian Roberts has 80 board relationships, Neil Smit has 82, and J. Michael Cook leads with 162. Table 4.17 lists the board members along with some of their notable postings. While these names will fly under the radar of general public awareness, board members’ affiliations betray strategic partnerships, including those with connections to large financial institutions like Citigroup, Bank of New York Mellon, and Fannie Mae. Some members sit on the boards of cultural and educational institutions, ranging from famed museums and art galleries, to some of the most prestigious and well-endowed private universities in the U.S. (Penn, Columbia, and Duke). Perhaps most notably, Edward Breen is a former president and CEO of General Instrument and Motorola—the former, a Pennsylvania-based hardware manufacturer, was purchased by the latter in 2000. Both firms have been integral to the development of cable set-top boxes. Joseph Collins, now part of Aegis, a global security contractor with offices in more than 60 countries,107 was previously chairman and CEO at Time Warner Cable and its interactive media business, and before that the president of Home Box Office.

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TABLE 4.17 Comcast Corporation – NBC/Universal Board of Directors

Director

Positions Held/Director Interlocks

Kenneth J. Bacon

• RailField Partners [financial advisory and asset management]/Partner • Forest City Enterprises [real estate] • Fannie Mae/Executive Vice-President, multifamily mortgage business (2005–2012); interim Executive Vice-President, housing and community development (2005)

Sheldon M. Bonovitz • • • • • • • •

Duane Morris LLP [law firm]/Chairman Emeritus Children First Fund [Philadelphia]/Chairman Dolfinger-McMahon Charitable Trust/Trustee Christian R. and Mary F. Lindbach Foundation/Trustee Barnes Foundation/Board of Trustees Curtis Institute of Music/Board of Trustees Free Library of Philadelphia Foundation/Board of Trustees Philadelphia Museum of Art/Board of Trustees

Edward D. Breen

• Tyco International Ltd./Chairman of the Board • New Mountain Capital/Advisory board • Motorola/President and CEO (2002); Executive VP and President, networks sector (2001–2002) • General Instrument Corporation/Chairman, President. and CEO (1997–2000)

Joseph J. Collins

• • • •

J. Michael Cook

• International Flavors & Fragrances, Inc./Director • Accountability Advisory Panel to the Controller General of the United States/Chairman • Advisory Council of the Public Company Accounting Oversight Board/Emeritus member • Deloitte & Touche/Chairman and CEO (?–1999) • Comeback America Initiative/Chairman of the Board • National Association of Corporate Directors’ Blue Ribbon Commissions on Corporate Governance and Audit/Member

Gerald L. Hassell

• • • • • • • •

Jeffery A. Honickman • • • • • • Eduardo G. Mestre

Aegis, LLC/Chairman AOL Time Warner Interactive Video/Chairman and CEO (2001–2003) Time Warner Cable/Chairman and CEO (1989–2001) Home Box Office Inc./President (1984–1988)

Bank of New York Mellon/Chairman and CEO Duke University/Board of Trustees Columbia University Medical Center/Board of Visitors Financial Services Roundtable and Financial Services Forum/Member Big Brothers/Big Sisters of New York/Vice Chairman New York Philharmonic/Board member Economic Club of New York/Board member September 11 Memorial & Museum/Board member Pepsi Cola & National Brand Beverages, Ltd./CEO Antonio Origlio Inc. [beverage distributor]/VP and Secretary American Beverage Association/Board of directors Dr. Pepper Snapple Bottlers Association/Board of directors St. Joseph’s University Academy of Food Marketing/Board of Trustees National Museum of American Jewish History/Board of Trustees

• Evercore Partners Inc. [investment banking advisory firm]/Senior Advisor • Citigroup/Chairman, global investment bank (2001–2004) • Avis Budget Group, Inc./Board of directors

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TABLE 4.17 Continued

Director

Positions Held/Director Interlocks

Brian L. Roberts

• National Cable & Telecommunications Association/Board of Directors; Chairman (two terms) • Business Roundtable/Member • President’s Council on Jobs and Competitiveness/Member • CableLabs [research consortium for cable industry]/Director Emeritus

Ralph J. Roberts

• President (1969–1990 • Chairman of the Board (1984–2002)

Jonathan A. Rodgers • TV One/President and CEO • Nike, Inc./Board of Directors • CBS Television Stations Division/President Dr. Judith Rodin

• Rockefeller Foundation/President • University of Pennsylvania/President (1994–2004) • Citigroup/Board of Directors

Source: www.cmcsa.com/directors.cfm

Labor At the end of 2014, Comcast retained approximately 139,000 full- and part-time employees, with approximately 84,000 and 43,000 associated with the Cable Communications section and NBCUniversal section, respectively.108 Comcast’s willingness to commit time, money, and effort toward gaining political influence starkly contrasts with its approach to resourcing its workforce. According to a publication of the International Brotherhood of Electrical Workers (IBEW), “Comcast has a well-earned reputation as one of the most anti-union companies in the telecommunications industry.” One IBEW representative accuses Comcast of resorting to spending “millions to fight a union contract that might cost them $10,000.”109 Some policies and practices affecting technicians and service staff have faced public scrutiny. Disclosures of internal documents reveal incentive structures for sales and support workers that reward hard-sell tactics and have motivated customer retention employees to adopt attrition strategies to frustrate would-be defectors. Technicians face similar pressure to sell Comcast services, while their overloaded schedules and reportedly insufficient training contribute to the company’s notoriously poor service.110

Local Politics Locally in Philadelphia, Comcast has come under much criticism for dodging taxes, interfering with local politics, contributing to anti-labor campaigns, and providing sub-par services. In 2004, Comcast embarked on the planning and construction of its new headquarters, a 57-story skyscraper in Center City, Philadelphia. After a controversial and ultimately failed effort to obtain designation as a Keystone Opportunity Zone—a program awarding subsidies to incentivize business development in blighted urban areas—the city’s wealthiest company was granted $42.75 million in government funding for the new Comcast Center. Governor Ed Rendell directed $30 million from a Redevelopment Assistance Budget to Comcast, and Pennsylvania’s Department of Economic and Community Development provided an additional $12.75 million in grants, tax credits, and job training assistance.111 Now, Comcast looks forward to $40 million in financial assistance from public coffers as it erects a new Innovation and Technology Center, a 59-story building located blocks away from its headquarters, which is expected to cost $1.2 billion.112 As it did with the Comcast Center, the company is requesting relief from property taxes for a decade

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through Philadelphia’s tax abatement for new construction, which will deny millions of dollars to one of the most impoverished large cities in the United States—one in which the nearly bankrupt public school system depends on income from property taxes.113 Further, Comcast has pocketed $4.6 million annually in tax exemptions through the abatement agreement on the Comcast Center; meanwhile the city was forced to borrow $50 million in 2013 in an emergency measure to open schools in August.114

Cultural Profile Of all forms of power, cultural influence is arguably the most difficult to ascertain. Comcast’s vast holdings offer it many opportunities to exert subtle forms of influence, a kind of soft power that extends its reach into symbolic and ideological spheres. For example, Comcast was integral to the development of QVC, the home shopping channel that would later be described in Advertising Age as “the fastest legal way there is to make money.”115 Joseph DiStefano agrees with this assessment. In his critical history of the cable giant, he writes of QVC, “The world’s biggest electronic retailer was the best investment Comcast had ever made, proving the greatest, steadiest, and fastest-rising share of the company’s sales and profits.”116 However, it is through Comcast’s NBCU holdings that it is able to control popular products and services that hold a special place within culture. It is consistent with longer historical patterns that NBC serves as a core component of a vertically integrated conglomerate, wielding much control over both content and conduit. The National Broadcasting Corporation’s genesis traces back to Marconi’s telegraph patents and the Radio Corporation of America (RCA).117 RCA, a concern integrating the manufacturing interests of General Electric and Westinghouse with AT&T’s transmission infrastructure, was a U.S. government-sanctioned monopoly. Facing threats of antitrust measures, RCA purchased AT&T’s radio stations and leased the latter’s transmission lines to knit together other holdings into a national network. On November 15, 1926, the debut of NBC inaugurated “a new epoch in American life.”118 The broadcast historian Eric Barnouw observed that “NBC, like RCA, was born with a silver spoon. It had behind it the wealth of huge corporations.”119 Its ambitions matched its pedigree. “Through NBC,” it was promised, “events of national importance would be broadcast throughout the United States.”120 For a population still widely dispersed and negotiating tensions and opportunities related to immigration and urbanization, the “institution of NBC,” historian Michele Hilmes explains, “effectively provided the technical, economic, and cultural unification” necessary for coherence around an imagined national identity.121 Today, as mentioned above, Comcast controls 10 NBC-owned local television stations and more than 200 affiliates, distributing 5,000 hours of programming to almost the entire universe of U.S. television households. It also operates 17 broadcast stations through Telemundo, which (along with Univision) constitutes one half of an effective duopoly of the Spanish-language television market in the U.S. Its extensive holdings of cable networks (see Table 4.18), spanning various genres, enjoy national distribution and furnish many symbolic resources through which Americans construct their realities and public cultures. NBCU holdings also extend Comcast’s reach into the global arena, primarily through the export of film and television content. While NBCU’s foreign revenue was only $4.76 billion in 2013,122 its international film distribution and, perhaps as important, its involvement in broadcasting the Olympic Games, which is an almost unmatched international media spectacle, extend Comcast’s cultural influence globally. The $4.38 billion NBCU paid in 2011 to secure its franchise to televise the Games through 2020 was the largest bid in Olympic history.123 An agreement negotiated in 2014 with the International Olympic Committee extends NBCU’s broadcast rights through the year 2032.124 Comcast likely sees international sports programming as a strategic asset for building

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TABLE 4.18 Comcast/NBCU Cable Holdings, 2015

Cable Network

Approximate U.S. Subscribers (in millions)

U.S.A. Network Syfy MSNBC E! CNBC Bravo NBC Sports Network Golf Channel Oxygen Esquire Network Sprout Chiller CNBC World Universal HD Cloo

96 95 95 94 94 92 81 79 78 70 58 39 38 31 26

Source: Comcast Form 10-K, 2014 p. 8.

its properties globally. For example, it paid $600 million to win broadcasting rights to the soccer World Cup from 2015 through 2022—nearly double Univision’s outlay for the previous World Cup license fee.125

Conclusion Like many large corporations, the root of Comcast’s power often eludes visibility. As we have demonstrated above, Comcast commands political, economic, and cultural dominance through both subtle and overt means. But Comcast’s rise to power cannot be solely attributed to its political cunning and business prowess; it was enabled by specific policies and policy failures. Because unchecked corporate power poses problems for democratic societies, Comcast’s monopolistic practices deserve closer regulatory scrutiny than they have yet received. If news and information are to be considered public goods with tremendous positive externalities that benefit society as a whole, and if it is clear that perverse incentives in a vertically integrated, monopolistic media firm are preventing these public goods from being produced in sufficient quality and quantity, then this situation qualifies as a market failure, one that should be addressed via public policy.126 Whether this takes the form of antitrust intervention, or the creation of structural alternatives like municipal broadband, or ideally both, we should also consider measures that prevent the situation from worsening. Preventing Comcast from merging with Time Warner Cable to create a massive Internet and cable television monopoly was an important victory for the public interest and for democracy. But in reality, it merely preserved the status quo, albeit preventing a bad situation from worsening. We need to think more proactively about the long-term viability of our communication system and to what extent it serves democracy as opposed to commercial imperatives. It might be time to seriously consider whether we have enabled “too big to fail” media companies. Perhaps it is time to consider breaking them up.

Notes 1 Vanna Le, “Global 2000: The World’s Largest Media Companies of 2014,” Forbes, May 7, 2014. www. forbes.com/sites/vannale/2014/05/07/global-2000-the-worlds-largest-media-companies-of-2014/

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2 Comcast, 2014 Form 10-K, filed with U.S. Security and Exchange Commission, February 27, 2015, p. 46. www.sec.gov/Archives/edgar/data/902739/000119312515068526/d817352d10k.htm#toc 817352_8 3 Susan Crawford, “Here’s Why the Comcast-Time Warner Merger Is Bad.” MIT Technology Review, April 10, 2014. www.technologyreview.com/view/526461/heres-why-the-comcast-time-warnermerger-is-bad/ 4 Tony Lenoir, “Footprint Maps and Market Statistics of Pro Forma Comcast and Charter,” SNL Kagan, January 21, 2015. 5 For a critical journalistic account of Comcast’s history, see Joseph N. DiStefano, Comcasted (Philadelphia: Camino Books, 2005). 6 Ibid., p. xii. 7 Ibid., p. xiii. 8 Ibid. 9 Ibid., pp. 109–115. 10 Comcast Corporation, 2001 Form 10-K, filed with U.S. SEC, March 29, 2002, p. 2. http://files. shareholder.com/downloads/CMCSA/4018718831x0xS950159–02–191/22301/filing.pdf 11 Comcast Corporation, 2004 Form 10-K, filed with U.S. SEC, March 23, 2005, p. 48. http://files. shareholder.com/downloads/CMCSA/4018718831x0xS1047469–05–4437/1166691/filing.pdf 12 William H. Melody, “Audiences, Commodities, and Market Relations,” in The Audience Commodity in a Digital Age, eds. Lee McGuigan and Vincent Manzerolle (New York: Peter Lang, 2014), p. 24. 13 Comcast, 2006 Annual Report, pp. 26–27. http://files.shareholder.com/downloads/CMCSA/63355407 x0xS1193125–07–39301/1166691/filing.pdf; Comcast, 2014 Form 10-K, pp. 119–121. 14 Comcast, 2014 Form 10-K, p. 3. 15 Tuna N. Amobi, “Industry Surveys: Broadcasting, Cable & Satellite,” Standard & Poors Capital IQ, October 2014, p. 10. 16 Sarah Kahn, “IBISWorld Industry Report 51711a. Cable Providers in the U.S.,” December 2014, accessed January 22, 2015; Billy Hulkower, “Pay TV and Home Communications Services—U.S.—October 2014,” Mintel, accessed January 22, 2015. 17 Comcast, 2012 Form 10-K, filed with U.S. SEC, February 2, 2013, p. 50. www.sec.gov/Archives/ edgar/data/1166691/000119312513067658/d458593d10k.htm. See also Federal Communications Commission, “FCC 13–99. Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming: Fifteenth Report,” July 22, 2013, p. 70. https://apps.fcc.gov/ edocs_public/attachmatch/FCC-13–99A1.pdf 18 Hulkower, “Pay TV, Mintel,” accessed January 22, 2015. 19 Deborah Yao, “Redefining Broadband and the Comcast-Time Warner Merger,” SNL Kagan, January 15, accessed January 29, 2015. 20 SNL Kagan, “Comcast Corporation Corporate Profile,” accessed February 24, 2015. 21 Comcast, 2014 Form 10-K, pp. 3–4. 22 Ibid., p. 46. 23 Comcast, 2013 Form 10-K, filed with U.S. SEC, February 12, 2014, p. 86. www.sec.gov/Archives/ edgar/data/902739/000119312514047522/d666576d10k.htm 24 Ibid. 25 Ibid., p. 118. 26 Vinesh Kumar, “When is the Cable ‘Buy’ Set to Come?” The Wall Journal, April 3, 2008, C3. FCC, “Comments of Free Press to FCC,” September 4, 2009, pp. 41–43. http://apps.fcc.gov/ecfs// document/view?id=7020037662 27 David Talbot, “When Will the Rest of Us Get Google Fiber?” MIT Technology Review, February 4, 2013. www.technologyreview.com/news/510176/when-will-the-rest-of-us-get-google-fiber/. See also Susan Crawford, Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age (New Haven, CT: Yale University Press, 2013), p. 10. 28 Comcast, 2013 Form 10-K, p. 87. 29 Ibid., p. 8. 30 FCC 13–99, p. 194. 31 Comcast, 2013 Form 10-K, p. 9. 32 Ibid., p. 11. 33 Comcast, 2014 Form 10-K, p. 11. 34 Ibid., p. 12. 35 DiStefano, Comcasted, pp. xiii–xiv, 2. 36 Rick Kissell, “Update: Super Bowl on NBC Draws Record U.S. Television Audience,” Variety, February 2, 2015. http://variety.com/2015/tv/ratings/super-bowl-ratings-hit-all-time-high-with-patriots-winon-nbc-1201421267/. Meg James, “NBC Scores a Record Haul from Super Bowl Ad Sales,” Los Angeles

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37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64

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Times, January 29, 2015. www.latimes.com/entertainment/envelope/cotown/la-et-ct-nbc-super-ads20150129-story.html. Three years earlier, NBC raised $259 million in advertising revenue by broadcasting the 2012 Super Bowl. Meg James, “Comcast Profit Jumps 30%, with Mixed Results at NBCUniversal,” Los Angeles Times, May 2, 2012. http://latimesblogs.latimes.com/entertainment newsbuzz/2012/05/comcast-corp-earnings-.html. Edward Luce, “Corporate Ties Bind U.S. to a Slow Internet,” Financial Times, February 24, 2013. www.ft.com/cms/s/0/98e2a5fc-7c54–11e2–99f0–00144feabdc0.html#axzz3VEiAE2Tn General Accounting Office, Issues Related to Competition and Subscriber Rates in the Cable Television Industry. October 2003. www.gao.gov/new.items/d048.pdf; FCC, Report on Cable Industry Prices, December 15, 2014. http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db1215/DA-14–1829A1.pdf DiStefano, Comcasted, p. 120. Ibid., pp. xii–xv. Comcast Corporation, Form 8-K, filed with U.S. SEC, April 26, 2005. http://pdf.secdatabase.com/ 2179/0000950103–05–001292.pdf SNL Kagan, “Comcast Corporation M&A History,” accessed February 24, 2015. FCC 13–99, p. 34. Tony Lenoir, “Footprint Maps and Market Statistics of Pro Forma Comcast and Charter,” SNL Kagan, January 21, 2015, accessed January 29, 2015. Tim Arango, “G.E. Makes it Official—It Will Sell NBC to Comcast,” New York Times, December 3, 2009. www.nytimes.com/2009/12/04/business/media/04nbc.html?scp=7&sq=arango%20comcast&st= Search Tim Arango and Brian Stelter, “Comcast Receives Approval for NBC Universal Merger,” New York Times, January 19, 2011, B9. www.nytimes.com/2011/01/19/business/media/19comcast.html?_r= 1&scp=10&sq=arango%20comcast&st=Search Comcast, 2013 Form 10-K, p. 2. Ted Johnson, “FCC Approves Comcast-NBC U Merger,” Variety, January 18, 2011. www.variety.com/ article/VR1118030437 Brian Stelter, “Comcast Posts 7% Rise in Revenue as Subscribers Buy Bigger Cable Packages,” New York Times, February 16, 2011. www.nytimes.com/2011/02/17/business/media/17comcast.html ?scp=13&sq=brian%20stelter%20Comcast%202011%20largest%20cable&st=Search Brian Steinberg, “Comcast Play for NBC Universal a Bet on Future of Advertising,” Advertising Age, November 9, 2009. http://adage.com/article/mediaworks/comcast-bid-nbc-universal-a-bet-futureadvertising/140383/ Ibid. Ibid. Ibid. Johnson, “FCC Approves,” Variety. FCC, Memorandum Opinion and Order, FCC 11–4, http://corporate.comcast.com/images/FCCOrder-on-NBCU.pdf “Consumers Union Debunks Comcast’s Five Biggest Promises About Time Warner Cable Merger,” Consumers Union, February, 11, 2015. https://consumersunion.org/news/consumers-union-debunkscomcasts-five-biggest-promises-about-time-warner-cable-merger/ Comcast Corporation and Time Warner Cable Applications and Public Interest Statement. http:// corporate.comcast.com/images/Comcast-Public-Interest-Statement-April-8.pdf, pp. 59–66. Amobi, “Industry Surveys,” p. 1. Time Warner Cable, 2013 Form 10-K, filed with U.S. SEC, February 18, 2014. www.sec.gov/ Archives/edgar/data/1377013/000119312514056642/d640670d10k.htm Comcast Corporation and Time Warner Cable, “Applications and Public Interest Statement.” http://corporate.comcast.com/images/Comcast-Public-Interest-Statement-April-8.pdf, p. 6. Amobi, “Industry Surveys,” p. 1. In 2015, AT&T completed its purchase of DirecTV, the largest satellite provider in the U.S. David L Cohen, (2014) “Comcast and Time Warner Cable File Applications and Public Interest Statement with FCC.” Comcast Voices (blog), April 8, 2014. http://corporate.comcast.com/comcast-voices/ comcast-and-time-warner-cable-file-applications-and-public-interest-statement-with-fcc Kate Tummarello, “Netflix Joins Opponents of Comcast-TWC Merger,” The Hill, April 21, 2014. http://thehill.com/policy/technology/204011-netflix-opposes-comcast-merger-raises-prices. Tim Wu, “Comcast Versus the Open Internet,” The New Yorker, February 24, 2014. www.newyorker.com/ online/blogs/elements/2014/02/comcast-versus-the-free-internet.html Tim Wu, “The Real Problem with the Comcast Merger,” The New Yorker, February 14, 2014. www. newyorker.com/online/blogs/elements/2014/02/the-real-problem-with-the-comcast-merger.html. Daniel Denvir, “Welcome to Comcast Country,” New York Times, April 23, 2014. www.nytimes.com/ 2014/04/24/opinion/welcome-to-comcast-country.html?smid=tw-share

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66 “Turn It Off,” The Economist, March 15, 2014, p. 14. 67 FCC, “Report on Cable Industry Prices,” December 15, 2014, p. 9. https://apps.fcc.gov/edocs_ public/attachmatch/DA-14–1829A1.pdf 68 Nick Russo et al., The Cost of Connectivity 2014. New America Foundation’s Open Technology Institute, October 2014, p. 29. https://static.newamerica.org/attachments/229-the-cost-of-connectivity2014/OTI_The_Cost_of_Connectivity_2014.pdf 69 “Comcast Begins Rollout of Residential 2 GIG Service in Atlanta Metro Area,” April 2, 2015. http://corporate.comcast.com/news-information/news-feed/comcast-begins-rollout-of-residential-2gig-service-in-atlanta-metro-area 70 Comcast, “Comcast and Time Warner Cable Transaction Fact Sheet,” http://corporate.comcast.com/ images/Transaction-Fact-Sheet-2–13–14.pdf. See also, “Testimony of C. Scott Hemphill,” Oversight Hearing on Competition in the Video and Broadband Markets: The Proposed Merger of Comcast and Time Warner Cable, May 8, 2014. http://judiciary.house.gov/_cache/files/14da5814–6ef9–4313–8ce7ce81440a7198/hemphill-testimony.pdf 71 Crawford, Captive Audience, pp. 9–10. “Turn It Off,” The Economist, p. 14. 72 John Cassidy, “We Need Real Competition, Not a Cable-Internet Monopoly,” The New Yorker, February 13, 2014. www.newyorker.com/news/daily-comment/we-need-real-competition-not-acable-internet-monopoly. 73 Comcast, “Applications and Public Interest Statement,” http://corporate.comcast.com/images/ Comcast-Public-Interest-Statement-April-8.pdf 74 Ibid., p. 1. 75 Ibid., pp. 100–106. 76 Lee McGuigan, “Direct Marketing and the Productive Capacity of Commercial Television: Tcommerce, Advanced Advertising, and the Audience Product,” Television & New Media 16(2): 196–214 (2015). 77 Jeanine Poggi, “What Comcast-Time Warner Cable Means for Advertising,” Advertising Age, February 14, 2014. http://adage.com/article/media/comcast-time-warner-cable-means-advertising/291713/ 78 Lukas I. Alpert, “Comcast Invests $200 Million in Vox Media,” Wall Street Journal, August 12, 2015. http://blogs.wsj.com/cmo/2015/08/12/comcast-invests-200-million-in-vox-media-valuing-digitalmedia-firm-at-1-billion/. Chris Ariens, NBCUniversal Invests $200 Million in BuzzFeed, Adweek, August 18, 2015. www.adweek.com/news/television/nbcu-invests-200-million-buzzfeed-166444 79 LexisNexis Corporate Affiliations, “Comcast Corporation” March 3, 2015. 80 DiStefano, Comcasted, p. 30. 81 Crawford, Captive Audience, p. 67. 82 AFL-CIO, “100 Highest Paid CEOs.” www.aflcio.org/Corporate-Watch/Paywatch-2014/100Highest-Paid-CEOs, accessed May 15, 2015. 83 DiStefano, p. 74. 84 www.opensecrets.org/orgs/recips.php?id=D000000461&chamber=&party=&cycle=2014&state=&sort =A 85 www.opensecrets.org/orgs/summary.php?id=D000000461 86 Federal Election Commission, Details for Committee ID: C00248716. www.fec.gov/fecviewer/ CandidateCommitteeDetail.do, accessed March 23, 2015. 87 www.opensecrets.org/orgs/summary.php?id=D000000461 88 Justin Sink, “Comcast, Time Warner Execs Have Been Big Obama Supporters,” The Hill, February 13, 2014. http://thehill.com/policy/technology/198350-comcast-time-warner-execs-have-been-bigobama-supporters 89 Michael Sokolove, “Comcast’s Real Repairman,” New York Times, April 19, 2014. www.nytimes.com/ 2014/04/20/business/media/comcasts-real-repairman.html 90 Crawford, Captive Audience, p. 193. 91 DiStefano, Comcasted, p. 7. 92 Sink, “Comcast, Time Warner Execs Have Been Big Obama Supporters.” 93 Cecilla Kang, “Comcast Exec David Cohen Raises at Least $1.2 Million for Obama,” Washington Post, June 30, 2011. www.washingtonpost.com/blogs/post-tech/post/comcast-exec-david-cohen-raises-atleast-12-million-for-obama/2011/06/30/AGHELtsH_blog.html 94 Jonathan Tamari, “David L. Cohen Quite Influential Without Being a “Lobbyist,” Philadelphia Inquirer, March 3, 2014, A1. 95 Ashley Alman and Ryan Grim, “Obama Fundraiser in Philadelphia Sets Million-Dollar Goal,” Huffington Post, November 11, 2013. www.huffingtonpost.com/2013/11/14/obama-million-dollar-fundraiser_ n_4271615.html 96 Alina Selyukj and Liana B. Baker, “Comcast Lobbyist Cohen Meets His Match in FCC’s Wheeler,” Reuters, March 12, 2014. www.reuters.com/article/2014/03/12/us-comcast-timewarnercable-fccanalysis-idU.S.BREA2B1WA20140312

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97 Crawford, Captive Audience, p. 6. 98 Tamari, “David L. Cohen Quite Influential,” Philadelphia Inquirer. 99 Robbie Feinberg, “The Comcast-FCC Revolving Door,” Center for Responsive Politics, April 18, 2014. www.opensecrets.org/news/2014/04/the-comcast-fcc-revolving-door/ 100 The United States Senate, The Lobbying Disclosure Act Database, Registrant Name: Comcast Corporation, accessed March 23, 2015. 101 Alex Rogers, “Comcast Has About 76 Lobbyists Working Washington on the Time Warner Cable Merger. This is Why,” Time, April 29, 2014. http://time.com/79569/comcast-has-about-76-lobbyistsworking-washington-on-cable-merger-this-is-why/ 102 Michael Hiltzik, “Comcast Deploys its Army of Revolving-Door Lobbyists Against the FCC,” LA Times, May 27, 2014. www.latimes.com/business/hiltzik/la-fi-mh-comcast-deploys-20140527-column.html 103 Rogers, “Comcast, Has About 76 Lobbyists.” 104 www.opensecrets.org/orgs/summary.php?id=D000000461&cycle=2014 105 Eric Lipton, “Comcast Recruits Its Beneficiaries to Lobby for Time Warner Deal,” New York Times, April 5, 2015. www.nytimes.com/2015/04/06/business/media/comcast-recruits-its-beneficiaries-tolobby-for-time-warner-deal.html?smid=tw-share 106 Amy Schatz, “Republican FCC Commissioner Baker Expected to Leave Post,” Wall Street Journal, May 11, 2011. http://blogs.wsj.com/washwire/2011/05/11/republican-fcc-commissioner-baker-expectedto-leave-post/ 107 www.aegisworld.us/who-we-are/ 108 Comcast, 2014 Form 10-K, p. 29. 109 International Brotherhood of Electrical Workers, “Taking on the Walmart of Cable,” The Electrical Worker online, July 2011. www.ibew.org/articles/11ElectricalWorker/EW1107/01.0711.html. 110 Adrianne Jeffries, “Comcast Confessions: Why the Cable Guy is Always Late,” The Verge, August 4, 2014. www.theverge.com/2014/8/4/5960251/comcast-confessions-why-the-cable-guy-is-always-late 111 Natalie Kostelni, “Controversial Skyscraper Will Be Built in Downtown Philadelphia,” Philadelphia Business Journal, January 3, 2005. www.bizjournals.com/philadelphia/stories/2005/01/03/daily1. html?jst=b_ln_hl 112 Jared Brey, “Details on $40 Million in State and City Grants for New Comcast Tower,” Plan Philly, January 16, 2014. http://planphilly.com/articles/2014/01/16/details-on-40-million-in-state-and-citygrants-for-new-comcast-tower 113 Hannah Sassman, “Letters: No Comcast Contract Till It Pays Its Fair Share,” The Philadelphia Daily News, February 4, 2015. www.philly.com/philly/opinion/20150204_Letters__No_Comcast_contract_ till_it_pays_its_fair_share.html; Denvir, “Welcome to Comcast Country,” New York Times. www.nytimes.com/2014/04/24/opinion/welcome-to-comcast-country.html?_r=0 114 Patrick Kerkstra, “Is Tax Windfall Worth the Wait?” Philly.com, December 14, 2008. http://articles. philly.com/2008–12–14/news/25244782_1_abatements-tax-bills-city-hall-corridors; Rick Lyman and Mary Williams Walsh, “Philadelphia Borrows so Its Schools Open On Time,” New York Times, August 15, 2013.www.nytimes.com/2013/08/16/education/a-city-borrows-so-its-schools-open-on-time.html? pagewanted=all&_r=0 115 Matthew Creamer, “Sellevision: Can a Bald Reporter Hawk Combs on Direct-Response TV?” Advertising Age, May 14, 2007. http://adage.com/article/news/sellevision-a-bald-reporter-hawk-combs-directresponse-tv/116661/ 116 DiStefano, Comcasted, p. 92. 117 Eric Barnouw, A Tower in Babel, Volume I (New York: Oxford, 1966), p. 9. 118 Ibid., p. 190. 119 Ibid., p. 189. 120 Ibid., p. 186. 121 Michele Hilmes, Radio Voices: American Broadcasting, 1922–1952 (Minneapolis: University of Minnesota Press, 1997), p. 22. 122 Comcast, 2013 Form 10-K, p. 174. 123 Anthony Crupi, “NBC Bids $4.38 Billion for Olympic Gold,” Adweek, June 7, 2011. www. adweek.com/news/television/update-nbc-bids-438-billion-olympic-gold-132319 124 Comcast, 2014 Form 10-K, p. 49. 125 Meg James and Yvonne Villarreal, “Competition Heats Up Among Spanish Language Media Firms,” Los Angeles Times, May 14, 2014. www.latimes.com/entertainment/envelope/cotown/la-et-ctunivision-telemundo-20140514-story.html 126 Victor Pickard, America’s Battle for Media Democracy: The Triumph of Corporate Libertarianism and the Future of Media Reform (New York: Cambridge University Press, 2014).

5 NEWS CORPORATION Graham Murdock

News Corporation was established in 1980 as a holding company for the Murdoch family media interests. Originally based in Australia, where Rupert Murdoch had built up a major press presence, it branched out into the British and U.S. newspaper markets in the 1970s with a string of acquisitions. The 1980s saw expansion into book publishing with the acquisition of Harper & Row in 1987 and concerted moves to diversify into the audiovisual industries with the purchase in 1985 of the Twentieth Century Fox film studio and the Metromedia television stations in the U.S. as well as the launch of the Sky satellite television service in the U.K. in 1989. In the 1990s, the company moved to globalize operations, buying the Hong Kong-based Star satellite broadcaster in 1993 with the aim of establishing a presence in the major emerging economies of India and China. It succeeded in the first but failed in the second. In 2005 the company moved into digital services, purchasing the then market-leading social network site, Myspace. The venture was dogged with problems and eventually sold at a considerable loss in 2011. In the same year, the company’s highly successful U.K. Sunday tabloid, The News of the World, became mired in scandal when journalists were found to have illegally hacked into the mobile phones of a range of celebrities and newsworthy figures, including a murdered schoolgirl, Milly Dowler. This prompted a government inquiry into press regulation, the forced appearance of Rupert Murdoch before a Parliamentary Committee, and the arrest and subsequent conviction of the paper’s former editor. In 2013 News Corporation was divided into two major operating companies: Twenty-First Century Fox, which took charge of the film and television interests, and News Corp, which assumed responsibility for the press and publishing portfolio and the fast-developing digital information services based around the Dow Jones financial services. Dow Jones had been purchased in 2007 as part of the deal to acquire the Wall Street Journal and the REA Group of online real estate services. The audiovisual interests now dominate, with Twenty-First Century Fox earning over three times the consolidated revenues of News Corp in the year ending June 30, 2015. News Corporation’s development has been marked by four characteristics. First, despite its extensive diversification, effective control has remained firmly in the hands of the Murdoch family, which is headed and directed by Rupert Murdoch. While commanding only 14% of the company’s total equity, the dual share structure gives him 39.74% of the voting rights. The absence of challenges to his authority has allowed Rupert Murdoch to pursue his expansionist ambitions and to make mistakes without having to negotiate with the main body of shareholders. Second, this expansion has combined successful diversification from print to audiovisual, and more recently to digital media, with a concerted drive for vertical control over production and distribution with the

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integration of film and television program origination and a range of delivery and display platforms. Third, the company has consistently cultivated and maintained strong social and political networks, trading its media’s real or imagined impact on public opinion for significant business and regulatory concessions in three of its major spheres of operation—Australia, the U.K., and the U.S.—while actively supporting a neoliberal world view. Fourth, outside its core English language markets the company has pursued its international ambitions primarily through the extensive use of joint ventures and strategic investments and partnerships, leading commentators to describe it as a “global network enterprise.”1 The extent of the company’s globalization can be overestimated, however. In the year ending June 30, 2015, 64% of Twenty-First Century Fox’s consolidated revenues and 45% of News Corp’s came from North America, with a further 20 and 23% respectively, attributable to its European interests.2

Rebuilding an Australian Press Chain As a young reporter, Keith Murdoch made his reputation exposing the military debacle at Gallipoli in World War I, which saw heavy casualties among Australian troops, and he went on to build a national press chain, News Limited. When he died in 1952, only the Adelaide News remained. In his will, he expressed the hope that his son and heir, Rupert, would spend a “full life in newspaper and broadcasting . . . ultimately occupying a position of high responsibility in that field.”3 It is an ambition that Rupert has pursued with a ruthless singlemindedness. On assuming control of the family business, Rupert set about re-establishing a press presence in Australia’s major metropolitan markets, buying titles in Sydney, Melbourne, and Brisbane, and in 1964, he launched the country’s only national newspaper, The Australian. Adding a title read by elites to a portfolio of popular newspapers offered the opportunity to influence both decision makers and the mass electorate. It was a pattern he would later repeat in both the U.K. and U.S. The Australian holdings now control over 120 titles covering national, regional, and local markets, including daily and Sunday titles in Sydney, Melbourne, Brisbane, and Adelaide, as well as community papers in all the major capital cities. As of March 2015, they accounted together for more than 62% of Australia’s total press circulation.

Expanding into Print in Britain and the United States Between leaving Oxford and taking control of the family company, Rupert Murdoch spent time at the Daily Express in London, learning the newspaper business. Like Murdoch, the Express’s proprietor, the Canadian-born Lord Beaverbrook, came from a Scottish family and was raised in a white settler community. He had moved from the periphery to the epicenter of colonial power, deploying the techniques of tabloid presentation to build a mass circulation and exert political influence, prompting the famous prime ministerial denunciation of press owners as commanding “power without responsibility.”4 It was a path Murdoch was to replicate. In 1968, he moved into the British newspaper market, buying the best-selling Sunday title, The News of the World, which from its launch in 1843 had seen sensation, vice, and crime as the bedrock of mass circulation. In 1969 he purchased a loss-making broadsheet, The Sun, which was launched in 1964 to replace the Daily Herald, with its strong ties to the labor movement. On taking over, he immediately converted The Sun to a tabloid with a first-issue front page headline, “Horse Dope Scandal.” His pitch to the former owners had promised continuing support for the Labour Party. The paper did endorse the party at the 1970 General Election, but by 1979 it was enthusiastically recommending the Conservative Party led by Margaret Thatcher. The Sun’s huge circulation convinced politicians of all parties that the paper’s approval was essential to electoral success, an impression

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that Murdoch assiduously cultivated. Following a concerted campaign denigrating the then Labour leader, Neil Kinnock, the day after the General Election of 1992 had returned a Conservative government, The Sun front page carried the headline, “It’s the Sun Wot Won It.” Whatever the actual evidence, it reinforced politicians’ belief that they needed to court Murdoch. In return for favorable coverage, they were prepared to grant him significant business concessions. In 1981, he had moved to purchase two of Britain’s leading “quality” titles, The Times and The Sunday Times. Given the market share commanded by his two popular titles, the bid should have been referred to the Monopolies and Mergers Commission according to the regulations that were in place. Papers now in the public domain reveal that he met secretly with Prime Minister Thatcher to put his case and that in the first Cabinet discussion of the issue she pointed out that the 1973 Fair trading Act allowed for acquisition without referral. The takeover was subsequently waved through, allowing him to significantly increase his market share without detailed public scrutiny. As of October 2015, News Corp accounted for 33.6% of the total circulation of national newspapers in the U.K., and 29.3% of the total revenues.5 Murdoch entered the U.S. press market in 1973 when he purchased the San Antonio Express and News, which was then followed by a string of other newspaper and magazine acquisitions, including The Boston Herald and the Chicago Sun Times, as well as the launch of a national tabloid, the National Star. Of all the acquisitions, only the New York Post, a tabloid purchased in 1976 and sold in 1988 to comply with federal cross-ownership rules after the acquisition of a New York Television station, then repurchased again in 1993, was retained. The rest were sold. In 2007, News Corp added the “Bible” of the U.S. financial community to its U.S. print interests after it acquired Dow Jones, the publisher of the Wall Street Journal, an asset with a strong global profile and editions in the two leading emerging markets of India and China. In 1989 News Corporation moved into book publishing after purchasing the New York-based HarperCollins, one of the six major global publishing companies, then adding successive imprints over time, including Harlequin in 2014, which was a major publisher of romantic fiction with 40% of its output in languages other than English. The acquisition extended the company’s reach in overseas markets.

Moving into U.S. Film and Television Building a press and publishing empire across the major English-speaking markets was one plank in the plan for expansion but, as Rupert Murdoch told his biographer, William Shawcross, “A really integrated media company has to be in the production of entertainment . . . I went to entertainment [as] part of a broad strategy to get into the heart of the media industry.”6 In March 1985 News Corp moved into film production, acquiring half of the Twentieth Century Fox Film Corporation for $250 million, which was followed in May by the purchase of six independent television stations owned by Metromedia. The deal required Murdoch to become a naturalized U.S. citizen to comply with national ownership regulations. In September, he acquired the other half of Twentieth Century Fox for $325 million, creating a vertically integrated operation with a studio for film and program production and a television distribution network that challenged the three established networks. He positioned his flagship channel, Fox News, launched in 1996, as a direct competitor to CNN’s rolling news service, mobilizing the emerging moral and political concerns of the right wing of the Republican Party who felt themselves effectively excluded from national debate by media they saw as dominated by a liberal elite. In 2001 Murdoch bid for DirecTV, the leading direct satellite service in the U.S., launched in 1994. He was rebuffed, but by 2003 he had acquired a controlling 34% stake, adding a U.S. presence to the global satellite distribution system he had been building over two decades.

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The Drive to Build a Global Satellite Presence Barred from acquiring a controlling stake in terrestrial commercial television in the U.K., News Corporation purchased the pan-European Sky Television service in 1983 and, in February 1989, began broadcasting four advertising-supported channels from the Astra satellite based in Luxembourg. The following year, it merged with its failing rival, British Satellite Broadcasting, which gave the new company, BskyB, a monopoly. News Corporation’s effective control with 50% of the shares (later reduced to 39% on share flotation) should have again been referred to the regulator, but Murdoch took advantage of a five-day gap when the old regulatory body ceased to operate and the new body opened. In the end the government looked the other way, which constituted another very significant political concession. In 1993, Sky became a full subscription service. Despite investing heavily in exclusive rights to major sporting events, it lost money for a decade by relying on cross-subsidies from other News Corporation divisions. It is now profitable, generating revenues of £7.6 billion in 2014 as against the BBC’s £5.1 billion and the £2.8 billion earned by the major U.K. terrestrial commercial network, ITV. In May 1999, News Corporation moved into another major European market when it purchased 35% of Stream, the satellite service operated by the Italian telecommunications provider, Telecom Italia. It gained full control the following year and merged with its major rival, Telepiu, which was backed by the French pay-TV group, Canal Plus, to launch the country’s sole satellite pay-TV service, Sky Italia, in July 2003. As in the U.K., the company’s ability to subsidize losses in the early years of operation enabled it to establish a secure presence in the Italian market alongside the state broadcaster, RAI, and the network controlled by Silvio Berlusconi’s Mediaset. In 2008, Murdoch moved into another major European market, Germany and Austria, when it bought shares in Sky Deutschland, amassing a controlling stake of 54.5% by 2013. While mature European markets and monopoly provision promised solid long-term returns, New Corporation saw satellite distribution as a way to globalize its television and film interests. In July 1993 it acquired the pan-Asian satellite television service, Star TV, established in Hong Kong by the Li Ka-Shing family, as a way to beam English-language programming across Asia. The footprint covered both India and China. Star’s menu of mainly U.S. programming was an immediate success with India’s English-speaking urban middle class when it launched in 1991, breaking the monopoly previously enjoyed by the state public broadcaster, Doordarshan. This monopoly ended officially in 1994 when the broadcasting market was liberalized. But reaching a mass audience required production in local languages, and in 1993 Murdoch formed a partnership with the recently launched Hindi language channel, Zee. The arrangement offered an entry point into India’s popular culture and a series of local adaptations of international genres and formats followed, including the first 24-hour news channel, the first local reality TV show, and the hugely successful Indian version of the game show Who Wants to be a Millionaire (Kaun Banega Crorepati), hosted by the major Bollywood star Amitabh Bachchan. The alliance with Zee ended in 2000, but strategic tie-ups with local businesses continued through a strategic partnership (a 30% holding) with one of the country’s largest industrial conglomerates, Tata, to operate a direct-to-home platform. In 2015, James Murdoch, the soon-to-be CEO of 21st Century Fox, speaking to advertisers at Cannes, presented India as the “single greatest opportunity” for company growth over the decade.7 In both Italy and India—markets that Murdoch was entering for the first time—Murdoch hired well-established figures from national broadcasting to smooth his political path. He appointed Letizia Moratti, the former head of the Italian public broadcaster RAI to head his Italian pay-TV operation, and the former head of India’s state broadcaster to lead his satellite business. In contrast, entering China was dogged with problems from the outset.

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A month after acquiring the Star platform, Murdoch gave a speech in London where he heralded satellite technology as capable of opening closed political systems as well as closed markets, and he claimed the technology posed “an unambiguous threat to totalitarian regimes everywhere.”8 The Chinese leadership responded by banning the private ownership of satellite dishes and promoting cable as a low-cost alternative. Murdoch moved to regain ground with a series of concessions. He dropped BBC News from his service, and News Corporation’s book division cancelled a book by the last British Governor of Hong Kong, Chris Patten, and he also promoted a sympathetic biography of Deng Xiaoping that was written by his daughter. Later, teams were dispatched to help the Communist Party’s leading newspaper and broadcast organization—The People’s Daily and CCTV—establish an online presence. Personal relations with influential political and business leaders were carefully cultivated, with his third wife, Wendy Deng, a native mainland Chinese woman he married in 1999, often acting as intermediary. But the Chinese government’s continuous refusal to allow competition to state-owned channels obliged Murdoch to work through rather than around them. In 1996 he formed a joint venture with Liu Changle, a well-connected former officer in the People’s Liberation Army, to launch Phoenix, a vehicle for developing Mandarin-language programming alongside Star’s provision of English-language sports and entertainment. In 2002, Star became the first foreign broadcaster to sell programs to cable systems, but only in one province, Guangdong, in return for carrying Chinese programs in the U.S. and U.K. In 2004 the regulations were relaxed to allow joint ventures between foreign and Chinese firms to produce programming for general local distribution. News Corporation saw a way to develop a national presence through the back door, with a tie-up to the provincial broadcaster in Qinghai and the purchase of primetime slots in 25 provinces. The Chinese government was quick to respond, forcing Murdoch to cancel his arrangement with Qinghai, and prompting him to remark that his business in China had finally hit a “brick wall.”9 In August 2009, the Star broadcast businesses were reorganized into three divisions: Star India, Star Greater China, and Fox International Asia. A year later, News Corporation sold its majority stake in Star’s China properties to a Shanghai company, China Media Capital, followed in 2014 by the divestiture of the remaining 47% in a move widely greeted as Murdoch’s final abandonment of his China ambitions. In 2015, however, plans were announced for a re-entry into the Chinese market with a theme park and chain of retail stores based around figures from the Fox division’s films and television programs.10

Digital Ventures In common with every other major newspaper publisher, News Corporation has confronted the financial threat posed by the migration of advertising and reader attention to the Internet. In contrast to its main U.K. rival, the Daily Mail, which launched a free online site, Murdoch moved The Sun web content behind a pay wall charging a weekly fee for digital access in August 2013. The strategy failed and in October 2015 it announced that all content would become freely available. Similarly, another early attempt to capitalize on the popularity of the Internet also proved problematic. In July 2005, News Corporation outbid Viacom for control of Myspace, paying $580 million for what was then the market leading social networking site, hoping to generate online advertising revenues and direct users to Fox Studio content and other News Corporation sites. By 2006 the site was attracting more visitors than Google, but its three-year deal with Yahoo, signed in 2007, overloaded the site with ads, which was compounded by problems of inadequate spam filtering. By April 2008, its main rival, Facebook, had overtaken it and in June 2011 Myspace was sold for $35 million. The massive failure prompted Rupert Murdoch to Tweet, “we screwed up in every possible way, learned lots of valuable expensive lessons.”

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One response to the Myspace debacle has been to refine approaches to attracting and placing online advertising. Capitalizing on the transnational reach of its press activities, the company launched News Corp Global Exchange in August 2013, which offers space across all its titles and allows advertisers to target audiences on a global scale. In September 2015, News Corp’s British division, News U.K., bought Unruly Media—a company specializing in tracking and distributing ads across social media—with the aim of servicing all of its online operations globally.11 Accepting Facebook’s domination of social media, News Corp is offering material to the site’s Instant Articles news service in return for revenues from advertising space. In May 2015, the outlet with the most followers and “likes” was News Corporation’s National Geographic. But the major response has been to refocus on the provision of digital information in the key economic areas of finance and real estate through the business services operated by Dow Jones, and the acquisition of controlling interests in the online property services provided by the Australian REA Group and U.S. property website Move. The Murdoch interests have also moved to acquire stakes in online entertainment. In 2013, Twenty-First Century Fox took a 5% share in Vice Media, which operates a range of online channels and has interests across music, magazines, fashion, and film.12

Company Reconstruction: Separating the Print and Audiovisual Interests The revelation in 2011, that journalists working for News Corporation’s U.K. tabloid titles had been illegally hacking into phone messages in search of exclusive stories, generated substantial public hostility and a flurry of official responses, including the criminal prosecutions of company staff, the establishment of a formal inquiry into press regulation, and Rupert Murdoch’s summons to appear before Parliamentary Committee to explain his own role. He moved quickly to limit the damage by closing The News of the World and paying substantial compensation to over seven hundred hacking victims, with £2 million going to the family of murdered schoolgirl Milly Dowler.13 He was also forced to drop his bid to acquire the shares in BskyB he did not already own. The longer-term response was to separate the press and information operations of News Corporation from the audiovisual interests, creating two new holding companies, News Corp and Twenty-First Century Fox. The move also recognized the growing disparity between the size and profitability of the two sectors, with the continuing decline in press advertising revenues.

Economic Profile Murdoch’s interests are now split between two new holding companies: News Corp and TwentyFirst Century Fox. News Corp operates the Murdoch family interests in publishing, marketing, and digital information services.

News Corp Corporate Structure The major holdings for News Corp as of June 2015 can be divided into the following segments.

Book Publishing HarperCollins has over 120 subsidiaries, including a strong presence in children’s books, two leading romantic fiction imprints, Avon and Harlequin, and the major Christian publishers Thomas Nelson and Zondervan.

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Press Interests In the U.S., News Corporation owns The New York Post, Wall Street Journal, and National Geographic. In the U.K., the company operates The Sun, Times, and Sunday Times through its News U.K. company. In Australia, the News Corp Australia press chain includes daily and weekend editions of both the nationally distributed The Australian as well as titles in the key metropolitan markets of Sydney, Melbourne, Brisbane, and Adelaide. This is in addition to community newspapers in all major metropolitan markets.

Marketing News Corporation’s marketing activity is organized through News America Marketing, which is a leading provider of coupon promotions and special offers through a network of almost two thousand publications and over fifty thousand retail outlets.

Online Information Services Online information services are concentrated on two key nodes of contemporary capitalism: finance and property. Financial information services are organized primarily through DJX, a bundle of products that include WSJ.com, Barron’s.com, and Factiva, a leading provider of global business content culled from over thirty thousand sources. Real estate services operate through a 61.6% stake in REA, Australia’s leading commercial and residential property website with additional sites in Asia and Europe, and Move, the leading online property presence in the U.S. The company also has a 12.9% stake in SEEKAsia Limited, which operates online employment marketplaces across Southeast Asia. In 2013, it acquired Storyful, which acquires, verifies, and distributes usergenerated content to major news organizations. The planned entry into the digital education market through its Amplify subsidiary, launched in 2012, has not met expectations, however, and it was sold off in a management buy-out in 2015.14

Australian Television Under the terms of the company division, News Corp retains responsibility for two Australian television operations: a 50% interest in the country’s largest pay-TV provider, Foxtel (owned jointly with the telecommunications company Telstra) and the Fox Sports portfolio of cable programming. These are exceptions, however, as all the other major interests in audiovisual media are operated by Twenty-First Century Fox.

Twenty-First Century Fox Corporate Structure In 2014, the company made an unsolicited bid of $75 billion for one of its main competitors, Time Warner, but withdrew when its share price dropped by 11% after the announcement. As of June 2015, Twenty-First Century Fox’s (abbreviated as “Fox” from here) major holdings were as follows.

Feature Film Production and Distribution Fox performs film production and distribution through the studio facilities and distribution network controlled by Twentieth Century Fox Film, its 20% stake in the parent company of New Regency, and its agreement with DreamWorks Animation to distribute the company’s new releases.

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Cable Network Programming Fox’s extensive portfolio of cable programming is distributed in the United States and has global circulation through Fox International Channels, which operates across Europe, Asia, Africa, the Middle East, and Latin America (except for Brazil) by using varying combinations of cable systems, direct satellite operators, telecommunication companies, and online video. It delivers packages that can draw on a diverse portfolio that includes Fox News, the Fox Sports channels, the Fox Life, Fox Crime, and Fox Traveller special interest channels, the general entertainment service, FX, the National Geographic channels, Baby TV (devoted to infants and toddlers), and the Fox premium movie service.

U.S. Television Fox has a significant presence in U.S. television through its ownership of 17 stations, with nine in the top ten markets including New York, Chicago, and Los Angeles, its extensive network of affiliated stations, and MyNetwork TV, which delivers off-peak programming to 187 stations, including ten owned and operated by the company.

Satellite Television STAR India currently produces and broadcasts 51 channels in seven of the country’s languages, and the programs are distributed through satellite directly to homes and to local cable and Internet protocol operators. In January 2015, it added its hotstar service for mobile devices. STAR offers a range of general entertainment and movie channels together with exclusive rights to domestic and international cricket, professional soccer, and the popular Indian sport of Kabaddi. The company’s other major satellite investment is its 39% holding in the U.K. Satellite service, BSkB, which acquired Twenty-First Century Fox’s controlling interests in Sky Italia and Sky Deutschland in November 2014, giving it an expanded customer base of 20 million across three of the four major European markets. The company name was changed to Sky to reflect the expanded reach. In January 2015, Sky in the U.K. moved to enter the intensifying competition for “quad play” services, adding mobile to its existing television, broadband, and fixed-line services through a partnership with the mobile operator O2.

Video advertising In February 2015 the company acquired trueXmedia, a video advertising company specializing in consumer engagement.

Strategic Investments News Corporation has also bolstered its holdings with strategic investments, which have expanded the company’s reach across geographic boundaries and into new areas of business. These investments have occurred in the following areas:

Program Production In 2014 the Fox-owned television program maker Shine announced a joint 50/50 venture with Apollo Global Management, the private equity firm that owns two major “independent” television

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producers: Endemol (makers of the Big Brother franchise) and Core Media Group (makers of the American Idol franchise). The combined Endemol Shine Group controls over 600 program formats and operates in over 30 markets. This significantly extends Fox’s program production capacity and its presence in the format trade, which is the fastest growing sector in transnational television.

Global Media The company also has a 19% interest in Rotana Holding, a diversified media company operating in the Middle East and North Africa, which is controlled by Al-Wahid Bin Talal, a member of the Saudi royal family who holds an almost 7% voting stake in Fox and is a long-time supporter of Murdoch family interests. Fox also owns 39.2% of Moby Group Holdings, which operates television, radio, and other media businesses in the Middle East and South Asia as well as a 30% interest in Tata Sky, which owns and operates a direct to home platform in India.

Online Services It has a 33% equity stake in Hulu, which operates an online service offering video content from Fox and the venture’s other partners, The Walt Disney Company and NBCUniversal. It also has minority interests in the online channels operated by Vice and the online fantasy games company, DraftKings Inc.

Financial Data Table 5.1 shows a steep decline in the share of revenues attributable to newspapers and information services, from 20.8% in 2008 to 14.7%. To date, the loss of income caused by falling press-advertising revenues has not been offset by the growth of online information services. However the increasing share of News Corp’s revenues coming from the recently acquired property sites shown in Table 5.2 have more than doubled, from 3.3 to 7.7% between 2012 and 2015, suggesting that a shift from print to online is in process. Table 5.2 also shows the share of revenues coming from book publishing increasing, from 13.7 to 19.3%, reflecting the company’s increasing presence in nonEnglish language markets. In the audiovisual sectors, Table 5.1 reveals a more or less constant contribution from filmed entertainment of between 22 and 24%, a sharp decline in the overall revenues generated by the TABLE 5.1 Percentage Distribution of Consolidated Revenues by Major Operating Sectors, 2008–2015

News Corporation

Newspapers, Marketing, and Information Real Estate Services Book Publishing Filmed Entertainment Cable Programming Television Satellite TV Revenues (in millions of $)

News Corp/Twenty-First Century Fox

2008

2009

2010

2011

2012

2013

2014

2015

20.8

20.9

19.5

23.5

20.3

17.8

14.7

14.7

N/A 4.6 22.3 18.7 17.0 12.5 32.99

N/A 4.1 21.2 21.9 14.4 13.4 30.43

N/A 4.1 24.4 22.5 13.5 12.2 32.77

N/A 3.7 21.4 24.9 14.8 11.7 33.40

0.8 3.4 23.9 26.8 13.8 10.7 34.8

0.9 3.6 22.9 28.9 12.9 11.8 37.7

1.1 3.4 23.1 29.3 12.7 14.4 41.9

1.6 4.3 24.5 35.4 12.6 5.4 38.9

Source: Figures for 2008–10 are calculated on the basis of information provided in the News Corporation Annual Reports. Figures for 2011–15 are calculated on the basis of the company SEC 10K filings. Figures for 2012–15 combine the results for News Corp and Twenty-First Century Fox.

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company’s interests in the terrestrial television market, down from 17.0% in 2008 to 12.6% in 2015, and a market increase in the share of income coming from cable programming, almost doubling over the same period, from 18.7 to 35.4%. As Table 5.2 confirms, the Murdoch family interests have shifted decisively from their original base in print media and they are now centered around audiovisual media, with Fox generating over three times the consolidated revenues of News Corp. The table also shows filmed entertainment contributing a third of total revenues and programming commanding a 45.4% share, as against 16.2% for television, a pattern that supports the argument that controlling content that can be distributed across multiple platforms and markets is now more valuable than owning terrestrial distribution facilities anchored in particular locations. Satellite systems, with footprints covering wide geographical areas, are an exception, but Murdoch’s bid to take full control of the U.K.based Sky operation, which was receiving a sympathetic hearing from the Conservative government, was derailed by the phone-hacking scandal, and the interests in the leading satellite services in Italy and Germany were transferred to Sky. This transition from a British to a European operator makes Sky a tempting target for a revived future bid for full control. As Table 5.3 shows, despite its assertive strategy of globalization, by 2011 more than half (53.9%) of News Corporation’s consolidated revenues were being generated in the United States, with its original bases in Australia and the United Kingdom contributing less than 10% each. The U.K.’s contribution of 8.1% was eclipsed by the relatively newly entered market of Italy with 11.7% and almost matched by the world outside Europe’s 7.8%. Table 5.4, which displays the figures for News Corp and Fox after the company division, reveals a more complex pattern. While in 2015 the United States accounted for the single largest share of the global revenues generated by the print and information services offered by News Corp (40.8%), this figure was eclipsed by the 50.2%, which was attributable to the company’s two longest established newspaper markets—Australia and the U.K.—where it continues to be a dominant presence. The small contributions coming for the rest of Europe and other global markets, however, suggest that despite the recent expansion into online services and the diversification of its book publishing interests, the company remains firmly anchored in the English-speaking world. The U.S. is even more dominant in the array of audiovisual industries operated by Fox, as indicated by its increasing share of consolidated revenues between 2012 and 2015 from 59.4 to 62.8%. The contribution from the investment in the U.K.-based Sky operations are not listed TABLE 5.2 Percentage Distribution of Consolidate Revenues by Major Operating Sectors for News Corp

and Twenty-First Century Fox, 2012–15 News Corp News and Information Book Publishing Real Estate Services Education Cable Programming* Cable Programming Filmed Entertainment Television Satellite Consolidated Revenues (in millions of $)

Twenty-First Century Fox

2012

2013

2014

2015

2012

2013

2014

2015

81.6 13.7 3.3 0.97 —

75.9 15.4 3.9 1.1 3.7

71.8 16.7 4.8 1.0 5.7

66.4 19.3 7.7 1.2 5.8

— — — 8.65

— — — 8.89

— — — 8.57

— — — 8.63

— — — — — 35.5 31.8 18.3 14.3 25.05

— — — — — 37.8 29.9 16.9 15.4 27.67

— — — — — 36.9 29.1 15.9 18.1 31.86

— — — — — 45.4 31.4 16.2 6.9 28.98

* includes the figure for Fox sports Australia. Source: Figures calculated on the basis of information provided in the SEC 10K filings for News Corp and Twenty-First Century Fox for the years ending June 30.

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TABLE 5.3 News Corporation: Percentage Distribution of Revenues by Geographical Market

Year Markets

2008

2009

2010

2011

Regions North America Europe Rest of the World Countries U.S.A U.K. Italy Australia

51.5 32.6 15.9

54.8 30.7 14.5

54.3 29.4 16.3

55.5 29.9 17.4

49.7 11.2 12.4 9.7

53.2 9.5 13.1 8.2

52.8 8.2 12.2 8.8

53.9 8.1 11.7 9.6

Total Revenues (in millions $)

32.996

30.423

32.778

33.405

Source: Source company 10K submissions for the years ending June 30, 2015 TABLE 5.4 News Corp and Twenty-First Century Fox: Percentage Distribution of Revenues by

Geographical Market, 2012–15 News Corp Markets Regions North America Europe Rest of the World Asia Countries U.S.A U.K. Australia Italy Germany Total Revenues (in millions of $)

Twenty-First Century Fox

2012

2013

2014

2015

2012

2013

2014

2015

43.1 22.6 34.3 —

43.4 23.0 33.5 —

43.4 23.9 32.9 —

45.4 22.9 31.7 —

60.7 26.9 12.5 6.4

57.6 27.9 14.5 7.6

55.9 30.5 13.4 6.9

64.0 19.7 16.2 8.9

41.6 19.6 32.4 — —

41.6 20.2 31.4 — —

40.8 20.9 31.4 — —

44.0 18.5 30.4 — —

59.4 — — 15.2 1.2

56.4 — — 13.0 4.5

54.6 — — 12.2 7.5

62.8 — — 5.2 4.1

25.05

27.67

31.86

28.98

8.65

8.81

8.57

8.63

Source: Company SEC 10K filings for the years ending June 30, 2015

in the company’s figures, but the steep decline in the contribution from Italy and Germany reflects the recent sale of the satellite operations in both countries. Against this, the period since the company split has seen an increase in the share of revenues generated in Asia, from 6.4 to 8.96%. Turning from revenues to profits, however, reveals a stark contrast in the fortunes of the two companies, with News Corp moving from a $678 million profit in 2011 to a $147 million loss in 2015, while Fox has almost quadrupled its profits over the same period, from $2.2 billion to $8.3 billion.15

Ownership News Corporation shares are divided into two classes, with only the B-class shares carry voting rights on decisions. The Murdoch family interests hold 39.74% of the Class B Common Stock, which enables them to retain effective control with only 14% of the total issued shares. The family is also bolstered by the long-term support of the other major holder of voting shares; the Saudi prince, Al-Walid bin Talal, held 7.04% in October 2011 through his Kingdom Holdings, which is also a major investor in Middle East media more generally. The next highest holding at that

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time was Invesco’s 1.8%. All other holders in the Top Ten were financial institutions with small stakes that accounted for just over 6% of the total collectively. They included Bank of New York Mellon (1.19%), JP Morgan (0.41%), Goldman Sachs (0.35%), and the Blackrock Group (0.35%). Continuity of effective control has allowed Rupert Murdoch to follow his ambitions without wider consultation with investors. This relatively stable structure has not gone unchallenged, however. By 2004, John Malone, the head of Liberty Global, the world’s largest cable television company, had acquired 17.1% of News Corporation’s voting shares presenting a potential challenge to the family control. To head this off, in November 2006 Murdoch agreed to an asset swap, regaining the shares in return for ceding the company’s 38.5% stake in DirecTV to Malone. The separation of the company into two has generated further interruptions to the prevailing pattern. Following the division, Al-Walid bin Talal reduced his holding in News Corp to 1% while keeping 6.6% in Fox. There have also been challenges from non-voting shareholders. Two months after the split, the activist share management group Southeastern Asset Management began building a stake that reached 14.3% by March 2014. At that year’s Annual Shareholder meeting, a motion to abolish the two-class share structure was brought by the Nathan Cummings Foundation, which has changing of corporate behavior through shareholder activism as a major goal. It attracted 47% of independent investors and its defeat prompted Southeastern to begin selling its holding. To reinforce its position, Fox launched a $6 billion repurchase of A shares. Challenges to the dual share structure are likely to reappear as investors respond to the transfer of executive power from Rupert Murdoch to his sons James and Lachlan. But the long-standing arrangement remains in place for the moment, with the family retaining effective control and established financial institutions seeking long-term returns holding significant stakes. As Table 5.5 shows, these include the leading investment bank, J.P. Morgan, and the major investment management company, Vanguard.

Networks and Interlinks A media company’s ability to advance its interests depends in large part on its ability to leverage influence across the major networks linking leading players in finance, politics, and technology through a combination of strategic investments, donations and endowments, interlocking shareholdings and directorships, and webs of personal ties. The Murdoch companies have direct financial links to major communications companies through joint ventures and strategic investments, which are exemplified by their shared control of Hulu

TABLE 5.5 Major Shareholdings by Financial Institutions*

Institution

Twenty-First Century Fox

News Corp

Vanguard Group Dodge and Cox Black Rock Capital World Investments State Street Corporation J.P. Morgan Chase Wellington Management Co. Price (T. Rowe) Associates Pzena Investment Management Harris Associates

15.59 6.25 3.46 11.66 5.30 4.22 3.96 — — —

19.09 3.39 4.69 — — — — 13.31 7.99 5.49

* Shares held by different divisions of the same institution have been added to give an overall total. Source: Yahoo Finance (accessed November 5, 2015)

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with Disney and NBCUniversal, as well as their investment in Vice Media, whose shareholders include the leading global advertising agency WPP. These links are supplemented by secondorder connections through major investors. Vanguard Group, the lead financial investor in both News Corp and Fox, has stakes in a range of other key media enterprises, including Apple and Time Warner, which is a pattern repeated by Black Rock and other major financial investors. Together with the direct connections provided by financial institutions’ shareholdings in News Corp and Fox, these links lock the Murdoch companies securely into the networks at the center of contemporary financialized capitalism, bolstering their access to funding for acquisitions but also increasing shareholder pressure on corporate management. Continuing links to leading manufacturing and service enterprises are also established through the Murdoch companies’ positions as key arenas of advertising and corporate promotion. These formal business links are supported and amplified through a web of interpersonal connections that are secured by the interlocking directorships and career experience shown in Table 5.6. As Table 5.6 also shows, the boards of News Corp and Fox can draw on a wealth of political experience through their members’ prior service in government and capitalize on their links to leading think tanks with influence on policy, and their involvements in major elite fora and key universities. These connections offer sources of intelligence on emerging developments affecting the company’s operations and points of potential influence on public policy. These channels provide further contacts by recruiting board members who have participated in government and are supplemented by the “revolving door” that links corporate employees to political advisory roles. John O’Sullivan worked on the New York Post and The Times before joining Margaret Thatcher’s election campaign staff in 1987, and he later edited the major right-wing journal National Review. Andy Coulson, the former editor of the News of the World, later convicted for his part in the phone-hacking scandal, served for a period as director of communications to the British Prime Minister, David Cameron. The range of available contacts is widened still further through membership in elite fora and clubs. Robert Silberman sits on board of the Council on Foreign Relations alongside key executives of the leading industrial and financial companies Unilever and Black Rock. Together with Bill Clinton, Jose Aznar belongs to the Club of Madrid, the world’s largest gathering of former heads of state. Murdoch also cultivates political contacts proactively through the company’s annual global editorial conference, which has been held since 1988, and organized around speeches by senior political figures, which have included Richard Nixon and Tony Blair. Manuel Castells argues that this wide diversity of contacts positions Rupert Murdoch as a “switcher,” exercising “control over multiple connecting points,” moving across different segments of the power elite and acting as a broker between them, thereby reinforcing the influence he commands through key news outlets.16

Political Profile Murdoch’s media interests have endorsed politicians of both the Right and Left. He backed Tony Blair’s New Labour platforms in the British elections of 1997, 2001, and 2005, he made substantial donations to the Obama Presidential campaign in 2008, and he wholeheartedly supported Margaret Thatcher’s Conservative administration in Britain and George W. Bush’s presidential campaigns in 2000 and 2004. Consequently, he has persuaded many observers that his political affiliations are primarily pragmatic, and that actively supporting whichever party is likely to be elected will ensure that his endorsements will guarantee a favorable environment for his business dealings. Instances of this bargaining in action include the waiving through in the U.K. of the Times acquisition and the Sky satellite merger, and the withdrawal of support from Kevin Rudd’s

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TABLE 5.6 Selected Connections of Board Members of News Corp and Twenty-First Century Fox (as of

June 20, 2015) Business Type

Corporate Interlocks

Business Corporations

Louis Vuitton (Luxury goods) BHP Billiton (Minerals and mining) Fiat Chrysler (automobiles) Covanta Holding Company (energy) Genie Energy (energy) Rio Tinto Group (minerals and mining)* Philip Morris (tobacco)* GlaxoSmithKline (pharmaceuticals)* Havas Metropole Television Legendary Entertainment La Stampa (Turin Daily) RCS Media Group (leading press group in Italy and Spain)

Communication Companies

Financial Institutions

Wells Fargo J.P. Morgan Chase Credit Suisse Allianz AG Breyer Capital Accel Partners Protective Life Corporation Citibank*

Political Office

Assistant Attorney U.S. General Assistant Anti-Trust Division (1990s) U.S. Attorney General (2001–2003) U.S. Secretary of Labor (2001–2009) Assistant Secretary of the U.S. Army (1992–1993) Prime Minister of Spain (1996–2004) Member of the U.K. Prime Minister’s Business Advisory Group

Think Tanks

Brookings Institution Council on Foreign Relations Heritage Foundation

Elite Clubs and Fora

World Economic Forum Club of Madrid Phoenix S K Club (Harvard University) Vincent’s Club (Cambridge University)

Universities

Georgetown Johns Hopkins Harvard Business School Harvard Kennedy School of Government Tsinghua University School of Economics and Management Melbourne Business School

* indicates a past connection. Source: The current board’s business links in key markets include Jacques Nasser, the Chair of BHP Billiton, which is Australia’s leading company, and John Elkan, the Chair of Fiat Chrysler and a member of the Agnelli family, which is Italy’s leading industrial dynasty. In the media sphere, links to both Hollywood and Silicon Valley are reinforced by the venture capitalist, James Breyer, who combines significant early investments in Facebook and Spotify with membership of the film production company, Legendary Entertainment.

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Labor Party in Australia after its financial aid for free-to-air television networks was perceived as weakening Murdoch’s Foxtel’s pay-TV operation. The Guardian journalist and long-time Murdoch watcher who broke the hacking story has argued forcefully that Murdoch “adopted the language of neoliberalism as respectable clothing for the otherwise naked ambition of his plans for global corporate expansion.”17 Closer examination, however suggests a longer-term and deeper commitment to neoliberal ideology, which is coupled with a populist hostility to the “left elite.”18 As Andrew Neil, former editor of the Sunday Times noted, “Rupert expects his papers to stand broadly for what he believes . . . a radical-right dose of free market economics and hard line conservative views on subjects like drugs, abortion, law and order and defence.”19 On major issues, the preferred editorial line is rigorously enforced. All except one of his global news media outlets endorsed the U.S.-led invasion of Iraq and, after receiving a written directive from company headquarters, the dissident Mercury in Tasmania promptly altered its position. Recent evidence suggests a hardening political stance. In 2010, the Republican Governors Association received $1 million from News Corporation, which was one of the largest ever donations to a political cause from a media company, and research confirms that since Murdoch acquired the Wall Street Journal Democrats have been more likely to be the target of negative editorial comment.20

Labor Rupert Murdoch has persistently confronted employees whom he sees as impeding his preferred ways of working or those who have challenged his authority. The decision to move his U.K. (London) newspaper production from Fleet Street to Wapping provoked a bitter year-long strike that ended with the defeat of the craft unions and paved the way for more flexible working practices. When journalists on the New York Post submitted a petition claiming that it was their paper too, he replied “Oh no it’s not . . . It’s my paper. You just work here and don’t you forget it,” and he then fired 148 staffers who had signed the petition.21

Symbolic Universe/Ideology News Corporation has consistently pursued a strategy of entering existing markets, disrupting settled patterns of competition, and destabilizing publicly owned media. BSkyB and Sky Italia broke the BBC/ITV and RAI/Mediaset duopolies in British and Italian broadcasting, respectively. Fox News successfully challenged the domination of the three established U.S. networks and pioneered a more assertively partisan style of presentation. The Sun’s conversion to a tabloid pushed competitors to alter their journalistic style. Star’s arrival in India played a key role in moving the country’s broadcasting system towards market-driven journalism and U.S.-inspired program formats. Alongside the consistent support for neoliberal political agendas across his new outlets and his persistent attacks on public service broadcasting, these interventions have played a major role in installing an aggressive, market-driven model of corporate enterprise at the heart of the ideological and institutional environment of public communications in all the countries where he has a significant presence.

Conclusion News Corporation’s development has been inextricably tied to the ambitions and character of Rupert Murdoch, who has headed it since its launch, and who—through the control conferred by his personal and family command of voting shares—has been able to pursue a long-term policy

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of expansion without effective opposition. Two key features have defined this pursuit: diversification and globalization. Despite setbacks, the company has succeeded in generalizing its operations from print media to film and television, and more recently to digital services. It has also shifted its center of operations from its original bases in Australia. and later the U.K., to the dominant English-language market of the U.S. In addition, the company has established a growing global presence in India through the STAR satellite, in Europe through Sky, and more generally through the provision of cable programming, formats, and the Dow Jones financial services. Expansion has been facilitated by two consistent strategies. Where the company has a significant presence in news media, it has successfully traded its claimed influence on public opinion for significant regulatory concessions. Where it has entered new markets, it has recruited key insiders and formed strategic alliances with local incumbents. Its only major failure has been in China. Despite Murdoch’s consistent claims to be an outsider who “wasn’t prepared to join the system,” the company is securely integrated into the ranks of the power elites of the main countries in which it operates through a network of interlocking shareholdings, directorships, and personal contracts.22 This positions it as a key player within contemporary financialized capitalism on which its news outlets comment. Evidence suggests that over time this commentary has moved more solidly in support of a neoliberal economic agenda and worldview, which celebrates market dynamics, minimal regulation of corporate activity, and attacks the supposed privileges of public institutions. His son James, who is assuming a central role in company management, enthusiastically endorses these views, thereby ensuring that it will continue to be a powerful cultural champion for market fundamentalism, both institutionally and ideologically, into the future.

Notes 1 Terry Flew and Callum Gilmour, “A Tale of Two Synergies: An Institutional Analysis of the Expansionist Strategies of News Corporation and AOL-Time Warner,” Paper presented to Managing Communication for Diversity, Australia and New Zealand Communications Association Conference, Brisbane, July 9–11, 2003. 2 News Corporation, Form 10-K, Annual Report (United States Securities and Exchange Commission, June 30, 2015. 3 Neil Chenowith, Rupert Murdoch (New York: Crown Publishing), 28. 4 Jean Chalaby, The Invention of Journalism (New York: Palgrave Macmillan, 1998). 5 Media Reform Coalition, Who Owns the U.K. Media?, October 7, 2015, 25. Accessed October 27, 2015 from www.mediareform.org.uk/wp-content/uploads/2015/10/Who_owns_the_U.K._media-report_ plus_appendix1.pdf 6 George Beahm, The Sun King: Rupert Murdoch In His Own Words (Melbourne: Hardie Grant Books, 2012), 40. 7 Lara O’Reilly, “The Next Fox CEO James Murdoch Says There’s One Country That Will Offer ‘The Single Greatest Opportunity’ Over The Next Decade,” Business Insider, June 25, 2015. Accessed November 16, 2015 from www.businessinsider.com/james-murdoch-speaking-at-cannes-lions-2015-6 8 Guardian News and Media Limited, “Murdoch and China,” The Guardian, August 24, 2003. Accessed November 16, 2015 from www.theguardian.com/media/2003/aug/24/chinathemedia.rupertmurdoch 9 BBC News, “Murdoch Hits Chinese ‘Brick Wall,’” BBC News, September 19, 2005. Accessed November 16, 2015 from http://news.bbc.co.uk/2/hi/business/4259310.stm 10 Doug Young, “Rupert Murdoch Tip-Toes Back to China With Park, Retail Plans,” Forbes.com, May 20, 2015. Accessed November 16, 2015 from www.forbes.com/sites/dougyoung/2015/05/20/rupertmurdoch-tip-toes-back-to-china-with-theme-park-retail-plans/ 11 Jasper Jackson, “News Corp Acquires Ad Platform Unruly Media for £58m,” The Guardian, September 16, 2015. Accessed November 16, 2015 from www.theguardian.com/media/2015/sep/16/news-corpacquires-ad-platform-unruly-media-for-58m 12 Mark Sweney, “Vice Launches Film-Making Venture with 20th Century Fox,” The Guardian, December 9, 2014. Accessed November 16, 2015 from www.theguardian.com/media/2014/dec/09/vice-launchesfilm-making-venture-20th-century-fox 13 Damien Gayle, “Milly Dowler’s Family Receive £2m Settlement from Rupert Murdoch over News of the World Phone Hacking,” Daily Mail, October 21, 2011. Accessed November 16, 2015 from

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www.dailymail.co.uk/news/article-2051974/Milly-Dowlers-family-receive-2m-settlement-RupertMurdoch-News-World-phone-hacking.html Laura Colby, “News Corp. Sells Amplify Education Unit to Management Team,” Bloomberg Business, September 30, 2015. Accessed November 16, 2015 from www.bloomberg.com/news/articles/ 2015-09-30/news-corp-s-amplify-education-business-fires-about-40-of-staff Martin Hickman, “Did Murdoch Win?” Open Democracy U.K., October 29, 2015. Accessed October 29, 2015 from www.opendemocracy.net/uk/martin-hickman/did-murdoch-win Amelia Arsenault and Manuel Castells, “Switching Power: Rupert Murdoch and the Global Business of Media Politics,” International Sociology, Vol. 23(4) (2008): 488–513. Nick Davies, Hack Attack: How the Truth Caught Up with Rupert Murdoch (London: Chatto and Windus, 2014), 181. David McKnight, “Rupert Murdoch’s News Corporation: A Media Institution with a Mission,” Historical Journal of Film, Radio and Television, Vol. 30(3) (2010): 303–316. Andrew Neil, Full Disclosure (London: Macmillan, 1996): 165. Michael W. Wagner and Timothy P. Collins, “Does Ownership Matter? The Case of Rupert Murdoch’s Purchase of the Wall Street Journal,” Journalism Practice, Vol. 8(6) (2014): 758–771. George Beahm, The Sun King, 61. George Beahm, The Sun King, 83.

PART II

Regional and Geolinguistical Giants

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6 GRUPO TELEVISA Rodrigo Gómez

Television history in Mexico and Latin America cannot be understood without Televisa. In fact, it could be said that the main characteristics of the regional audience’s television consumption habits and favorite formats are primarily shaped by Televisa’s output, particularly in Mexico. In addition, the company’s telenovelas have been disseminated globally and characterize the regional TV genre. It is therefore imperative to discuss the historical trajectory of this global media giant. The name of the company during its early years was “Televimex,” which began operations in 1951 for Channel 2, XEWTV. This signal was one of the three licenses that the Miguel Aleman Valdes administration (1946–1952) gave to private investors. In this case, the license was given to an entrepreneur in radio broadcasting, Emilio Azcárraga Vidaurreta. Under this license, the Mexican television system was born with commercial imperatives that continued from its formative years through today. In 1955, after four years of intense competition, the three families that held the commercial licenses created a new company called Telesistema Mexicano (TSM) under the leadership of Emilio Azcárraga Vidaurreta. TSM operated as monopoly from 1955 to 1968, until two new players received commercial television licenses: Televisión Independiente de México and Channel 13, which started operations in September of that year. Just five years later, in 1973, TSM took over Televisión Independiente de México (TIM) and founded Televisión Vía Satélite (Televisa); the federal government bought the other license. Thus, the Televisa Group became responsible for four TV channels (2, 4, 5, and 8), without advertising competition,1 and continued as the backbone of Mexican television entertainment. In addition, Televisa had a central role, during those years, in incorporating Mexican society into the demands of a consumerist society. The concentration in the Mexican television industry by Televisa marked the start of a new era, during which the Group operated as a de facto monopoly from 1973 to 1993. Throughout this 20-year period, Televisa channels cohabited in some regions of the Mexican Republic with the other three channels (7, 11, and 13) that were under the umbrella of the federal government. The channels were marginal compared with Televisa’s audiences, advertising investment, and national coverage.2 At the same time, the company built an important strategic and pragmatic alliance with the ruling party, Partido Revolucionario Institucional (PRI), which governed Mexico for 70 years. This alliance gave Televisa a significant regional advantage that could be summarized as follows: (1) the improvement and extension of its technological infrastructure and coverage across the nation; (2) a prime position to engage in takeovers and mergers with its early competitors; (3) automatic renewal of the licenses without payment; (4) the ability to operate as a monopoly for long periods

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of time; and (5) a broadcasting Act issued in 1960 that reinforced its dominant conditions and gave it lax provisions to commercialize its various business models. This political alliance also provided the freedom for the company to engage in vertical integration and protection from foreign investment and players. In return, the political regime became equipped with a domesticated television system, which allowed them to report official information without critical or dissenting opinions to the different federal and local government administrations and, sometimes, operated as a propaganda ministry.3 Yet, the primary content of Televisa’s channels was entertainment oriented. During the two initial decades of the Mexican television industry, from the 1950s to 1970s, under the guidance of the former Televisa, Mexico was the only Latin American country with more than 6% GDP growth every year.4 These conditions provided Televisa with an important economic advantage and audience market size, shaping its dominant position as the Spanish-language audiovisual producer and distributor powerhouse in the Spanish geolinguistic region.5 Another contextual factor that helped Televisa in terms of competitive conditions and regional advantages was its proximity to the United States, which enabled many industry processes and technological advances, as well labor practices, to arrive earlier in Mexico when compared with the rest of Latin America. The golden years of Televisa arguably occurred during the period 1973 to 1993, because the conglomerate operated as a monopoly, expanded and concentrated many entertainment and media businesses, and started consolidating at the international level—disseminating its content and acquiring media companies primarily in Latin America, Spain, and the U.S.6 After 1993, Televisa experimented with several changes. First, under the logic of the economic structure shaped by the North American Free Trade Agreement (NAFTA) and the neoliberal policies instrumented by the Carlos Salinas administration (1988–1994), Mexican markets became liberalized and privatized. In the case of the television industry, the federal government privatized its two national networks, Channels 7 and 13, to follow the same structure. After a controversial bid, Ricardo Salinas secured the proper TV licenses and infrastructure of Instituto Mexicano de la Televisión (Imevisión) [Mexican Institute of Television], which became TV Azteca. This ushered in a period of duopoly in the Mexican TV market. Under this structure, Televisa lost around 28–30% of its advertising market and audiences in a period of three to four years. Nevertheless, Televisa maintained its leadership with 67–70% of audiences and the advertising market.7 The second big change was the death of Azcarraga Milmo, “El Tigre,” in 1997. Paxman and Saragoza argued that there were a lot of doubts about the capacity of the 29-year-old son and heir, Emilio Azcarraga Jean, and his ability to shape Televisa’s successful future. “With stock prices at a low ebb and in the face of a mountain of debt, the ownership of the company seemed on the brink of a takeover.”8 At this time, the company’s debt was estimated at $1.8 billion.9 The Televisa Group made moves on a variety of other fronts, including the end of two historic flagship programs, one being the TV news program “24 Horas” and the other the entertainment music magazine Siempre en Domingo. The programs were broadcast for 27 and 29 years, respectively. These relationships acted as a message of change, ending the era of “Le Tigre” and marking the beginning of the Azcarraga Jean period. Despite these changes in programming, the most important moves in those years remained on the financial front. During the beginning of the century, two new important partners bought out a significant share from the owners, which reinforced trust and confidence in the company. After such financial changes, Televisa ownership was restructured as follows: Emilio Azcarraga Jean owned 54.55%; Sinca Inbursa owned 25.44%, as part of the venture capital arm of Grupo Financiero Inbursa owned by Carlos Slim; Aramburuzabala had 16.21%; and the Fernandez family had 3.80%.10 This reorganization in Televisa’s ownership was important in terms of sending a positive signal to its creditors and investors in the stock market.

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The Mexican political system began emerging as a more democratic system during the time of the company’s restructuring. The most significant sign of this was the defeat of the PRI in 2000, after 70 years in power, by the candidate Vicente Fox of the conservative Partido de Acción Nacional (PAN), or the National Action Party.11 This political change was significant in that it affected the group’s relationship with the Mexican political system. At the beginning of his administration, Azcarraga Jean explained to his employees that the company was entering into a new era of non-partisan coverage, specifically in the realm of its TV news content.12 In fact, the next presidential election coverage by Televisa in 2000 was partially fair.13 However, the company did not stop participating in Mexican politics and continued to be a key actor in the Mexican political system. Televisa started to operate with other methods and strategies to influence Mexican politics and all political parties in a pragmatic way. For example, it began to lobby the Communications Ministry (Secretaria de Comunicaciones y Transportes, better known as SCT), as well as the telecommunications regulator and the legislative congress. In the context of the pre-electoral campaign of 2006, the company secured the votes of all congressmen to accept some significant amendments to the 1960 Federal Broadcasting Act. Those amendments were geared toward improving its dominant position in the broadcasting sector and expanding its favorable status as part of the convergent telecommunications business.14 During that episode, Televisa started to implement a kind of blackmail strategy, explaining to all the political parties and future candidates that if they supported its legislative proposals, Televisa would provide fair or positive local and national TV news coverage, as opposed to negative or nonexistent coverage of their campaigns.15 In the last three general elections, in 2009, 2012, and 2015, former Televisa high-level executives began to occupy seats for deputies and senators. In the beginning, the former Televisa members took office only as part of the Partido Verde Ecologista de México (PVEM), the Green Ecologist Party of Mexico, and then also as part of PRI. Its competitor, TV Azteca, had established the same strategy in the two chambers; this type of congressman was known as Telebancada (TVcongressman). These deputies and senators control, or at least influence, the commissions responsible for regulating the telecom and broadcasting industries or any other initiative related with the communications sector.

Economic Profile Financial Data/Market Share During the last 20 years, Televisa’s finances have been continuously growing, and over the last several years the group has been the Latin American media company with the highest annual revenues. The company has also appeared in the annual reports of the top 50 and 30 global audiovisual companies.16 Historically, such results have been related with the free-to-air TV advertising market. However, this situation is changing, because the group is shifting the core of its business from audiovisual content to telecommunications services, particularly to pay-TV platforms, fixed telephone lines, and broadband Internet. In other words, Televisa has diversified its revenue streams, regardless of the opportunities for convergence and the re-regulation of telecommunications. One aspect that should be underlined is that the Mexican peso has been more or less stable from 2004 to 2014. This is significant because in the past the success of Mexican companies has been affected by the instability of the Mexican economy. Televisa’s revenues have sometimes been affected in the international markets, and particularly when the peso is exchanged to U.S. dollars. Despite this occasional setback on the global frontier, the group continued to grow its revenue at the national level.

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As Table 6.1 shows, the last 10 years of the company confirms—in Mexican pesos—how the company has been growing constantly with a progressive rhythm. Yet, the U.S. dollar results show some down points—for example in the periods 2007–2008, 2010–2011, and 2013–2014. This pattern reflects a different performance in the global arena, and its handicap as a global media giant located in an emergent economy with a weak currency. Historically, the main business of the company has been the revenue from the TV advertising market (see the content segment in Table 6.2). In the last 20 years, Grupo Televisa has controlled around 68–70% of the television advertising market share in Mexico.17 Yet, this structure will change somewhat after 2016, because there will finally be a further national network in the Mexican TV system, breaking the national duopoly Televisa has with TV Azteca. The forthcoming change will reconfigure, to some extent, the Mexican TV advertising market. Another important change to the dynamic is the reconfiguration of the TV advertising market with the increasing prevalence of multi-channel platforms and their growing user base. Thus, as is happening in other national media markets, the pattern appears to indicate that the TV advertising sector will decrease in percentage in the coming years. The group’s revenues from 2004 to 2014 show how the content segment18 revenue has been decreasing in percentage points and centrality by Televisa (see Table 6.2). Nevertheless, this revenue has been continuously growing in absolute amount of Mexican pesos since then. In this respect, it is clear that the pattern of decline in TV advertising’s centrality will continue, while the group looks for markets that have more potential growth, such as telecom and Direct Broadcasting Satellite (DBS). In the case of the content segment, it is important to isolate the revenue regardless of the supplier of Spanish-language programming in the United States. This is because Televisa has been receiving significant royalties for a program license agreement (PLA) with Univision.19 In 2012, 2013, and 2014, Televisa received $247.6 million, $273.2 million, and $313.7 million from Univision, TABLE 6.1 Grupo Televisa, Revenues 2004–2013 (in billions)

Year

Mexican pesos

U.S. dollars

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

29,314 35,068 39,358 41,562 47,972 52,353 57,857 62,582 69,290 73,791 80,118

2,629 3,057 3,511 3,805 3,466 3,936 4,682 4,477 5,392 5,644 5,428

Source: Televisa’s Annual 20F reports from 2004 to 2014. TABLE 6.2 Grupo Televisa Revenues by Segment, 2004–2014 (%)

Segment net sales Content Sky Telecommunications Other businesses Total

2004

2005

2006

2008

66 12.1 3.7 18.2

64.3 17.9 4.2 13.6

62.6 19.1 5.1 13.2

53.3 18.7 13.5 14.5

100

100

100

Source: Televisa’s Annual 20F reports from 2004 to 2014.

100

2010 49 19 20 12 100

2012

2013

2014

46.6 20.5 22 10.9

45 21.4 22.8 10.8

42.8 21.5 25.7 10

100

100

100

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respectively. This alliance is one of the most productive relationships for Televisa, as well as the company’s best horse to bet on at the international level. In fact, Televisa’s objective is to recover the ownership of Univision at some point in the future. Since 2006, Televisa has been engaged in an aggressive economic strategy to dominate the cable industry market in Mexico.20 As part of this strategy, Televisa acquired four major cable TV companies. At the end of 2014, Grupo Televisa concentrated around 58% of the cable TV market in Mexico. This is important to underline because the cable TV companies in Mexico could offer triple-play services. Thus, Televisa’s goal is to have a national telecommunications network that can compete with Telmex, part of America Movil, in the markets of fixed and broadband Internet. According to the data from the Federal Institute of Telecommunications (Instituto Federal de las Telecomunicaciones or IFT), at the end of 2014, Grupo Televisa’s cable companies controlled 11.8% of fixed lines in the country, whereas Telmex controlled 70%. In broadband fixed-line services, Grupo Televisa has 15.5% of the subscribers.21 These business fronts are the future of Televisa, allowing the company to diversify, expand its markets, and increase revenue. The other business that has been bolstering Televisa’s revenues during the last decade is their DBS company, Sky, which is a partner of the DirecTV Group. At the end of 2014, Sky controlled 71.6% of the Mexican DBS market.22 The other company that competes in this subsector is Dish Mexico, a partner of the DishNetwork, owned by EchoStar. The 2014 numbers for Grupo Televisa cable TV and Sky indicate that the company has cornered 64% of the pay-TV market in Mexico, with around 15.6 million subscribers. Certainly, the size of Televisa in the pay-TV market reflects a dominant position. An IFT research project and declaration, at the end of April 2015, declared that Televisa enjoys “substantial power of market” in the cable TV sector.23 However, at the end of September of that year, the IFT in a plenary session determined, by five votes in favor and two against, that Grupo Televisa did not have “substantial market power” in pay television, meaning the company avoided being hit with new tougher rules. Their argument was (partly) that its market share had decreased by 2%.24

Corporate Properties It is important to establish that Grupo Televisa has many companies and subsidiaries related to various media industries (see Table 6.3). In fact, it should be characterized as a media and telecommunications conglomerate, as it has radio stations, TV stations, TV networks, cable TV networks, cable networks, Internet and telecom carriers, audiovisual production companies, cinema distribution companies, publishing companies, and publishing distribution divisions. In addition to media and telecom properties, Grupo Televisa owns one the most popular soccer teams in Mexico, Club de Fútbol América, and the Azteca stadium, along with gaming, sports, and show business promotion companies. The corporate structure of Televisa has been changing according to the necessities of global capitalism. For Televisa to survive and to be competitive in the global arena, it has had to adapt its corporate structure to acquire and access more financial flows and credit. Nowadays, the major stockholders of Grupo Televisa are as follows: Azcárraga Jean controls 14.7%; Bill Gates, 7.40%; BlackRock holdings, 6.90%; First Eagle Investment Management, 5.30%; while the New York Stock Exchange (NYSE), Bolsa Mexicana de Valores (BMV, Mexico), and Índice Bursátil Español (IBEX, Spain), and others comprise 65.60%.25 As mentioned before, the company’s main investments of late have been in cable TV companies in Mexico. Between 2006 and 2015, Televisa acquired Televisión Internacional (TVI), Cablemás, Cablecom, and Telecable.26 Following a clear strategy to achieve economies of scale, Televisa appears to be loosely replicating Comcast’s steps in the U.S. cable TV market.27

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TABLE 6.3 Televisa Main Companies, by Ownership Percentage and Business Segment, 2015

Subsidiary

Company’s ownership percentage

Business segment

Grupo Telesistema Televisa G. Televisa-D Multimedia Telecom Sky Empresas Cablevision Television Internacional (TVI) Cablestar Grupo Cable TV (Cablecom) Corporativo Vasco de Quiroga Sistema Radiopólis Editorial Televisa Grupo Distribuidoras Intermex Consorcio Nekeas Televisa Juegos

100% 100% 100% 100% 58.7% 51% 50% 66.1% 100% 100% 50% 100% 100% 100% 100%

Content Content Content Content DBS Telecom Telecom Telecom Telecom Telecom Radio Publishing Publishing Distribution Other Business Gaming

Source: Televisa Annual Report 20-F 2014

In the context of television networks and infrastructure, Grupo Televisa has four licenses, or more specifically, three national networks (Channels 2, 5, and 9) and one regional network (Channel 4). At the same time, to carry these signals requires 224 stations and 33 affiliated stations throughout Mexico. In this respect, Televisa controlled 49% of the commercial TV stations in Mexico at the end of 2014.28 In the pay-TV sector, Televisa has 25 pay-TV channels and 51 national and international feeds, which enjoy subscribers throughout Latin America, the U.S., Canada, Europe, and Asia Pacific markets. Its pay-TV channels include music, movies, telenovelas, news, variety, entertainment, and sports channels. In the area of film production and distribution, Televisa continues to produce and co-produce first-run Spanish- and English-language feature films. It is important to remember that during the 1980s Televisa became the first film producer in the nation.29 In the following years, Televisa established co-production arrangements with Mexican film production companies, with Hollywood studios such as Miravista, Warner Bros., and Lionsgate, as well as Spaniard Plural Entertainment. Televisa distributes its films to Mexican movie theaters and later releases them on video for broadcast on cable television. The company also distributes its feature films outside of Mexico.30 In addition, Televisa distributes feature films from non-Mexican producers in Mexico, including several U.S. blockbusters through its distribution company Videocine. Other important media segments of the company include its publishing and publishing distribution segments. Televisa is considered the most important publisher and distributor of magazines in Mexico, and of Spanish-language magazines in the world. Televisa publishes 182 titles that are distributed in 21 countries, including the United States, Mexico, and Colombia. The company reports that its distribution network, including independent distributors, reaches over 300 million Spanish-speaking people in approximately 21 countries. The company also estimates that its distribution network reaches over 25,000 points of sale in Mexico and over 75,000 points of sale outside of Mexico. Its publications are also sold in the United States and the Caribbean.31 At the end of 2010, Televisa made an important investment with Broadcaster Media Partners, Inc. (BMP), the major owner of the U.S. Spanish-language television company Univision. The agreement provided Televisa with equity and debentures that, upon conversion and subject to

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any necessary approval from the Federal Communication Commission (FCC), would represent approximately 38% on a fully diluted, as-converted basis of the equity capital in BMP. In Spain, since 2012 Televisa has owned 14.5% of the capital stock of Imagina, which is part of Atresmedia, holder of Antena 3 Television and la Sexta, two free-to-air television channels.32 In 2006 Televisa launched its gaming company, which consists of casinos and a national lottery. At the end of 2014, Grupo Televisa had 17 casinos under the brand name “Play City.” In 2007, the company released Multijuegos, an online lottery with access to a nationwide network. The casinos and Multijuegos are operated under the gaming license obtained from the Mexican Ministry of the Interior, which allows the company to establish, among other things, up to 55 casinos and number draws throughout Mexico.33

Joint Ventures Televisa has been active during the last three decades in joint ventures, which exemplifies a significant aspect of its overall business strategy. The most important joint venture of the company is Sky, a DBS company, with services in Mexico, Central America, and the Dominican Republic. Grupo Televisa owns a 58.7% interest in the company while the remaining 41.3% is owned by DIRECTV. This venture has been very productive: after 14 years of partnership (1996–2014) Sky has grown considerably, from 590,000 subscribers reported in 2001 to more than 6.5 million at the end of 2014.34 Part of the success of Sky can be attributed to its financial muscle in the region to offer exclusive content, which includes the widely popular FIFA World Cup tournaments and Copa America, as well as the Mexican Soccer League, Spanish Soccer League, English Premier League, English FA Cup, and the NFL Sunday Tickets, among other programming. The success is also due in part to the fact that Sky offers two main packages to subscribers: one low-end package, named VeTV; and the regular package that Sky offers, which ensures the highest quality and exclusive content in the Mexican pay-TV industry. Its programming packages combine Televisa’s over-the-air channels and cable channels with other exclusive content. Televisa’s radio company, Radiópolis, is operated under a joint venture with the Spanish communication group, Grupo Prisa. Televisa holds a controlling 50% full-voting stake in this subsidiary and the right to appoint the majority of the members to the board of directors. Radiópolis owns and operates 17 radio stations in Mexico. Radiópolis’s radio stations reach 28 states in Mexican territory, and the company estimates that its radio network reaches approximately 75% of Mexico’s population.35 One joint venture that was controversial in terms of a collusion of interests and convergent acquisitions is Televisa’s partnership with TV Azteca in the telecommunications company Iusacell.36 From 2011 to 2014, Televisa and TV Azteca—competitors in the over-the-air TV and contents segments—were partners in this telecom company. Televisa made an investment of $1.5 billion and, as a result, they held a 50% equity stake in Isuacell. This move appeared to be an attempt to join forces to compete with America Movil in the mobile market. However, in January 2015, the sale of Televisa’s equity interest in Iusacell to Grupo Salinas (owner of TV Azteca) for $717 million concluded the joint venture. Months later, Grupo Salinas sold the company to AT&T for $2,500 million; this transaction was approved by the IFT.37

Labor As of 2014, Televisa reports 39,615 full-time employees. Of these, 38,433 worked in Mexico, 850 in Latin America, and 322 in the United States, 43% being represented by unions. Under Mexican law, the agreements between Televisa and most of their television, radio, and cable television union employees are subject to renegotiation on an annual basis. They also have union

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contracts with artists, musicians, and other employees. It is important to mention that their employees enjoy profit sharing, recognized as a direct benefit to employees in the consolidated statements of income in the period in which it is incurred.38

New Developments It is important to underline the fact that Televisa is developing a clear strategy to take on new business opportunities offered by the convergence process in order to boost its assets and revenues, particularly its voluminous content catalog. The different formats that the company has been exploring include new platforms of content distribution. It has one over-the-top (OTT) company (Blim), that tries to compete with Netflix and Claro Video in Mexico. Currently, its competitors enjoy 95% of the OTT market share. Yet, Televisa sells an important element of its catalog content to Netflix and thus receives some benefits from its competitors along with new entryways into the audiovisual market.

Political Profile Azcarraga Jean and his small circle of vice-presidents have determined how to deploy new strategies to the new institutional trends shaped by the emerging Mexican democracy. In fact, the adaptation process of the company has been highly controversial and many scholars have argued how Televisa has reshaped its role in the Mexican political system as a de facto power. At its roots, Televisa continues to influence various aspects of the political system under a pragmatic logic determined by its economic interests.39 The company’s most visible influence and impact relates to Televisa’s actions in relation to any amendment regarding the normative bodies of telecommunications and broadcasting, as well as its role during electoral processes, especially in the last 2012 presidential election in Mexico. There is journalistic evidence that corroborates how Televisa constructed a highly positive image of Enrique Peña Nieto through different televised content when he was governor of the State of Mexico from 2006 to 2012. Peña Nieto was married to one of Televisa’s Telenovela stars, consequently garnering much attention in the entertainment and magazine television programs. Such actions have been interpreted as strategic moves with the objective of presenting a solid candidate for the 2012 presidential race and even to create a “Telepresidente” or “TV-president.”40 However, Televisa denies any collusion with the Enrique Peña Nieto staff or involvement in the campaign. Televisa’s actions have provoked different social reactions throughout its history. The last episode, so to speak, occurred between Televisa and civil society collectives for the head-on critique of the student movement #YoSoy132 during the 2012 presidential race. The students challenged the role of Televisa TV news, among other media, as unfair rather than unbiased media, arguing that Televisa supported Enrique Peña Nieto. #YoSoy132 held many demonstrations and boycotts against Televisa in Mexico City. It is important to note that the main banner of the #YoSoy132 student movement was the democratization of the Mexican media system, in order to guarantee a fair and transparent electoral process and to bolster the democratic process in Mexico.41 A surprising constitutional reform took place in Mexico’s telecommunications and antitrust rules in 2013, commanded by the Enrique Peña Nieto administration and with the support of the three majority parties in Congress, under the Pacto por México (“Pact for Mexico”). This alliance then issued a new Federal Act of Telecommunications and Broadcasting. Thanks to its lobby, Televisa stopped some of the major changes that were expected under the guidelines of the constitutional reform. However, the act presented some new challenges to Televisa, including the following: (1) the participation of foreign investors in Mexico could now be as high as 49%

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in free-to-air radio and television, subject to reciprocity requirements, and up to 100% in telecommunications services and satellite communications; and (2) Televisa was declared by the new regulator, Instituto Federal de las Telecomunicaciones (the “Federal Telecommunications Institution” or IFT), as a preponderant economic agent in the broadcasting sector, i.e., an economic agent that has more than 50% national market share in the broadcasting sector, based on audiences and advertising revenue according to the data available to IFT. The “preponderance decision” imposed various measures, terms, conditions, and restrictive obligations in regard to infrastructure, content, advertising, and information.42 This situation is historic because, for first time ever, Televisa was subject to a significant adverse resolution. Of course, to some extent, this resolution could be qualified as insufficient in its provisions, given the dominance, size, and crossownership concentration of Televisa. Yet, at the very least, there was a clear resolution against the Group by the IFT.

Lobbying Efforts and Editorial Positions The so-called “Telebancada” is an important strategy for addressing the economic interest of Grupo Televisa’s direct intervention in congress. However, this relationship was not formed only with former Televisa employees. In fact, it is a common block of the private broadcasting and cable industry. The point here is that while the political parties provide these companies important positions to guarantee their seats as deputies and senators, they are not necessarily affiliated with the party. This scheme is clearer in the case of the PVEM. In other words, their main purpose is to represent the corporate interest of media companies in congress over the political party’s manifesto. While these tendencies have been documented, there are no official data for the expenses that Televisa has provided to political parties or political institutions. In terms of editorial position, the company has declared itself non-partisan since 1997. However, Televisa has a clear pro-business, market economy and a conservative agenda,43 at least in its primetime TV news. At the same time, Televisa maintains a systematic editorial position against leftist social movements. Their strong criticism of these movements has been documented and illustrated since the student movement in October 1968 through to #YoSoy132 in 2012.44 One observation that could be added to the discussion of its editorial position is that its pay-TV carriers in cable and DBS do not offer the cable TV news channel Telesur. This 24/7 news channel is a consortium operated by Venezuelan, Argentinan, Bolivian, and Ecuadorean governments, which tries to present a kind of counterbalance in the international information order from the global South.

Corporate Board Members The core executives of Televisa have remained the same since the turn of the century and are approximately the same age as its president and CEO, Emilio Azcarraga Jean. The key vicepresidents are: Alfonso de Angoitia Noriega and Bernardo Gómez, as executive VPs of Grupo Televisa; Ricardo Pérez Teuffer as corporate VP of sales and marketing; and Adolfo Lagos as corporate VP of telecommunications. The governance of the company follows the rules established for Mexican and U.S. governments, mainly in terms of stock exchange markets in both countries. Thus, The Mexican Securities Market Law governs Televisa’s governance practices, as well as the regulations issued by the Mexican Stock Exchange and Comisión Nacional Bancaria y de Valores (the “National Banking and Securities Commission” or CNBV). At the same time, Televisa has to follow corporate governance requirements as a foreign private issuer with shares listed on the NYSE.

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TABLE 6.4 Televisa External Board Members

Name

Member since

Position and other Communications Company Boards

Emilio Azcarraga Jean

1990

Chairman of the Board of Directors, President and Chief Executive Officer, and Chairman of the Executive Committee of Grupo Televisa

Roberto Hernández Ramírez

1992

Honorary Chairman of the Board of Director of Banco Nacional de México

Fernando Senderos Mestre

1992

Chairman of the Board of Directors and President of the Executive Committee of Desc, Dine and Grupo Kuo

Enrique Krauze Kleinbort

1996

Director and partner of Editorial Clío Libros y Vídeos

Alberto Ballères González

2004

President of Grupo Bal

Enrique Francisco José Senior Hernández

2001

Managing Director of Allen & Company, Board member in Univision Communications, Board member Cinemark

José Antonio Vicente Fernández Carbajal

2007

Chairman of the Board and Chief Executive Officer of Fomento Económico Mexicano and Coca Cola Femsa

Lorenzo Alejandro Mendoza Giménez

2009

Chief Executive Officer and Member of the Board of Directors and Executive of Empresas Polar

Eduardo Tricio Haro

2012

President of Grupo Industrial Lala

Michael Thomas Fries

2015

President, Chief Executive Officer and Director of Liberty Global

Jon Feltheimer

2015

Chief Executive Officer Lionsgate Entertainment Corp.

David M. Zaslav

2015

President, Chief executive Officer Director of Discovery Communications, Inc. Board member in Univision Communications Board member in Sirius XM Radio, Inc.

Source: Televisa Annual Report 20-F 2014.

The members of Televisa’s Board of directors are listed in Table 6.4. All of the external board members are from North America, six from Mexico and four from the United States. At the same time, the table indicates the attention that Televisa has shown in recent years to new appointments, particularly in 2015 in the context of media entrepreneurs. Another aspect that has to be emphasized is that no women are on its Board. This is a historical tendency.

Social Marketing Televisa’s social marketing strategy is to offer a philanthropic face to Mexican society. Televisa has two main fronts in the social marketing sphere. Its main banner is the telethon “Teletón” that has taken place annually since 1997. The Teletón raises money from audiences, companies, state governments, and institutions to build a network of health centers for the rehabilitation and treatment of children and youth with disabilities, cancer, and autism. The other program that the company uses to present itself as socially responsible is the “Goal for Mexico.” This program was launched in 2001 for the Televisa Foundation to connect social responsibility with its broadcaster sports. During the soccer games broadcast by Televisa, it focuses on seven social causes: education, nutrition, housing, health, breast cancer, natural disasters, and reforestation. Every goal scorer during the game generates one donation to the social benefits described above to a particularly vulnerable community. The Televisa Foundation works with this program in Mexico, as well as in the U.S., geared toward Latina/o communities.

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One criticism of this particular strategy is that Televisa is promoting a culture that benefits from philanthropic private institutions over welfare state responsibilities. It has also come under fire as simply a means of tax reduction.

Cultural Profile Symbolic Universe/Ideology In the case of Mexico, there is no doubt that Televisa built the DNA of Mexican TV audiences under the dominance of entertainment and conservative values during the 20th century. For a long time, its position as a monopoly gave it the ability to stratify or package Mexican audiences in accordance with its different stations as follows: Channel 2 or El canal de la estrellas (“The Stars Channel”), has historically been the flagship signal that broadcasts the most popular contents of Televisa, including TV news, telenovelas, magazines, variety, comedy programs, reality shows, sports (mainly Mexican soccer), contests, and Mexican movies. With the exception of the movies, 100% of these programs are Mexican and almost all content is produced in-house. This signal has been called the “Mexican family channel.” Channel 5, Mi canal, has served as a window into U.S. popular culture. From morning to afternoon, the channel shows cartoons and, in the evening through the night, it shows U.S. sitcoms and movies. Named Carlos Monsiváis in the early 1980s, this channel is the first U.S. channel broadcast beyond its frontiers. Initially its content was geared to young, urban, middle-class audiences. Historically, 90% of Channel 5’s content has come from the U.S. Channel 9, Gala TV, was often used as a rerun channel for Mexican telenovelas and U.S. series. Nowadays, it shows imported telenovelas from Telemundo, as well as some low-cost, in-house programs, such as talk shows, TV news, and Lucha Libre (wrestling). On weekends the channel broadcasts Mexican League soccer games. The regional Channel, Canal 4, used to be another rerun channel of old U.S. series and some Mexican magazines programs. Since 2010, the channel has been broadcasting its 24/7 TV news program, FOROtv, and the following programs on the weekend: Formula One racing, Major League Baseball (MLB), and National Football League (NFL) games, among other sports. This channel is offered in addition to pay-TV services in Mexico, the U.S., and Latin America. The organization of Televisa’s TV channels has been very productive as the company has been able to sell diverse and vast audiences to their advertisers. At the same time, for long periods Televisa monopolized free time through TV and was given the chance to shape the cultural consumption of large numbers of Mexican audiences. Televisa’s TV news is part of Mexican TV history, and is the TV news program with the largest audiences. This is important because 76% of Mexican citizens prefer TV news as their primary source for political information, according to surveys on political information consumption.45 This situation provides Televisa a significant ability to set the public agenda and reach wide audiences in the country. Televisa’s symbolic power for the Mexican political actors often constitutes its primary basis for media power.

Most Popular Productions and Their Place in Culture The most popular television genre from Televisa has been their telenovelas, which have been the most profitable content in both Mexico and international markets, particularly in the U.S. Latino/a-TV submarket.46 According to data from Observatorio iberoamericano de la ficción televisiva (the “Ibero-American Observatory of Television Fiction,” or Obitel), in 2013 the top 10 prime-time fictional programs in Mexico were all telenovelas produced by Televisa. It is worth

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highlighting the fact that in the case of the Latino/a-TV market in the U.S., all of the top 10 most watched television programs were Televisa productions, too, which were broadcast by Univision. In addition, Colombia, Chile, Ecuador, Spain, Peru, Venezuela, and Argentina broadcast a significant number of Televisa Telenovelas during prime-time hours. In all of these markets, Televisa was the foreign television company that placed the most Telenovelas titles behind the local producers.47 Another genre that has been very popular for the company is comedy. Over the last few decades, the shows “El chavo del ocho,” “Chesperito,” and “El chapulín colorado” have been very popular in Mexico, Spain, and throughout Latin America, even in Brazil. These programs were produced from the 1970s to 1990s, and in many Latin American countries it is still possible to find reruns of these programs currently running on television. Other comedy programs that have enjoyed success in Mexico include “¿Qué nos pasa?,” “La Familia Peluche,” and “Derbez en cuando,” among others. Other popular content from Televisa includes soccer games, especially the Mexican Football League games. Throughout Mexican television history, Televisa has enjoyed broadcasting rights to the most popular teams in the nation. However, its most important alliance in this segment is with the Mexican Federation of Football (FMF) as it has broadcast, since the beginning of television, all the games of the Mexican National Team.48 In fact, thanks to this alliance and Televisa’s good relations with the International Federation of Football Association (better known as FIFA), Mexico organized two World Cups, in 1970 and 1986.49 Nowadays, the Selección Mexicana provides important profits to Televisa, particularly during international events. Nevertheless, Televisa has shared these rights with its competitor, TV Azteca, since the 2000s, and it will most likely do the same with the new national TV network, Cadena Tres, which will begin operations in 2016. This is thanks to the fact that the provisions established by IFT prevent Televisa from offering certain content exclusively as a preponderant agent. Finally, it is significant to note that throughout Televisa’s history, the company has broadcast many educational and cultural programs, perhaps in an effort to collaborate with the Mexican government or because the company thought that it would bolster its image in Mexican society. In fact, Televisa co-produced Sesame Street (Plaza Sésamo) and enjoyed several collaboration agreements, in the past, with the National Autonomous University of Mexico to broadcast various programs from the university.

Imports from Other Countries As established from the above discussion, Televisa imports significant amounts of foreign programs, mainly U.S. audiovisual productions like movies, series, sitcoms, cartoons, and U.S. professional sports, primarily to fill up the Canal 5 grid. Televisa’s competitor, TV Azteca, has followed a similar strategy since 1994 with its Canal 7 network, becoming a mirror channel of Televisa’s Canal 5. So, since 1994, Mexican audiences have had two over-the-air networks with the most popular content on U.S. pop culture and sports.

Conclusion Televisa has recently been adapting to the different challenges that the economic, political, sociocultural, and technological changes have presented by implementing a significant diversity of different strategies. As a result of this, it is clear that Televisa continues as a central agent in the Mexican communication system, particularly in setting the political news agenda, shaping an important part of the cultural audiovisual consumptions, and expanding its business accordingly with the process of convergence with telecommunications.

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At the same time, this chapter has tried to establish the historical structural advantages of the company in regard to national and regional competitors in economic terms. Certainly, Televisa will extend its business and it is prepared to adapt to the trend towards convergent business operations in local, regional, and global contexts. Nevertheless, the singularities of Televisa that should be underlined are the different ways that it uses its media power, which sometimes became a de facto power in regard to various political agents by influencing the totality of the Mexican political system. This is an important characteristic of Televisa’s power, because it marks a significant change in the political interactions between Televisa and the Mexican political system. In the past, Televisa used to be incorporated into the regime in some way, and this alliance was always under the umbrella of the PRI-Administrations. But now, with changes in the federal government office, Televisa is exercising its agency outside that umbrella, working as a free agent, and imposing conditions and forming alliances with different political parties and governments, all with the goal to maintain and expand its structural advantages in national and global business.

Notes 1 The president of Televisa was Emilio Azcarraga Milmo, the first heir of the Azcarragas dynasty. Fernando Mejía, “50 años de Televisión comercial en México (1934–1984) Cronología,” in Televisa. El quinto poder, ed. Raúl Trejo (México: Claves Latinoamericanas, 1984), 22–35. 2 For further information about the history of Mexican state signals, see: Florence Toussaint, ed., ¿Televisión pública en México? (México: Consejo Nacional para la Cultura y las Artes, 1993) and Patricia Ortega, La otra televisión:¿ por qué no tenemos televisión pública.? (México: UAM-Xochimilco, 2006). 3 Raul Trejo, Televisa. El quinto poder. (México: Claves Latinoamericanas, 1984); Andrew Paxman and Alex Saragoza, “Globalization and Latin Media Powers: The Case of Mexico’s Televisa” in Continental Order? eds. Vincent Mosco and Dan Schiller (Lanham, MD: Rowman & Littlefield, 2001); Gabriel Sosa y Rodrigo Gómez, “México. En el país Televisa” in Zapping TV. El paisaje de la tele latina, ed. Omar Rincón (Bogota: Friedrich Ebert Stiftung, 2013). 4 Héctor Aguilar Camín y Lorenzo Meyer, A la sombra de la Revolución Mexicana. (México: Cal y Arena, 1989), 199–201. 5 John Sinclair, Latin American Television: A Global View. (New York: Oxford University Press, 1998); Enrique Sánchez-Ruiz, “El audiovisual mexicano: ¿Concentrar para competir?” Global Media Journal México 1, no. 2 (2004): 41–59, accessed April 30, 2015, www.gmjei.com/index.php/GMJ_EI/article/view/135/132 6 Soledad Robina, “Televisa: de los cables subterráneos a PANAMSAT” in Desarrollo de las industrias audiovisuales en México y Canadá, ed. Delia Crovi (México: UNAM-FCPyS, 1995); Paxman and Saragoza, “Globalization”; Sinclair, Latin American Television. 7 Rodrigo Gómez, “El Impacto del Tratado de Libre Comercio de América del Norte en la Industria Audiovisual Mexicana” (PhD diss., Universidad Autónoma de Barcelona, 2007). 8 Paxman and Saragoza, “Globalization,” 67. 9 Paxman and Saragoza, “Globalization,” 67. 10 Televisa, “Annual report 20-F 2002” (Televisa: Mexico, 2003), 105–108. 11 Lawson Chappell and James A. McCann, “Television News, Mexico’s 2000 Elections and Media Effects in Emerging Democracies.” British Journal of Political Science 35 (1) (2005): 1–30. 12 Rodrigo Gómez, “La agenda informativa en los noticiarios más importantes de la televisión mexicana durante 1997,” M.A. Diss, Universidad Nacional Autónoma de México, 1999. 13 Chappell and McCann “Television news.” 14 For more information, see: Javier Esteinou y Alma Rosa Alba de la Selva, eds., La Ley Televisa y la lucha por el poder en México (México: UAM-Xochimilco/Fundación Friedrich Ebert /AMIC, 2009) and Rodrigo Gomez and Gabriel Sosa, “Reforms to Media Legislation in Mexico,” Quaderns del CAC 25 (2006): 63–80. 15 Andrew Paxman and Claudia Fernández, El tigre: Emilio Azcárraga y su imperio Televisa. (México: Grijalbo, 2012). 16 European Audiovisual Observatory Yearbook’s and ZenithOptimedia Annual Top Thirty Global Media Owners report. 17 Enrique Huerta-Wong and Rodrigo Gómez, “Concentración y diversidad de los medios de comunicación y las telecomunicaciones en México.” Comunicación y sociedad 19 (2013): 113–152.

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18 The content segment categorized by Televisa sources understands “content revenue” as follows: Advertising; Network Subscription Revenue; and Licensing and Syndication. 19 Yeidy Rivero and Arlene Davila, eds., Contemporary Latina/o Media: Production, Circulation and Politics (New York: NYU Press, 2014). 20 Rodrigo Gómez and Gabriel Sosa. “La concentración en el mercado de la televisión restringida en México,” Comunicación y sociedad 14 (2010): 109–142. 21 Televisa, “Annual report 20-F 2014” (Televisa: Mexico, 2015). 22 Televisa, “Annual report 20-F 2014” (Televisa: Mexico, 2015). 23 El Economista, “Televisa, con poder sustancial de mercado en la tv-paga,” El Economista (April 29, 2015), accessed May 1, 2015, http://eleconomista.com.mx/industrias/2015/04/29/televisa-poder-sustancialmercado-tv-paga 24 Instituto Federal de Telecomunicaciones (2015), Versión pública del acuerdo P/1FT/EXT/300915/114 De la sesión del pleno del Instituto Federal de Telecomunicaciones en su XXXIII sesión extraordinaria del 2015, celebrada el 30 de septiembre de 2015. Accessed October2, 2015, www.ift.org.mx/sites/ default/files/conocenos/pleno/sesiones/acuerdoliga/versionpublicadc0120141_1.pdf 25 Televisa, “Annual report 20-F 2014” (Televisa: Mexico, 2015), 106. 26 Televisa, “Annual report 20-F 2014.” 27 Susan Crawford, Captive Audience. The Telecom Industry and Monopoly Power in the New Gilded Age (New Haven, CT: Yale University Press, 2013). 28 Comisión Federal de Telecomunicaciones, Documento de referencia a la consulta pública para la licitación de frecuencias para televisión abierta. (México: Cofetel, 2012: 2). www.cft.gob.mx:8080/ portal/wp-content/uploads/2012/06/Documento_de_referencia_Consulta_TV.pdf 29 Lucila Hinojosa, El cine mexicano: de lo global a lo local (México: Trillas, 2003). 30 Televisa, “Annual report 20-F 2014.” 31 Televisa, “Annual Report 20-F 2014.” 32 Televisa, “Annual Report 20-F 2014,” 26. 33 Televisa, “Annual report 2014 20-F.” 34 Televisa, “Annual report 2014 20-F,” 43. 35 Televisa, “Annual report 2014 20-F.” 36 For more information about this case see Rodrigo Gómez and Gabriel Sosa, “Digital terrestrial.” 37 CNN Expansion, “AT&T completa la compra de Iusacell” CNNExpansión (January 16, 2015), accessed March 1, 2015, www.cnnexpansion.com/negocios/2015/01/16/att-completa-la-compra-de-iusacell 38 Televisa, “Annual report 2014 20-F.” 39 Enrique Sánchez-Ruiz, “¿Concentración mediática, o gobernabilidad democrática? La ‘Ley Televisa’ como estudio de caso.” Enrique Sánchez, Francisco Aceves, et al. Gobernabilidad democrática: cultura política y medios de comunicación en México (Guadalajara: Universidad de Guadalajara, 2007): 137. Raúl Trejo “Poderes fácticos, poderes graves,” Revista Mexicana de Ciencias Políticas y Sociales 58, no. 217, 223–232. 40 Jenaro Villamil, “Proyecto Jorge: el plan de Televisa-Peña Nieto para alcanzar la presidencia” Proceso (September 8, 2012), accessed February 8, 2015, www.proceso.com.mx/?p=319353; Jo Tuckman, Mexican Media Scandal: Secretive Televisa Unit Promoted PRI Candidate. The Guardian (June 26, 2012), accessed February 10, 2015, www.theguardian.com/world/2012/jun/26/mexican-media-scandal-televisa-prinieto 41 Emiliano Treré, “Reclaiming, Proclaiming, and Maintaining Collective Identity in the# YoSoy132 Movement in Mexico: An Examination of Digital Frontstage and Backstage Activism through Social Media and Instant Messaging Platforms” Information, Communication & Society, forthcoming (2015): 1–15. 42 Jorge Bravo, “Concentración, preponderancia y competencia en la Televisión en México” en Maria Elena Meneses, Jorge Bravo y Maria Gabino, Telecomunicaciones y Radiodifusión en la encrucijada. Regulación, Economía y Cambio Tecnológico (San Luis Potosí: UASL-AMIC, 2015), 171–206. 43 Paxman and Castañeda. 44 Gabriel González, Realidad como Noticiero . . ., 178–183. 45 Dirección General de Cultura Democrática y Fomento Cívico, Quinta Encuesta Nacional sobre Cultura Política y Prácticas Ciudadanas ENCUP 2012 (México: SG, 2013), www.encup.gob.mx/work/models/Encup/ Resource/69/1/images/Presentacion-5ta-ENCUP_2013.pdf 46 John Sinclair, Latin American Television. 47 Guillermo Orozco and Immacolata M. Vassallo (Eds.), OBITEL 2014 Transmedia Production Strategies in Television Fiction (Porto Alegre: GLOBO-Editorial Sulina, 2014). 48 It has to be said that over a limited period of time the rights of the National team were not Televisa’s, but this was only for part of 1991. 49 John Sinclair, Latin American Television.

7 AMÉRICA MÓVIL Gabriel Sosa Plata

América Móvil operates in 18 countries,1 providing fixed-line, mobile phone, and subscription television services. The company cannot offer subscription television in Mexico due to a restriction established in the terms of its public service concession. However, this limitation could be renegotiated when the company ceases to be the predominant economic power in the Mexican telecommunications sector. The company also has a presence in some European countries, the United States, Puerto Rico, and the Virgin Islands. América Móvil is the leading telecommunications company in Mexico, with the largest share of fixed-line, mobile, Internet, and broadband markets in the country, and the company is also one of the largest in Latin America and the rest of the world. The company is also the largest subscription-based television company in Latin America; its 22 million subscribers place it above more traditional communication media companies such as Grupo Televisa, O Globo, and Clarín. In addition, América Móvil is the third largest provider of mobile telephony services in Brazil. Over a period of decades, América Móvil expanded its activities in telephony and the provision of telecommunication services to homes, businesses, and government in various countries, particularly in Latin America. Digitalization and diversification of its business have increased the company’s activities in subscription television, triple-play services (telephone, Internet, and television in one package), and now also in the generation of its own content. This has propelled it into an ever-increasingly convergent and multi-media conglomerate that operates infrastructure (telephone, satellites, cable and satellite television, submarine communication cables, etc.) and it has become a player in the region’s audiovisual industries. América Móvil is linked to one name—Carlos Slim, the richest man in Mexico and Latin America, and the second richest man in the world, according to Forbes magazine, with a personal fortune of $77.1 billion, surpassed only by Bill Gates, whose fortune stood at $79.2 billion in 2015.2 As one of Slim’s biographers says, “The spotlight falls on him. Long before he was named by Forbes magazine as the richest man on the planet, Slim was one of the most listened to and respected voices in the circles of power and money. In many parts of the world he is seen as a successful man, and will continue to be a symbol for new generations of entrepreneurs in the future.”3 Another of Slim’s numerous biographies noted: “The business profile of the Engineer is compared to that of John D. Rockefeller, who also prospered in an environment with few regulations; however, Slim’s success is largely based on the contribution of the majority of Mexicans, as they stand at the ATM, are seated at a restaurant, or pick up the telephone.”4

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His company, América Móvil, manages brands such as Telcel and Claro in Latin America and is the seventh most profitable company in the region, second only to only banks and oil companies, and it is first in the telecommunication sector according to the investment analysis specialist, Economática.5 Although Slim has now passed the management of his companies onto his sons (Carlos, Marco Antonio, and Patrick Slim Domit) at the end of the 1990s, he continues as the visible face and head of the Telmex Foundation and the Carlos Slim Foundation, and he also participates in the conglomerate’s major decisions. Carlos Slim and his offsping own 62% of América Móvil. Despite its economic status, América Móvil is merely an extension of a collection of companies linked to the Slim family, operating under the name Grupo Carso. As his biography summarizes, Slim owns more than 200 companies in more than 20 countries. He controls between 30 and 40% of the Mexican Stock Exchange; he is the businessman who pays the most tax through his companies; in the last decade, he has invested more than 60,000 million dollars in Latin America; he generates more than 250,000 jobs through direct employment in his companies and more than one million and a half jobs through indirect employment, and is, furthermore, one of the most prominent philanthropists in the world, dedicating part of his fortune to social and humanitarian work, and combating poverty.6 Thanks to all these companies, Slim has a presence in the financial, entertainment, hospitality, construction, energy, and real estate markets (see Tables 7.1, 7.2).

History Although América Móvil was incorporated in September 2000, its antecedents can be found in Teléfonos de México (Telmex), the company privatized by the Mexican Government in 1990 as part of the neoliberal reforms driven by the then President Carlos Salinas de Gortari. At the time of its privatization, Telmex was sold to Grupo Carso, together with South Western Bell, France Telecom, and various Mexican investors. These companies and investors paid $442.8 million, placed public offers in the stock market for approximately MXN$360 million, and absorbed MXN$165 million worth of liabilities. Telmex’s public service concession expires in March 2026.7 Telmex inherited from the Mexican government the monopoly of fixed-line telephone services in the country and has cellular frequencies to offer cell phone services. As will be elaborated in the following, this monopoly was broken by liberalization of the markets with the entrance of new companies. As part of its public service concession, Telmex is able to offer voice, data, text, audio, and video transmission services. However, as noted above, it is not allowed to offer television services through its telephone or broadband networks, either directly or indirectly. After privatization, Telmex retained the monopoly for the national and international longdistance service for seven years (until 1997), under the argument that the company be afforded sufficient time to achieve its network expansion targets and balance its tariffs before new companies entered the market. In addition, “Telmex was required to widen the number of basic service telephone lines by an annual minimum average of 12% over the period 1990 to 1994.”8 Telmex was also required to reduce the waiting time for repairs and installations, improve its services, bring telephone services to rural areas, and install five public telephones for every 1,000 people, among other obligations. In 2000, Telmex decided to divide its cell phone operations through América Móvil. From that year on, the company developed an ambitious growth plan, leading it to acquire companies

América Móvil

127

TABLE 7.1 Carlos Slim and Grupo Carso (without América Móvil)

Subsidiary

Country

Activity

Ownership (%)

Carso Infrastructure and Construction, SA de CV (CICSA)

Mexico, South America, and Central America

Development of diverse branches of engineering, projects, and electromechanical facilities; construction and maintenance of highways, water pipes, water treatment plants, and hydroelectric facilities; the construction of housing; and the installation of telecommunications and telephone networks

99.93

Grupo Condumex, S.A. de C.V. and subsidiaries (Condumex)

Mexico, U.S.A, Central America, South America, and Spain

Manufacture and commercialization of 99.58 products, principally cable, for the construction, automotive, energy, and telecommunications markets; manufacture and sale of products derived from copper and aluminum; and the manufacture and sale of car parts

Grupo Sanborns, S.A.B. de C.V. and subsidiaries (Sanborns)

Mexico, El Salvador, and Panama

Operation of department stores, gift shops, music stores, restaurants, coffee shops, and the administration of malls through the following commercial brands, principally Sanborns, Sears, Saks Fifth Avenue, Mix-up, and iShop

82.77

Industrial Cri, S.A. de C.V., and subsidiaries (Industrial Cri)

Mexico

Shareholder in companies in the installation and maintenance sectors for telephone boxes, the manufacture of all types of candies and of bicycles. In 2013, Industrial Cri was absorbed by Condumex through a merger

Merged with Condumex in 2013

Carso Energy, S.A. de C.V., and subsidiaries

Mexico and Colombia

Shareholder in companies in the sector for the exploration and production of petroleum, gas, and other hydrocarbons

100

TABLE 7.2 Other Share Investments in Associate and Joint Ventures

Subsidiary

Country

Activity

Equity (%)

Elementia, S. A. de C. V. (“Elementia”)

Mexico

Manufacture and commercialization of 46 high-tech products for the fiber cement, concrete, polyethylene, styrene, copper, and aluminium sectors

Infrastructure and Transport México, S.A. de C.V. (“ITM”)

Mexico

Railway transportation

16.75

Infrastructure and Sanitation Atotonilco, S.A. de C.V. (joint venture)

Mexico

Construction of wastewater treatment plants

42.50

Constructora MT de Oaxaca, S.A. de C.V.(joint business)

Mexico

Construction of highways

40

Cuprum, S.A.P.I. de C.V. (Cuprum)

Mexico

Manufacture of aluminium products

10

Grupo Telvista

Mexico

Telephone call centers

10 (the remaining 90 through América Móvil)

Source: América Móvil, Information in BMV, www.bmv.com.mx/infoifrs/infoifrs_577675_2014–04_1.pdf, accessed March 15, 2015.

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in Latin America, the Caribbean, and the United States. The success of the business strategy for its expansion into mobile telephony is based on the prepay model, which, above all, has given telephone access to those with the least resources, according to the availability of their resources.9 In Mexico, the prepay model was a success for the company in that it drove the development of mobile telephony in the country. However, this significant growth was motivated by the company’s monopolistic practices, as well as a lax legal framework, and neither telecommunications regulatory bodies nor financial competition of sufficient strength could contain a company that went from a landline monopoly to a cell phone and Internet monopoly.10 At the beginning of 2000, both the Spanish company Telefónica (Movistar) and the North American company Nextel arrived in Mexico and intensified competition in the cell phone market. However, they, together with the Mexican company Iusacell, have only been able to achieve a market share of approximately 30%.11 In 2007, Telmex created the Telmex Internacional division, through which it seeks to “provide every company in Mexico and abroad with an adequate and more efficient operation, so that each of them is able to operate autonomously, in an administrative, commercial, and financial context.”12 Three years later, in 2010, América Móvil acquired both Telmex and Telmex International and expanded its 3G services. While América Móvil developed its plans for growth in Mexico, Latin America, and the United States throughout the first years of its existence, it has sought to increase its presence in Europe and the United States in recent years. In 2014 the company acquired 51% of Telekom Austria and, in 2013, 30% of the shares in the KPN company, of Holland. In the United States it purchased TracFone, which sells and distributes cell phone services without the need of a contract. The company also purchased Simple Mobile in 2012 and, in 2014, Start Wireless Group, which operates under the brand name Page Plus. Start Wireless operates a virtual mobile telephone network in the United States, servicing approximately 1.4 million users in 2014.13 In 2008 the company decided to launch the Uno TV web portal, which marked the beginning of a new era for the company in terms of the creation of its own content. This new era was characterized, as we will see below, by the acquisition of companies linked to the purchase, generation, and distribution of sports, news, cultural, and entertainment content. In terms of infrastructure, América Móvil has recently developed a system of submarine communications cables known as América Móvil 1, which have a combined length of 17,500 kilometers and the capacity to transport 100 gigabytes per second. This cable system extends from the United States to Central America and Brazil, enabling the company to provide international connectivity to all its subsidiaries. América Móvil 1 thus connects seven countries through 11 terrestrial points.14 In 2015, América Móvil shareholders approved the creation of a new division that would feature a new company called Telesites, which will rent telecommunication towers. It is estimated that Telesites will have a 43.2% share in the rental market for base transceiver station towers in Mexico and will be the second largest player in Latin America.15

Economic Profile América Móvil is a cost-effectiveness company and has double digits in the percentage of annual growth. Its main strength is related to mobile phone services, but its data services (Internet) are growing every year. Mexico represents its principal market. However, other Latin America markets, where the Mexican company could offer convergent services, are increasing their revenues and profitability.

América Móvil

129

Financial Data The recorded income for América Móvil in 2014 was MXN$883.832 billion (approximately $66.453 billion), which represents an annual growth of 12.4% thanks principally to the integration of Telekom Austria into its operations. Taking into account the levels of total penetration in traditional voice services in fixed-line and mobile networks in the countries where América Móvil operates, these are closest to saturation in the socio-economic sectors with the highest income. For that reason, the speed of growth has decelerated as the company attempts to attract people with lower disposable incomes. This strategy has also coincided with greater government regulation, which intends to enable greater access to advanced communications services (see Table 7.3), while in 2013 América Móvil registered annual income increases of 1.4% (its lowest growth rate since records began). In light of the above, América Móvil is carrying out a transition centered on data provision (Internet), although mobile telephone services remain important. Its most recent financial report indicates that mobile data represented 27.8% of its income for the fourth trimester of 2014, and 13.8% of its income was from fixed-line network data services. The lowering of petrol prices has meant that practically all companies with international operations would be affected by the strengthening of the dollar. In the case of América Móvil, its net worth in pesos was reduced by 36.77% to MXN$47.18 billion ($3.54 billion) in 2014 (see Figure 7.1). However, in the midst of the company’s expansion into new markets, its Mexican operations continue to contribute 31.45% of the total income, corresponding to $20.9 billion. This has led to a majority share of around 70% of Internet and voice services through fixed-line and mobile networks, despite being prohibited from offering subscription television services in the country. With regard to Brazil, despite being an affiliate with access to the supply of all services (voice, telephone, Internet, TV), income remains below Mexican levels, at $15.5 billion. The increased demand for Internet and subscription television has compensated for the stagnation in fixed-line voice services. Peru demonstrated the largest growth in subscribers over

1,000,000

60%

900,000 50%

800,000 700,000

40%

600,000 500,000

30%

400,000 20%

300,000 200,000

10%

100,000 0

0% 2005

2006

2007

2008

Ingresos

FIGURE 7.1

2009

2010

2011

2012

2013

2014

% Crecimiento anual

América Móvil Income and Annual Growth, 2005–2014 (in millions of pesos)

Source: América Móvil, financial reports in the Mexican Stock Market, www.bmv.com.mx

Net income

Source: América Móvil, financial reports in the Mexican Stock Market, www.bmv.com.mx

189,530 57,186 35,061 32,923 243,005 28.2 89,525 61,377 44,422 304,197 25.2 123,821 83,908 52,301 345,655 13.6 138,418 96,651 59,486 394,711 14.2 158,881 105,799 70,494 612,044 55.1 248,704 153,377 91,355 731,416 19.5 259,812 159,794 82,698 775,070 6.0 264,735 161,150 90,989 786,101 1.4 255,699 154,164 74,625 883,832 12.4 279,213 152,343 47,182 Consolidate landline operations (Telmex, Telmex International) Consolidate operations Austria Telekom

Operating income

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2010 2014

% Annual EBITDA growth income

Income ($ millions)

Year

TABLE 7.3 América Móvil Income and Profit, 2005–2014

1,996 2,894 3,866 3,844 3,789 51,529 57,884 64,193 69,445 78,412

UGIS (Telephone, fixed internet, subscription TV) 93,329 124,777 153,422 182,724 200,972 225,024 241,755 261,558 269,883 289,449

Mobile lines

239,309 332,725 349,121 435,455 453,008 891,469 973,777 984,604 1,035,158 1,256,307

Total assets

10.99 10.92 10.95 11.17 13.51 12.64 12.42 13.17 12.77 13.3

Peso/Dollar

17,245.7 22,253.2 27,780.5 30,944.9 29,216.2 48,421.2 58,890.2 58,851.2 61,558.4 66,453.5

Income ($)

2,995.7 4,067.9 4,776.3 5,325.5 5,217.9 7,227.5 6,658.5 6,908.8 5,843.8 3,547.5

Net income ($)

América Móvil

131

the previous year, at 19.5%, or 1.2 million. In general, 2014 saw the addition of 8.9 million subscribers across all affiliates, nearly half of whom correspond to the operational consolidation of Telekom Austria. In terms of mobile subscribers, the United States was the affiliate with the largest growth during 2014, with 9.9% annual growth taking the total up to 26 million by the end of December 2014. América Móvil has also strengthened its position in the U.S. through the systematic acquisition of smaller regional rivals, which resulted in establishing the company as the largest Mobile Virtual Network Operator (MVNO) in the United States. In terms of the generation of profits through affiliates, it is noted that up to 2014, despite the commencement of a new and more severe regulatory framework for América Móvil, Mexico continued as the most efficient market for the generation of operating revenues. Throughout 2014, the company’s Mexican affiliate generated $7.267 billion which, at 34.76%, represents the highest operating margin, followed by its Ecuador affiliate (33.95%) and the operations in Argentina, Paraguay, and Uruguay (27.29%). On the other hand, Chile has been an especially difficult market for the company, as that particularly competitive environment caused an operational loss of $250 million dollars and a 3.3% reduction in its cellular user base. In terms of cellular subscribers, Mexico also remains América Móvil’s largest market, with a total of 71.46 million lines by the close of 2014, closely followed by Brazil with 71.1 million. This means that if the Mexican operator were to comply with the proposed release of assets into the national market in order to cease being a monopoly in Mexico, Brazil would automatically become the company’s largest market by a significant margin (see Table 7.4).

Market Share Although América Móvil is the largest mobile operator in Latin America, it is not necessarily the leader in each market, aside from Colombia and Mexico. In the remaining Latin American markets, the operator is in second or third place behind its main regional rival Telefónica, but it also competes against other rivals such as Millicom, which has a significant presence in markets such as Colombia and Central America, as well as other national operators, such as in Argentina (Personal) or Chile (Entel). América Móvil has also achieved a significant share in the subscription television market in the region, offering a service through all types of technology (DTH, cable, or IPTV), with the largest market being Brazil, in which it has a 52% market share, having consolidated its operation through the operator Net (see Table 7.5).

Corporate Structure The corporate and ownership structure of América Móvil is characterized by a marked trend toward total share ownership of each affiliate, where, in turn, the entire group is presided over principally by members of the Slim family (see Tables 7.6 and 7.7). All of América Móvil’s affiliates offer mobile telephone services, which, for the majority, resulted from the purchase of other operators with a national presence. The Costa Rican affiliate was added after the 2011 spectrum auction there, while the European market was opened up through the purchase of Telekom Austria in 2014 (See Table 7.8). However, the European affiliates are an exception to the ownership trend. Given the ongoing nationalism in Europe and the reticence to allow national companies to be owned by capital from beyond the European Union, the Slim family was obliged to seek a special agreement with European governments. For example, the process of purchasing KPN was a clear case of European nationalism, when small shareholders refused to allow América Móvil to acquire the operator in its entirety. Therefore, although the

24,005 4,137 35,603

737,643 11,391,000 278,050 5,268

8.12

0.75 2.35

570 2,000

13.3 2.84

Local currency/ Income dollar (millions, local currency)

1,294 5,696 1,726 20,906 1,855 6,852

5,516 15,150 3,964

2,956

Income ($ millions)

96,654 1,253

–142,334 3,000,000

333 1,743

6,550

Operating income (millions, local currency)

Source: América Móvil, financial reports in the Mexican Stock Market, www.bmv.com.mx

Argentina, Paraguay, and Uruguay (Argentine pesos) Austria and Eastern Europe Brazil Central America and the Caribbean Chile Colombia Ecuador Mexico Peru United States

2014

TABLE 7.4 América Móvil Income, by Affiliates in 2014

–250 1,500 586 7,267 441 613

444 742 357

807

Operating income ($ millions)

5,754 29,776 11,772 71,463 12,498 26,006

20,008 71,107 19,065

22,000

Mobile subscribers

–3.3 2.8 –2.2 –2.8 5.4 9.9

–0.5 3.5 –17.1

–1.0

Annual variation (mobile subscribers) (%)

1,231 5,307 343 22,250 1,233

4,402 36,096 6,953

595

UGIs

5.5 11.8 10.5 –0.9 19.5

4.5 10.4 6.9

8.7

Annual variation (UGIs) (%)

América Móvil

133

TABLE 7.5 América Móvil Market Share, by Country (%)

Mexico Chile Colombia Brazil Peru

Mobile telephone

Fixed-line

Subscription TV

69 22 55 25 40

71 7.80 20.20 21 49.50

0 16.90 43 52 18.20

Source: América Móvil, financial reports in the Mexican Stock Market, www.bmv.com.mx

TABLE 7.6 América Móvil Board of Directors

Carlos Slim Domit

Co-Chairman of the Board of Directors of Telmex

Patrick Slim Domit

Co-Chairman Principal Occupation; Co-Chairman of América Móvil

Daniel Hajj Aboumrad

Chief Executive Officer of América Móvil

Arturo Elías Ayub

Head of Strategic Alliances, Communications, and Institutional of Telmex; Chief Executive Officer of Fundación Telmex

Oscar Von Hauske Solís

Chief Fixed-Line Operations Officer of América Móvil

Juan Antonio Perez Simón

Chairman of the Board and Member of the Executive Committee of Sanborn Hermanos, S.A. de C.V.

Luis Alejandro Soberón Kuri

Chief Executive Officer of Corporación Interamericana de Entretenimiento, S.A.B. de C.V.

Rafael Moisés Kalach Mizrahi

Chairman of the Board and Chief Executive Officer of Grupo Kaltex, S.A. de C.V.

Louis C. Camilleri

Chief Executive Officer of Philip Morris International

Ernesto Vega Velasco

Retired. Member of the Board of Directors and audit and corporate practices, planning and finance, and evaluation and compensation committees of certain companies

Pablo Roberto González Guajardo Chief Executive Officer of Kimberly Clark de México, S.A.B. de C.V. David Ibarra Muñoz

Retired. Director of Grupo Financiero Inbursa, S.A.B. de C.V., Impulsora del Desarrollo y el Empleo en América Latina, S.A.B. de C.V., and Grupo Carso, S.A.B. de C.V.

Carlos Bremer Gutiérrez

Chief Executive Officer of Value, S.A. de C.V., Casa de Bolsa

Santiago Cosío Pando

President of Grupo Pando, S.A. de C.V.

Alejandro Cantú Jiménez

General Counsel; Corporate Secretary

Rafael Robles Miaja

Corporate Pro-Secretary

Source: América Móvil, financial reports in the Mexican Stock Market, www.bmv.com.mx

TABLE 7.7 América Móvil’s Principal Shareholders

Shareholder Family Trust ( (1) Inmobiliaria Carso (2) Control Empresarial de Capitales (3) Carlos Slim Helu (4)

AA shares (no par value) Shares owned (millions)

Percentage of class

10,894 4,262 2,870 1,878

46.5 18.2 12.2 8.0

Source: América Móvil, financial reports in the Mexican Stock Market, www.bmv.com.mx

134

Gabriel Sosa Plata

TABLE 7.8 América Móvil Affiliates, by Country

Country

Company

Business

Equity participation (%)

Consolidation method

Mexico

Telcel Telmex Sección Amarilla Telvista Claro Telmex Claro Claro Telmex Claro Telmex Claro Claro Claro Telmex Claro Claro Claro Claro Claro Claro Claro Claro Claro Tracfone KPN Telekom Austria

mobile fixed other other mobile Fixed mobile mobile fixed mobile fixed mobile mobile/fixed mobile fixed mobile/fixed mobile/fixed mobile/fixed mobile/fixed mobile mobile mobile/fixed mobile/fixed mobile/fixed mobile mobile/fixed mobile/fixed

100.00 98.70 98.40 89.40 100.00 99.70 96.10 100.00 100.00 99.40 99.30 100.00 100.00 100.00 98.40 95.80 99.30 100.00 99.60 100.00 100.00 100.00 100.00 100.00 98.20 21.40 59.70

Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Global Consolidation Equity Method Global Consolidation

Argentina Brazil Chile Colombia Costa Rica Dominican Republic Ecuador El Salvador Guatemala Honduras Nicaragua Panama Paraguay Peru Puerto Rico Uruguay United States Holland Austria

Note: On December 31, 2014, Embratel and Net merged with Claro, of which América Móvil owns 79.22% through Telmex Internacional and 16.90% through Sercotel. The statistics reflect the acquisition of minority shareholders as of February 2. 2015.

Austrian government permitted América Móvil’s majority purchase of Telekom Austria in the negotiation process, the Mexican company had to cede a minimum 25% share and veto rights in matters of the utmost importance to the government.

Typical Strategies The expansion of América Móvil was originally based on the acquisition of telecommunications companies in Latin America, the Caribbean, and the United States as well as the outcomes of tendering, bids processes, or radio-electric frequency auctions in different Latin American countries in order to compete in local mobile telephone markets. The possibilities for technological convergence and the opportunities for the purchase of companies led the company to make inroads into subscription television (via cable, satellite, or Internet Protocol Television (IPTV)) and tripleplay services (telephone, Internet, and television). Table 7.9 shows the company’s principal acquisitions over the last 15 years, which, together with the commencement of operations in other countries, made it the leader among mobile telephone and subscription television subscribers. In telecommunications, as in other business sectors,

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TABLE 7.9 Principal Acquisitions by América Móvil, 1990–2012

Year

Company acquired (%)

Country/region

1990 1996 1997 1998 1999 1999 2000

40% of International Wireless Kb/Tel 40% Mcom Wireless 33% Cablena Topp Telecom Cellular Communicatios 60% Comcel, together with Bell Canada and Southwestern Bell Communication 17.5% of First Mark Comunicaciones 94.4% Telgua CTE Telecom CTI Móvil AT’T Latin America Chilesat 40% Megatel Compañía Anónima Nacional de Teléfonos de Venezuela, with Verizon (letter of intent) 52% Telecomunicaciones de Puerto Rico Verizon Dominicana (intent to purchase) 3.4% Lusa Portugal Telecom Ecuador Telecom 51% Telecom Austria 30% KPN

Ivory Coast United States Brazil Spain United States Puerto Rico Colombia

2000 2001 2003 2003 2003 2004 2004 2005 2004 2006 2006 2007 2012 2012

Spain Guatemala Nicaragua Uruguay, Paraguay, and Argentina Latin America Chile Honduras Venezuela Puerto Rico Dominican Republic Portugal Ecuador Austria Netherlands

Source: Expansión, August 26, 2014

it is said that one of Carlos Slim’s strategies is to “buy companies at low prices, sell shares when they reach their maximum value, and form alliances with people who will be of strategic value for business.”16 In June 2014, he invested $5.6 billion in purchasing the 8.3% of AT&T that the U.S. company had invested in América Móvil. This took place months before AT&T became a competitor of América Móvil in Mexico after acquiring both Iusacell in 2015 (from another Mexican multimillionaire, Ricardo Salinas Pliego) and the U.S. company Nextel. AT&T’s entry into the Mexican market occurred within the context of reforms to the legal framework governing the telecommunications market, as well as the imposition of obligations on América Móvil by the Federal Telecommunications Institute (abbreviated as IFETEL or IFT), because América Móvil was the predominant financial player in the market.

New Developments In its financial reports, the company advises that it seeks to permanently increase its number of users “through the continual development of its current operations and, when opportunities arise, the acquisition of companies of strategic value.”17 As such, Carlos Slim has shown interest in the development of business through the Internet ever since the financial boom for technology companies. In 2000, he formed an association with Bill Gates in order to offer Internet and publicity services in Mexico through the T1msn portal (today known as Prodigy MSN). In parallel, through the Prodigy company in Mexico which he acquired 1997, and through his other companies in Latin America, Slim began his expansion first into the provision of Internet services, and then the provision of content through the Internet under the principle that as more people use mobile devices the consumption of data will increase. América Móvil aims not only to attend to user

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needs for access to the Internet, email, applications, and social networks at the time and place of their choosing, but also to involve itself ever further in the production of content, including advertising. In 2008, Slim created the Uno TV portal which transmits Internet news programming, a talk show, and programming featuring fashion, politics, technology, sports, entertainment, interviews, and even short films. As noted in an article from Expansión, a business publication in Mexico: “with a channel such as Uno TV, under the direction of Arturo Elías Ayub, Slim’s son-in-law, América Móvil could become a competitor to Televisa and Televisión Azteca in the market for audiovisual content in Mexico, even though it was permitted to provide neither free-to-air nor subscription television by the government.”18 América Móvil gambled on the Internet not only due to the restrictions imposed on its entry into free-to-air or subscription television, but also because investment in Internet video advertising in Mexico passed one billion pesos in 2013 and is growing year after year, according to the Interactive Advertising Bureau. However, free-to-air television continues to dominate, with a MXN$56 billion share of the publicity cake.19 Uno TV is now present in restricted television, with its morning and evening news programs both transmitted on the Internet, and on the 52MX subscription channel from the company MVS Comunicaciones. This trend continued in 2012 when Slim launched an Internet channel called Ora.tv with the renowned U.S. journalist Larry King. In April 2014, the channel purchased Stick Figure, a documentary and reality-show production company. Also in 2012, América Móvil launched the on-demand movie and series service, Clarovideo, in México. Not long before its launch, the service had already been made available in Colombia, Argentina, Uruguay, and Paraguay, in order to compete with Netflix and Total Movie, the latter owned by Ricardo Salinas Pliego of Televisión Azteca. As of its launch, the Clarovideo catalogue featured more than 3,000 titles across all genres.20 In 2013, América Móvil invested $40 million in Shazam—an application for identifying songs— and also invested in Mobli—an application for storing and sharing photos on social networks, which, by 2014, counted on 482 million users.21 Notably, these applications require users to spend more time with their cell phones and, therefore, consume more data, which further benefits América Móvil. Similarly, with Shazam, América Móvil strengthened the strategy for the growth of its song store, Claromúsica, which has more than 30 million titles. In April 2013, América Móvil purchased Unidad de Medios de Corporación Interamericana de Entretenimiento (CIE, or Interamerican Entertainment Corporation), which dedicates itself to the organization of concerts, ticket sales, the commercialization of publicity spaces in football stadia, digital screens in convenience stores and malls, and street, public transport, airport, and cinema advertising.22 Also in 2013, the division América Móvil Content (Amco) was created, which concentrates all its investment in content, mobile applications, and digital services. “The portfolio includes: Speedy Móvil; the advertising distributor CMI, which América Móvil purchased in April; CIE; the movie distributer DLA; the Internet television channel Uno TV; and, Sports 195, the sports portal developer.”23 That same year, the company also established an alliance with the German company Mondia Media, which is considered one of the most prominent digital entertainment companies in the world, in order to be able to offer video games for smartphones, tablets, and computers in Latin America. Aside from its recent digital ventures, América Móvil has also boosted its involvement in sports. The company is already a major sports advertiser with its sponsorship of the Force India-Mercedes and Sauber-Ferrari racing teams. But the company also acquired, in March 2014, the exclusive transmission rights in 16 Latin American countries, except Brazil, for the 2016 Olympic Games in Río de Janeiro as well as the 2014 Olympic Games in Sochi.

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In 2012, however, América Móvil entered into a new market: football (soccer), the most popular sport in Mexico, which up until then had been controlled by Televisa and Televisión Azteca. The company also bought 30% of Pachuca Football Club for almost MXN$247 million, and the same percentage of León Football Club for more than MXN$110 million.24 With these acquisitions, it changed the rules of the game for the transmission of football matches on television. León Football Club rejected the offer that had been made by Televisión Azteca for the right to transmit its matches, and opted instead to sell them to the subscription channel Fox Sports, the U.S. chain Telemundo, and the sports website Medio Tiempo, of Grupo Expansión. This is the first occasion that a Mexican football club has sold their rights to certain companies,25 with Pachuca opting not to renew its contract with Televisión Azteca and selling its rights to Fox Sports, Telemundo, and Claro Sports (América Móvil’s sports portal). Also in 2012, the company concluded the acquisition of 100% of the shares in the DLA company from Claxson Interactive Group, which is part of Grupo Cisneros that is owned by the Venezuelan businessman Gustavo Cisneros and has interests in media and sports companies. DLA produces its own channels (Concert Channel, Mixplay, Rush HD, and DMX) and is also a distributor of television channels as well as cinema and music content from Hollywood studios and other production companies (BBC, Fox, Disney, Viacom, MTV, Paramount, Playboy, Telemundo, and many more). Its clients can offer this content via their program schedules and video-on-demand, pay-per-view events, and other on-demand services on multiple platforms, including broadcasting, mobile telephone, and IPTV. DLA has contracts with practically all platforms offering digital television services, and has four million subscribers in 25 countries in Latin America and the Caribbean. The acquisition was seen as a major blow to companies such as Televisa in Mexico and others in the region, as DLA is one of the most prominent and highly valued companies of its type in Latin America.26 In late 2013 it launched Claro Sports, a subscription TV channel focused on the sporting content produced by that company. This channel is available on its subscription television systems in Latin America and on the Dish México system. Claro Sports replaced the channel Viva Sports, which was produced by Dish.27 Finally, Carlos Slim has also expanded his ownership of more traditional media properties. Slim’s maneuvers in the media market included the acquisition for $250 million ($125 million of which was spent on the purchase of shares through Banco Inbursa, and the rest through the Carso Property Division) of 6.4% of the influential newspaper The New York Times, which had found itself in a state of economic crisis. Janet Robinson, Chief Executive Officer of the New York Times Company, said that the capital injected by Slim into the company would be used immediately to refinance debts and provide the company greater financial flexibility. At the end of 2009, Slim increased his capital share from 6.4 to 7%, and up to 17% in January 2015, thus becoming the largest shareholder of The New York Times.28 In an interview with the The New Yorker, Slim stated that his investment in The New York Times was not motivated by interests in media content, but instead by the communication channels through which content is transmitted, such as television, Internet, and cellular telephones.29 In addition, in July 2014, Slim acquired 1.98% of the shares (with voting rights) of Grupo Prisa, of Spain. The acquisition of shares in traditional media, and the launch of both new Internet media (Uno TV and Ora.tv) and even his own channels (Claro Sports) brought Slim closer to the small and influential group of the world’s media magnates and conglomerates. However, in his biography, he states that this is not the case: It is clear that Slim does not want to play Citizen Kane like the great media magnates, Ted Turner, the controversial Ruper Murdoch, Anthony O’Reilly, or Denis O’Brien, who are perhaps eager to be men as powerful as William Randolph Hearst was in his time.30

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Political Profile When Teléfonos de México was privatized, Carlos Slim was chosen by President Carlos Salinas de Gortari and by the party of government, the Partido Revolucionario Institucional (PRI, or the Institutional Revolutionary Party), as the entrepreneur to take control of the company. However, Slim has always denied this. Of the few interviews that he has given, it was in his interview with Proceso magazine that he responded to this point: “Look, we do not have political partners. At Grupo Carso, we have not had, do not have, and will not have political partners. It is and has always been clear: neither did my father nor do myself or my children—of this I am sure, we are vaccinated—have political partners.”31 Slim does, however, recognize that he participated in the financing of PRI. “I believe that democracy must be supported,” he said, adding: “I believe that it is important the parties receive resources from the state, in a clear, transparent and defined manner. But I also believe that, within the legal limits established, we can support the parties, not just PRI.”32 In 2000, PRI lost the presidential elections to the Partido Acción Nacional (PAN, or the Party for National Action) after more than 80 years in power, and Slim revealed that he supported all the political parties. As his biography states: “In the campaigns for the 2000 elections, Slim had supported all the candidates, including the group Amigos de Fox (or Friends of Fox, in reference to Vicente Fox, who became President of the Republic from 2000 to 2006), which received funds to the sum of MXN$18.750 million, and was channeled through the Trust for Development and Democracy.”33 In contrast to Emilio Azcárraga, of Televisa, or Ricardo Salinas Pliego, of Televisión Azteca, América Móvil is not distinguished by having publicly lobbied in favor of its interests or those of related companies. Similarly, in contrast to those same broadcasters, the company cannot count on legislators previously employed by the company, despite having the resources and the relationships necessary to place its representatives in Congress. This seems to take place not only in Mexico, but also in other countries in which it has a presence. This is probably the reason for how little it has been able to do to reverse some of the obligations to which it was submitted in 2013 by both Congress and government, due to its position as a company with a monopoly in the Mexican telecommunications sector (fixed lines, mobile telephones, and Internet). Both the constitutional reform of that year in the area of telecommunications and the Federal Telecommunications and Broadcasting Law of 2014 subjected the company to strict rules, including those which grant unlimited infrastructure access for its competitors through the elimination of interconnection tariffs. After the IFT resolved, in March 2014, that América Móvil is a predominant financial power and placed it under asymmetric obligations, it recorded losses of almost 30% in the stock markets in which it is valued. However, the company began to recover from this action, although it has not returned to the same valuation it held before the reform. This recovery explains why the company announced the sale of some of its assets to reduce its participation in the market, and that it will split its transmission infrastructure in order that other operators are able to rent and use it. The other company declared as predominant is Televisa. However, the law and the obligations imposed by the IFT, legislators, and the telecommunications regulatory body were less strict compared with the case of América Móvil (see Chapter 6). With regard to this difference, the historian Lorenzo Meyer states that “the richest is not he who earns the most,” adding: “The broadcasters were able to defend themselves much better, they were not touched, to the extent that they were given more than they needed. There is something qualitative in television—the capacity to be a political instrument, which is something Slim does not have. They [politicians] are scared of Televisa and not of Slim—Slim cannot punish them.”34 This differentiated treatment received by América Móvil and Televisa at the hands of the political class is one of the reasons that Slim has not been able to enter the free-to-air or subscription

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television markets. There have also been legal attempts to prevent América Móvil from broadcasting through Internet transmission. In October 2011, Iusacell and Televisión Azteca sued Telmex over this online service, because, in their opinion, the restrictions established in its concession prevent it from broadcasting television, either directly or indirectly. As of April 2015, the telecommunications regulatory body had not published the results of its investigation. The legal impossibility of América Móvil being able to provide television through its network or enter the free-to-air television market has been a recurring theme in the country for many years. Its competitors do not want this to happen, because it could eliminate local cable television companies and threaten the privileged position in which Televisa finds itself in the subscription television market (with a market share that as of 2015 was over 60%). This lack of involvement in politics can be explained by the fact that it seems Slim thinks the same: “I believe that the businessman must work in his businesses and remain unconnected from political projects, plans, or concerns. Neither do I belong to any political party nor do I plan to.” He also assured that his children are vaccinated against the temptations of political power, although they have made some statements on the transition that the country has undergone in recent years.35

Labor When Carlos Slim and his partners purchased Telmex, they inherited one of the largest and most active unions in the country, the Sindicato de Telefonistas de la República Mexicana (STRM, the Union of Telephonists of the Republic of Mexico). The STRM was founded on August 1, 1950 through the merger of the Sindicato de Trabajadores de Teléfonos de México (Union of Telephone Workers of Mexico, formerly Ericsson) and the Sindicato Nacional de Telefonistas (the National Union of Telephonists) pertaining to the Compañía Telefónica y Telegráfica Mexicana (the Mexican Telephone and Telegraph Company). As of 2014 it had more than 50,000 members, both retired and active. The leader of STRM is Francisco Hernández Juárez, who has held this post for more than 38 years, and, from 2009–2012, was a federal deputy for the Partido de la Revolución Democrática (PRD, or Party for Democratic Revolution), a Left-wing opposition party. In 2003, Hernández Juárez was elected president of the global Union Network International (UNI), as a member of the Global Executive Committee, as well as Vice-President of the Global Telecommunications Committee. The relationship between Telmex and the Union has generally been smooth. The workforce welcomed their new employer in 1990, and participated in both the modernization of the company and the activities undertaken to update its human resources in order to be more competitive. On analyzing the case, the UAM (Universidad Autónoma Metropolitana) researcher, Mario Ortega, concluded: In light of the introduction of the automatic long distance service by Teléfonos de México, the union, foreseeing the technological obsolescence of telephone operators, proposed the signing of an agreement that guarantees the achievement of the expansion targets set out in the terms of the concession. As a result of the negotiations between the company and the union, an agreement was signed that set out a program of incentives for quality and productivity, establishing parameters for the evaluation of work performance and fixing bonus amounts. These measures, together with generous investment in digital technology, propelled the benefits for the consortium to such an extent that they served as a platform for global expansion in Latin America.36 With the creation of América Móvil and the absorption of Telmex, the STRM has not ceased to voice its concerns over the possible labor impact of this development. Its leader, Hernández

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Juárez, has indicated that the disappearance of Telmex as a brand would put the collective work contract at risk, as well as the existence of the union itself, which has 33,000 active and 18,000 retired members. Furthermore, there are 1,500 members at Limsa, a cleaning product company, a similar number in the Compañía de Teléfonos y Bienes Raíces (the Telephone and Real Estate Company), and further membership in Tecmarketing, all of which are Telmex affiliates. The union has opposed the obligations to which Telmex, as a monopoly, was subjected, and which could affect the stability of its employees. “If, today, Telmex has this percentage of the market, it is because it is responsible for rural telephony. In the terms of its concession, Telmex was obliged by law to provide telephone services to more than 23,000 communities, comprising more than 500 inhabitants,” stated Hernández Juárez.37 Furthermore, STRM has fought to ensure that Telmex offers television on its network. “We are given the impression that if the government continues to block Telmex by not modifying the terms of its concession, they [the directors of the company] will do business in México as they do across the world, namely that América Móvil is a total play company, and they will package and invoice its services.”38 América Móvil, in turn, has a pro-employer union, which is controlled by Ramón Gámez.

Social Marketing The wealth accumulated by Carlos Slim and his family has generated strong criticism in Mexico and around the world from legislators, intellectuals, journalists, etc. The fact that his fortune was developed in a country with a third of its population living in extreme poverty shows the great inequalities in the distribution of wealth. David Luhnow, in The New York Times, wrote in August 2007 that, “In the last two years, Slim has earned almost $27 million per day, while 20% of the population lives on two dollars or less per day.”39 The criticism seems to matter little to Carlos Slim as he complies, in his view, with his social responsibility by generating more employment, rather than giving money away as other multibillionaires do. “I believe that poverty cannot be confronted through gifts. You cannot fight against this scourge through tax-deductible donations or social programs. You only confront poverty through good education and jobs,”40 Slim has said. From this his priority would be “to create physical and human capital in Latin American countries . . . I seek to ensure that there is health, nutrition, education, jobs and infrastructure.”41 The same is true on the international stage. Warren Buffett and Bill Gates founded the Giving Pledge campaign, through which the wealthiest in the United States and the world commit to donating at least 50% of their fortunes before their death or by means of their will and testament. In answer to Gates and Buffett’s call, Mark Zuckerberg, the founder of Facebook, and other multibillionaires joined the campaign.42 Slim did not join because, from his perspective, social problems are not solved by giving money away. On the other hand, Slim has stated that one quarter of his fortune is earmarked for social projects through his foundations and other international organizations, and, as journalist Itxaro Arteta explains, this model of philanthropy has evolved. While, in the 1980s, Slim awarded academic scholarships, he now sponsors websites that offer free online classes and provide free computer and Internet access through kiosks distributed across the country. He also offers free digital skills training for teachers, among other activities. Through the Slim Foundation, he created an academic portal through which visitors can upload and consult academic texts on different subjects online. In the area of sports, he has organized children’s football tournaments in which thousands of players across the country have participated. He also created the Carlos Slim Health Institute in 2007, with an initial investment of $500 million. Other significant data related to his social actions appear in Table 7.10.

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TABLE 7.10 América Móvil Social Programs

Fundación Telmex gave scholarships to 281,564 students between 1996 and June 2013. The Telmex Program for Digital Education and Culture provided support to 3 million people, with the objective of promoting inclusion in digital culture. 15 Casas Telmex have been built since 2007 with the purpose of offering public workshops for verbal and numerical abilities, as well as computer coding workshops. The Instituto Tecnológico de Teléfonos de México provides free Masters programs in Information Technology Administration and a specialty in Information Technology. A total of 3,600 classrooms in schools with scarce resources have been connected by Fundación Telmex. Fundación Telmex has provided digital skills training to more than 50 thousand teachers. The creation of the website www.capacítate.fundacioncarlosslim.org for online training in trades such as carpentry and construction. Creation in 2011 of the website www.academica.mx for the promotion of knowledge exchange. Formation of the alliance with the Khan Academy, in 2013, with the objective of offering online mathematics and computing classes. Source: Expansión, August 2014

Cultural Profile In contrast to other media magnates, the promotion of culture has distinguished a number of Carlos Slim’s most celebrated projects. In 2011, Slim opened a new 17,000 m2 site for the Soumaya Museum (in honor of his wife Soumaya Domit), comprising a 47-metre-high six-floor building valued at $800 million. The museum exhibits around 6,200 of the Carlos Slim Foundation’s works of art, a number which represents only 10% of the total collection, which comprises more than 66,000 works of art in total.43 Among the work on exhibition at the Soumaya Museum, the Auguste Rodin collection stands out and is considered the largest collection of the sculptor’s work outside of France. As one author describes: Slim’s prolific collection includes sketches, canvases, watercolors, temperas, murals, sculptures, photographs, incunables, baroque and Latin American art, casta and religious paintings, Marian devotions, 17th Century wrought iron pieces, Mexican portraiture from the 19th and 20th centuries, old and modern engravings, and European paintings. It also has portraits and landscapes from the works of Mauricio de Vlaminck (one of the prominent exponents of fauvism), works by Tamayo, Siquieros, Rivera, José María Velasco, Dr. Atl, Juan Correa, Miguel Cabrera, and Cristóbal de Villalpando; as well as valuable sculptures and paintings by European artists such as Camile Claudel, Pierre Gibran, Auguste Renoir, Edgar Degas, Émile-Antoine Boudelle, Giorgio de Chirico, Picasso, Dalí, Monet, El Greco, Van Gogh, Paul Gauguin, Matisse, Maillol, Miró, Ernest, Carpeux, Carrier-Belleuse, Daumier, Rubens, Murillo, Cranach, Brueghel, Tiziano, el Tintoretto, Tolouse-Lautrec and Rouault.44 The Soumaya Museum is located in the Mexican capital, in the northwest of the city, in a space named Plaza Carso, a mega-development that features corporate and residential towers, a mall, theaters, and museums, including the aforementioned Soumaya Museum. Also found there is the Telcel Theater, in which successful Broadway shows, such as Wicked, are staged, and the Inbursa aquarium, which opened in 2014 and features more than 15,000 examples of 300 species, among which sharks, seahorses, turtles, crocodiles, piranhas, jellyfish, coral, rays, and penguins stand out, among many more.45

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Conclusion From being a traditional telecommunications company, América Móvil is converting itself, thanks to digitalization and technological advances, into a multi-platform and multi-level convergent company, constantly increasing its subscription due to the ever-greater demand for data transmission services and capacity. América Móvil has vast resources available for the production and distribution of its own (Uno TV, Claro Sports, Ora.tv, etc.) or acquired (DLA, Claro Video, Claro Música, etc.) content through its various networks to an ever-increasing number of users who access the content through their mobile devices wherever they may be, or through fixed telecommunications equipment (computers and television through cable and fiber optic networks). Taking all this into account, the company is moving towards a media conglomerate model (even holding shares in powerful media players such as The New York Times, The Independent, and Grupo Prisa). Similar to those media conglomerates that have gone before, it has the potential to be a major social, cultural, and, of course, political influence in Mexico and Latin America, notwithstanding the family’s assurance that it does not and will not make political use of any of these instruments of communication. Despite Mexico’s anti-monopoly regulations, América Móvil will continue to be the country’s main telecommunications company in the coming years and, most likely, in regard to convergent services (Internet, fixed-line, mobile, and TV) also, once the legal impediments that prevent it from offering free-to-air television via its networks are removed. It will also continue to be one of the main operators in Latin America. As if this is not enough, América Móvil is linked to the second wealthiest man in the world and the group of interests that surround his hundreds of companies that operate in the financial, entertainment, hospitality, construction, energy, and real estate markets. The enormous economic and media power that is constructed around just one family does, without doubt, damage democracy, including the free exercise of journalism and the inclusion of diversity and plurality in the communication media.

Notes 1 Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Repunlic, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Paraguay, Peru, Puerto Rico, Uruguay, United States, and México; and also the Netherlands and Austria. 2 Reuters, “Bill Gates, the richest man in the world, began 2015 with the largest fortune, Forbes reports”, La Jornada, March 3, 2015, www.jornada.unam.mx/2015/03/03/economia/024n1eco 3 José Martínez, Los secretos del hombre más rico del mundo: Carlos Slim, (Mexico: Ed. Océano, 2011), 11. 4 David Ortiz, “Carlos Slim, the Mexican King Midas”, in Economía Hoy, March 12, 2015, www. economiahoy.mx/economia-eAm-mexico/noticias/6549680/03/15/Carlos-Slim-el-rey-Midas-mexicano-. html#.Kku8B8Vf0SuANNq 5 EFE, “Seven Mexican companies among the 30 most profitable in Latin America,” El Universal, April 14, 2015, www.eluniversal.com.mx/finanzas-cartera/2015/empresas-mexicanas-1092352.html 6 José Martínez, Los secretos . . . , 35 7 As the licensee of the most important telecommunications net of Mexico, certain company liabilities were established by the goverment, such as achieving universal access. Also banned was the potential to offer bradcasting services. Other liabilities included offering long-distance interconection to other telecommunication nets. In addition, Telemex is required to provide fixed-line services with automatic switching in all townns of more than 5,000 inhabitants. Ana Luz Ruelas, México y Estados Unidos en la revolución mundial de las telecomunicaciones, México, Universidad Autónoma de Sinaloa and University of Texas in Austin, 1995, pp. 194–195; Gomez, Rodrigo, “Políticas de comunicación en México 1988–2006. El giro neoliberal.” En Rodrigo Gómez García y Adriana Peimbert, Comunicación para el desarrollo en México, México, Asociación Mexicana de Investigadores de la Comunicación (AMIC) (2007): 389–430. 8 OECD, OEC study on telecommunications policies and regulation in Mexico, 2012, p. 23. 9 Juan E. Huerta-Wong and Rodrigo Gomez, “Concentración y diversidad de los medios de comunicación y las telecomunicaciones en México,” Comunicación y Sociedad 19 (2013): 138–140. 10 OECD, OEC study on telecommunications policies and regulation in Mexico. 11 Huerta-Wong and Gomez, “Concentración y diversidad,” 141.

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12 José Martínez, Los secretos . . ., 53–54. 13 Amílcar Salazar, “Mexico ‘too small’ for Slim . . . aiming for new markets,” in La Silla Rota, March 6, 2015, http://lasillarota.com/mexico-le-quedo-chico-slim-y-va-por-nuevos-mercados#.VUV8F2dFCUk 14 América Móvil, Information on the company, in BMV, www.bmv.com.mx 15 “América Móvil splits and create the company Telesites [continues under Slim control],” in Animal Político, April 17, 2015, www.animalpolitico.com/2015/04/america-movil-se-escinde-y-crea-la-empresa-telesitessigue-bajo-el-control-de-slim/, accessed April 23, 2015. 16 Selene Mazón, “One and no more,” in Expansión, Mexico, September 11, 2014, p. 58. 17 América Móvil Annual Report 2011, América Móvil, accessed March 16, 2015, www.america movil.com.mx/bis/Y2011/pdf/AMX_ing.pdf 18 Leonardo Peralta, “Slim TV, the parallel gamble,” in Expansión, Mexico, September 2014, p. 48. 19 IAB México, “In 2013 advertising investment on the Internet in Mexico reached 8,355 million pesos, with growth of 31%”, June 17, 2014 at www.iabmexico.com/inversion-publicitaria-Internet-2013, accessed March 20, 2015. 20 “Slim responds to Salinas; launches Clarovideo in Mexico,” in El Economista, November 29, 2012, http://eleconomista.com.mx/tecnociencia/2012/11/29/slim-lanza-clarovideo-mexico-mas-barato-quenetflix, accessed March 15, 2015. 21 Leonardo Peralta, “They do not put the cell phone done,” in Expansión, Mexico, September 2014, p. 50. 22 “AMóvil buys CIE media division,” in CNN Expansión, January 21, 2013, www.cnnexpansion.com/ negocios/2013/01/21/amovil-compra-division-de-medios-de-cie, accessed March 16, 2015. 23 Ibid., p. 51. 24 “Slim invested 356m pesos in Pachuca and León,” in CCN Expansión, Mexico, October 24, 2013, www.cnnexpansion.com/negocios/2013/10/24/slim-invirtio-356-mdp-en-pachuca-y-leon, accessed March 16, 2015. 25 Javier Rodríguez, “The football salesman,” in Expansión, September 11, 2014, p. 44. 26 Gabriel Sosa Plata, “Carlos Slim and Larry King,” in Mediatelecom, January 18, 2012, www.media telecom.com.mx/index.php/radiodifusion/television/item/17269-carlos-slim-y-larry-king, accessed March 18, 2015. 27 “América Móvil launches Claro Sports channel in Latin America,” in Prensario Internacional, November 28, 2014, www.prensario.net/6976-America-Movil-lanza-en-America-Latina-el-canal-Claro-Sports.note. aspx, accessed April 1, 2015. 28 Reuters, “Carlos Slim becomes majority New York Times shareholder,” in Forbes, January 14, 2015, www.forbes.com.mx/carlos-slim-se-convierte-en-el-mayor-accionista-del-new-york-times/ 29 José Martínez, Los secretos . . . , p. 140. 30 José Martínez, Los secretos . . . , p. 142. 31 Carlos Acosta, “Slim distances himself from Salinas: not a partner, not a beneficiary, not a frontman, nor a friend,” in Proceso, November 24, 1996, p. 7. 32 Ibid, p. 9. 33 José Martínez, Carlos Slim: Unedited Portrait, Mexico, Ed. Océano, 2010, p. 182. 34 “Broadcasters not to be touched by telecommunications laws; regulation not good in the end: MVS Newsdesk,” in Aristegui Noticias, July 2014, http://aristeguinoticias.com/0707/mexico/a-televisoras-nolas-tocaron-en-leyes-en-telecom-no-hay-buena-regulacion-al-final-mesa-mvs/, accessed April 3, 2015. 35 José Martínez, Carlos Slim. Unedited Portrait, p. 186. 36 Mario Ortega Olivares, Work culture and productivity in Telmex: From the cornfield to digitalization, Mexico, UAM-X, 2012. 37 Rosalia Vergara, “Telephonists, trapped in the Slim-broadcasters crash,” in Proceso, November 7, 2013, www.proceso.com.mx/?p=357288, accessed April 20, 2015. 38 Rosalia Vergara, op. cit. 39 David Luhnow, “The Secrets of the World’s Richest Man,” in The Wall Street Journal, August 4, 2007, www.wsj.com/articles/SB118615255900587380, accessed April 18, 2015. 40 José Martínez, Los secretos . . . , p. 16. 41 José Martínez, Los secretos . . . , p. 16. 42 José Martínez, Carlos Slim: Unedited Portrait, p. 171. 43 Abida Ventura, “The new Soumaya Museum opens its doors today,” in El Universal, March 1, 2011, www.eluniversal.com.mx/cultura/64916.html, accessed April 18, 2015. 44 José Martínez, Carlos Slim: Unedited Portrait, p. 117. 45 Inbursa Aquarium, www.acuarioinbursa.com.mx/, accessed April 19, 2015.

8 BERTELSMANN SE & CO. Jörg Becker

The Bertelsmann Group was established in 1835 as a Protestant publishing house in the village of Gütersloh in Westphalia in Central Germany. It was a kind of Protestant revivalist publishing house that distributed theological booklets, treatises, and literature for young people, less via bookshops than through schools, associations, and door-to-door sales. In the 1920s the publisher expanded its range of products to include light fiction. The particular political sensitivities in the United States caused the Bertelsmann Group to come to grips with its Nazi past. When, in 1998, Bertelsmann acquired Random House, a former Jewish group of publishers, thus becoming the world’s largest book publisher, the group placated the American public, who were astonished by the acquisition, by saying that during the Nazi era Bertelsmann published books that were ostensibly “subversive.” This statement turned out, however, to be a myth, as pointed out by social scientist Hersch Fischler.1 Fischler’s research led to the establishment of a commission of historians who investigated the role played by Bertelsmann during the Nazi days, and its results are staggering. When the commission published its results in the Frankfurter Allgemeine Zeitung, a conservative national newspaper and Germany’s most important daily, it called Bertelsmann “Hitler’s best supplier” in its issue dated January 18, 2000. In its summary, the report stated that, “the unusually high number of 19 million Wehrmacht copies [caused] earnings to explode [. . .] [ensuring] that C. Bertelsmann topped the production statistics.”2 The figure of 19 million books for the German army is staggering because by printing such vast quantities Bertelsmann even outstripped the Nazi Party’s own publishing company, which had issued such titles as Hitler’s Mein Kampf. Many of Bertelsmann’s books dating from the Nazi era glorified the War and had a racial and antiSemitic slant. One of Bertelsmann’s most successful books during the days of the Third Reich was a book for young people, Flieger Ritter Helden (Airmen Knights Heroes) by a journalist and photographer, Benno Wundshammer (see Figure 8.1). The book was reprinted four times between 1941 and 1942 and reached a total circulation of 130,000. In this book, Jews were described as people “who stink to high heaven” and who run around with “all kinds of stolen goods,” and that the French enemy was jubilantly “assailed by a rapid hail of fire and almost entirely annihilated.”3 In the 1950s, Wundshammer, who had been one of the most important picture reporters during the Nazi era, proceeded to become one of the most prominent press photographers among the German post-War VIPs (e.g., Konrad Adenauer) and became editor-in-chief of the magazine Revue.

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Flieger Ritter Helden

After 1945 the Bertelsmann Group’s meteoric rise mirrored the country’s economic boom, and it soon became one of the largest book publishers in West Germany. In the 1960s, the group extended its activities to other European countries, targeting the U.S. market in the 1970s (for example, by acquiring 51% of Bantam Books) and in the 1980s when the West German Social Democrats allowed private TV channels in West Germany for the first time. That was the same time that Bertelsmann entered the commercial TV business. By the 1990s, the Bertelsmann Group had become the world’s second largest media group with an annual revenue of DM 13.3 billion, 350 direct subsidiaries, and a payroll of around 45,000 employees. Unlike many other global media giants, Bertelsmann was pretty well debt-free, but “was locked out from merger and acquisition activity in the key U.S. audiovisual market, as rising equity values replaced debt as the main driver of increased corporate concentration.”4

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Economic Profile Financial Data Bertelsmann SE did not put its shares up for sale on the stock market, which means the group is not obliged to inform the general public of its business operations by using the Form 10-K annual report format. Moreover, a retrospective comparison of the figures supplied by the Bertelsmann Group in previous annual reports is not always possible since in the past other accounting methods were used. Bearing this difference in accounting methods in mind, the group’s revenues, profits, total assets, and equity from 2005 through 2014 (see Table 8.1) vary considerably. From 2006 through 2009, the group’s total revenues fell by slightly less than 16%. Only a partial recovery from this drop in sales was observable in the years 2010 through 2014. A comparison between 2014 and 2005 makes it clear that the current volume of sales is still approximately 9% lower than it was eight years ago, while it is even closer to 13% lower than the sales volume of the peak year of 2006. In the years 2005 through 2009, the EBIT margin stood at less than 10%. In 2010 and 2011 the figure was boosted appreciably to more than 11%. Over the past two years it has not been possible to maintain this level, with the margin totaling somewhat less than 11%. In 2005 the equity ratio was just under 40%, and in the years 2006 and 2007 this dropped dramatically to under 30%. In the years 2008 through 2012, the equity ratio stood between 30 and 35%. A significant jump to just over 40% was achieved in 2013, which can be attributed mostly to good performance that year; at the end of 2014 the equity ratio was close to 39%.

Corporate Properties The Bertelsmann Group is currently divided into six divisions: the RTL Group, Penguin Random House, Gruner + Jahr, arvato, Be Printers Group, and Corporate Investments/Corporate Center. Each division is responsible for a specific area of business, yet all divisions work together under the Bertelsmann Group umbrella to take advantage of synergies where these exist. In what follows, each segment will be discussed in greater depth.

RTL Group The RTL Group grew out of the Luxembourg-based radio station Radio Télévision Luxembourg (RTL) and, with 53 TV channels and 28 radio stations, it is the largest private television and radio operator in Europe. RTL’s entry into the German market can be described as “classic” inasmuch TABLE 8.1 Bertelsmann SE Revenues, 2005–2014 (in € millions)

Year

Revenues

Operating EBIT

Total assets

Equity

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

17,890 19,297 18,758 16,118 15,364 15,786 15,253 16,065 16,200 16,700

1,610 1,867 1,811 1,568 1,424 1,852 1,746 1,735 1,763 1,769

2,930 22,498 21,776 20,132 19,378 18,779 18,148 18,865 21,418 21,546

9,170 6,429 6,124 6,231 5,980 6,486 6,149 6,079 8,761 8,381

Source: Annual Reports of Bertelsmann SE

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as it began targeting a German audience in the German language from abroad as early as the late 1960s, booking immense advertising revenue from the German consumer goods industry, and thus putting the public broadcasting services in Germany under incredible pressure. In 2013 the Bertelsmann Group owned 76.4% of all shares in the RTL Group. The two strongest regions for the RTL Group are Germany and France, but the group also boasts a strong presence in the Netherlands, Spain, Hungary, and Croatia. With RTL CBS Entertainment HD, a joint venture between RTL and CBS in the United States, the RTL Group embarked on expanding its presence in Asia in 2013, broadcasting in Malaysia, Thailand, Singapore, and the Philippines. The history of the Bertelsmann television empire has been anything but harmonious. With the takeover of the RTL Group, the group was pursuing something typical of its corporate strategy: rather than being innovative, it acquired once-innovative market players once they had tasted success. Moreover, with its huge financial clout, Bertelsmann was also able to neutralize former shareholders in the RTL Group over time, such as Pearson TV in the U.K. and Groupe Bruxelles Lambert (GBL) in Belgium. Bertelsmann has already attempted to sell off the RTL Group twice, but its efforts have been in vain. The future of the Bertelsmann TV segment looks uncertain, even with annual revenues of €5.9 billion and a reputation for being the Bertelsmann division with the highest sales. In fiscal year 2014, for example, the RTL Group’s revenue slid by another 0.3%.

Penguin Random House In July 2013, the merger of the two publishers Random House (Bertelsmann Group) and Penguin Books (Pearson Media Group) resulted in the creation of one of the world’s largest book publishers, going by the name of Penguin Random House. Bertelsmann maintains a 53% ownership stake in Penguin Books and Pearson holds 47%. In 2013, Penguin Random House’s revenue amounted to €2.7 billion. This group of publishers is made up of 250 individual publishing houses, has a payroll of more than 10,000 in 23 countries, and it releases some 15,000 new titles per year. When Bertelsmann acquired Random House in 1998, it simultaneously announced that it would be targeting a yield of 15% in the future. In comparison with the yields normally expected by small to medium book publishers around the world, which are usually between one and three percent, it soon becomes apparent how such high yields can be achieved: by dismissing large numbers of reps, assistants, and editors; by drastically curtailing the number of new titles; and by dramatically cutting back in all areas of the company’s program that appeal to only a small readership or that are extremely challenging in aesthetic terms. André Schiffrin, the American publisher who left Pantheon Books in 1991 just when it was being sold off to Random House, does not believe that large book conglomerates such as Bertelsmann display any degree of creativity. In his opinion, all they are capable of is “wild speculations with potential bestsellers.”5 The various divisions of the Bertelsmann Group confirm Schiffrin’s critical analysis by publishing, year after year, long lists of their bestsellers. Nobody appears to notice that these lists are not only impressive but also embarrassing. In their annual report for 2013, the titles mentioned include Inferno by Dan Brown, And the Mountains Echoed by Sheryl Sandberg, Sycamore Row by John Grisham, and Fifty Shades of Grey by E.L. James.

Gruner + Jahr Gruner + Jahr, the second biggest publishing house in Europe, completed the 2013 fiscal year with an annual revenue of €2.1 billion. Whereas until 2014 Bertelsmann SE boasted only a 78.9% stake in Gruner + Jahr, the former acquired the remaining shares from the family, becoming 100% owner of the operation as of November 1, 2014.

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Gruner + Jahr is active in more than 30 countries, but it derives around 65% of its sales from Germany and France alone. Its main associated companies outside Germany include the Brown Printing Company in the United States, Groupe Prisma Media, France’s second-largest magazine publisher, and a shareholding in BODA Publishing in Beijing, China. In comparison with 2012, Gruner + Jahr’s sales remained static or even declined slightly.

arvato In 2014 the arvato division posted sales of €4.7 billion, which constitutes a 6.2% increase as compared to the previous year. This company is a customer-service provider, and anybody who knows that the vague term “service provider” includes both telecommunications and hairdressers might have an idea of the fact that arvato is responsible for everything and nothing. With 270 subsidiaries and more than 60,000 employees in more than 35 countries, arvato is one of the world’s largest business process outsourcing service providers. Sales for avarto can be broken down by region: 45% in Germany, 19% in France, a further 16% within Europe, and 14.5% in the United States.6 Important areas of business for avarto include e-commerce, developing cross-media concepts and strategies, and coming up with supply chain management solutions in the following sectors: Internet, high-tech and consumer goods, call center networks, financial services, digital printing, computer center services, direct marketing, address sales, and credit checks. arvato is also currently investing a lot of money in new digital business segments. For example, the company already supplies mobile (cell) phones to Vodaphone, as well as software to Microsoft and operating call centers. From a payroll of 28,000 and an annual revenue of €3.5 billion in 2001 to annual sales of €4.4 billion in 2014, arvato is very much the kind of promising potential flagship that Bertelsmann is looking for. arvato’s workforce of 66,000 now makes up two-thirds of Bertelsmann group employees.

Be Printers Group This division comprises all of the Bertelsmann Group’s service providers in the printing industry. In 2013, the 4,300 (approximately) staff in this division generated a revenue of €1.1 billion. The “Be” in this division’s name stands “Bertelsmann.” As one of the world’s largest printing companies, the Be Printers Group maintains a total of 11 production sites in four countries— Germany, Spain, the United Kingdom, and the United States. These include one of the largest printers in Spain, Eurohueco in Barcelona. In the U.S., the following printing plants belong to this division of Bertelsmann: Coral Graphics/Dynamic Graphic in Louisville (Kentucky), Horsham (Pennsylvania), and Hicksville (New York); Berryville Graphics in Berryville (Virginia); and OPM in Dallas (Pennsylvania). In the U.K., printing group Prinovis in Liverpool is part of the Bertelsmann Group. Despite its large holdings, the Be Printers Group’s sales are stagnant or in slight decline.

Corporate Investments/Corporate Center This division covers all the other operational activities in the Bertelsmann Group, including its music rights subsidiary Bertelsmann Music Group (BMG). However, anybody following Bertelsmann’s current affairs in the world of music cannot ignore the latest news about BMG. Whereas at the beginning of the new millennium the free music-sharing service Napster, with its 60 million users worldwide, was driving the major music labels such as EMI, Warner Music, Sony Music, and Universal to the brink of despair, Bertelsmann, ostensibly one of their competitors,

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surprised them all in November 2000 by announcing that BMG and Napster would be embarking on a strategic alliance. But in 2002 when a court vetoed the merger between Napster and BMG, the older form of the global music industry ceased to exist. Since then, Bertelsmann’s music business has been teetering on the brink. As of 2004, Bertelsmann has been a shareholder in Sony Music Entertainment, but then it withdrew completely from the recorded music industry and sold its half of the joint venture with Sony back to the company in 2008. Bertelsmann only retained a catalogue of rights to the music of 200 artists, which were focused in a new company called BMG Rights Management. On this subject Böckelmann and Fischler ask: “Is what market experts have always asserted now turning out to be true—is Bertelsmann completely clueless as far as the music business is concerned?”7 In 2013, the Corporate Investments/Corporate Center division generated an annual revenue of just under €600 million—just compare this with BMG’s revenue of €2.5 billion in 2004! The few remaining book clubs that the Bertelsmann Group still operates in a number of countries belong to this division. After 64 years in existence, Bertelsmann closed down all its book clubs in Germany at the end of 2014, as they were no longer making a reasonable profit. And whereas in the 1990s these 320 book clubs still boasted 7 million members, in recent years Bertelsmann has not been able to drum up a single buyer for its book club business.

Typical Strategies The Bertelsmann Group pursued a very clearly formulated growth strategy for decades—capturing foreign markets and investing vast sums in new media and communications technologies at a point when markets for the latter were already well established by their original inventors. As such, Bertelsmann needed to buy its way into these new markets, but this scheme has not worked for Bertelsmann for a long time now. The last time that this pattern could be observed was in the mid-1990s, when then-CEO Thomas Middelhoff used his friendship with Steve Case to team up with America Online (AOL) and embark on a joint venture with AOL Europe. However, Middlehoff sold off the company’s 50% involvement in 2000 for €7.5 billion as soon as AOL merged with Bertelsmann’s competitor, TimeWarner. The Bertelsmann Group’s 2013 annual report mentioned four strategic lines of attack for stimulating its future business: strengthening its core business, transforming its digital presence, establishing growth platforms, and focusing on growth regions. It remains to be seen whether these vaguely formulated strategies will work in practice, particularly since they are anything but innovative or specific to Bertelsmann.

New Developments July 2005 saw the start of one of the most spectacular new projects undertaken by service provider arvato in the north of England. At that time, the East Riding district in the county of Yorkshire contracted private service provider arvato to handle all aspects of its public administration.8 The East Riding district boasts a population of approximately 335,000, is one of the largest areas in England, and has the country’s highest percentage (98%) of white residents as well as an aboveaverage proportion of residents who are 65 years old or more. In the 2007 local elections the Conservative Party, which received 46.7% of all votes, narrowly missed an absolute majority. The particularly interesting aspect of East Riding, however, is that some 500 employees of its local administration are now no longer paid by what used to be the public authorities. Instead, they are now paid by arvato, one of the Bertelsmann Group’s properties. On behalf of arvato, staff members pay out housing benefits, collect taxes, and serve on Citizens’ Advice Bureaus. Only

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East Riding’s Lord Mayor does not work for arvato; he alone conducts his official duties autonomously. For fulfilling the duties of what were once municipal authorities, arvato receives the equivalent of €25 million from East Riding every year. The cooperation agreement between arvato and East Riding comes with a considerable shift in what used to be direct, usually personto-person, advice, to electronic networks. In the new system, democratic citizens and constituents—arvato prefers to talk about “customers”—have to conduct a large number of “services” themselves at home on their personal computers. In addressing this state of affairs, Amanda Wilde, arvato’s liaison manager in East Riding explains: “You need a robust evidence base to respond to the digital-by-default agenda, using customer segmentation and intelligence, take-up data, and so on. From this, you can then make strategic, evidence-based and customer-led decisions that will help successfully to deliver channel shift.”9 The Bertelsmann Group is using this pilot project to prepare for the giant market that is the privatization of the public sector. Therefore, it comes as no surprise that the company is one of the greatest advocates of so-called private–public partnerships. With business ventures funded jointly by governments and private businesses, parliamentary control does not apply. Rather, the relevant partner from the private sector is granted a kind of monopoly that rules out competition, and the flow of information becomes asymmetric, favoring the investor from the private sector and disadvantaging the state-run partner considerably. Set-ups of this type circumvent the legal boundaries imposed on levels of public debt while simultaneously stimulating the market for private financial investors and investment funds. Models of exactly this kind demonstrate how arvato mirrors what is at the heart of the current neoliberal economy, i.e., the increasing dominance of the financial market over the goods market. It is the increasing abundance of financial capital available that privatizes the state using this kind of model. The fact that arvato occupies such an important position in the Bertelsmann Group is partly explained by the sales generated by this division. With an annual revenue of €4.4 billion, this division is the conglomerate’s second highest earner after the RTL Group, accounting for €5.9 billion. In other words, classic, traditional media such as printing, books, magazines, and recorded music are making less and less of a contribution to the Group’s total revenue. Instead, as in the case of arvato, it is a hybrid mixture of consultancy firms and IT service providers coupled with neoliberal ideologies that are becoming dominant.

Political Profile The Bertelsmann foundation, approved as a non-profit organization for tax purposes, is the indirect main shareholder of Bertelsmann SE & Co. KGaA,10 with 77.6% of shares. Further indirect shareholders with 19.1% are the Mohn family, the remaining percent and per mille are shared by the Reinhard Mohn Foundation and Bertelsmann Verwaltungsgesellschaft-Stiftung (BVG). Meanwhile, voting rights in the group’s General Assembly are dissociated from these capital shares, which are each held in interim companies, and are held entirely by the six individual members of Bertelsmann Verwaltungsgesellschaft mbH. This, in turn, is controlled by Liz Mohn and her son Christoph via partnership shares. Reinhard Mohn put this complicated construction in place in order to secure the company’s existence after his death and save on taxes. The Mohn family, descendants of the publishing house’s founder, Carl Bertelsmann, thereby continues to have control over the company group. Currently, Liz Mohn (born in 1941), the widow of the Chairman of the Board, Reinhard Mohn (1921–2009), is a member of the Supervisory Board at Bertelsmann SE & Co. KGaA and a member of the Management Board at the Bertelsmann Foundation. Since her husband’s death, Liz Mohn has been exercising her voting rights, which give her control of important decisions

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made in the politically influential Bertelsmann Foundation. Liz Mohn is a personal friend of the German Chancellor Angela Merkel. Women like Liz Mohn at the top of multibillion media empires in Germany are more the rule than the exception. For example, women lead four of the six largest German newspaper and magazine publishers: Liz Mohn (Bertelsmann), Friede Springer (Axel Springer), Yvonne Bauer (Bauer Media), and Petra Grotkamp (Westdeutsche Allgemeine). The ownership model that has media groups belonging to families and not to the shareholders in joint stock corporations—like Bertelsmann in Germany—is no exception, as demonstrated by the family businesses run by Rupert Murdoch (News Corporation), Robert Maxwell (Daily News), Roberto Marinho (Rede Globo), and Sahu Jain (The Times of India). The most fascinating aspect of ownership at the Bertelsmann Group is the Bertelsmann Foundation that owns 77.6%, which is held by Liz Mohn. Critics of the foundation model argue that by transferring the equity capital from Bertelsmann SE & Co. KGaA to this foundation in 1993, the former saved €2 billion in inheritance tax and gift duty. Furthermore, the annual dividend payments to the foundation are tax free. According to journalist Harald Schumann, the Bertelsmann Foundation, with its annual budget of around €60 million, does not spend anywhere near as much as it costs the taxpayer.11 First, tax-deductible models of this kind would not be legal in the United States, where tax-advantaged foundations may not hold more than 20% in a company. Second, such organizations would have to declare their expenditure publicly. On this matter, legal expert Wolfgang Lieb states: “There is doubtless something in the supposition that a good part of the foundation’s budget is financed through tax benefits. In other words, the fiscal authorities are playing a large part in facilitating the foundation’s activities.”12 From 1998 through 2002, a German manager, Thomas Middelhoff, was chairman of the Bertelsmann Group’s management board. But in 2002, when the board attempted to persuade the owner family that the company should go public, Mohn refused and dismissed Middelhoff with a “golden handshake” in the region of double-digit millions. Subsequently, Middlehoff was suspected of embezzlement on 27 counts when winding up the Arcandor department store to which he was appointed chairman of the board in 2005, and he has been in investigative custody since November 2014.13 One of the 27 counts of embezzlement concerns costs incurred in 2008 for a festschrift to mark the 70th birthday of his friend Mark Wössner, who is currently chairman of Citigroup, but until 2000 he was chairman of the board at the Bertelsmann Foundation. For the publication, Middelhoff arranged a loan of €150,000 out of Arcandor Group funds when the company was already on the brink of collapse.

Ties to the State and Lobbying Efforts The Bertelsmann Foundation boasts endowment capital of €619 million and employs a workforce of 351. It is an operational Foundation that acts independently and not on behalf of any third parties. In Germany, the Bertelsmann Foundation is the permanent driving force behind various kinds of consultancy, conferences, studies, publications, surveys, brochures, and books. It also advises municipalities, state parliaments, the federal parliament, local and federal government, the many ministries, scientists, the universities, the educational system, and the health system in Germany. The following are directly funded by the Bertelsmann Foundation: a center for university development, a project for independent schools, a center for hospital management, and a center for applied political research known as CAP, which is an extremely influential conservative think tank on European and international questions. Professor Werner Weidenfeld, the founder of CAP, was “at the center of an expenses claim scandal in 2007 . . . and as a consequence, the Bertelsmann Foundation, CAP’s main sponsor, announced that it would withdraw as a financing partner by 2010.”14

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German politician Elmar Brok is exemplary for the systematic commingling of lobbying activities, proposed legislation, intimidation of critical journalists, and financial support by the Bertelsmann Group. Brok is a member of the Christian Democratic Union of Germany (CDU) and chairman of the powerful Committee on Foreign Affairs in the European Parliament. While Brok worked for the Bertelsmann Group from 2004 to 2011, not only did he receive allowances as a member of parliament, but also a large salary from Bertelsmann. It is said that during this period he influenced a large number of guidelines and texts prepared for the European Commission to suit the house of Bertelsmann, and that he exerted pressure on any journalists attempting to expose links of the kind.15 The fundamentally political motivation behind the Bertelsmann Foundation is to diminish state control of any kind, and this becomes very clear in what is known as the Bertelsmann Transformation Index (BTI) (www.bti-project.org/bti-home). Updated every year, this index calculates, for 129 countries, to what extent the elites in so-called developing countries and emerging nations are prepared to adapt their national economies to the beliefs held by neoliberal economists in Western industrialized nations. On this subject, journalist Peer Heinelt states that: “According to Bertelsmann the central criterion in this respect is pushing through ‘independently-owned property,’ the conditio sine qua non for any functioning ‘market and competition-based system.’”16 Accordingly, with this index, if public spending represents a high percentage of a country’s gross domestic product, this automatically impacts negatively on the relative nation’s rating. Admittedly, there is no denying the fact that the Bertelsmann Foundation represents a conservative model of society in a way that has immense public appeal, but there are also voices in this foundation indicating that it supports explicitly antidemocratic positions. A policy paper issued by the Bertelsmann Foundation in 2009 included the following statement: . . . in order to fulfill its political duty properly, a government must, in cases of doubt, assert itself over the empirical and contingent will of the populace. [. . .] The responsibility for something is missing if the executive shies [away from] conflict, is populist and, in its efforts to reform, only reacts to current voter sentiment determined by looking at demographics, gives in too easily to threats from pressure groups, and acts according to the premises of “blame avoidance” and “electoral threat.”17 In sum, the Bertelsmann Foundation is one of the strongest and most important sources of political power in Germany. However, it does not have any kind of democratic legitimation in this respect. The Foundation, as well as the company and its other various businesses, exercises its power through a mix of advocacy, ideology, and personal connections, all with the goal of diminishing state control of any kind.

Board of Directors and Interlocks with Other Organizations Tables 8.2, 8.3, 8.4, and 8.5 list all members of the executive committees at Bertelsmann SE, Bertelsmann Verwaltungsgesellschaft mbH, and the Bertelsmann Foundation. Table 8.2 shows the Board of Directors and Group Management Committee of Bertelsmann SE, which includes Thomas Rabe, the CEO of Bertelsmann, together with his four colleagues Achim Berg, Markus Dohle, Immanuel Hermreck, and Anke Schäferkordt. All five members are company employees. However, because of the ownership situation, the Bertelsmann Foundation is not subordinate to this Board of Directors. What is particularly striking about Table 8.3 is the strong position of the Mohn family with Liz Mohn and her two children, Christoph and Brigitte, who are collectively in charge of the Group, the Executive Board, and the Board of Trustees. This strong position of the family can

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TABLE 8.2 Board of Directors and Group Management Committee for Bertelsmann SE

Director

Positions held/director interlocks

Thomas Rabe

• Chairman and Chief Executive Chief Officer (CEO) of Bertelsmann • Bertelsmann Music Group/former Head • RTL Group, Luxembourg/former Chief Financial Officer

Achim Berg

• Arvato AG/ Chief Executive Officer • Federal Association for Information Technology, Telecommunications, and New Media, Berlin/Vice-President • Microsoft Germany/former General Manager

Markus Dohle

• Penguin Random House/Chief Executive Officer

Immanuel Hermreck

• Chief Human Resources Officer • Bertelsmann University, Gütersloh/former Head

Anke Schäferkordt

• RTL-Group/Co-Chief Executive Officer • Mediengruppe RTL Deutschland/Chief Executive Officer

Source: www.bertelsmann.com/company/management/#st-1 (accessed March 3, 2015)

be traced back to the course set by the family patriarch, Reinhard Mohn (1921–2009), who remarked in a 2003 interview that it is dangerous to leave a company in the hands of its managers. According to him, this is a “system failure,” and he added that he has “handed back responsibility to the family.”18 Table 8.4 lists the shareholders of Bertelsmann Verwaltungsgesellschaft mbH as of January 2015. Alongside the three family members—Liz, Brigitte, and Christoph Mohn—three others own shares in the company: Werner Bauer, Dieter H. Vogel, and Joachim Milberg. While Werner Bauer and Joachim Milberg also sit on the Supervisory Board of Bertelsmann SE (see Table 8.3), the singular position of Dieter H. Vogel (born 1941), an ambivalent political character, stands out at Bertelsmann Verwaltungsgesellschaft mbH. Fritz Ries, a director of the Pegulan company, ran into financial difficulties—presumably as a result of Bertelsmann author Bernt Engelmann making known Ries’ actions during the Nazi era, when his company was said to have gotten rich from the forced “Aryanization” of Jewish businesses—and committed suicide in 1977. Dieter H. Vogel saved the Pegulan Company after Ries’ death. Vogel had been headhunted by Fritz Ries during his lifetime while working at Bertelsmann, where Vogel had been employed in a managerial position from 1970 through to 1974, on the recommendation of Ries’ friend, the former SS officer and then president of the Employer Association, Hanns Martin Schleyer. In 1986, Vogel joined the Thyssen steel group, where he was investigated for breach of trust by public prosecution. At present, Vogel is the acting partner of Private Equity Investors Lindsay Goldberg Vogel GmbH in Düsseldorf. He is also the chairman of the Supervisory Board at steel company Klöckner & Co. AG, in which Lindsay Goldberg Vogel GmbH holds shares. According to various media reports, Vogel has also been a friend of the Mohn family for many years, as a close confidante of Liz Mohn’s and coach to Christoph Mohn. The structure of the membership list from the Bertelsmann Foundation displays various characteristics. It is striking that a number of former high-ranking politicians sit on the company’s Executive Board. With Wolfgang Schüssel from Austria, a former Federal Chancellor of an EU country sits on the Board, with Guido Westerwelle, the one-time German Foreign Minister, and with Aart Jan De Geus, an ex-Minister of Social Affairs and Employment from the Netherlands. One political heavyweight of a singular kind is Viviane Reding, who has been on the Executive Board since January 2015. Admittedly, at the moment Reding is only a member of the European Parliament, but from 1999 through 2014 she was one of the most powerful commissioners in the EU Commission. Reding was the decisive political force behind the revision of the EU’s

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TABLE 8.3 Bertelsmann SE, Members of the Supervisory Board, 2015

Director

Positions held/director interlocks

Christoph Mohn

• • • •

Joachim Milberg

• Vice Chairman of the Supervisory Board • BMW/Chairman of the Supervisory Board

Werner J. Bauer

• Nestlé Deutschland/Chairman of the Supervisory Board • Nestlé Deutschland/former Head of Innovation, Technology, Research, and Development • Bertelsmann Verwaltungsgesellschaft mbH/Shareholder

Wulf H. Bernotat

• E.ON/former Chairman of the Executive Board • Deutsche Annington Immobilien/former Chairman of the Executive Board

Kai Brettmann

• RTL Group European Works Council/Chairman • Mediengruppe RTL Deutschland Corporate Works Council/Chairman

Murat Cetin

• Arvato Direct Services Dortmund GmbH/Chairman of the Works Council • Arvato CRM II/Chairman of the General Works Council

Helmut Gettkant

• Bertelsmann SE & Co./Corporate Works Council

Ian Hudson

• Bertelsmann SE & Co./Chairman of the Bertelsmann Management Representative Committee • Penguin Random House International/CEO

Karl-Ludwig Kley

• Merck KG/Chairman of the Executive Board

Brigitte Mohn

• German Stroke Foundation/Chairwoman of the Board of Trustees • Bertelsmann Foundation/Member of the Executive Board • Bertelsmann SE/Member of the Supervisory Board

Liz Mohn

• Bertelsmann Foundation/Vice Chairwoman of the Executive Board • Bertelsmann Verwaltungsgesellschaft mbH/Chairwoman of the Board

Hartmut Ostrowski

• Bertelsmann AG/former Chairman of the Executive Board • Arminia Bielefeld GmbH/Chairman of the Supervisory Board

Hans Dieter Pötsch

• Volkswagen AG/Member of the Executive Board • Porsche Automobil Holding SE/Finance and Controlling division, Chief Financial Officer

Kasper Rorsted

• Henkel AG/Chairman of the Executive Board

Lars Rebien Sørensen

• Novo Nordisk A.S./President & CEO

Christiane Sussieck

• Bertelsmann SE/Chairwoman of the Corporate Center and Management Club and Direct Marketing Businesses Works Council • Bertelsmann SE/Vice Chairwoman of the Corporate Works Council

Bodo Uebber

• Daimler AG/Member of the Executive Board

Chairman of the Supervisory Board Reinhard Mohn Foundation Executive Board/Chairman Christoph Mohn Internet Holding GmbH/Managing Director Bertelsmann Verwaltungsgesellschaft mbH Shareholder

Source: www.bertelsmann.com/company/supervisory-board/#st-1 (accessed February 21, 2015)

guidelines on television in 2007. It was due to her influence in particular that when regulating television advertising, particularly in the case of product placement, greater account was taken of market interests than of consumer interests, that television was defined primarily as a service and not as a type of culture, and that large media corporations were protected because of the argument that it was only possible to keep pace with the United States by means of strong international conglomerates.

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TABLE 8.4 Bertelsmann Verwaltungsgesellschaft mbH

Individual shareholder

Positions held/director interlocks

Liz Mohn

• •

Chairwoman of the Board of Shareholders Bertelsmann Foundation/Vice Chairwoman of the Executive Board

Brigitte Mohn

• • •

German Stroke Foundation/Chairwoman of the Board of Trustees Bertelsmann Foundation/Member of the Executive Board Bertelsmann SE/Member of the Supervisory Board

Christoph Mohn

• • •

Bertelsmann SE/Chairman of the Supervisory Board Reinhard Mohn Foundation/Chairman of the Executive Board Christoph Mohn Internet Holding GmbH/Managing Director

Werner Bauer

• •

Nestlé Deutschland/Chairman of the Supervisory Board Nestlé Deutschland/former Head of Innovation, Technology, Research and Development

Dieter H. Vogel

•

Private equity investor Lindsay Goldberg Vogel GmbH/Managing partner Steel corporation Klöckner & Co. AG/Chairman of the Supervisory Board

• Joachim Milberg

• •

Bertelsmann SE/Vice Chairman of the Supervisory Board BMW/Chairman of the Supervisory Board

Source: Inferior Court Gütersloh, January 21, 2015

It is also noteworthy that many of the politicians on the Bertelsmann Foundation’s Board of Trustees come from conservative parties. Austrian Schüssel is a prominent member of the Austrian People’s Party, Viviane Reding is a member of Luxembourg’s Christian Social People’s Party and Aart Jan De Geus is a member of the Christian Democratic Appeal in the Netherlands. The spirit of neoliberalism represented by these three conservative party members is excellently complemented by Guido Westerwelle, since the former German Foreign Minister from the Free Democratic Party represents the “free market” and not the civil rights wing of his party. In terms of the Board of Trustees’ links with industry, it is noticeable that one of the most conservative multinationals is even represented twice, in the persons of Werner Bauer and Carolina Müller-Möhl from Nestlé, the world’s largest food-and-drink corporation, headquartered in Switzerland. If we compare the members of the Supervisory Board at the Bertelsmann Foundation to those at Bertelsmann SE in Table 8.2, the different internal group weightings on the two committees and their relationships become apparent. On the Supervisory Board at Bertelsmann SE there are a large number of media specialists from the Corporation itself (Ian Hudson and Hartmut Ostrowski), as well as a total of four internal union representatives (Helmut Gettkant, Kai Brettmann, Christiane Sussieck, and Murat Cetin), making the Board more like a committee for minor, internal technocratic decisions. In contrast, the Board of Trustees at the Bertelsmann Foundation is occupied by political heavyweights, free to decide on the more important strategic questions. It is most noticeable that German automobile corporations BMW, Volkswagen, Porsche, and Daimler are well represented on the Bertelsmann SE Supervisory Board (Table 8.3).

Labor Something usually overlooked with regard to the activities of the Bertelsmann publishing company in the Nazi era is a very particular corporate philosophy that sprang up at that time and is to be found right up until the present day in the Bertelsmann Group, even if it appears in a slightly different form.

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TABLE 8.5 Bertelsmann Foundation, Board Members, 2015

Director Aart Jan De Geus

Position(s) Executive Board • Chairman and CEO of the Executive Board • Government of the Netherlands/former Minister of Social Affairs and Employment • OECD/former Deputy Secretary-General

Liz Mohn

• Bertelsmann Stiftung/Vice Chair of the Executive Board • French Legion of Honor/ Officer

Jörg Dräger

• Member of the Executive Board • Government of the Federal State of Hamburg/former Minister of Science and Research • CHE Centre for Higher Education/Director • Deere & Co./Member of the Board of Directors

Brigitte Mohn

• Member of the Executive Board • German Stroke Foundation/Chair of the Executive Board • daughter of Reinhard and Liz Mohn

Werner Bauer

Board of Trustees • Nestlé Deutschland AG/Chairman of the Supervisory Board

Liz Mohn

• Bertelsmann Stiftung/ Vice-Chair of the Executive Board • French Legion of Honor/Officer

Wolf Bauer

• • • •

Wulf Bernotat

• VEBA Oel/former Member of the Executive Board • Stinnes AG/former Member of the Executive Board • E.ON AG/former Chair of the Executive Board

Ralph Heck

• McKinsey/former Director

Christoph Mohn

• Lycos Europe/former CEO • Bertelsmann SE/Member of the Supervisory Board • Son of Reinhard and Liz Mohn

Carolina Müller-Möhl

• Müller-Möhl Group/President • Nestlé SA/former Member of the Board of Directors • Neue Zürcher Zeitung/Board of Directors

Thomas Rauschenbach

• University of Dortmund/former Dean of the School of Education and Biology • German Youth Institute/former Head

Viviane Reding

• Luxemburger Wort/Journalist at this conservative daily from Luxembourg • European Commission/former Member, responsible for culture, education, media, technology, and telecommunication • European Parliament/Member

Rolf Schmidt-Holtz

• West German Broadcasting Cologne/former Editor-in-Chief for political and current events programming • Bertelsmann AG/former Director of the Corporate Development Committee • Sony BMG Music Entertainment/CEO

Wolfgang Schüssel

• Government of Austria/former Chancellor

Jürgen Stark

• Government of Germany/former State Secretary at the German Ministry of Finance • German Federal Bank/former Vice-President

Guido Westerwelle

• Government of Germany/former Foreign Minister

UFA Cinema/CEO and producer Deutsche Bank/Member of the Advisory Board East German Producers Alliance/Member of the Board Erich Pommer Institut/Member of the Advisory Board

Source: Bertelsmann Foundation website, last accessed November 18, 2015 from www.bfna.org/page/board

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After free unions were banned in 1933, the Nazi party created its own type of union, the German Labor Front (Deutsche Arbeitsfront, DAF), as a standard union made up of entrepreneurs and workers. The idea was that entrepreneurs and workers were all in the same boat, working for the good of the companies belonging to both parties. What had been a capitalist entrepreneur was transformed into a “works leader” and the workforce into the latter’s “followers.” Bertelsmann implemented this concept of a community propagated by the Nazis exceedingly rapidly. The second phase of this concept of a community consisting of the company, its workforce, and its customers started in 1950 when the Bertelsmann Lesering (Bertelsmann reading circle) was established as part of the group of companies. Soon, the Club, as the reading circle was soon renamed, started projecting the image of a large family to which everybody belonged, which comprised as many as six million members in the 1980s. A third phase of the concept of community propagated by Bertelsmann began in 1970 when the publishing house management offered the approximately 4,000 members at the time something known as “profit certificates” through a holding company. These are listed on the stock exchange and pay interest of 15%. Unlike the case with shareholders whose membership gives them rights of co-determination, these profit certificates do not come with any such form of co-determination, meaning that the company benefits quite considerably from them. Furthermore, the employees and the company share the annual profits. Over and over again, trade unionists at Bertelsmann have fallen into the trap of going along with things. Just how much the Bertelsmann Group involves its workers’ representatives in group politics is demonstrated dramatically by Frank Böckelmann and Hersch Fischler. According to research conducted by these two authors in 1991, members of the Bertelsmann works councils who had previously caused the company management a major headache were rewarded with “management positions” once they had resigned their positions on the works council.19 In 1986, Reinhard Mohn, the Chairman of the Supervisory Board at Bertelsmann AG from 1981 through 2000, published a book entitled Erfolg durch Partnerschaft (Success through Partnership).20 Böckelmann and Fischler rightly describe the partnership ideology propagated by Bertelsmann as follows: Mohn’s model world is subject to the dictates of a harmony that interlinks everything— the self-denial of capital with the maximization of profit for its own sake [. . .], the independent responsibility of the employees with their disciplining and the workforce’s right to have its say with their dependence on company management.21 However, resistance to Bertelsmann company management has been in evidence since 2013 from the workforce at the Prinovis printing works in the small north German town of Itzehoe which belongs to the Be Printers Group division. Because of an overcapacity in the EU in the field of gravure printing, Bertelsmann closed the Prinovis printing works on April 30, 2014, despite massive protests by the almost 2,000 employees. A blog written by the union Verdi at http://gegentausend.wordpress.com is all about reports on the resistance by the workforce (see Figure 8.2).

Social Marketing One indication of the company’s views on social and cultural marketing was the campaign “Du bist Deutschland” (“You are Germany”) launched and organized by Bertelsmann in 2005–6, which ran again in 2007. The focus was on a logo with the colors black red and gold from the German flag carried by 25 media companies and on a television commercial. The objective of the campaign was to trigger a movement for “more self-confidence and independent initiative in

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FIGURE 8.2

Protest march by Prinovis employees

Germany” and to appeal to the country’s citizens to “have greater belief in themselves and display more motivation.” The advertising budget for this campaign ran to €30 million, making it one of the largest social marketing campaigns in the media history of Germany.22 The neoliberal element of this wide-scale and professionally produced ideological campaign is, in fact, to be found in its line of attack that consciously opposes state control. First, important German individuals from the country’s political and intellectual “elite” are quoted as examples (Franz Beckenbauer, Ludwig Erhard, Ludwig van Beethoven, Albrecht Dürer, etc.). Second, the manifesto for this campaign includes the following statement about the German “masses:” “there are 82 million of us. Let’s get our hands dirty. You are the hand. There are 82 million of you. Just treat your country like a good friend. Don’t complain about it. [. . .] You are Germany.” Stefanie Schneider rightly says about this campaign: Within the framework of participatory management strategies the employees, as internal entrepreneurs, pursue the unconstrained constraint of self-optimization even without direct instructions from above and under the terms of this policy activation explicitly describes a program to create a new social model which attempts to force citizens’ commitment on the basis of independent responsibility.23 Although featuring a new formal design and more or less comparable with the Lovemarks philosophy devised by Kevin Roberts of the Saatchi & Saatchi advertising agency in 2005,24 this campaign in Germany is noteworthy in several respects. Because of Germany’s fascist past, German flags were practically never to be found on display in public until the Bertelsmann campaign “You are Germany,” which ran from September 2005 to January 2006, and then subsequently during the football World Cup in Germany from June through July 2006. These two events changed things. Since then, a visible German national flag has become a symbol of patriotism previously unknown in Germany.

Cultural Profile Whether we are talking about books for the German Wehrmacht during the Nazi era or, as of 1950, about books for the Bertelsmann Group’s book club in post-War West Germany, the pattern behind the content is the same in both cases. In both instances the subject under discussion is producing as many items as possible and this is exactly the substantive focus of the relevant program. The economics of high circulation mean that they must appeal to mediocre tastes.

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Looking at the aesthetics of the covers for books in the Bertelsmann book club in the 1950s and 1960s, the club’s target group soon becomes apparent. When these highly decorative book spines—each with very different patterns and decorations embossed in gold—are lined up on a bookshelf, the overall impression conveyed is one of dignity, of having benefited from the kind of classical education enjoyed by the middle classes. Tasteful decorations in the living room, these books are aimed at fostering a kind of social recognition vis-à-vis their owners’ friends and visitors more than they represent reading matter. The Bertelsmann books were novels for philistines and social climbers in the boom years of the economic miracle and of reconstruction in Germany. This fits in well with the concept of the Bertelsmann book club, whereby many of the books involved are reissues of novels whose copyrights have long since expired—books that the company can print without having to pay out any royalties. Bertelsmann also indicates its political leanings in its magazine publications. For example, anybody looking at change, the magazine put out by the Bertelsmann Foundation (www.change-magazin.de), soon gets a feeling for which way this particular foundation’s political wind is blowing. The magazine features a modern layout, a large number of pictures, young, trendy people, reform, social commitment, responsibility, achievement, a sense of “we,” win–win situations, courage, hope, a positive future, etc. In other words, change appeals to modern conservatives and particularly stresses the importance of curtailing the state’s political influence in all spheres. In principle, the above observations also apply to the television channels belonging to Bertelsmann’s RTL Group. Here too, the target audience is a mainstream one and the higher the viewing figures, the higher the earnings from advertising. Indeed, in 2013 the RTL Group derived some 60% of its revenue from advertising alone (and approximately 30% from licensing). After all, we should not forget that the launch of commercial television in Germany represented the start of a twofold development. As of 1984, RTL started presenting an apolitical, low-quality entertainment television channel, and the two public service broadcasting authorities ARD and ZDF allowed themselves to sink to the same low-quality standards in the battle for market share. This is representative of a desperately negative downward spiral in terms of quality, and one that continues to this day! Of course, annual reports such as those published by Bertelsmann SE for 2007 can also proudly point out that the Penguin Random House annual report boasts more than 50 Nobel prize winners among its authors. However, this figure does nothing to change the bestseller “illness” from which the company’s overall range suffers, brought about by the focus on economic considerations. In recent years Penguin Random House’s annual report has included the following famous book titles: John Grisham The Broker, Barack Obama The Audacity of Hope, Bill Clinton Giving, Christopher Paolini Brisingr, Dan Brown The Lost Symbol, George W. Bush Decision Points, Walter Isaacson Steve Job, E. L. James Fifty Shades of Grey, and Sheryl Sandberg Lean In. The most important periodicals in Gruner + Jahr’s annual report for Germany and France are: Brigitte, Capital, Gala, National Geographic Deutschland, Stern, Télé Loisirs, Télé 2 Semaines, TV Grandes chaînes, Femme Actuelle, and, from 2003 through 2012, the German daily Financial Times Deutschland. The best-known TV shows broadcast by the RTL Group are: Gute Zeiten, schlechte Zeiten, Idols, The X Factor, Got Talent, The Price is Right, and Take Me Out. From 1992 through 2000 a Dutch presenter, Linda de Mol, moderated a total of 92 episodes of the TV show Traumhochzeit (Dream Wedding), one of the most popular TV series of all time on German television.

Cultural Exports to Other Countries Even back in the 1950s, the growth experienced by the Bertelsmann Group was already testing the limits of the national West German market. When deciding on adopting one of the two

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economically viable growth models possible—technological innovation or foreign markets—the Bertelsmann Group firmly opted for a growth strategy via foreign markets. With this in mind, in 1966 the Bertelsmann Group acquired an Austrian book club, and it entered the Spanish book market in 1962 by establishing a Círculo de Lectores because during the fascist Franco dictatorship there were favorable conditions in place for foreign investors. Bertelsmann’s investments in Spain were also considered a springboard for entry into the Latin American market, as was analyzed by the now-deceased Catalan communications expert Daniel Jones and German journalist Wiebke Priehn.25 Back in 1995 the Bertelsmann Foundation established an independent branch for Spain, Fundación Bertelsmann, and in 2005 it announced that it was looking to become operational in Spain as a way to exert influence on business and sociopolitical fronts there.26 A snapshot of Bertelsmann’s international strategy can be discerned by looking at the company’s foreign subsidiaries. Of the RTL Group’s 57 subsidiaries, only four are located outside the EU. In the Gruner + Jahr division, the EU dominates with 66 of its 77 companies located there. The situation is not dissimilar with arvato; of its 167 subsidiaries, only 39 are based outside the EU. In the case of the Direct Group with its 32 companies, the ratio is 25 to 7. Only the Random House Group is truly a global player; of its 27 subsidiaries, only three are located in Germany and the other 24 in the United States, Canada, India, South Africa, New Zealand, Australia, and Latin America. This sobering state of affairs makes no attempt to discount the unequal conditions of exchange between a multinational from Western Europe and weak partners in fringe countries. Indeed, the collapse in Eastern Europe in 1990–1991 turned out to be an ideal opportunity for plundering by conglomerates from the West. For example, Interactive Home Systems (Corbis) acquired the publishing rights to all pictures at the Hermitage in St. Petersburg in 1989 and, in 1991, Bertelsmann SE bought out a Soviet record label, Melodiya, the world’s largest competitor for Bertelsmann’s own company, BMG, in the field of classical music at the time, boasting a payroll of 120,000 as well as its recording studios, record factories, and record shops throughout the Soviet Union. Shortly after the acquisition, there were acts of piracy, corruption, and destruction on a large scale. The Melodiya company is operating independently again as of 2004.27 However, these isolated incidences of predatory capitalism by no means gave rise to any kind of systematic market or growth strategies at Bertelsmann. Individual publishing houses in Mexico and China, a telephone company in Morocco, an IT firm in China, and a book club in Russia represent anything but a systematic globalization strategy. This is nothing more than piecemeal work.

Conclusion On the media database run by the German Institute of Media and Communications Policy (IfM), the Bertelsmann Group ranked 9th on the list of the world’s 50 largest media groups in 2014 with an annual revenue of €16.3 billion. This places the Group behind Comcast, Google, Walt Disney, News Corp., DirecTV, Time Warner, Viacom, and Sony.28 However, this ranking needs to be qualified on a number of counts. If we start by comparing these nine media groups to the world’s largest corporations, the first thing that strikes us is their modest annual revenue. In the first five places on Fortune magazine’s 2013 list of the 100 largest corporations in the world there were companies with much higher volumes of annual sales: (1) Walmart (U.S.A), $476 billion from retailing; (2) Royal Dutch Shell (Netherlands), $459 billion from oil and gas; (3) Sinopec (China), $457 billion from oil and gas; (4) China National Petroleum (China), $432 billion; and (5) ExxonMobil (U.S.A), $407 billion from oil and gas. In other words, in the global economy the production and distribution of goods

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is still vastly more important than the production of information, knowledge, communication, culture, and ideology. To sum up, in the particular case of Bertelsmann the following should be noted: admittedly, Bertelsmann is still one of the world’s largest multinational media corporations, but considerable doubt remains as to whether the company can maintain this position. Bertelsmann manifests the following five structural weaknesses: 1.

2.

3. 4.

5.

The Company’s vast range of products invites comparison to a large general store with no discernible specialization. Even if every single business unit were to remain profitable, this kind of general store offers little or no scope for synergies or economies of scale. The Bertelsmann Group is only in a position to set the tone or call the tune within the EU. Outside the EU, the corporation is only truly strong in the United States, but even there they are only strong within the book market. But Bertelsmann’s position as a publishing house in the U.S. is so strong that sales of Barack Obama’s books alone were able to make him a millionaire even before he became a presidential candidate in 2004.29 The considerable importance that the U.S. holds for the Bertelsmann Group goes some way in clarifying why the corporate group so vehemently supports an imminent realization of the TTIP negotiations. But apart from the U.S., the Group operates without any real global strategy. Of the current six divisions, only the RTL Group and arvato operate successfully in business terms, but even then without a noticeable degree of dynamism. Bertelsmann’s clout in the fields of printing companies, periodicals, books, music rights, and traditional TV production companies is an indication of the company’s fundamental weakness: the group allowed the IT and Internet revolution to pass it by. The Group likes to surround itself with a large number of active party politicians from various conservative European parties. This obvious closeness to one single political direction is foolish. From an entrepreneurial perspective, the group’s neoliberal interests should not be attached to that kind of single political direction but the company should conceal itself behind the professionalism of various types of party politician.

Apart from these five weaknesses, the group really does set the tone and is strong in a completely different area. The neoliberal influence that the Bertelsmann Foundation exerts on politics, education, health, and public administration in Germany and in the EU is so great that German critics of corporations have now coined the term Bertelsmannisierung (Bertelsmannization). What they mean by the term and what they criticize by using it is the fact that—entirely without any democratic legitimation—the Bertelsmann Foundation exerts a major influence over the entire political discourse in Germany, acting as a kind of shadow government but one without a mandate.

Notes 1 See Frank Böckelmann and Hersch Fischler (2004), Bertelsmann: Hinter der Fassade des Medienimperiums (Frankfurt, Germany: Eichborn). 2 Saul Friedländer, Norbert Frei, Trutz Rendtorff, and Reinhard Wittmann (2002), Bertelsmann im Dritten Reich (Munich: Bertelsmann, p. 555). 3 Benno Wundshammer (1941), Flieger Ritter Helden. Mit dem Haifischgeschwader in Frankreich und andere Kampfberichte (Gütersloh: Bertelsmann, pp. 78 and 147). 4 Scott W. Fitzgerald (2012), Corporations and Cultural Industries, (Lexington: Time Warner, Bertelsmann, and News Corporation, p. 283). 5 André Schiffrin (2000), Verlage ohne Verleger: Über die Zukunft der Bücher (Berlin: Wagenbach, p. 65). 6 Bertelsmann, Annual Report, 2014, 91, www.bertelsmann.com/media/investor-relations/annualreports/annual-report-2014.pdf, accessed October 13, 2015. 7 Frank Böckelmann and Hersch Fischler (2004), Bertelsmann: Hinter der Fassade des Medienimperiums (Frankfurt: Eichborn, p. 256).

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8 This is Hull and EastRiding, “Council’s Joint Venture Lands £167m deal,” Hull Daily Mail, October 29, 2008, www.hulldailymail.co.uk/Council-s-joint-venture-lands-167m-deal/story-11969599-detail/story. html, accessed October 13, 2015. 9 Quoted from Nic Paton, “Case Study: Citizen Profiling,” in Local Government Chronicle, June 28, 2012, p. 15. 10 SE & Co. KGaA: SE stands for European Company, KGaA stands for Kommanditgesellschaft auf Aktien. 11 Schumann, Harald. “Macht ohne Mandat,” In Tagesspiegel, September 24, 2006. 12 Lieb, Wolfgang. “Ist die Bertelsmann Stiftung gemeinnützig?” In NachDenkSeiten, August 26, 2010, www.nachdenkseiten.de/?p=6589, accessed February 2, 2015. 13 Jack Ewing, “Thomas Middelhoff, Ex-Chief of Bertelsmann, Gets 3-Year Prison Term Over Misuse of Funds,” The New York Times, November 14, 2014, www.nytimes.com/2014/11/15/business/ international/thomas-middelhoff-ex-chief-of-bertelsmann-gets-3-year-prison-sentence.html, accessed October 13, 2015. 14 Max Hagler, “Abgang des Vorzeige-Bertelsmanns,” taz.de, October 31, 2007, www.taz.de/1/archiv/? dig=2007/10/31/a0023, accessed October 13, 2015. 15 Wiebke Priehn, “EU-Parlaments-Hobbyist (CDU) bei Bertelsmann,” http://de.indymedia.org/2006/ 12/163795.shtml, accessed February 26, 2015. 16 Peer Heinelt, “The world according to Bertelsmann,” In Konkret, No. 7/2007. 17 Friedbert W. Rueb, Karen Alnor, and Florian Spohr (2009), Die Kunst des Reformierens. Konzeptionelle Überlegungen zu einer erfolgreichen Regierungsstrategie (Gütersloh: Bertelsmann Foundation, p. 24). 18 Quoted from Thomas Schuler (2005), Die Mohns. Vom Provinzbuchhändler zum Weltkonzern. Die Familie hinter Bertelsmann (Bergisch-Gladbach: Bastei Lübbe, p. 310). 19 Frank Böckelmann and Hersch Fischler (2004), Bertelsmann. Hinter der Fassade des Medienimperiums (Frankfurt: Eichborn, pp. 172, 173). 20 Reinhard Mohn (1986), Erfolg durch Partnerschaft. Eine Unternehmensstrategie für den Menschen (Berlin: Siedler). 21 Frank Böckelmann and Hersch Fischler (2004), Bertelsmann. Hinter der Fassade des Medienimperiums (Frankfurt: Eichborn, p. 176). 22 Jeffery Fleishman, “You Are Germany, Now Cheer Up,” The Los Angeles Times, October 16, 2005, http://articles.latimes.com/2005/oct/16/world/fg-peptalk16, accessed October 13, 2015. 23 Stefanie Schneider (2010), “Der Bertelsmann Konzern zwischen Politik und Öffentlichkeit: ‘Du bist Deutschland!’—Wer eigentlich?” in Netzwerk der Macht—Bertelsmann: Der medial-politische Komplex aus Gütersloh, ed. Jens Wernicke and Torsten Bultmann (Marburg: BdWi-Verlag, pp. 141–151; here: p. 150). 24 Kevin Roberts (2005), Lovemarks. The Future beyond Brands. Rev. ed. (New York: Power House Books). 25 Daniel Jones (2007), “La penetracion transnacional en la cultura española: el liderazgo de Bertelsmann,” in Telos, No. 10, pp. 125–142; Wiebke Priehn (2007), “Mediengigant aus Gütersloh. Der BertelsmannKonzern in Lateinamerika,” in: Ila-Nachrichten, September. 26 One characteristic of the old Left-wing conspiracy theories is to inflate the export activities of the multinationals in order to be able to better attack them, as they would then constitute an expression of global dominance. However, when analyzing the international activities of the Bertelsmann Group it is best to keep a clear head. 27 Uli Hufen. “Melodiya—Plattengigant aus Moskau.” From Verbal Lecture in the German Broadcasting Station WDR 5, Scala series, June 19, 2006. Printed material on this cooperation between Bertelsmann and Melodiya does not exist. 28 www.mediadb.eu/rankings/intl-medienkonzerne-2012.html, accessed March 8, 2015. 29 Rudolph Bauer, “Medien. Die neue Angst der U.S.A vor einem Anti-Amerikanismus alter Prägung. Obama, Bertelsmann und Goebbels,” in Neue Rheinische Zeitung, April 1, 2009, www.nrhz.de/flyer/ beitrag.php?id=13615, accessed April 12, 2015.

9 VIVENDI Philippe Bouquillion

Vivendi is an industrial group active in the recorded music industry with Universal Music Group (UMG) and pay television through its subsidiary, Groupe Canal+ (GC+). Vivendi is still a global giant in particular because it is the world leader in the recorded music industry. This company is a very interesting topic of study for several reasons. Vivendi is one of the few global giants that is not American. This company is of French origin and its management is still French. Furthermore, in the late 1990s and early 2000s, the company was the second largest media and communication player in the world, strongly positioned both in North America and Europe. Since the stock market crash of the early 2000s, Vivendi has declined significantly, selling most of its assets. Vivendi is thus an emblematic case of the players in the cultural industries that have struggled to win outside of their geographical area of origin—in the case of Vivendi, France and French-speaking countries—and beyond their original business (television). Indeed, its attempt to become a major player in the audiovisual industry in the U.S. has failed, as well as its diversification in telecommunications in Europe and also in emerging (Brazil) and developing countries (Morocco). Like other global giants, Vivendi has not been able to generate industrial synergies by taking advantage of its multiple positions in the various sectors of cultural industries (television, cinema, books, press, music, games), in telecommunications, and in different continents. Vivendi is also an examplary case of the ambiguous relationships between the actors of the cultural industries and the major financial players. During the 1990s, the company was strongly supported by the major financial players. This support enabled Vivendi to finance very large acquisitions. But, in the 2000s, to cope with the heavy debts of the company, the financial players required the sale of very significant assets. Vivendi, which was (and is still) mainly positioned on mature activities—the cultural industries—with low growth prospects, has significantly reduced its perimeter. Today, despite the loss of most of its assets, Vivendi remains a conglomerate. UMG and GC+ do not maintain synergies. In the future, it is not certain that these two components will continue to be part of the same company.

History The main “ancestor” of Vivendi is a French water supply company, Compagnie Générale des Eaux (CGE). Vivendi was created through the agglomeration of several previously existing industrial players. CGE was a very old company, founded in 1853. This company played a very important role in the history of French capitalism, especially because CGE had close relations with local

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authorities in particular cities. In addition to the water supply, CGE offered various urban services (e.g., waste treatment, public parking, and transportation). Therefore, CGE was a link between the financial and political spheres. In fact, the creation of Vivendi was both a capitalist and political project. Through the creation of Vivendi and its subsequent international expansion, the French government wanted to have an “industrial champion” to promote French cultural industries internationally. Since the 1980s, four different stages can be distinguished in the history of the Group.

From the CGE to Vivendi In the first stage, CGE bought companies active mainly in the French market. CGE began its diversification into the cultural industries by buying assets in the pay-TV industry. It acquired a dominant position in the three main levels of the sector: television channels, cable networks, and production. In 1983, CGE took a 15% stake in Canal+ after its creation, which is still the only French pay-TV channel with a large audience and a large number of subscribers. Canal+ dominates this sector in France. In the following year (1984), CGE began its activity in cable networks with the creation of the Compagnie Générale de Video Communication. Later, this company became one of the main actors of cable networks in France under the name of NC Numericable. In 1987, CGE established specialized television channels and developed television production activities in France by creating General Images. Now named StudioCanal, this company is one of the leading French and European companies in television production. CGE also acquired assets in mobile telecommunications in 1987 with the creation of SFR (French Society of radiotelephone), which became the second French mobile operator. Then, the company bought assets in fixed telecommunications. In 1996, CGE bought a stake in Cegetel alongside foreign industrial players. In 1997 and 1998 CGE bought about 30% of Havas, one of the key French players in advertising. Havas was also one of the main shareholders and founders of Canal+ and a major player in the book industry, which is second in France after Hachette. In April 1998, CGE changed its name to Vivendi. Vivendi then merged with Havas, thereby raising its stake in Canal+ to 34%. After the merger with Vivendi in 2000, the former assets of Havas were transferred to a new segment of Vivendi, called Vivendi Universal Publishing (VUP). VUP has since gradually withdrawn from advertising. These activities were then split off from VUP and called Havas Advertising Activities (in 2002 this company acquired the right to use the name Havas).

From Vivendi to Vivendi Universal In the second stage of its history, Vivendi continued its diversification in the cultural industries, but now internationally and particularly in the United States. This is when the company became a truly global player. Meanwhile, Vivendi continued to strengthen its position in France, notably by increasing its investments in certain strategic companies in which its shareholding was previously a minority. Constantly throughout its history, Vivendi has tried to hold 100% of its subsidiaries. The second step in the path of this company took place mostly while Jean-Marie Messier was the president of the company; he replaced Guy Dejouany as President of CGE in 1996. In 1998, Vivendi initiated activities in video games via the acquisition of Cendant Software (publisher of educational software and games in the United States). Then Vivendi acquired international players in the audiovisual industry. In 1999, Vivendi and Canal+ acquired a 24% stake in Pathé. With this transaction, Vivendi and Canal+ acquired 17 and 20% of BSkyB (satellite channels package), respectively and strengthened their position in the satellite television market. Similarly, Vivendi launched online platforms. In May 2000, Vivendi and Vodafone reached an

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agreement to create a joint, equally owned venture, including Canal+, named Vizzavi, which was a dedicated online portal available in most European countries. Subsequently, in December 2000, the major step forward desired by Jean-Marie Messier took place—the merger with Seagram, one of the leading American players in the media industry, particularly in cinema with Universal Studios and recorded music with MCA and Polygram. At this point, Vivendi became Vivendi Universal. In December 2001, Seagram’s assets in wines and spirits were sold for $8.1 billion. The company’s first large-scale purchase transaction in the U.S. was completed a year later when, in December 2001, Vivendi acquired an additional 50% stake in U.S.A. Networks, which was an important actor in the U.S. audiovisual industry, leading to the detention of 93% of capital. From that moment, the central target set by Jean-Marie Messier seems to have been achieved: Vivendi owned content in the United States and “containers” in Europe to distribute such content. In France, Vivendi increased its stake in the capital of its subsidiaries not yet held at 100%. In 1999, Vivendi took control of a 49% stake in Canal+. In 2001, 100% of StudioCanal became controlled by Group Canal+ (GC+) while Vivendi’s interest in the capital of MultiThématiques, a package of channels for cable and satellite created with Lagardère, increased to 64%. In 2001, Vivendi acquired the sports club Paris Saint-Germain (soccer) as well as 100% ownership of NC Numericable, the largest French cable network. Vivendi also strengthened its position in telecommunications, and especially in countries formerly colonized by France and where French influence is still important. For example, in 2001, Vivendi acquired a stake in Maroc Telecom (operating telephone services in Morocco) for €2.4 billion. Along with its diversification in entertainment and telecommunications, Vivendi sold assets related to its former activities. In 1996–1997, Vivendi sold its health properties, then it gradually sold its shares in Vivendi Environnement. In 2000, Vivendi Environnement was separately incorporated and was listed on the stock exchange. This set included the original CGE activities (i.e., urban services, energy, transport, waste management, real estate, construction). By December 2001, Vivendi Universal owned only 63% of Vivendi Environnement; in June 2002, 47.7%; and 20.4% in December 2002. In 2003, Vivendi Environnement was renamed Veolia Environnement and, in December 2004, Vivendi Universal sold most of its stake in Veolia. The end of this second stage was characterized by significant acquisitions, as Vivendi Universal became multi-positioned in almost any medium (broadcasting, books, music, and games). At that time, the company was the second global player in the entertainment industry. However, after the bursting of the financial bubble in the early 2000s, this large conglomerate sold many of its assets, ushering in the third stage of its history.

Back to Vivendi The third stage of Vivendi’s history began after the stock market crash of 2001. At that time, the company experienced major financial difficulties. This stage of Vivendi’s history is characterized by the coexistence of significant divestments of activities for financial gain and acquisitions for industrial purposes. Vivendi’s severe financial crisis was partly due to purely financial reasons. Indeed, Vivendi has often paid high prices for its acquisitions. In the late 1990s, the companies involved in culture and communication industries were overvalued. In addition, Vivendi’s acquisitions were financed by exchanges of shares or capital increases but also by debt. Thereby, the company was deep in debt and the interest rate on this then increased. As such, Vivendi Universal’s debt was poorly rated by credit ratings agencies. On the other hand, industrial synergies between the various components of the company were very low. Jean-Marie Messier’s strategy of articulating “containers” in Europe (telecommunications, satellite packages, cable networks, Internet access, premium channels) for U.S. content had failed. Consequently, Vivendi Universal was close to bankruptcy. The company even had trouble finding short-term bank financing to pay suppliers

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and employees. Jean-Marie Messier was forced to leave the management in 2002. In 2002, Vivendi reported a loss of €23.3 billion and had a debt of €25.1 billion. Jean-René Fourtou, the new leader of Vivendi Universal, set up a debt-relief program that led to the sale of several assets in order to avoid bankruptcy. In 2002, the major sales of subsidiaries or participations included: Vivendi Universal Publishing (second French player in the book and news industries); Houghton Mifflin; 11% of Echo Star; 44% of Cegetel; and Telepiu (satellite TV in Italy). Similarly, in 2004, Vivendi Universal Entertainment (VUE) was sold to General Electric. VUE was then renamed NBCUniversal. This company was a joint venture that was 80% owned by General Electric and 20% by Vivendi. Vivendi eventually sold its 20% stake between 2009 and 2011. Consequently, Vivendi retired from the press and book industries, both in the U.S. and Europe, as well as from audiovisual industries in the U.S. Similarly, most of the international subsidiaries of Canal+ were sold. Almost all of these companies or Vivendi’s shares were sold at prices lower than the purchase price. Vivendi sold primarily companies that were unprofitable or those for which a buyer came forward. The subsidiaries of telecommunications that provided a significant cash flow were maintained within the company during this period; they played a leading role in the financial restructuring of Vivendi. Alongside these divestitures, Vivendi conducted different acquisitions for industrial purposes during this period. Vivendi strengthened itself in some sectors to acquire a leading position at the international level and also in strategic subsidiaries to increase its control. Vivendi also strengthened in certain jurisdictions where the company was already established (especially France) or in emerging, high-growth countries like Brazil. Thus, Vivendi developed its position in telecommunications. In 2003, Vivendi increased its ownership stake in Cegetel (70%). In 2008, SFR, Vivendi’s mobile telecommunications subsidiary, took control of the 29.90% of Cegetel shares not yet owned. Therefore, Cegetel was 100% owned by SFR. In 2004, Vivendi took control of 51% in Maroc Telecom. In 2009, Vivendi took control of Global Village Telecom (GVT), a Brazilian alternative telecommunications operator, for an estimated $2.8 billion. In 2010, Vivendi controlled almost 100% of GVT. In June 2011, Vivendi increased its shareholding in SFR by purchasing a 44% stake for €7.75 billion. The company also strengthened in pay television, mainly in France. Vivendi acquired assets in audiovisual production and in packages of pay-TV channels. From 2005 to 2007 Vivendi took control of the TPS television network, which was its only competitor in satellite channel satellite packages in France. In 2011, GC+ acquired a 33% stake in Orange Cinema Series, the package of movie channels from Orange (a telecom operator). GC+ also acquired the free-to-air television channels of Groupe Bolloré. In December 2009, GC+ bought a 10% stake in Canal+ France, which was previously owned by TF1. In February 2010, Vivendi acquired another 5.1% stake in Canal+ France. With these two transactions, Vivendi held 80% of Canal+ France (via GC +, a wholly owned subsidiary of Vivendi). In addition, Vivendi chose to strengthen its position in the music industry. In 2006–2007, Vivendi bought the music publishing activities of BMG, BMG Music Publishing (BMGP). Through this operation, which cost €1.63 billion, Universal Music became the world leader in music publishing. In November 2011, UMG bought EMI Recorded Music for £1.2 billion. The fourth area in which Vivendi has strengthened to become the world leader in the late 2000s is the production of video games. In July 2008, Activision Blizzard was created through the merger of Activision and Blizzard Entertainment. Vivendi, which took back this name in 2006, followed this dual strategy (acquisitions/sales) for 10 years. However, at the end of this third stage of its history, Vivendi remained highly indebted. Similarly, its positioning was so diverse that Vivendi became a conglomerate. Thus, pressures were felt particularly from the financial sector to demand the dismantling of Vivendi. In April 2012, the share price was so low that rumors suggested raiders would seize the company. At that time,

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however, a French businessman by the name of Vincent Bolloré took advantage of the low price of Vivendi’s shares to acquire a large shareholding.

Vivendi: an integrated media player or a set of financial investments held for sale? The fourth stage of Vivendi’s history began in 2012 after Jean-Bernard Lévy, who co-led Vivendi with Jean-René Fourtou, was dismissed. He was the instigator of the Vivendi policy in telecommunications. This sector has provided a significant cash flow to Vivendi and allowed the company to avoid bankruptcy. However in 2011, the financial results of SFR, Vivendi’s main asset in telecommunications, deteriorated sharply. Similarly, in 2012, Vincent Bolloré began to play an important role in the management of Vivendi. This new period has been characterized by the rationalization of the scope of Vivendi around two main activities: audiovisual industries, mainly pay-TV with Groupe Canal+, as well as the music industry, with Universal Music Group. Vivendi is now the French leader in pay-TV and the world leader in recorded music. This rationalization has occurred through very significant asset sales. From 2013 to 2015, assets in telecommunications and cable networks were sold or are in the process of being sold, including SFR (sold to Numericable), Maroc Telecom, and GTV. In 2013, Activision was sold. The finalization of the total sale of GVT was expected in the second quarter of 2015.1 This rationalization strategy has an industrial logic: Vivendi concentrates on activities in which it occupies a leading role in France or worldwide. Now Vivendi is positioned in only two streams of content. However, the logic has been mainly financial: asset sales helped to restore the financial situation of the company—for example, the sale of SFR yielded €17 billion. Vivendi is now debt-free and realizes profits. The company can distribute significant dividends and buy back its own shares. The question that now arises is the future of the company. Without real industrial synergies between GC+ and UMG, will Vivendi be sold in lots? In the financial communications of Vivendi, the company now claims to be becoming an integrated media player. However, this assertion needs to be discussed further.

Economic Profile Financial data and Vivendi’s market share are deteriorating. Since the early 2010s, Vivendi has sharply reduced its reach and consequently its revenues. There are also unstable and tendentiously lower profits in absolute value and a decrease in total assets. In December 2014, Vivendi was organized into four segments: Groupe Canal+ (GC+), which gathers all the Vivendi assets in the audiovisual sector; UMG, the largest music company in the world; Vivendi Village, which brings together assets in the performing arts and Internet sites (the new development of Vivendi); and, finally, a telecommunications operator in Brazil, sold in 2014 to Telefonica. Since the failure of the strategy in the U.S., Vivendi has not been able to develop a coherent industrial project on the scale of the entire company. However, the financial dimension has been more important than the industrial one. The company buys assets in the hope of reselling them later for capital gain, then sells them to improve its financial flexibility and earn profit.

Financial Data and Market Share Table 9.1 shows Vivendi’s revenues from 2005–2014. Since the early 2010s, Vivendi has sharply reduced its size. Thus, during the last 10 years a sharp drop in revenues has characterized the financial results. In 2013 and 2014, the turnover has dropped by almost two-thirds compared with 2012. There are also unstable and tendentiously lower profits in absolute value and a decrease in total assets.

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TABLE 9.1 Vivendi Revenue, 2005–2014 (in € millions)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Revenue

Net income

Total assets

19,484 20,044 21,657 25,392 27,132 28,878 28,813 28,994 10,252 10,089

3,985 4,033 2,625 2,603 830 2,198 2,681 179 1,967 (RNA 1,540) 4,744 (RNA 626)

44,483 43,048 45,079 56,497 58,125 58,993 55,719 59,533 49,180 35,738

Sources: Vivendi, Annual Report 2014, accessed March 21, 2015, www.vivendi.com/wp-content/uploads/2015/02/ 20150227_Rapport_financier_et_etats_Financiers_consolides_audites_de_l_exercice_2014.pdf; Vivendi, Annual Report 2013, accessed March 5, 2015,;www.vivendi.com/wp-content/uploads/2014/04/201404014_Document_de_reference_ 2013_FR.pdf; Vivendi, Annual Report 2012, accessed March 5, 2015, www.vivendi.com/wp-content/uploads/ 2013/03/20130319_Document_de_reference_VIVENDI_2012_DRF_CL_V4.pdf; Vivendi, Annual Report 2011, accessed March 5, 2015, www.vivendi.com/_files_/IMG/pdf/39923_Vivendi_AR11_ALL_FR_200312_JBam_2.pdf; Vivendi, Annual Report 2010, accessed March 5, 2015, www.vivendi.com/_files_/IMG/pdf/20100323_rapport_annuel_ document_de_reference_2010.pdf; Vivendi, Annual Report 2009, accessed March 5, 2015, www.vivendi.com/_files_/ IMG/pdf/20100330_Vivendi_doc_de_ref_2009.pdf; Vivendi, Annual Report 2008, accessed March 5, 2015, www. vivendi.com/_files_/IMG/pdf/20090324_rapport_annuel_2008_def.pdf; Vivendi, Annual Report 2007, accessed March 5, 2015, www.vivendi.com/_files_/IMG/pdf/20080320_docderef2007-4.pdf; Vivendi, Annual Report 2006, accessed March 5, 2015, www.vivendi.com/_files_/IMG/pdf/20070330_DocDeRef2006-2.pdf

Similarly, the financial performance of Vivendi has been mediocre when exceptional operations, including large sales of assets, are not included. Adjusted for these changes in consolidation, EBITDA (Earnings before interest, taxes, depreciation, and amortization) has stagnated in recent years: €999 million in 2014, €955 million in 2013, €1,074 million in 2012, €1,086 million in 2011, and €1,002 million in 2010. ARPU (average revenue per user) has been stable, at €44 in 2014 and €44.2 in 2013.2 Similarly, net income after minority interests from continuing operations (Groupe Canal+, Universal Music Group, Vivendi Village, and Corporate) was negative: €290 million in 2014, while in 2013 earnings amounted to €43 million.3 Market capitalization of Vivendi is at a low level compared with market capitalization of most major transnational actors of the cultural industries: €29.94 billion (March 20, 2015).4 For comparison, on March 20, 2015, the market capitalization of Disney amounted to $184.28 billion,5 Time Warner $72.99 billion,6 and News Corporation $7,69 billion.7

Corporate Properties Table 9.2 lists the major consolidated subsidiaries of Vivendi as of December 31, 2014. Vivendi is organized into four segments: GC+, which includes all the Vivendi assets in the audiovisual sector (mainly in France, Poland, Africa, and Vietnam); UMG, the largest music major in the world (mainly active in the markets of developed countries); Vivendi Village, which brings together assets in the performing arts and Internet sites in France, the U.K., and Germany; and GVT, a telecommunications operator in Brazil sold in 2014 to Telefonica (the sale was due to be completed in the second half of 2015).

Typical Strategies One of the main issues concerning Vivendi strategies is whether their purpose is primarily industrial or financial. After the failure of Vizzavi and other attempts to execute its strategy toward U.S.

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TABLE 9.2 List of Vivendi’s Consolidated and Associate Subsidiaries

Groupe Canal+ SA Société d’Edition de Canal Plus Multithématiques S.A.S. Canal+ Overseas S.A.S. D8 Studiocanal S.A. ITI Neovision TVN VSTV Universal Music Group, Inc. Universal Music Group Holdings, Inc. UMG Recordings, Inc. Vevo SIG 104 Universal International Music B.V. Universal Music Entertainment GmbH Universal Music LLC Universal Music France S.A.S. Universal Music Holdings Limited EMI Group Worldwide Holding Ltd. Vivendi Village See Tickets Digitick Wengo Watchever Group S.A. Watchever GmbH Elektrim Telekomunikacja Activités cédées ou en cours de cession Global Village Telecom S.A.

Country

Percent control

Percent held

France France France France France France Poland Poland Vietnam United States United States United States United States France Netherlands Germany Japan France United Kingdom United Kingdom

100 49 100 100 100 100 51 49 49 100 100 100 48 100 100 100 100 100 100 100

100 40 100 100 100 100 51 26 49 100 100 100 48 100 100 100 100 100 100 100

United Kingdom France France France Germany Poland

100 100 100 100 100 100

100 100 90 100

Brazil

100

Source: Vivendi, Rapport financier et états financiers 2014, p. 134, www.vivendi.com/wp-content/uploads/2015/02/ 20150227_Rapport_financier_et_etats_Financiers_consolides_audites_de_l_exercice_2014.pdf

content and European containers, Vivendi did not develop a coherent industrial project on a company-wide scale. However, the financial dimension has been more important than the industrial one. In fact, even in the early 2000s, what industrial purpose was served by the acquisition of Seagram or U.S.A. Networks? They can be regarded as purely financial strategies, attempts to seize opportunities to acquire companies that could be resold later. The tendency to focus on financial goals has increased with time, especially during the third stage and, even more, in the fourth stage of Vivendi’s history. According to the management of Vivendi, the latest divestures of subsidiaries in telecommunications and in the games industry aim to restore the financial situation of the company. This financial objective was achieved. In 2014, cash flow from operations amounted to €1,453 million, a 19.8% increase over 2013.8 Beyond this recovery in cash flow from operations, Vivendi is developing two other financial strategies: reducing debt and increasing dividends to shareholders. First, in 2014, thanks to strong sales made during the years 2013 and 2014, Vivendi has been able to repay part of its debts. In 2014, the company even had net cashflow of €4.6 billion, while in 2013 its debt amounted to €11.1 billion. Similarly, €3 billion of bonds were repaid prematurely in 2013 after the sale of Activision Blizzard. The average outstanding borrowings decreased to €9.7 billion in 2014 from €15.3 billion in 2013, while the average interest rate on loans decreased to 2.94% in 2014 from 3.22% in 2013.9

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Second, Vivendi is developing various strategies to increase dividends. It announced a share buyback program for €2.7 billion in 2015, which is set to last 18 months.10 The share re-purchase allows the company to focus dividend payments on a reduced number of shares. Generally, all other factors being equal, the re-purchase of shares helps to increase their price on the stock exchange. Similarly, financial income from recent disposals has, in part, been directly distributed to the shareholders. Vivendi announced that €5.7 billion would be paid to shareholders from 2015 over three years. In addition, €1.3 billion was already distributed as dividends in 2014.11 With these strategies, financial resources devoted to either debt reduction or dividends are not devoted to industrial investment. Anyway, industrial synergies are considered separately at each segment of the company. Two main sets of industrial strategies developed within Vivendi: one in recorded music at the global scale and the other in television through several national frameworks. These two sets of strategies are unrelated, but this is not a new situation. Vivendi activities relating to different sectors (telecommunications, games, books, press, recorded music, and television) have never benefited from significant industrial synergies. In sum, convergence has largely remained a discourse of legitimation of the growth operations, often expensive and risky, conducted by Vivendi. Besides music and audiovisual, Vivendi is also well positioned in regard to the performing arts and websites, but the results of this activity in terms of turnover and EBTDA are still marginal. In 2014, as shown in Table 9.3, audiovisual represents 54% of group revenue and music 46%.

UMG UMG is the world leader in recorded music, with a market share of over 30%. UMG is present in 60 countries and is the dominant player in most of the major world markets for recorded music, including the United States, the United Kingdom, France and Germany. In 2014, UMG’s revenues amounted to €4.557 billion. On December 31, 2014, the group had 7,592 employees. UMG is active in music production (recorded music), music publishing, and merchandising. UMG’s catalog includes more than three million titles. It has developed a merchandising business through its subsidiary Bravado, which creates derivative products that are sold on tour, in shops, and on the Internet. In April 2014, UMG acquired the British company Eagle Rock Entertainment, the largest producer and distributor in the world of music programs for DVD, Blu-Ray, television, and digital media. TABLE 9.3 Revenue by Business (%)

Pay TV in France Pay TV outside France Commercial television in France Production and distribution of films and TV series Recorded music and Merchandising Music publishing

TABLE 9.4 UMG Financial Data, 2014 v. 2013

34 13 2 5 39 7

Source: Vivendi, Communiqué de presse, accessed March 20, 2015, p. 6, www.vivendi.com/wp-content/uploads/2015/02/ 20150227_VIV_Pres_FY_2014_FR_FINALE.pdf

(€ millions) Sector

2014

Variance from 2013 (%)

Recorded music physical sales digital sales royalties and other Music publishing Merchandising and other Elimination of intersegment transactions Total turnover Current operating income

3,688 1,417 1,636 635 673 232 (36)

–7.6 –14.9 –4.1 +2.1 +2.8 –14.9

4,557 606

–6.7 –4.6

Source: Vivendi, Rapport financiers et états financiers consolidés 2014, p. 24, www.vivendi.com/wp-content/uploads/2015/02/ 20150227_Rapport_financier_et_etats_Financiers_consolides_ audites_de_l_exercice_2014.pdf

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Of course UMG is part of a sector that has experienced significant difficulties during the last 20 years, in particular due to the development of piracy and thus declining record sales. This trend does not seem to be in reverse, despite the development of the digital market. In 2013, outside of Japan, global music revenues fell by 0.1%; including Japan, they fell by 3.9% to an estimated $15 billion.12 In line with this general trend, the turnover of UMG declined 7.6% in 2014 compared to 2013. In 2014, even sales of digital music were down 4.1%. In addition, the physical sales continue to fall sharply (by 14.9%) while merchandising revenues also decreased. Thus, all income sources are down except music publishing. Nevertheless, UMG’s current operating income (€606 million in 2014) remains positive, but declining (by 4.71% compared to 2013). Table 9.4 illustrates these figures and the percent change between 2013 and 2014. UMG is a very internationalized company. Table 9.5 illustrates the geographical distribution of its revenues; notably, while the shares of European and North American sales are almost balanced, Europe remains the main market of UMG.

GC+ Groupe Canal+ is the French leader in pay-TV. The company is also active in commercial television and film. In 2014, the turnover of GC+ was €5.654 million (€5.311 billion in 2013). The group had 7,033 employees late 2014. UMG’s recent operating income is positive—it amounted to €618 million in 2014, a decrease of 6.36% compared to 2013. GC+ is located in Europe (mainly in France and Poland), Africa, and Vietnam. GC+ includes a set of aerial pay-TV channels, a bouquet of satellite television with over 150 channels, and two commercial television channels funded by advertising, D8 and D17. Vivendi bought these two channels in 2012 from Groupe Bolloré. In late December 2014, D8 ranked fifth among French television channels (market share of 3.3%).13 It is therefore a “small” channel. GC+ is also a major player in film production in France. The Canal+ broadcast license includes investment obligations in film. Furthermore, GC+ owns StudioCanal, Europe’s leading player in film and television series. StudioCanal operates in three major European markets—France, the U.K., and Germany—as well as in Australia and New Zealand.14 In the 2000s, the group held many properties, including television channels, in various countries of the world, but most of them were sold to generate cash and because the industrial synergies of this international multi-positioning were weak. GC+ still leads an internationalization strategy, but this policy is now limited in scope. Today, GC+ is mainly present in France, Poland,

TABLE 9.5 Geographical Distribution of

TABLE 9.6 Geographical Distribution of Individual

UMG Revenues, 2014 v. 2013 (%)

Subscribers to Canal+ Group

Europe North America Asia Rest of the world

2014

2013

41 39 11 9

39 40 12 9

Source: Vivendi, Rapport financiers et états financiers consolidés 2014, p. 24, www.vivendi. com/wp-content/uploads/2015/02/20150227_ Rapport_financier_et_etats_Financiers_consolides_ audites_de_l_exercice_2014.pdf

Geographical area

Subscribers at December 31, 2014, in thousands

Variance (%) from 2013

Continental France International Poland French overseas territories Africa Vietnam Total

6,062 4,986 2,146 494 1,552 794 11,048

–29 +634 –51 +9 +469 +207 +605

Source: Vivendi, Communiqué de presse, p. 28, www.vivendi. com/wp-content/uploads/2015/02/20150227_VIV_Pres_ FY_2014_FR_FINALE.pdf

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Africa, and Vietnam. In 2014, GC+ recorded an increase in sales through the development of its international business, which offset the slowdown in its business in France. Table 9.6 clearly shows that the number of subscribers to Canal+ decreased in Europe but increased elsewhere, especially in Africa and Vietnam. GC+ also practiced a partial vertical integration of the pay-TV sector, especially in France, where the Group is present from upstream to downstream in production, channels, and a satellite bouquet. However, Vivendi recently sold its cable television network. Market powers relating to vertical integration and the fact that GC+ largely dominates the French market for pay television have been reduced by recent decisions of the “Autorité de la Concurrence,” a French Trade Commission. These decisions also reduce the market power that could result from the recent purchase of two commercial channels. In July 2012, the Autorité de la Concurrence issued two decisions that prohibit exclusive relations between GC+’s channels, StudioCanal and Canalsat, establish a three-year framework for film rights purchases (instead of 6 years previously), and oblige GC+ to sell its 33% stake in Orange Cinema Series, a movie channels package.

Vivendi Village The third segment of Vivendi is Vivendi Village. It offers performing arts ticketing platforms (Digitick in France and See Tickets in the United Kingdom), websites (Wengo, in France), a subscription video on demand (SVOD) service in Germany (Watchever), and an emblematic auditorium in Paris called Olympia. Revenues increased to €96 million in 2014 from €71 million in 2013. However, the current operating income is negative, with –€34 million in 2014 but lower than in 2013 (–€78 million). Note that Vivendi village highlights one of the characteristics of the structure of its revenues. Indeed, nearly half of it comes from subscriptions, accounting for €5 billion in 2013 versus €5.3 billion for other sources of income. Revenue from subscriptions increased 22% in 2013, while other income increased by only 3%.15 Subscriptions are expected to be more stable sources of income than other revenues, such as advertising or sales, because they are less sensitive to changes in economic conditions. Vivendi considers this structure of income as a guarantee for the preservation of an important and stable level of cash flow from operations.

New Developments Vivendi has been interested in distribution platforms for content and services since the late 1990s and early 2000s. The Vizzavi project aimed to provide the various content produced by the company (audiovisual, press, books, recorded music) on the various containers belonging to the company. However, this strategy has not been successful. Several reasons explain this failure. First, the various subsidiaries of the company used different and incompatible IT systems. In addition, they were eager to maintain control of the distribution and exploitation of their content. Then, in the early 2000s, in most European countries there was no broadband Internet and Internet access was charged on a time basis. These two features discouraged use. Finally, online advertising was underdeveloped. The only way to monetize the content offered online was to charge for each unit or by subscription. However, consumers were reluctant to pay because of the high prices of the content, unattractive devices, and the availability of illegal supply. Thereafter, Vivendi renounced its goal of developing a unique platform such as Vizzavi. Instead, the company has agreements with existing platforms. For example, in 2013 GC+ launched a multi-channel network on YouTube. An agreement was also reached with Dailymotion in Canada to offer subscriptions to series, movies, and documentaries.16 Similarly, in 2014, StudioCanal renewed its multi-year agreement with Amazon to offer SVOD services in the U.K.

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and Germany. Amazon will benefit from the exclusive right to distribute the new StudioCanal films in the U.K. and in Germany on SVOD, as well as gaining access to a catalog of hundreds of films.17 In addition, Vivendi also offer its own platforms. For example, Canal+ is the French leader of the SVOD with its Canal Play service. Canal Play had 599,000 subscribers in 2014 versus 156,000 in 2012. This service offers a portfolio of 10,000 programs (40% of French programs).18 In December 2013, GC+ created a mobile application called myCanal through which subscribers can access all content linked to their subscription, live or on demand, and all services associated (TV personal, personalized recommendation, remote recording, etc.).19 In 2014, to accelerate its deployment in the digital sector, GC+ created a new division, called Canal OTT, which brings together all GC+’s platforms. Universal Music Group is also active in platforms. UMG owns 47% of Vevo (the most important part of YouTube’s multi-channel network). VEVO was created in December 2009 in the United States and Canada, in partnership with Sony Music and YouTube.20 Similarly, UMG took several minority interests in digital platforms including Spotify and Deezer.21

Political Profile Vivendi is a limited company (SA) listed on Euronext, Paris. Although no single shareholder owns enough Vivendi shares to control the company, one of them, Groupe Bolloré, has a larger stake than the other shareholders and is aiming to increase its control over the company (Table 9.7). Vincent Bolloré is a key player in French capitalism, with significant links to major French political figures. In March 2015, Groupe Bolloré increased its stake to 8.15%. Vivendi’s ties to the state and lobbying efforts are strong. The two main segments of Vivendi— GC+ and UMG—are at the heart of important public policy issues. Canal+, although it is a private channel, was created at the initiative of the French government in the early 1980s and Canal+ is still the main television partner in the financing of French cinema. In the field of recorded music, internationally but also in various national contexts, including France, the major record labels have been lobbying governments to adopt repressive legislation against piracy. Vivendi’s governance

TABLE 9.7 Vivendi Shareholding Structure (December 31, 2014)

Shareholder

Stake (%)

Voting rights (%)

Groupe Bolloré BlackRock Inc CDC-BPI/DFE Amundi (Crédit Agricole AM/Société Générale AM) PEG Vivendi FCPE groupe Vivendi Epargne FCPE Opus Vivendi The Baupost Group, L.L.C. State Street Corporation (SSC) Southeastern Asset Management, Inc. NBIM (Norges Bank Investment Management) Newton Crédit Suisse Securities (Europe) Limited UBS Investment Bank First Eagle Investment Management DNCA Finance Other shareholders Total

5.14 4.93 3.45 3.44 3.11 1.23 1.88 2.98 2.24 2.02 1.98 1.55 1.48 1.28 1.08 1.08 64.24 100

5.14 4.93 3.45 3.44 3.11 1.23 1.88 2.98 2.24 2.02 1.98 1.55 1.48 1.28 1.08 1.08 64.24 100

Source: Vivendi, Annual Report, 2014, p. 101, accessed March 22, 2015, www.vivendi.com/wp-content/uploads/2015/ 03/DDR_Vivendi_2014_pour_mise_en_ligne_version_francaise.pdf

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is divided between a Supervisory Board, which defines the main directions of the company’s strategy, and a Management Board, which has executive powers. All members of the Management Board are French. Because of the reduction in the perimeter of Vivendi, the number of employees continues to fall.

Ownership Vincent Bolloré’s career has taken him to a national and even, in some ways, international position. He managed several corporate buyouts that have ensured the success of Groupe Bolloré, which has a particularly strong presence in Francophone Africa. In addition to rubber plantations, Groupe Bolloré is the leader in logistics in Francophone Africa and controls ports such as Abidjan (Côte d’Ivoire), Conakry (Guinea), and Misrata (Libya).22 Many of its activities are related to the political sphere, especially through public procurement. Vincent Bolloré is also a friend of the former French president, Nicolas Sarkozy. Since the early 2000s, Groupe Bolloré has sought to invest in the media sector. Vincent Bolloré made several unsuccessful hostile takeover bids for TF1, the main French commercial television channel. TF1 is said to be a very important opinion leader, based in particular on the fact that with about 40% of audience share, the TF1 news was, in the 1990s, the most watched by the French. Various journalistic investigations have supported this point of view and have also studied the occult relationship between high-level French politicians and the leaders of Groupe Bouygues (construction and civil engineering), the main shareholder of TF1. The best known is that conducted by Pierre Péan and Christophe Nick.23 At the beginning of 2004, Groupe Bolloré took a 36.2% stake in Havas, and In October 2014 it launched a public exchange offer that led to 72.81% control of Havas.24 The former head of Havas, Alain de Pouzilhac, resigned in June 2005 and Vincent Bolloré became chairman. Yannick Bolloré, the son of Vincent Bolloré, now (2015) chairs Havas. Havas has its origins in the first French news agency, founded by Charles-Louis Havas in 1835. Havas merged with Vivendi in 2000. Some of the assets of Havas, including advertising, were subsequently transferred from Vivendi to a separate new company. In April 2012, as rumors suggested that a takeover of Vivendi was being planned, Vincent Bolloré took advantage of the low share price to make important investments in Vivendi. Groupe Bolloré sold Vivendi two commercial TV channels, Direct 8 and Direct Star, in exchange for a 1.7% stake in Vivendi. At the same time, Groupe Bolloré also acquired 2.2% of Vivendi, raising its stake to 5%. In March 2015 it acquired new shares, thus holding 8.15% of the voting rights.

Ties to the State and Lobbying Efforts The two main segments of Vivendi—GC+ and UMG—are at the heart of important public policy issues. The history of Canal+ is a political one. Canal+, although a private channel, was created at the initiative of the French government in the early 1980s. In 1982 the French President of the Republic, François Mitterrand, announced the creation of this channel, which would have cultural bias. The project was later shifted to the cinema. The mission to create Canal+ was given by the government to private industrial players but close to political power. Havas has played the lead role. This pay-TV channel, the first in France, was then then given the task, through the specifications imposed by the French government, to contribute to the financing of French cinema. In fact even today, Canal+ is the main television partner involved in financing of French cinema. This requirement is still part of its regulatory obligations. Canal+ has to spend 12.5% of its annual revenues on the acquisition of European films, including 9.5% of French films. Each year, Canal+ is also obliged to invest at least 3.6% of its total net resources from the previous year in national works (works of fiction, animation, documentary

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creation, music, and video-capture live shows or recreation). A portion of these expenses (at least 3.1% of resources) is also devoted to the development of independent production. However, today, in order to retain subscribers, Canal + is less interested in French cinema and more in other programs, including sports broadcasts, television series, and American films. In fact, when Vivendi acquired assets in audiovisual production in the United States, the obligations of financing French cinema appeared unnecessary and costly to Vivendi’s management. So there is a contradiction between the mission of Canal+ for its film investment and its inclusion in financial capitalism. Consequently, Jean-Marie Messier, the former chairman of Vivendi, has developed a lobbying campaign to attack the French policies on cinema and audiovisual, and especially the obligations of Canal+. He has asked for the end of the cultural exception adopted under the Marrakech agreements that founded the World Trade Organization in 1994. He opposed the cultural exception to cultural diversity. He presented himself as the champion of cultural diversity, stressing that the mechanisms of the market not only respect diversity but actually went further. He stressed that due to its industrial and financial power, Vivendi was able to offer differentiated cultural products and thereby promote cultural diversity. According to this view, policies are less efficient than the free market. In the field of recorded music, internationally but also in various national contexts, including France, the major record labels have been lobbying governments to adopt repressive legislation against piracy. In France, Universal, alongside other players in the music and audiovisual industry, has played a big role in the adoption of the “Creation and Internet” law (June 12, 2009) called HADOPI (High Authority for the Dissemination of works and Protection of rights on the Internet). It complements a previous law adopted on August 1, 2006 covering copyright and related rights in the information society (DADVSI). These laws transposed into French national law a 2001 European directive and have created many debates in France. The Constitutional Council sanctioned some legislation contrary to freedom of expression in 2009, including the fact that an administrative authority can prohibit access to the Internet to any individual deemed to be a hacker. UMG continues to actively support this type of regulation for intellectual property rights.

Board of Directors and Interlocks with Other Organizations Vivendi’s governance is divided between a Supervisory Board, which defines the main directions of the company’s strategy, and a Management Board, which has executive powers. Vivendi’s governance changed in June 2014 with the appointment of a new Chairman of the Supervisory Board, Vincent Bolloré, who has been Vice-Chairman since 2013. Arnaud de Puyfontaine was appointed as the new CEO. The Management Board also includes Hervé Philippe, Chief Financial Officer, and Stéphane Roussel. All members of the Management Board are French. Table 9.8 shows that most of the members of the Supervisory Board are not high-profile international personalities, with the exception of Katie Jacobs Stanton, Vice-President at Twitter. Only four members connect Vivendi to other major international companies: Philippe Bonnet (Generali Italy), Alexandre de Juniac (Air France KLM), and Henri Lachmann (Schneider Electric) and Katie Jacobs Stanton.

Labor In 2012 Vivendi had 58,000 employees,25 but in 2013 this number had fallen to 41,439 because of major disposals.26 At the end of 2014, as indicated in Table 9.9 below, Vivendi had 33,558 employees (15,571 not including those connected with GVT, the sale of which was completed in May 2015. One of the advantages of assignments since 2012, from the company’s point of view, is the significant reduction in the number of employees and thus the company’s fixed costs.

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TABLE 9.8 Supervisory Board (December 31, 2015)

Vincent Bolloré Président

Groupe Bolloré’s Chairman

Pierre Rodocanachi

Management Patrimonial Conseil’s Chairman. Vice-Président

Philippe Bénacin

Interparfums’s Chairman/ Enablon, Member of the Board Zephyrus Partners (U.K.), Non-executive Chairman

Nathalie Bricault

Représentante des salariés

Pascal Cagni

Kingfisher Plc, Non-executive Chairman Banque Transatlantique, Member of the board

Daniel Camus

Roland Berger Strategy Consultants à Paris et Düsseldorf, Senior Advisor/ Cameco Corp. (Canada), Member of the Board Morphosy AG (Germany), Member of the Board SGL Carbon AG (Germany), Member of the Board

Paulo Cardoso

representative of the employees

Yseulys Costes

1000mercis’s Chairman/ Kering, Member of the Board SEB, Member of the Board Numergy, Member of the Board

Philippe Donnet

Directeur général de Generali Italie/

Aliza Jabès

Nuxe Group’s Chairman/ Fédération des entreprises de la beauté (FEBEA), Member of the Board Syndicat français des produits cosmétiques de Conseil pharmaceutique (SFCP), Chairman

Alexandre de Juniac

Air France-KLM’s Chairman

Henri Lachmann

Schneider Electric’s Chairman/ Centre chirurgical Marie Lannelongue’s Chairman Fimalac, Censor Comité d’orientation de l’Institut de l’Entreprise, Membre ANSA, Member of the Board

Virginie Morgon

Eurazeo, Director and Chief Investment Officer/ APCOA Parking AG (Germany), Chairman APCOA Parking Holdings GmbH (Germany), Chairman APCOA Group GmbH (Germany), Administrator Eurazeo PME, Chairman Holdelis, Member of the Board LH APCOA, Director Broletto 1 Srl (Italie), Chairman Euraleo (Italie), Administrator Legendre Holding 33, Chairman Moncler SpA (Italie), Vice-President L’Oréal, Administrator Accor, Member of the Board Intercos SpA (Italie), Administrator Women’s Forum (WEFCOS), Member of the Board

Katie Jacobs Stanton

Vice president Global Media of Twitter

Source: Vivendi, accessed March 22, 2015, www.vivendi.com/vivendi/gouvernance/conseil-de-surveillance/

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TABLE 9.9 Number of Employees by Segment in

TABLE 9.10 Number of Employees by Region,

2014

December 31, 2014

Groupe Canal+ Universal Music group GVT Vivendi Village Holding & Corporates Total

7,033 7,592 17,987 748 198 33,558

Source: Vivendi, Annual Report 2014, p. 11, accessed March 20, 2015, www.vivendi.com/wp-content/uploads/ 2015/03/20150313_Viv_Document_de_ref_2014_version _franc%CC%A7aise.pdf

France Other parts of Europe North America Africa Asia-Pacific Latin America

5,409 4,753 2,725 937 1,388 18,346

Source: Vivendi, Annual Report 2014, p. 11, www. vivendi.com/wp-content/uploads/2015/03/20150313_ Viv_Document_de_ref_2014_version_franc%CC%A7aise. pdf

Table 9.10 provides a breakdown of Vivendi’s employees by region. The presence of a significant number of employees in Latin America, still recorded in 2014, is explained by the high number of employees of the Brazilian telecommunications operator GVT, which has since been sold. Now, most of Vivendi’s employees are based in Europe.

Cultural Profile Since the early 2000s, Vivendi has promoted a culture based primarily on industrial cultural products, especially from the U.S. majors. Today, Vivendi’s contributions to public debates are mainly related to the defense of its intellectual property rights (IPR). The previous ideology was based on the idea that industrial players linked to the State, especially through public procurement, could promote French culture abroad and give France strong cultural industries. Now, UMG and GC+ have a significant presence, respectively, in transnational and French culture. UMG, the world leader in the music industry, has a very extensive catalog. GC+, and in particular the pay-TV channel Canal+, is a major player in the French audiovisual culture. Its programming is focused on French and American cinema as well as successful American television series.

Symbolic Universe and Ideology Vivendi’s commercial culture is associated with the promotion of globalization driven by large transnational actors like Vivendi Universal. This ideology is quite different from that which led the company to diversification in the media during the 1990s. These cultural industries were supposed to contribute significantly to GDP and employment, but these hopes have been dashed. The promotion of IPR requires the willingness to promote artistic talent, including singers, musicians, actors, and directors.

Example(s) of Popular Products/Services and Place in Culture UMG and GC+ have a significant place, respectively, in transnational and French culture. UMG, the world leader in the music industry, has a very extensive catalog strengthened by the acquisition of EMI in 2012. The group is also a leader in the management of artists. For example, UMG fostered the emergence of four new stars in 2014: Sam Smith, Iggy Azalea, 5 Seconds of Summer, and Ariana Grande. UMG won four major trophies at the Grammys with Sam Smith and Beck. According to the Nielsen rankings, six UMG albums were among the top 10 in the U.S. in 2014, including the top three (with the soundtrack of the Disney movie Frozen, 1989 by Taylor Swift, and In The Lonely Hour by Sam Smith).27 In France, UMG signed the three best albums of the

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year with Stromae, Indila, and Kendji Girac.28 In addition, UMG has major pop music labels, such as Capitol Music Group, Interscope Geffen A&M, Republic Records, Island Records, Def Jam Recordings, and Universal Music Group Nashville Polydor; and classical music and jazz, such as Blue Note Records, Decca, Deutsche Grammophon, and Verve. UMG also owns the largest catalog of recorded music in the world, with a wide range of artists including ABBA, Louis Armstrong, The Beatles, The Beach Boys, Andrea Bocelli, Elton John, Guns’n’Roses, Nirvana, The Rolling Stones, André Rieu, Frank Sinatra, and Amy Winehouse.29 GC+, and in particular the pay-TV channel Canal+, is a major player in French audiovisual culture. Its programming is focused on French and American cinema as well as successful American television series like Game of Thrones. GC+ also produced its own television series, including prestigious ones like The Borgias for example. Canal+ also has exclusive distribution rights to some very prestigious sporting events, including sports coverage for football and rugby, which are extremely popular. Canal+ is also the co-producer of most of the films produced in France and also produces films abroad. In 2014, two of its films generated more than $200 million in revenue,30 including Non-Stop by Jaume Collet-Serra, produced in March 2014 and starring Liam Neeson and Julianne Moore. This movie went straight to the top of the global box office with $56 million in revenue after the first opening weekend. As of late February 2015, the film had accumulated $236 million in revenue globally. Similarly, Paddington, produced by David Heyman (the Harry Potter series, Gravity, and others) and starring Hugh Bonneville and Nicole Kidman, was a major success. As of February 4, 2015, Paddington exceeded $200 million in revenue worldwide, which was a record for a family film produced by an independent studio.31

Cultural Exports/Imports to/from Other Countries In the early 2000s, Vivendi Universal was strongly positioned in the United States and Europe, as indicated in Table 9.11. Today, after significant divestitures, especially the sale of the entire American audiovisual division, Vivendi is mainly positioned in France (44%) and the rest of Europe (27%); 71% of the revenues of Vivendi derive from Europe. GC+ is a major player in the creation of original audiovisual material in France and in Europe, while the group also contributes to the distribution of audiovisual programs. GC+ sells series in more than 80 countries worldwide. Moreover, the group is the main European studio for production and distribution with a global catalog of over 5,000 titles. Similarly, Canal + has agreements with most major Hollywood studios including Universal, Warner Bros, Walt Disney Pictures, Paramount, 21st Century Fox, and HBO, making it the first to distribute new American films in France. Thus, while Canal+ TV is the chief funder of French cinema, the group is a vector for the penetration of foreign content in France and Europe, especially successful American movies and series. Furthermore, Canal+ is present in more than 25 countries in Africa, mostly in Francophone Africa. In this region, the Group is the leader in the pay-TV market. Canal+ Africa has 1,552,000 subscribers as of 2014 compared with just 706,000 in 2012. GC+ communication stresses that A+, the new African channel group launched in October 2014, is “made by Africans TABLE 9.11 Geographical Distribution of Sales in 2014 (%)

France Other parts of Europe North America Other parts of the world

44 25 17 14

Source: Vivendi, Résultats annuels 2014, p. 6, accessed March 19, 2015, www.vivendi.com/wp-content/uploads/2015/02/20150227_ VIV_Pres_FY_2014_FR_FINALE.pdf

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for Africans.” However, of the €29 million invested by the Group in broadcast programs in Africa (excluding sports rights), only €3 million has been invested in African production.32 The group is also active in Vietnam with K+, which had 794,000 subscribers in 2014 versus 424,000 in 2012.

Conclusion Before addressing the strengths of Vivendi, its weaknesses should be mentioned. Since the transformation of the CGE into Vivendi, the scope of the company has been very unstable. Indeed, in the late 1990s and early 2000s Vivendi made very significant acquisitions. Vivendi became a conglomerate of cultural industries and telecommunications that was positioned in various continents but with no synergies between these components. In fact, these acquisitions, justified in the name of convergence and digitalization, had mainly financial goals, even if most of them were badly negotiated. In the 15 most recent years of Vivendi’s history, the role of financialization has played a very important role in major strategic decisions. Of course, digitalization is a major issue for Vivendi, but the industrial choices are first conditioned to financial opportunities or financial impossibilities, including the ability to raise funds and the need to satisfy shareholders by distributing dividends. Thus, almost immediately after buying substantial assets in broadcasting in the United States, Vivendi gradually sold most of its assets. The company was faced with a very difficult financial situation. From being the world’s second largest company in the entertainment industry in 2002, Vivendi is now a medium-sized player combining two components with no clear synergies: Universal Music Group, the world leader in the music industry, and Groupe Canal+, which largely dominates the French pay-TV market. UMG’s market power is associated with holding very extensive catalogs, the ability to control international distribution, attracting renowned artists, investing heavily in promotion, and lobbying governments to defend intellectual property rights. GC+’s market powers are related to the fact that it can access the best programs before other television providers in Europe. In the case of French cinema, media chronology guaranteed GC+ a right to broadcast films before other television channels. Furthermore, GC+ can play on the acquisition prices of programs and on prices to consumers. The political and linguistic ties between Francophone Africa and France also help its strategy of internationalization. UMG and GC+ now face piracy and competition from transnational actors in the communication industries (Google, Apple, Amazon, etc.), with whom they have complex relationships of cooperation but also competition. UMG and GC+ try to develop platforms to directly distribute their content to consumers but, at the same time, they negotiate with companies in the communication industries, including major players like YouTube or smaller ones like Deezer, to ensure access to their platforms. Overall, despite their market power, the operating conditions of UMG and GC+ appear to be degraded as the power of companies in the communication industries increases. These players impose their platforms, their pricing strategies, and contents valuation methods that match their own interests but not necessarily those of the producers.

Notes 1 Vivendi, Résultats annuels, p. 8, accessed March 19, 2015, www.vivendi.com/wp-content/uploads/ 2015/02/20150227_VIV_CP_Resultats_Annuel.pdf 2 Vivendi, Présentation presse, p. 28, www.vivendi.com/wp-content/uploads/2015/02/20150227_VIV_ Pres_FY_2014_FR_FINALE.pdf 3 Vivendi, Rapport financier et états financiers 2014, p. 14, accessed March 19, 2015, www.vivendi. com/wp-content/uploads/2015/02/20150227_Rapport_financier_et_etats_Financiers_consolides_ audites_de_l_exercice_2014.pdf

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4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

Philippe Bouquillion

Yahoo Finance, accessed March 20, 2015, https://fr.finance.yahoo.com/q?s=VIV.PA Yahoo Finance, accessed March 20, 2015, https://fr.finance.yahoo.com/q?s=DIS Yahoo Finance, accessed March 20, 2015, https://fr.finance.yahoo.com/q?s=TWX Yahoo Finance, accessed March 20, 2015, http://finance.yahoo.com/q/ks?s=NWS+Key+Statistics Vivendi, Investor Presentation, January 2015, p. 2, accessed March10, 2015, www.vivendi.com/wpcontent/uploads/2015/01/Investor-presentation_January-2015.pdf Vivendi, Communiqué de presse du 27 février 2015, p.5, accessed March10, 2015, www.vivendi.fr/ wp-content/uploads/2015/02/20150227_VIV_CP_Resultats_Annuel.pdf Vivendi, Communiqué de presse du 27 février 2015, p.3, accessed March10, 2015, www.vivendi.fr/ wp-content/uploads/2015/02/20150227_VIV_CP_Resultats_Annuel.pdf Vivendi, Communiqué de presse du 27 février 2015, p.3, accessed March10, 2015, www.vivendi.fr/ wp-content/uploads/2015/02/20150227_VIV_CP_Resultats_Annuel.pdf IFPI, accessed March 20, 2015, www.ifpi.org/facts-and-stats.php Vivendi, Rapport annuel 2014, p. 4, www.vivendi.com/wp-content/uploads/2015/03/20150313_Viv_ Document_de_ref_2014_version_franc%CC%A7aise.pdf Vivendi, Rapport annuel 2014, p. 4, www.vivendi.com/wp-content/uploads/2015/03/20150313_Viv_ Document_de_ref_2014_version_franc%CC%A7aise.pdf Vivendi, Investor Presentation, January 2015, p. 7, www.vivendi.com/wp-content/uploads/2015/01/ Investor-presentation_January-2015.pdf Vivendi, Présentations investisseurs, 2013, p.13, www.vivendi.com/analystes-investisseurs/resultats-etrapports-financiers/resultats-financiers-du-groupe/#!/2013 Vivendi, Rapport financier et états financiers consolidés, p.11, www.vivendi.com/wp-content/ uploads/2015/02/20150227_Rapport_financier_et_etats_Financiers_consolides_audites_de_l_exercice_ 2014.pdf Vivendi, Communiqué de presse, p.10, www.vivendi.com/wp-content/uploads/2015/02/2015 0227_VIV_Pres_FY_2014_FR_FINALE.pdf Vivendi, Rapport annuel 2013, p. 16, www.vivendi.com/analystes-investisseurs/resultats-et-rapportsfinanciers/resultats-financiers-du-groupe/#!/2013 Les Échos, « Vevo veut révolutionner la vidéo musicale sur Internet », December 10, 2009. Vivendi, Présentations investisseurs, 2013, p.11, www.vivendi.com/analystes-investisseurs/ resultats-et-rapports-financiers/resultats-financiers-du-groupe/#!/2013 Financier habile, Vincent Bolloré a bâti un empire très diversifié, DH.BE, accessed March 10, 2015, www.dhnet.be/dernieres-depeches/afp/financier-habile-vincent-bollore-a-bati-un-empire-tres-diversifie53a999a83570c0e74341bd20 Péan, Pierre, Nick Christophe, TF1, Un Pouvoir, éditions Fayard, 1997. La tribune, January 15, 2015, “Succès de l’OPE sur Havas: le rêve de Bolloré prend forme,” accessed March 10, 2015, www.latribune.fr/technos-medias/medias/20150115tribb74216ef5/succes-de-l-ope-sur-havasle-reve-de-bollore-prend-forme.html Vivendi, accessed March 23, 2015, www.vivendi.com/vivendi/chiffres-cles/ Vivendi, accessed March 23, 2015, www.vivendi.com/analystes-investisseurs/resultats-et-rapportsfinanciers/resultats-financiers-du-groupe/#!/2013, p. 9 Vivendi, Communiqué de presse, p.8, accessed March 20, 2015, www.vivendi.com/wp-content/ uploads/2015/02/20150227_VIV_Pres_FY_2014_FR_FINALE.pdf Vivendi, Rapport financier et états financiers consolidés 2014, p.25, accessed March 20, 2015, www.vivendi.com/wp-content/uploads/2015/02/20150227_Rapport_financier_et_etats_Financiers_ consolides_audites_de_l_exercice_2014.pdf Vivendi, Annual report 2014, p. 26, accessed March 10, 2015, www.vivendi.com/wp-content/ uploads/2015/03/20150313_Viv_Document_de_ref_2014_version_franc%CC%A7aise.pdf Vivendi, Communiqué de presse, 2015, p.9, accessed March 22, 2015, www.vivendi.com/wpcontent/uploads/2015/02/20150227_VIV_Pres_FY_2014_FR_FINALE.pdf Vivendi, Rapport financier et états financiers consolidés 2014, p.10, accessed March 20, 2015, www.vivendi.com/wp-content/uploads/2015/02/20150227_Rapport_financier_et_etats_Financiers_ consolides_audites_de_l_exercice_2014.pdf Vivendi, Rapport annuel 2014, Document de référence, p. 18, accessed March 11, 2015, www.vivendi. com/wp-content/uploads/2015/03/DDR_Vivendi_2014_version_francaise.pdf

10 MEDIASET (GRUPPO MEDIASET)

Benedetta Brevini and Lukasz Swiatek

With net revenues amounting to approximately €3,414 billion,1 Mediaset, the brainchild of Italy’s former prime minister Silvio Berlusconi, is positioned 47th in the annual ranking of the world’s 50 largest media corporations.2 But Mediaset is more than a successful media company. What makes it the secret dream of every media mogul is its unrivalled concentration of symbolic, political, and economic power that has been influencing the fate of Italian society for more than three decades. This chapter traces the growth of Mediaset’s unrivalled power by looking at specific case studies that unveil the significance of its influence within the political, economic, and cultural domains. In the 30 since after its launch as a local private television station, Mediaset has transformed into a fully vertically integrated corporation that controls all phases of the television business in a networked structure, mainly based in Italy and Spain (through the Telecinco group). It spans content production (e.g., Videotime and Fascino-Produzione Gestione Teatro), advertising (Publitalia ’80), the licensing of rights for films and sports events, packaging (RTI and Gestevision Telecinco), and transmission and distribution networks (Elettronica Industriale).

History Mediaset S.p.A.3 (the Mediaset Group) is Italy’s largest provider of commercial television. It was officially formed in 1995, though its origins extend back to 1974. That year, Giacomo Properzj and Alceo Moretti established TeleMilanocavo (TeleMilanocable) for the town of Milano Due (Milan Two), which was a new residential complex developed by the (then) real estate entrepreneur Silvio Berlusconi.4 TeleMilanocavo was created for residents as a free cable channel with local news. Berlusconi initially considered it to be “an amusing optional extra” for the town as part of the residential services it provided.5 However, in 1978, he purchased the channel, by then renamed TeleMilano 58, switched it from cable to terrestrial broadcasting, and renamed it as Telemilano Canale 58 (Telemilan Channel 58).6 These developments were made possible thanks to sentence 202/1976, developed by Italy’s Constitutional Court, which declared that the state’s monopoly over local broadcasting was unconstitutional; the judgment broke the domination of RAI (Italy’s state-owned public service broadcaster) and ushered in the “deregulation phase” of liberalized public broadcasting, enabling commercial broadcasting and competition in the industry.7 The original Mediaset embryo began to grow strongly from that time. In 1978 the holding company Fininvest was established, and it began to acquire key television channels (and would later act as the umbrella organization for a number of different communication groups, including

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Mediaset). To bypass legislation that allowed only RAI to broadcast nationally, Berlusconi created a network of regional television companies that transmitted the same programmes simultaneously, and thereby achieved de facto national coverage.8 Telemilano Canale 58 was renamed Canale 5 in 1980 and expanded into a national circuit of broadcasters. Fininvest bought Italy’s two other main television stations—Italia 1 and Retequattro—in 1982 and 1984, respectively.9 The legality of the national television network was successfully challenged in 1984, as the channels were found to be in breach of broadcasting laws for transmitting nationally rather than locally. The stations were partially blacked-out and broadcasting equipment was confiscated in Turin, Rome, and Pescara. However, instead of following the demands for pluralism of the Constitutional Court (1988), the so-called “Legge Mammì” of 1990 (Mammi Law, from the name of the Minister who sponsored it) legitimized the RAI–Mediaset duopoly, allowing it to operate three analogue channels each (Law 223/90, 1990). The move salvaged the channels but simultaneously created the RAI–Mediaset duopoly. Accounting for over 90% of Italy’s market, the duopoly between the two networks prevented entry by competitors, which has been a feature of the country’s broadcasting system ever since.10 Operations continued to grow and expand as the current version of Mediaset gradually took shape. Reti Televisive Italiane, or RTI (the Italian Television Network) was formed from the three channels in 1984. It was supported by three companies: Publitalia ’80 (founded in 1979), an advertising sales company; Videotime (estabished in 1981), which managed television technology and production activities; and Elettronica Industriale (acquired by Fininvest in 1980), which managed broadcasting infrastructure.11 Fininvest also acquired Mondadori, Italy’s largest book and magazine publisher, in 1991. At the same time, Berlusconi was building his political career. He founded the Forza Italia Party in 1993 and, following the party’s electoral win, became prime minister in the spring of 1994. However, the coalition into which Forza Italia entered collapsed within a few months and the government had fallen by December.12 In 1995, Mediaset was formed after RTI, Publitalia, Videotime, and Elettronica Industriale were consolidated into one group. It became a public stock company in 1996 after it was listed on the Milan stock exchange. Mediaset was one of the most profitable television companies in the world at the time, thanks to its monopoly position within the Italian market. Attempts to internationalize the company met with varying degrees of success. The acquisition of a 25% stake in the Spanish broadcaster Telecinco in 1997 proved effective and, in 2003, Mediaset became its major shareholder, with 50.1% of the shares. By contrast, a cross-ownership venture with the German Kirch media group in 1999 resulted in the loss of €400 million.13 Berlusconi was elected as prime minister for a second time in 2001, a position he held until 2006. Questions about conflicts of interest were raised regularly during this period, with critics claiming that Berlusconi introduced favorable legislation for Mediaset to increase its profits, and that he now wielded a high degree of political influence over both of the country’s key broadcasters: Mediaset and RAI.14 Nonetheless, Mediaset continued to expand its services. For example, it launched the children’s channel Boing in 2004, built Europe’s first digital terrestrial mobile TV network in 2006, and bought a controlling interest in the Dutch production company Endemol in 2007,15 although it sold its final holdings in that company in 2012.16 It also emerged in a strong position from the global financial crisis, while other media organizations suffered declines in revenue. The group’s stability was ensured largely by strong investments in advertising.17 In recent years, though, revenues have varied, with a three-year decline reported recently.18

Economic Profile A number of elements contribute to Mediaset’s economic profile. In Italy, the group holds three freely receivable terrestrial channels nationwide (Canale 5, Italia 1, and Rete 4) and a pay-television

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service (Mediaset Premium). It also owns the advertising agency Publitalia ‘80 and the RTI production company, through which it produces, among other things, television programmes, including sitcoms and soap operas (through Videotime S.p.A. and Mediavivere S.r.l.),19 cinema (through Medusa Film S.p.A.), theatre (through Fascino PGT S.r.l.), and advertisements (through Media Shopping S.p.A.). It also owns the film production company Medusa Film.20 The group’s foreign investments include Mediaset España Comunicación S.A.,21 which offers six television channels (Telecinco, Cuatro, Factoría de Ficción, Boing, Divinity, and Energy). It also owns the advertising agency Publiespaña, the film production company Telecinco Cinema, and Pegaso Televisión, which owns the CaribeVisión channel that broadcasts in Puerto Rico and America.22 Spain is the group’s largest site of foreign investment, but Mediaset Investment S.a.r.l.23 also holds 49% of the Chinese channel Sportnet Media Limited, and a 25% stake in Nessma TV (based in Tunisia and broadcast around the Mediterranean and North Africa).24 A range of contextual factors shapes Mediaset’s financial position. Among the most important, as mentioned in the previous section, is Italy’s television duopoly, which has long benefited the group.25 Aiding its growth has also been television’s status as the dominant medium in the country.26 Despite the acute recession of Europe and Italy in particular, and the continuous decline of the Italian advertising market, the television revenues of Mediaset kept growing until 2010. Since then, a decrease of revenues has also impacted Mediaset, but at a much slower pace than the advertising market of Italy.27 Despite a slight decline in its advertising revenue and the steady growth of satellite television, Mediaset continues to dominate the Italian television market alongside RAI. This is true regarding its audience share (31.9% in 2013) against 38.6% for RAI, but also for its overall free-to-air-television market share. The two companies jointly account for more than 70% of the total Italian audience. Table 10.1 shows the annual audience percentage of both Mediaset and RAI from 2007 to 2013.28 As these figures indicate, Mediaset has experienced a decline in audiences of nearly 10% between 2007 and 2013.29 In terms of pay-television, 21st Century Fox/Sky Italia continues to be the market leader with a market share of 78%. Mediaset’s market share is considerably lower, at 19%, though it has been growing each year. From 2009 to 2013, respectively, Mediaset’s pay television market share grew as follows: 10.6, 15.1, 17.0, 17.6, and 19.1%.30 In 2013 RAI had 49.4% of the market share, followed by Mediaset at 35.1% and Cairo Communication at 2.9%. Mediaset’s market share has declined over time (from 41.1% in 2009, through 42.3% in 2010, 41.2% in 2011, 37.8% in 2012, to 35.1% in 2013), though RAI and Mediaset still dominate the market as shown in Table 10.2. Audiences also primarily demand content from these two market leaders, which offer the widest selection of free television channels. Mediaset services continue to be consumed readily by audiences for a number of reasons. One is that Mediaset offers a variety of channels. Several new free-to-air channels have been added over the years, bringing the total to 11, and the group now offers the following: Canale 5, Italia 1, Rete 4, Boing, Cartoonito, Iris, La5, Mediaset Extra, Italia 2 Mediaset, TgCom24,

TABLE 10.1 Audience Share of Italian TV Market (on an average day) by Year

RAI Mediaset 21st Century Fox/ Sky Italia Other Total

2007

2008

2009

2010

2011

2012

2013

41.8 40.5 4.4

42.3 39.4 4.4

40.6 39.5 4.6

41.3 37.4 4.9

40.2 35.4 5.6

39.8 33.9 6.4

38.6 31.9 6.1

13.3

13.9

15.3

16.5

18.8

20.1

23.4

100

100

100

100

Source: AGCOM (2014), processed by the Authority using Auditel data

100

100

100

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TABLE 10.2 Free TV Market Shares of the Main Operators

2009 RAI Mediaset Telecom Italia Media Cairo Communication Discovery Other operators Total HHI concentration index

45.9% 41.1% 2.6% 0.4% – 10.0% 100% 3,809

2010 45.8% 42.3% 2.6% 0.4% – 8.9% 100% 3,903

2011 45.9% 41.2% 2.9% 0.7% 0.4% 8.8% 100% 3,819

2012 47.2% 37.8% 2.9% 0.7% 1.0% 10.4% 100% 3,669

2013 49.4% 35.1% – 2.9% 2.4% 10.2% 100% 3,682

Source: AGCOM (2014)

and Top Crime. By comparison, RAI offers 14 channels.31 Another reason for Mediaset’s strong consumption is the fact that it and RAI are still the two major daily news providers in Italy.32 A third reason lies in Mediaset’s intensified efforts to introduce technical and commercial tools that facilitate individual consumption, and improve the quality of its offerings in order to encourage users to increase the quantity of their consumption. The MediasetPlay service is an example of these efforts. An additional reason is the general increase in time dedicated to the consumption of digital services.33

Mediaset’s Success in the Spanish Market Spain’s television sector, like Italy’s, features a duopoly, comprising Mediaset España and Atresmedia Televisión. Mediaset España is now the largest broadcasting group in Spain, thanks to its acquisition of the television channel Cuatro in 2010. The move earned the group €952 million, eight digital terrestrial television channels, two free-to-air channels, and 25% of the audience share.34 The acquisition was the first concentration deal between television channels in Spain after policy changes in 2009 and 2010. However, Mediaset España was fined €15.6 million in February 2013 by the Spanish Competition Commission for failing to meet its commitments related to the merger of the two channels. Two years later, the Spanish watchdog announced that Telecinco and Cuatro had not met their merger commitments, and that it would open an inquiry that could lead to possible sanctions.35 As the largest broadcasting group in Spain, Mediaset España earns the lion’s share of revenue. In 2012, for example, the national free-to-air television networks collectively earned a total of €1,643.9 million (down from €1,977 million in 2011). Mediaset España earned €821.5 million, which represents nearly half of the total annual revenue in Spain. Mediaset España’s competitor channels, Antena 3 and La Sexta (both owned by Atresmedia Televisión), earned €754 million. The two groups alone generated €1,575.5 million from advertising sales, representing 90% of the total revenue for the market and highlighting the duopoly in the Spanish television sector.36 Mediaset España and Atresmedia also dominate Spain’s television advertising revenue. Mediaset España attained 34% of Spain’s television advertising market in 2011 (up from 32.7% in 2010 and 24.4% in 2009). In 2012, television attracted 60% of all of the advertising investment in conventional media, excluding advertising outdoors and on the Internet. This is a trend that has tended to increase each fiscal year, signalling a displacement of advertising from conventional media (such as newspapers, cinema, and radio) towards the large mainstream television channels, which are able to reach any region in Spain.37 Television audiences, unsurprisingly, are also largely divided between by Mediaset España and Atresmedia. In 2012, Mediaset España drew 28.1% of the audience on free-to-air television channels

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while Atresmedia drew 25.8%, followed by RTVE (the state-owned Spanish Radio and Television Corporation) at 18.9%.38 In recent years, Telecinco, Mediaset España’s flagship channel, has lost the long-standing audience leadership that it had maintained since 2005. Telecinco and its rival Antena 3 have competed fiercely against each other in recent years on prime-time celebrity programming. Both stations tend towards a sensationalist news topic selection and treatment. Telecinco, specifically, has been dominated by entertainment programming; in 2011, nearly half (49.6%) of its schedule was entertainment-based. Similarly, the channel Cuatro, after being acquired by Mediaset España in 2010, was repositioned toward a young and adolescent market. Previously, it provided international drama for adult urban audiences.39

Corporate Structure and Corporate Responsibility Forty years after being established as a small local news channel, Mediaset now operates as a fully integrated mass media company that controls every aspect of its broadcasting operations. These include: program creation, production, and broadcasting; trading licensing rights for films and sports events; and marketing.40 The group’s expansion and diversification over the years has also had a variety of implications for its ownership structure, corporate responsibility, and political relations. The group’s ownership of the various organizations under its umbrella varies. Some of these have been discussed in previous sections, but Mediaset also fully owns Publitalia ‘80, R.T.I. and Mediaset Investment, while owning 41.55% of Mediaset España. Publitalia fully owns the companies Digitalia ’08, Promoservice Italia, and Publieurope, and holds 50% of Mediamond. R.T.I. owns 99.12% of Videotime, 51% of Boing, 50% of Fascino, 48.16% of Tivu, 10.9% of Class CNBC, 88.88% of Mediaset Premium, and fully owns Mediaset Shopping, Medusa Film (which owns 15% of Cinecittà Digital Factory), Taodue, and Eletronica Industriale, which owns 40.001% of El Towers—the company that provides the necessary network infrastructure for the transmission of Mediaset’s broadcasts. EI Towers fully owns Towertel and holds 24.5% of Beigua. Mediaset Investment owns 25% of Mediacinco Cartera (with Mediaset España owning the other 75%), 12% of Sportnet Media, 25% of Nessma Broadcast, and 34.12% of Nessma, which owns 99.99% of Nessma Entertainment and fully owns Nessma Advertising and Horizon Media International. Mediaset España holds 22% of DTS Distribuidora de Televisión Digital, 43.71% of Pegaso Television (which owns 83.34% of the CaribeVisión TV Network), and fully owns Publiespaña.41

Political Profile Mediaset is owned by the financial holding company Fininvest. The company’s chairwoman is Berlusconi’s eldest daughter, Marina Berlusconi, while Berlusconi’s eldest son, Pier Silvio Berlusconi, was nominated deputy chairman and chief executive on April 29, 2015. Mediaset’s management team has also reflected and served Berlusconi’s interests. Fedele Confalonieri—called “lo Zio” (The Uncle) by the company’s insiders—has been Mediaset’s chairman since Berlusconi entered politics in 1994; he has remained its “true vicegerent,” despite growing influence from individual managers such as Giuliano Adreani, the managing director.42 Along with Confalonieri’s fierce resistance, Berlusconi’s adult children are credited with vetoing their father’s proposed sale of Mediaset to Rupert Murdoch in 1999, even after lengthy negotiations. The children, for that matter, exercise significant roles within the company. Marina Berlusconi, Silvio’s oldest daughter, is the chairwoman of Fininvest and a member of Mediaset’s executive board, as well as the chairwoman of the Mondadori publishing house, which is owned by Fininvest. Eleonora, Barbara, and Luigi Berlusconi also work at the company, with Barbara and Luigi serving on its executive board. Other family members have also been active in other

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media enterprises. Veronica Lario, Berlusconi’s second wife, is one of the publishers of Il Foglio newspaper, while Paolo, Berlusconi’s younger brother, is the publisher of Il Giornale newspaper, owned by Fininvest.43

Ties to the State and Lobbying Efforts While many large media conglomerates exert political influence via financial contributions and through the editorial content of specific media platforms, Mediaset’s unmatched power was due to the arrival of its owner Silvio Berlusconi onto the political scene. Berlusconi was prime minister in 1994, between 2001 and 2006, and from 2008 to 2011. During this time, Mediaset steadily expanded and dictated not only media policy, but also the cultural, political, and public ethos of the country. Mediaset’s political relations have had a decisive impact on its operations and, through its owners (especially Silvio Berlusconi), Italy’s political and media landscape. Until the early 1990s, the group adopted a tactic that was to prove highly successful for its growth: winning over the political class and thereby legitimizing the duopoly in the television broadcasting sector. Berlusconi’s gaining of decisive support for his enterprises in the 1980s from the socialist majority was bolstered by his friendship with Prime Minister Bettino Craxi and Claudio Martelli (deputy leader of the Italian parliament at the time). These relationships helped bolster Mediaset’s operations, particularly after the blackout in 1984. Craxi’s emergency decrees (“Legge Mammì” 223/90) enabled the company to continue broadcasting, while law 10 of 1985 legitimized the private network broadcasting system and entrenched commercial television in the country.44 The “Legge Mammì” of 1990, demanded by the close ally of Berlusconi and Prime Minister Bettino Craxi, legitimized the RAI–Mediaset duopoly, allowing them to operate three analogue channels each (Law 223/90, 1990).45 Both Mediaset and Fininvest benefited from Berlusconi’s entry into the field of politics in 1994. With Berlusconi’s political rise and the unprecedented concentration of media power in his hands, he has been able to impact every area of decision making, especially broadcasting policy.46 Fininvest became subject to legislation enacted by “a political majority led by its main champion.”47 As prime minister, and Italy’s richest man, Berlusconi was able to use his media and political influence on a number of fronts, not least in politics and in the media. He had the opportunity to use his broadcasting network to further his political interests and, at the same time, “preside over the laws and conditions of the television business” in Italy.48 Through his parliamentary majority he also directly controlled the main competitor, RAI. Mediaset’s dominance in the duopolistic system resulted in programming: Matschke and Sauer assert that the duopoly fueled a mono-culture, damaging democracy and “lead[ing] to a constant decline of the Italian program quality, which submerges the audience with a mixture of shallow shows, lotteries, violent films, reality shows, repeats, Hollywood productions and animation.”49 The election of the second Berlusconi government also benefited Mediaset. It allowed the company to defend the status quo it had reached in the mid-1980s. Key in this regard was the 2004 Gasparri law, which prevented other parties (such as Italian publishers or multinational companies) from entering the Italian television market.50 It not only helped Mediaset retain its position of power, but also impeded the development of pluralism and diversification of the market. The law was heavily criticised by many observers, including the Council of Europe, which argued that the law did little to resolve Berlusconi’s dominance of the country’s broadcasting media. The law, which was not amended by the next center-Left administration, maintained the status quo duopoly and allowed Mediaset to venture “aggressively and without hesitation” into the domain of digital television.51 When in power, Berlusconi also maintained a tight grasp on Italy’s public service broadcaster RAI. In fact, RAI has never been a totally independent public service broadcaster but has always

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been subject to the distribution of posts and power according to political affiliation.52 The reforms adopted to reformulate RAI’s accountability, independence, and supervision have never succeeded.53

Social Marketing Mediaset engages in a range of corporate responsibility activities. It discloses its environmental performance indicators—including its consumption of energy and main emissions of CO2—as part of its self-proclaimed belief in the importance of disclosing information that meets stakeholder needs.54 Its non-profit organization Mediafriends, established in 2003, undertakes a range of activities designed to raise funds for charity projects, and provides advertising space free of charge for charities on its networks. It claims to have raised and distributed over €50 million, which has allowed 130 associations to implement 200 charity projects in Italy and around the world. Mediaset and Medusa Film also launched a film restoration project, called Cinema Forever, in 1995, which aims to conserve “Italian film masterpieces.” Mediaset also organizes hundreds of free screenings of these cinematic masterpieces around the world and, between 1999 and 2002, donated 15 restored films to the Museum of Modern Art of New York.55 Mediaset España also undertakes a number of corporate responsibility initiatives. It has supported the United Nations Global Compact, having committed to the initiative’s Ten Principles—based on human, labor, and environmental rights, along with the combatting of corruption—since 2007.56 It also takes part in the Carbon Disclosure Project, as part of which it reports on its greenhouse gas emissions, and the FTSE4Good Ibex programme, which reflects levels of environmental, human rights, and labor policy management, as well as compliance with standards such as supply chain working conditions and the rejection of corruption. It has also participated in an international multi-stakeholder media working group, as part of which it adapted principles developed by the Global Reporting Initiative. Additionally, it remains on Triodos Bank’s list of companies eligible for socially responsible investment. In order to strengthen its corporate governance, it joined the Spanish Issuers Association in 2012.57

Cultural Profile Mediaset’s control of Italian public opinion is simply explained. As discussed, the Berlusconi family controls the most important publishing companies in Italy (such as Mondadori), as well as the most important liberal-center right daily newspaper, Il Giornale, and other magazines. However, as Berlusconi has made clear very often: “Italians don’t read newspapers. Just Italian journalists do so.” This remark is certainly true: just 20% of the Italian population reads newspapers.58 So how does Berlusconi’s war room secure a brainwashed public opinion? It’s very simple. Sometimes the initiative comes directly from the leader. For example, at the most important meeting of the Industrial Association in Italy in June 2009, Berlusconi urged businesses not to advertise in newspapers critical of his handling of the economy—such as the daily newspaper La Repubblica. In January 2011, the prime minister was allowed to speak to the nation on Italian public television for an uninterrupted 160 minutes. During this speech, Berlusconi fiercely attacked the magistrates prosecuting him by describing them as threats to the democratic functioning of the country. The government-appointed managers of RAI have frequently tried to impose content restrictions, and they have often succeeded. Before the last local elections, the government thwarted the possibility of the most popular political talk shows on RAI keeping their regular formats during the campaign. In February 2011, another official memo from RAI’s management imposed new constraints on the coverage of political events, not just on political shows and investigative programmes, but also on political satire. These pressures are not just confined to RAI’s

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management, but also extend to the communication authority (AGCOM) that has the responsibility of supervising the communication system. In March 2010, newspapers published phone taps ordered by prosecutors in the town of Trani, where Berlusconi was coercing members of AGCOM to shut down specific political talk shows.59 What was even more alarming was the constant spin and censorship on all Italian news reports that were coming from both RAI and Berlusconi’s commercial TV monopoly.60 In July 2009, the President of AGCOM announced that a third private operator, the satellite pay-tv broadcaster Sky Italy, had surpassed Mediaset in total revenues for 2008.61 The findings were hailed by the Berlusconi Government as evidence of the demise of the traditional RAI–Mediaset duopoly and of the opening of the television market to pluralism. However, such claims appear to be misleading when key competitive indicators such as audience and advertising shares are taken into account. In fact, RAI and Mediaset continue jointly to control around 80% of the audience ratings against some 9% for Sky Italia.62

Conclusion The importance of Mediaset as a global company is due to more than its market size and scope: with its unrivalled concentration of symbolic, political, and economic power—unimaginable in any other Western democracy—Mediaset has been influencing the fate of the Italian nation for more than three decades. In 2004, both the Council of Europe and the European Parliament explicitly denounced the open conflict of interest between Berlusconi’s media interests and his political role. In 2004, Freedom House—an independent watchdog organisation based in Washington, DC—downgraded Italy from a “free” to a “partially free” country. The republic has fluctuated between the two rankings ever since. Its press has also been deemed “partially free” since 2004 (with the exception of 2007 and 2008) and, in 2011, was the lowest ranked Western European country. Italy’s fortunes continue to be shaped by Mediaset, whose concentration of power makes it the secret dream of every media mogul.

Notes 1 Mediaset, “Mediaset: Approvato Bilancio 2014,” Mediaset, March 24, 2015, www.mediaset.it/ corporate/salastampa/2015/comunicatostampa_7887_it.shtml 2 Alexander Matschke and Ulrike Sauer, “47. Mediaset SpA,” Institute of Media and Communications Policy [Institut für Medien- und Kommunikationspolitik], May 6, 2015, www.mediadb.eu/en/data-base/ international-media-corporations/mediaset-spa.html 3 S.p.A denotes an Italian public limited company. 4 Paul Ginsborg, Silvio Berlusconi: television, power and patrimony (London: Verso, 2005); Alessandro Da Rold, “Storia di Canale 5 che costò a Berlusconi solo una lira,” Link Iesta, March 8, 2015, www.linkiesta.it/ properzj-telemilano-berlusconi. 5 Ginsborg, Silvio Berlusconi, 19. 6 Comitato Guglielmo Marconi, “TeleMilano Canale 58,” Comitato Guglielmo Marconi International, 2013, www.radiomarconi.com/marconi/ancona/valcamonica/amarcord/monoscopi.html; Matschke and Sauer. 7 Roberto Curti, Italian Crime Filmography (Jefferson: McFarland & Company, 2013). 8 Paul Statham, “Broadcasting,” in Encyclopedia of Contemporary Italian Culture, ed. Gino Moliterno (London: Routledge, 2000); Roger East and Richard Thomas, Profiles of People in Power: the world’s government leaders (London: Europa Publications, 2003). 9 East and Thomas, Profiles of People in Power; Ginsborg, Silvio Berlusconi. 10 Statham; Matschke and Sauer. 11 Guido Vannucchi and Franco Visintin, “Radiofonia e televisione: era analogical”, in Storia delle Telecomunicazioni, ed. Virginio Cantoni, Gabriele Falciasecca and Giuseppe Pelosi (Florence: Firenze University Press, 2011); Mediaset, “History,” Mediaset, n.d., www.mediaset.it/corporate/chisiamo/ storia_en.shtml 12 Matschke and Sauer.

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Matschke and Sauer; Mediaset, “History.” Matthew Hibberd, The Media in Italy (Maidenhead: McGraw Hill/Open University Press, 2008). Mediaset, “History.” Mark Sweney, “Mediaset sells final holdings in Endemol,” The Guardian, April 3, 2012, www. theguardian.com/media/2012/apr/03/mediaset-sells-final-holdings-endemol 17 Matschke and Sauer. 18 Daniele Lepido, “Mediaset 2014 Sales Stall Amid Reviving Italian TV Ad Market,” Bloomberg Business, March 25, 2015, www.bloomberg.com/news/articles/2015-03-24/mediaset-2014-sales-stalled-as-italys-tv-ad-market-sees-revival 19 S.r.l. denotes an Italian limited liability company. 20 Christopher Cepernich, “The Changing Face of the Media: A Catalogue of Anomalies,” in Resisting the Tide: Cultures of Opposition under Berlusconi (2001–06), ed. Daniele Albertazzi, Clodagh Brook, Charlotte Ross and Nina Rothenberg (New York: Continuum, 2009); Mediaset, “The Structure of the Mediaset Group,” Mediaset, n.d., www.mediaset.it/corporate/chisiamo/struttura_en.shtml 21 S.A. denotes a Spanish public limited company. 22 Mediaset, “The Structure of the Mediaset Group”; Mediaset España, “Mediaset España: Who are we?,” Mediaset.es, n.d., www.mediaset.es/inversores/en/Mediaset-Espana-Who-is-who_0_1348200361.html 23 S.a.r.l. denotes an Italian private limited liability corporate entity. 24 Mediaset, “Other Foreign Investments,” Mediaset, n.d., www.mediaset.it/corporate/televisione/ altrepartecipateestere_en.shtml 25 Benedetta Brevini and Francesca Fanucci, “Digital Television in Italy: From Analogue to Digital Duopoly?,” International Journal of Digital Television 4, no. 1 (2013). 26 Michela Ardizzoni and Chiara Ferrari, Beyond Monopoly: Globalization and Contemporary Italian Media (Lanham: Lexington Books, 2010). 27 Mediaset’s television revenues, in millions of Euros, rose and fell as follows: from 2.562.98 to 2.893.16 between 2009 and 2010 (increase of 12%); from 2.893.16 to 2.865.48 between 2010 and 2011 (decrease of 1%); from 2.865.48 to 2.486.33 between 2011 and 2012 (decrease of 15%); and from 2.486.33 to 2.281.50 between 2012 and 2013 (decrease of 8%). Source: AGCOM, The Communications Sector in Italy, AGCOM (Autorità per le Garanzie nelle Comunicazioni) (2014), www.agcom.it/annual-report 28 AGCOM, The Communications Sector in Italy, AGCOM (Autorità per le Garanzie nelle Comunicazioni) at 118 (2014), www.agcom.it/annual-report 29 Ibid., 123–124. 30 Ibid., 125–126. 31 Ibid., 124. 32 Ibid., 50. 33 Ibid., 39. 34 J.V. García Santamaría, M.J. Pérez Serrano, and G. Alcolea Díaz, “New television platforms in Spain and their influence on the market,” Revista Latina de Comunicación Social 69 (2014): 402, www. revistalatinacs.org/069/paper/1017_UC3/RLCS_paper1017en.pdf 35 Tomas Cobos and Paul Day, “Spain’s antitrust body says Telecinco, Cuatro have not met merger commitments,” Reuters, March 24, 2015, www.reuters.com/article/2015/03/24/us-telecinco-antitrustidUSKBN0MK0N020150324 36 Santamaría, Serrano and Díaz: 396. 37 Ibid., 397. 38 Ibid. 39 Carles Llorens, Virginia Luzón, and Helena P. Grau, Mapping Digital Media: Spain, The Open Society Foundations (2012): 24, www.opensocietyfoundations.org/sites/default/files/mapping-digital-mediaspain-20131023.pdf 40 Matschke and Sauer. 41 Mediaset, “The Structure of the Mediaset Group.” 42 Matschke and Sauer. 43 Ibid. 44 Gabriele Balbi and Benedetta Prario, “The history of Fininvest/Mediaset’s media strategy: 30 years of politics, the market, technology and Italian society,” Media, Culture & Society 32, no. 3 (2010). 45 Brevini and Fanucci. 46 Ibid. 47 Balbi and Prario, 393. 48 Matschke and Sauer. 49 Ibid. 50 Brevini and Fanucci.

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Balbi and Prario, 395. Brevini and Fanucci. Ibid. Mediaset, “Social and Cultural Commitments,” Mediaset, n.d., www.mediaset.it/corporate/impresa/ sociale_en.shtml?1#page Ibid. Mediaset España, Corporate Responsibility Report, Mediaset España, 2013, http://servicios.telecinco.es/ inversores/MEDIASET_INFORME_2013/ingles/informe/files/assets/basic-html/page50.html Ibid. Benedetta Brevini, “Stop blaming Italians for Berlusconi,” The Guardian, 17 February, 2011, www.theguardian.com/commentisfree/2011/feb/16/italians-berlusconi-control-media Ibid. Ibid. AGCOM (2009) Annual Report on Activity and Programs, 2010, available at www.agcom.it/relazioniannuali Brevini and Fanucci.

11 TELEFÓNICA Gabriela Martínez

The Telefónica brand has become one of the most recognized telecommunication brands in Europe and Latin America, extending its reach to other regions around the world through various global operations and partnerships. Telefónica has developed other brands as part of the Telefónica Group—Movistar, O2, and Vivo are some examples. In addition, Telefónica has become an important media content producer and distributor through its holdings and partnerships in media companies, cable and satellite operations; and most recently distributing content through mobile applications. In 2014, the European Brand Institute1 listed Telefónica among the top 100 global brands, and the company was also ranked 14th as one of the World’s Best Multinational Workplaces2 in 2014. This chapter will address how Telefónica has become one of the most important global telecommunication and media companies, particularly in the Spanish and Portuguese markets, by providing a historical background to understand the formation and transformation of this company. Then, I will argue that Telefónica’s growth and geographical expansion in the last 25 to 30 years has been possible due to the international political and economic shift in which neoliberal ideas have influenced most of the world (and continue to do so). Telefónica’s structure and its various services and products will also be discussed as a way to understand its diversification and global partnerships. The chapter will, in addition, point at recent economic, cultural, and social activities that make the Telefónica Group a global player in the telecommunication and media arenas and a significant brand that deserves our attention.

History In 1884, King Alfonso XIII issued a royal decree entrusting the Spanish state with developing and administering the adoption of telephony. However, the Spanish empire was coming to its end, and Spain’s economic wealth was declining, thus the state was unable to invest capital or do the actual work of tending phone lines. Furthermore, the state did not have the capacity to become a telephone service provider either. Instead, the state began granting licenses to various regional private companies in different major cities. In 1891, another royal decree was introduced to regulate the bidding process for building new lines and to authorize the commercial exploitation of the four sectors in which the country became divided for purposes of developing a telecommunications system. As demand for telephone lines grew, the private companies could not supply such demand, and by the early 1920s telephony was in a state of chaos across the country.3

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In 1924, under the presidency of general Miguel Primo de Rivera, the Spanish government licensed a concession for 20 years to the International Telephone & Telegraph Corporation (ITT). Under this agreement ITT was to organize, administer, and expand telephone lines throughout Spain. ITT, under the provisions of the concession, founded the Compañia Telefónica Nacional de España (CTNE), which changed its name to Telefónica de España towards the end of the 20th century.4 ITT bought the three most important private Spanish telephone companies that operated in different regions of the country, consolidating in this manner the CTNE as a Spanish monopoly and one of the most important international subsidiaries of ITT at that time. CTNE garnered high revenues for ITT and it was the model for ITT’s subsidiaries in other regions around the world, but particularly in Latin America where ITT became one of the main telecom providers for decades. ITT’s concession came to an end in 1945 when Spanish dictator General Francisco Franco did not allow a renewal of the 20-year license granted in 1924. Consequently, ITT had to divest all of its shares in favor of the Spanish state, which nationalized the company. The CTNE then operated for over 40 years as a semi-public and semi-private company where the state had control of the majority of shares but licensed the operations and management of service to Spanish private companies. Over the years, different private entities operated the CTNE, and these licensed companies were in charge of expanding the lines and providing local, national, and international telephone service. The contractors who gained the license to exploit telephony in the country largely dictated the policies for telecommunications in Spain with full support from the state. However, in 1985, in the process of modernizing Spain and beginning its accession to what is now the European Union (EU), the Spanish government sold part of its 40% shares of CTNE in local and foreign stock exchanges. Over 750,000 private shareholders bought minority shares, including some foreign institutional interests, mainly from Germany, Britain, and the United States.5 In 1988, the company’s board of directors and the government decided to rename the company, changing its name to Telefónica de España, dropping the words Compañía Nacional to make it easier for branding purposes in a contemporary local and international market.6 Once Spain joined the EU in 1996, the EU pressured the state to further liberalize the Spanish economy, which in turn resulted in the state completely divesting all of its shares in the telecommunications company, and opening up the market in various other fronts. However, the Spanish state still holds what is called acción de oro [a golden share], which allows the government to veto the purchase of large percentages of the company by new investors or current shareholders. This is to prevent “hostile purchasing” of shares by other large corporations, particularly foreign ones.7 Throughout the 1980s, Telefónica de España began to diversify by purchasing stocks in various other companies, including Amper-Elasa, SINTEL, TEFISA, TIDSA, and Cetesa. In addition, in the late 1980s and throughout the 1990s, Telefónica de España secured new markets beyond Spain’s borders and began to solidify its leadership as a global telecommunications company, particularly in Latin America. Between the 1980s and 1990s most governments in this region were adopting neoliberal policies, and in doing so, they were divesting state interests in their national assets, which included the telecommunication sector. In 1998, Telefónica de España dropped the “de España” to be branded solely as Telefónica. This change was to become a globally recognizable brand throughout various world regions without a specific attachment to just one country. Telefónica and its different subsidiaries constitute the Telefónica Group. The Telefónica Group’s assets go beyond telephony services, as it owns various brands and interests in its primary markets—Spain and Latin America as well as in other world markets, including parts of Europe, Africa, and China. The company was transformed from a primarily telephone company to a global telecommunication system that includes media and other businesses. This structural diversification was furthered

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under the leadership of Juan Villalonga, former Chairman of Telefónica between 1996 and 2000. Taking advantage of global markets, technological convergence, and domestic and international deregulatory processes, the company expanded into broadcast, cable and satellite television, radio, film, music, publishing, management of customer services, Internet services, and media content development and distribution. By the time Chairman Juan Villalonga left Telefónica in 2000, the company was considered a group having international subsidiaries and strong investments in several other businesses in addition to its traditional line of telephone service. Among the group’s companies that flourished or were acquired during the Villalonga period are Terra Networks, the first commercial Internet service that entered the Spanish-speaking and Portuguese markets; Adquira, which operates in the ecommerce sector by providing business-to-business (B2B) electronic networking services and handling information and communication technologies, travel, tourism, and insurance services for the Telefónica Group and other businesses; Atento, which operates call centers and contact centers to help businesses design better strategies to capture new markets, create synergies, and compete efficiently by utilizing old and new technologies for traditional marketing, telemarketing, and advertising; Cablevisión and Antena 3, which are two of the major cable and television operations in the Spanish market; Cable Mágico, the largest cable operation in Peru; and in 2000, Telefónica made its most important international media acquisition by buying Endemol U.K. Furthermore, Villalonga made important partnerships with other large media institutions such as Disney and Brazil’s Globo. However, under Chairman César Alierta, who succeeded Villalonga in 2000, some of the Group’s aggressive expansion came to a halt. Since then, Telefónica has focused primarily on telephony and other telecom-related businesses as its major source of revenue. Some of the media assets have been sold (Endemol, for example), but the company still has investments in cable and digital television in Spain and Latin America. Furthermore, in 2012, the customer service agency Atento was sold in order to get cash flow for other investments that aligned more closely with Alierta’s vision for the company. Since approximately 2013, the group has been strongly moving towards content distribution through mobile devices, letting others (usually partner companies) produce the content. Many of Telefónica’s media businesses operate under the umbrella of Telefónica de Contenidos.8

Economic Profile The Telefónica Group is well poised financially to continue growing and being an attractive partner for other large companies around the world. Despite some challenges and competition in the markets where it operates, its revenue still provides the group with fairly important earnings. The way Telefónica has managed to weather economic upheavals is through strategic geographic location of its investments and assets, strategic partnerships, and diversification, as we will see below.

Financial Data Since the turn of the century and under the leadership of CEO César Alierta who took his current position in the group in 2000, The Telefónica Group has continued to strengthen its core telecommunications business, while also remaining involved with synergies linked to media and other businesses. The company’s website highlights some key economic figures for 2014. It claims that the company is: Present in 21 countries and [has] an average of 120,000 professionals. Consolidated revenues of 50,377 million euros in January-December 2014 and more than 341 million total accesses

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at December 2014: more than 274.5 million mobile phones accesses; 36.8 million fixed telephony accesses; more than 18.15 million Internet and data accesses and 5.1 million payTV accesses.9 The Telefónica Group reported total revenues of €50.37 billion and net income of €3 billion for 2014. It also indicates that “2012, 2013 and 2014 reported figures include the hyperinflationary adjustments in Venezuela in both years” and “2012 reported figures include the results of Atento until November 30th.”10 In 2012 Bain Capital bought Atento.11 (See Table 11.1.) Telefónica’s revenues have been decreasing primarily for three reasons: the economic recession in Spain, the slowing of economic growth in some other countries where it operates, and increasing competition in its most important markets. However, it remains the leading telecom company in Spain’s market and second in Europe, with important operations in the U.K. and Germany through its subsidiary O2. Until 2014 it also had access to other European markets through its partnership with Telecom Italia. Vodafone and Orange are taking clients away from Telefónica in Spain and European markets, especially in the mobile sector (see Table 11.2). The loss of revenue in the mobile sector is somewhat offset by Telefónica’s control of the fiber optic infrastructure both in Spain and in many Latin American countries, giving it the ability to offer bundled packages that include fixed and cellular phone lines, Internet access, cable and digital television.12 Latin America remains Telefónica’s second largest market, with about 238,928 million customers in 2014, combining fixed and mobile telephony, Internet and data services, and pay-TV.13 In addition, its base of pay-TV subscribers continues to grow; according to NexTVNews, the company reported in the third quarter of 2015 having “reached a total of 4,571,000 accesses in their cable, DTH and IPTV services offered in Chile, Peru, Colombia, Venezuela and Brazil.”14 When Telefónica began bidding for concessions in the various Latin American markets throughout the late 1980s and 1990s, the logic of those leading the company was pretty much in alignment with neoliberal politics and neocolonial thought, in which Latin America was seen as Spain’s “natural market” given its former colonial and cultural ties with this region. Indeed, the relationship replicates some economic models from the past in which most of the revenues produced in these markets were remitted back to Spain. The investments and reinvestments are primarily geared to better exploit the market share and local labor. Furthermore, despite decreasing revenues due to competition, the Latin American region still produces about 45% of the total revenue for the company (see Table 11.3). Telefónica’s two operating brands in the region are Movistar for the Spanish-speaking markets, and Vivo in Brazil— a Portuguese-speaking market. The main brand—Telefónica—serves fixed lines, and the other two brands are mobile telephony. Telefónica’s main competitor in the mobile sector is América TABLE 11.1 Telefónica Revenues, 2005–2013 (in € millions)

2009 RAI Mediaset Telecom Italia Media Cairo Communication Discovery Other operators Total HHI concentration index

45.9% 41.1% 2.6% 0.4% – 10.0% 100% 3,809

2010 45.8% 42.3% 2.6% 0.4% – 8.9% 100% 3,903

2011 45.9% 41.2% 2.9% 0.7% 0.4% 8.8% 100% 3,819

2012 47.2% 37.8% 2.9% 0.7% 1.0% 10.4% 100% 3,669

2013 49.4% 35.1% – 2.9% 2.4% 10.2% 100% 3,682

Sources: Telefónica Company, Form 20-F, 2013, www.telefonica.com/en/shareholders-investors/pdf/TEF_2013_20-F.pdf, p. 12 from 2009–2014; Telefónica Company, Form 20F, 2008, www.telefonica.com/en/shareholders-investors/pdf/ 090430_form20-f_2008.pdf, p. 12 from 2005–2008

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TABLE 11.2 Number of Cellular Telephony

TABLE 11.3 Telefónica Group Revenues by Country/

Clients in Spain, 2014 (millions)

Region, 2014 (in € millions)

Telefónica Orange Vodafone

Country/Region

Revenue

Operating income

Spain UK Germany Brazil Latam* Other and eliminations* Total Group

12,023 7,062 5,522 11,231 13,155 1,384 50,377

3,866 623 (693) 1,781 2,034 (644) 6,967

16.42 11.53 11.5

Source: Reuters www.reuters.com, accessed March 23, 2015

* “Latam” denotes Spanish-speaking Latin America. “Other and eliminations” includes Telefónica Digital, Telefónica Global Resources, and any of its operations beyond telephony and Internet services. Source: Telefónica Company, F-20, pp. 26, 174, www.telefonica. com/en/shareholders-investors/pdf/TEF_2014_20-F.pdf

Móvil’s subsidiaries, Claro and Telcel, which are owned by Mexican mogul Carlos Slim. According to hypertextual.com, in 2014 Telefónica and América Movil together have 71% of the total Latin American market, with Telefónica losing customers to América Móvil’s subsidiaries.15

Corporate Structure Telefónica is divided both by region and segment, as summarized in Tables 11.4, 11.5, and 11.6. Its core segment is telephony, although media and other services play an important role in adding revenues to the overall operations of the group. Telefónica’s strategy is to strengthen its fixed and mobile expansion while also taking advantage of digital technologies that are becoming instrumental for media content delivery. The company now is self-rebranding as a “Digital Telco,”16 with multiple offers from traditional fixed telephony to mobile digital television. In February 2015, the company announced the folding of its telecom sector into a new Global Corporate Center that includes Telefónica Global Resources, Telefónica Europe, and Telefónica Latam (Latin America). This modification includes a provision that “The functions of Telefónica Europe and Telefónica Latam will be reorganized into five areas, four of which correspond to key countries for Telefónica—Spain, Brazil, Germany and Britain—and the fifth to the Latin American region, now without Brazil.”17 Brazil has become a single unit within Telefónica’s newer strategy, extracting it from the Spanish-speaking Latin American markets and giving it prominence as its third largest market after Spain and Spanish-speaking Latin America. The combination of these segments includes all fixed-line, wireless, cable, satellite, and digital television businesses, Internet, and other services in accordance with each location. Telefónica includes on its reports under “Other and eliminations” those companies belonging to the intersecting areas of media, telecom, and other services, as well as other group’s subsidiaries and eliminations in the consolidation process.18 The Telefónica Group has diversified to better fit the various markets where it operates and, as of 2015, has a brand portfolio valued at $1.2 billion. As part of the company’s strategy, the Telefónica brand is represented by a simple logo with the word “Telefonica” where the accent over the “o” has been dropped to create a linguistic advantage, fitting the spelling and pronunciation in virtually any language. Telefónica uses two distinctive colors: bright blue and bright green. Usually the blue serves as the background for the word “Telefonica,” which is written in

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TABLE 11.4 Telefónica Spain, Europe, and Brazil,

TABLE 11.5 Telefónica Latam, 2014

2014

% Stake % Stake

Telefónica de España Telefónica Móviles España Telyco Iberbanda Acens Technologies Tuenti Telefónica UK Telefónica Deutshland Telefónica Brazil

100 100 100 100 100 100 100 62.4 74

Telefónica de Argentina Telefónica Móviles Argentina Telefónica Móviles Chile Telefónica Móviles México Telefónica Venezuela Telefónica Ecuador Telefónica Móviles Uruguay Telefónica Costa Rica Telefónica del Perú Telefónica Chile Telefónica Colombia Telefónica Móviles El Salvador Telefónica Móviles Guatemala Telefonía Celular Nicaragua Telefónica Móviles Panamá

100 100 100 100 100 100 100 100 98.6 97.9 70 60 60 60 60

TABLE 11.6 Other Telefónica Holdings and Stakes, 2014

Stake (%) T. Intern. Wholesale Serv. (TIWS) Telefónica Digital Telco SpA (1) DTS, Distribuidora de Televisión Digital and Canal Plus China Unicom (2) BBVA

100 100 66 100 2.5 0.7

(1) 66.0% of economic rights. (2) As of November 10, 2014, Telefónica proceeded to the sale of 2.5% of the share capital of China Unicom, reducing this stake to 2.51%. Source for Tables 11.4, 11.5, and 11.6: Telefónica website under Organization, www.telefonica.com/en/about_telefonica/html/ organisation/estrucsociet.shtm, accessed March 28, 2015.

green with simple cursive lettering. This simple logo is the same in all countries where Telefónica operates, giving the company an aura of continuity, familiarity, and naturalness.19 Other well-known Telefónica brands include Movistar, Vivo, and O2 for mobile telephony and Terra for Internet. Furthermore, the Group has what it calls “specialist” brands, most of which were launched between 2008 and 2014. These specialty brands are grouped under Telefónica Global Resources, and some of these brands are being developed under Telefónica Open Future, a new division that supports start-ups and small enterprises. Each brand is briefly summarized in Tables 11.7 and 11.8, as they were constituted in 2014. Similarly to other global companies, Telefónica engages in domestic and international partnerships and joint ventures with other companies in order to maximize its assets and to access a variety of markets. The most important partnerships between 2011 and 2015 were with the Planeta Group, the Prisa Group, Unicom China, Tsinghua Holdings Technology and Innovation, and other minor arrangements with smaller companies. The Planeta Group is a leading media and communication group in Spain with interests in various international markets. The Planeta Group is also considered one of the largest book publishers in Spain and throughout the Spanishspeaking world, producing and selling their goods in many other Spanish-speaking markets around the world. This group has been Telefónica’s partner for many years, as the two groups owned the television network Antena 3 and radio network Onda Cero together in the early 2000s in

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TABLE 11.7 Telefónica Holdings and Brands, 2014

Movistar Vivo O2 Terra Wayra and Amérigo Tuenti Giffgaff Fonic On the Spot Eleven Paths Fonditel Antares Pléyade Tgestiona

Cellular telephony in Spain and Latin America, except for Brazil Celullar telephony in Brazil Cellular telephony in the UK and Germany Internet service in Spain and Latin America Worldwide start-up accelerator for entrepreneurs Mobile virtual operator for social network and instant messaging Pay-as-you go voice and data network (UK) Pay-as-you go voice and data network (Germany) In-store audiovisual and other media services for businesses Cyber security services Retirement pension plans Health and life insurance Insurance and reinsurance brokerage Different services—human resources, financial advise, accounting, and others

TABLE 11.8 Telefónica Media Holdings, 2014

DTS and Digital Plus (or Canal Plus Spain) Movistar TV Fusion Telefe and Azul Cable Mágico

Satellite and Digital Pay TV-Spain Mobile TV distribution. Open air TV-Argentina. Cable TV Service-Peru

Source: Telefónica website under About Telefónica-Our brands, www.telefonica.com/en/about_telefonica/html/ our_brands/at_identidad_marcas.shtml

Spain. Although in 2003–2004 Telefónica was ordered to divest its shares in these media due to antitrust laws, the collaboration between these two groups continues as Telefónica is the distributor of media content for the Planeta Group through its telecom services. In 2012, according to Bloomberg.com,20 Telefónica and the Planeta Group teamed up to expand Planeta’s electronic book offerings as a rival to Amazon’s Kindle in Europe and other world regions. Telefónica, in partnership with Mundo Reader, has developed the “Movistar Ebook bq” reading device designed for electronic books produced by Planeta and digitally distributed by Telefónica. Mundo Reader is the largest Spanish producer of tablets, E-readers, smartphones, and 3D printers.21 Another equally important Spanish group and Telefónica partner is the Prisa Group, which has among its holdings El País, a national newspaper with the most circulation and influence in Spain. In 2014, Telefónica acquired from the Prisa Group 56% of shares in Distribuidora de Televisión Digital (DTS) where Telefónica already owned 22%. With this purchase that cost €750 million, Telefónica became the majority shareholder with 78% of DTS to its name. This purchase includes the popular digital television channel Canal Plus.22 Through this transaction, Telefónica became the majority partner of Mediaset Spain, which had the remaining 22% of DTS. The management of Mediaset Spain, a subsidiary of Mediaset Italy, one of Silvio Berlusconi’s media holdings, decided to sell its 22% to Telefónica for €365 million, giving Telefónica with 100% ownership of the most important digital pay-TV operation in Spain. Mediaset Spain has become primarily a content producer and provider in Spain,23 securing content for Telefónica’s media operations and mobile TV offerings. In addition, Telefónica invested another €100 million to buy 11% of Mediaset Italy, furthering its partnership with Berlusconi’s media empire. Its connection with Berlusconi’s media operations opens up other markets, which helps Telefónica position itself as one of the most important content distributors over wireless services, Internet, cable, satellite, and digital television in Europe and other world regions.

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Another important partner that expands Telefónica’s reach is Hong Kong’s China United Network Communications Group, which is commonly referred to as Unicom. In 2009, Unicom and Telefónica signed an agreement whereby Telefónica now holds a 9.7% stake in its Chinese partner, and China Unicom owns 1.4% of the Spanish company. The two companies collaborate in a number of areas, including mobile services platforms, roaming, wholesale services, and procurement for multinationals. Between the two companies, they have about 10% of the global market share with about 590 million customers utilizing their mobile services platforms, including mobile telephony.24 In 2014 Unicom and Telefónica strengthened their alliance by creating a partnership that offers support to start-up companies. In addition, Telefónica has included strategically in this alliance another Chinese partner, Tsinghua Holdings Technology and Innovation (THTI). THTI is an incubation and development technology company that owns science parks and Virtue Inno Valley (the equivalent of Silicon Valley) in China. THTI has already been working with Telefónica on Wayra, Telefónica’s start-up accelerator company. The company’s CEOs told the press: “The cooperation between Wayra and Virtue Inno Valley has been instrumental in creating a link between entrepreneurial communities across China, Latin America and Europe enabling the free flow of ideas and strong cooperation between start-ups in these regions.”25 China’s government and Chinese companies are aggressively investing in Latin America in different industries, and this partnership certainly gives THTI and Unicom entrance into a region where Telefónica already has a wellestablished market and can use this as leverage for joint advancement in their conquest of markets beyond telephony and media. This joint venture between Telefónica and its Chinese partners includes Telefónica Open Future, totally dedicated to the trend of “Internet for Things” (IoT) by focusing on assisting start-ups around the world to develop apps for a variety of purposes. Among examples of the participating start-ups in Telefónica Open Forum are Apparcar, the first parking system that lets you find the nearest available spot on the street, without the use of sensors; Blueliv, a leading provider of targeted cyber-threat information and analysis intelligence for large enterprises, service providers, and security vendors; and Adjust, which is a business intelligence platform for mobile app marketers, combining attribution for advertising sources with advanced analytics and store statistics.26 In 2014, in Brazil, where Telefónica owns Telefónica Brazil branded as Vivo, the firm acquired 100% of one of its competitors, Global Village Telecom (GVT), a subsidiary of Vivendi, the French global media company. GVT provides fixed and cellular telecommunications, Internet services, and cable television. Telefónica paid €4.66 billion in cash, gave a 7.4% stake to Vivendi in the newly combined Vivo–GVT, and in addition it divested in favor of Vivendi 5.7% of its total holding shares in Telecom Italia, the largest Italian telecommunications company with subsidiaries in Brazil and Mexico.27 Telefónica folded together Vivo and GVT in early 2015, making Vivo one of the largest providers of telecom and media services across Brazil.

Political Overview Issues of ownership, leadership, labor, and corporate responsibility are crucial to understand the behavior of a company. This section outlines the ownership of the company since its privatization, in addition to providing the structure of the board of directors and their respective areas of responsibility. Labor is discussed by addressing various situations in different contexts, including Spain and Latin America. The adoption of corporate responsibility is addressed, including the various areas in which the company invests through its foundation known as Fundación Telefónica (Telefónica Foundation).

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Ownership The company ceased to be a public- or state-owned enterprise in the 1990s, and has shifted from having one owner—the state—to a fully privatized company where there is no single owner and its shares are publicly traded. Currently the most significant shareholders are two of the largest Spanish banks, Banco Bilbao Vizcaya Argentaria (BBVA) and La Caixa. A third major shareholder is Blackrock Inc. from the U.K. (See Table 11.9). As of March of 2015, Telefónica’s numbers of shares trading on international markets are 4,657,204,330 and the overall number of shareholders globally is 1,413,687.28 The members of the board of directors have also blocks of stocks that grant them voting rights. Currently, the chairman of the company, César Alierta, owns the largest number of stocks— 4,545,928 (0.10% of total shares). This is in addition to his compensation for the 2014 fiscal year, which was more than €5 million, according to Bloomberg.29

Board of Directors Telefónica’s board of directors is composed of 20 members, including the chairman of the company. They all have some level of power to make decisions based on their allocation in the company and on the board (see Table 11.10). Several of the board members represent the banking industry, which indicates the dominance of the banks as shareholders. Four of them represent two banks— BBVA and La Caixa—and one represents the interests of China Unicom in its minority partnership with Telefónica. The banking representatives are high-ranking members of their banks and other partnering institutions, providing key interlocks between the companies. Isidro Fainé Casas is La Caixa’s Chairman and Antonio Massanell Lavilla is La Caixa’s General Director; José María Abril Pérez is the General Director of Investments for BBVA and Ignacio Moreno Martínez, is a former General Director; Chang Xiaobing is the CEO of China Unicom. Table 11.10 lists the Board of Directors at the end of 2014. It is important to note that a number of the directors, including Chairman César Alierta, are connected to other companies in other industries, for example airlines and textiles.

Labor At the end of 2014, the Telefónica Group reported that over 120,000 people were working for the group around the world. The bulk of the workers are assigned to the telecom sector, but thousands of others work for the other companies within the group providing a variety of services. In addition, Telefónica also employs thousands of workers through subcontracts; this is especially the case in terms of manual labor necessary for repairs, tending lines, and overall maintenance. Telefónica has been attracting a young labor force based on its transformation to a digital telecom company, as it is adapting to the changing technological and consumer environment of the present century. TABLE 11.9 Significant Ownership Interests in Telefónica

Name

Direct voting rights

Indirect voting rights

% of voting rights

BBVA La Caixa Blackrock

313,681,133 0 0

25,498 246,977,147 177,257,649

6.83 5.47 3.89

Source: Telefónica website under Shareholders & Investors, www.telefonica.com/en/shareholders-investors/html/share/ participaciones.shtml, accessed March 20, 2015

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TABLE 11.10 Board of Directors and Board Members

César Alierta Izuel Isidro Fainé Casas José María Abril Pérez Julio Linares López José María Álvarez-Pallete López Fernando de Almansa Moreno-Barreda Eva Castillo Sanz Carlos Colomer Casellas Peter Erskine Santiago Fernández Valbuena Alfonso Ferrari Herrero Luiz Fernando Furlán Gonzalo Hinojosa Fernández de Angulo Pablo Isla Álvarez de Tejera Antonio Massanell Lavilla Ignacio Moreno Martínez Javier de Paz Mancho Chang Xiaobing Ramiro Sánchez de Lerín García-Ovies María Luz Medrano Aranguren (1) (2) (3) (4) (5) (6)

Chairman (1) Vice-Chairman (3) Vice-Chairman (4) Vice-Chairman Chief Operating Officer Director Director Director Director Director Director Director Director Director Director (3) Director (4) Director Director (5) Secretary (2) Vice-secretary (6)

Chairman of the Company. General Secretary of the Board of Directors and Telefónica. Appointed by La Caixa. Appointed by BBVA. Appointed by China Unicom. General Vice-secretary of the Board of Directors and Telefónica.

Source: Telefónica website under Corporate Governance, www.telefonica.com/en/shareholders-investors/html/corporate_ governance/compconsejo.shtml, accessed March 28, 2015

The company is investing in attracting new talent, and also in developing internal talent in order to guarantee the company’s success and competitive edge in the next decade and beyond. According to information on the company’s website,30 they “. . . are on course to recruit 14,000 people younger than 30 to new positions by 2016 and, at the same time, we are focusing on the training and development of internal talent to extend their capacity, empowerment and commitment.” In 2014 Ranking the Brands.com put Telefónica among the top 20 (#14) of the World’s Best Multinational Workplaces.31 However, not all of its employees may agree with the ranking by World’s Best Multinational Workplaces or the company’s public relations publicity announcing the recruitment of thousands of young professionals and technicians. Despite the rankings and the announcement of hiring new talent, the labor record of the company is tainted with practices of massive lay-offs, subcontracting workers who are paid low wages, and hiring temporary workers to avoid paying them benefits. For example, in Brazil during 2013, the company implemented what it was termed a “voluntary buy out program” to cut 1000 jobs as part of an “administrative reorganization to maintain competitiveness.”32 This practice of “voluntary” staff reduction is not new to Telefónica. This was commonplace throughout the 1990s when the company gained entrance to many Latin American countries at a time when several of these were adopting neoliberal policies and dismantling labor laws favoring workers and unions. These political-economic changes ultimately benefitted Telefónica’s economic growth and expansion.33 In Spain, the company has been facing serious labor issues as well. For example, between March and May of 2015 various unions—Alternativa Sindical de Trabajadores (AST), Confederación General del Trabajo (CGT), Comisiones Obreras (CCOO), among others—went on strike to

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protest against Telefónica’s subcontracting practices that allow other companies to exploit technical laborers working for Telefónica. The unions took the case all the way to the EU Parliament. They accused Telefónica and the companies Cobra, Confica, and Elecnor, among several others of providing poor working conditions to the technicians who lay fiber optic cables and repair lines for Telefónica. The unions indicated that, on average, these technicians work 10 hours a day but, due to salary reduction plans, they are getting paid the equivalent of only four to five hours. In addition, technicians don’t get extra pay for working on weekends or holidays.34 One of Telefónica’s strategies is to reduce its technical staff to avoid having the direct responsibility of providing salaries and benefits for their workers. Subcontracting puts the responsibility on other companies even when staff are working for Telefónica. In this fashion Telefónica not only saves money on labor, but it makes money on the repairs, maintenance, and expansion of lines, which are costs that are one way or another passed on to the client.

Corporate Responsibility Telefónica, as with many transnational companies, includes corporate responsibility as part of its operations, although this was not always the case. Corporate responsibility has become somewhat central since the late 1990s and early 2000s in response to the European Commission standards. The EU asks that transnational companies work not only for economic profit and growth, but also to help alleviate social and environmental issues in the countries where EU companies are engaged. Hence, in 1998 Telefónica established the Fundación Telefónica, or Telefónica Foundation. This foundation is the philanthropic face of the transnational company. The CEOs of the company understand that corporate responsibility and philanthropy helps improve the image of the institution both internally and externally. Thus it is in the best interest of the stakeholders to promote corporate responsibility and to invest through the foundation in social projects, especially in the various countries where they operate in the developing world, but not exclusively, as the foundation also sponsors projects in European countries. All of the activities sponsored by Fundación Telefónica are accompanied by public relations efforts. Fundación Telefónica, like any other philanthropic arm of a transnational corporation, is not invested in fostering social cohesion and political and economic stability as an end, but as a necessity to create environments conducive to continued profits. For better or worse, many of the programs sponsored by the foundation often fill a void in social services and cultural arenas from which the state or local powers are absent in several of the countries where Telefónica operates. Fundación Telefónica is most active in Spain and several other Latin American countries, like Peru, Argentina, and Chile. The foundation is sponsoring or co-sponsoring largely educational and cultural development linked to Information and Communication Technologies (ICT) and other related technologies. According to its website Telefónica social responsibility focuses on three spheres of actions: (1) Education and innovation: we design and implement direct intervention programs which benefit children and young people, to support them in the development of their life projects through education and personal autonomy. (2) Digital art and culture: we are a meeting point for the most innovative trends in digital art and culture through our cultural spaces. (3) Corporate volunteering: we manage the Telefónica corporate volunteering program, supporting the solidarity activities of our employees on social projects.35 On the same site, the foundation indicates that in 2013 it provided €128.9 million of which 69.7% went to education and youth programs, followed by arts and culture with 13.5%, then social well-being 8.3%, socioeconomic development 7.8%, the environment 0.2%, and others 0.5%.

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The three spheres of action are reflected in their key programs: (1) EducaRed, which is committed to advancing education through the use of information and communication technologies, particularly to promote the use of the Internet for educational ends by aiding schools. (2) Proniño is committed to preventing child labor, and works in conjunction with multilateral organizations and non-governmental organizations (NGOs) to help children remain in school. (3) Arte y Tecnología is dedicated to preserving art and disseminating culture through digitization, book publication, and art and technology exhibitions. (4) Voluntarios Telefónica promotes the participation of its employees in activities to help marginal populations through engagement with communities, schools, and NGOs. Employees are also encouraged to participate in Telefónica’s program “Euro Solidario” (Solidarity Euro) by donating at least one euro monthly from their pay check towards benefiting Telefónica’s Proniño program. Ultimately, the good will of Telefónica’s employees benefits the company’s image. In order to implement some of their philanthropic programs, the Telefónica Foundation partners with local state institutions, local NGOs, as well as with international and multilateral organizations such as UNESCO, UNICEF, and others. For example, in March of 2015, UNESCO launched YouthMobile Initiative in partnership with Telefónica Educación Digital and Qualcomm Wireless Reach. This new initiative seeks: to have empowered at least 25,000 young people worldwide, particularly young women, with both the high-level skills and confidence to develop, promote, and sell at least 5,000 locally relevant mobile applications (apps) that solve local issues of sustainable development, and provide self-generated, viable employment opportunities in the mobile/ICT industry.36 UNESCO’s YouthMobile Initiative represents for Telefónica and Qualcomm a strategic investment, for two reasons. First, the young participants in the program are developing apps that will be consumed or sold through Telefónica’s (and its partners’) products, ultimately providing more revenues for the company than for the self-employed youth. Second, the young developers are doing the job without having to become employees for either of the two sponsoring companies, thus both companies are free of any contractual obligation. Although UNESCO’s Initiative may have good intentions, the main beneficiaries are Telefónica and Qualcomm, which are getting cheap labor from the participants developing apps that bear their brands and are sold through their products; in addition, the companies get to keep the intellectual property rights, adding value to their brands.

Cultural Profile This section provides understanding of the role Telefónica plays in the cultural life of people, particularly younger generations, for whom the digital era expressed through mobile telephony, access to mobile platforms, cable, satellite, and mobile television is a part of daily life. Issues of access and know-how are included in the discussion.

Symbolic Universe and Ideology Telefónica is able to promote the importance of being connected as a social and cultural necessity, and in addition it is very influential in terms of how people access information and cultural commodities by way of new technologies, wireless telephony, satellite, cable, and digital television. Currently, Telefónica is shaping the way young people think about technical skills in combination with entrepreneurial know-how. Telefónica’s mission on its main website reads: “Technology should be open to everyone so that we can all be more. At Telefónica we believe that everyone should have at their disposal the

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possibilities offered by technology. Thus, we can all live better, do more things, be more.” This statement carries an implicit technologically determinist notion and modernization concept, tying the company to the idea that it provides technological advancement (through its services), which in turn will provide people (their customers) a better life. We can also observe that their publicity transmits ideas about material progress through the consumption of technology, as well as ideas about staying connected with family and friends or enjoying family moments by consuming cultural products that can be accessed through the company’s products and services, such as cable or digital television. However, Telefónica has clear commercial goals in order to maximize profits for its stakeholders. The technologies, along with the services the company offers to the public, are commodities and, as such, they carry a cost. Various commodities sold by Telefónica are inaccessible for large sectors of people in several of the countries where it operates. Thus the technology and products the company sells are not “open to all” or making a difference in the life of all, as their mission states. One could argue that many of the products and services Telefónica offers carry a price tag that actually contributes to the digital divide. The digital divide is certainly an issue in areas where Telefónica may be the sole provider of services like Internet. For example, in several rural and semi-rural areas of Latin America where Telefónica does not have much competition for Internet service, most citizens and public schools cannot access the Internet due to the costs of broadband connection. In some cases, Telefónica, through its foundation programs and in agreement with local governments, provides aid, but this is not ongoing. The company expects that after a certain period of time the users (or the state) will continue paying for the service. Unfortunately, this is not always the case. Hence, many schools stopped having access to Internet after a year or two due to lack of funding. Students in rural and semi-rural areas may access the Internet for homework or pleasure only by using street “cabinas Internet” or computers with access to Internet set in corner stores in villages or towns. For this service, consumers usually have to pay an average of $1.00 per hour, which may not seem like much money, but this figure becomes more striking in those countries where a good percentage of people (especially in rural areas) live on $2.00–5.00 a day. Despite the disconnect between the company’s ideology regarding access to technologies and the reality of who can afford these products and services, Telefónica and its brands have widely expanded by seizing substantial markets in various regions of the world. The company promotes itself as deeply rooted in the countries and cultures where it operates, and this is particularly true in Latin American countries. The participation of the company through its foundation in the sponsorship of cultural events, social action projects, and technological assistance makes Telefónica seem like part of the community and look different than other transnationals that don’t contribute to cultural life or social development projects.

Conclusion Telefónica’s geographical expansion, market growth, and internal diversification in the past 25 to 30 years are significant. Its revenues remain strong despite competition and economic and political challenges in both Europe and Latin America. Similar to other telecommunication companies, Telefónica has been, and continues to be, a strong influence on the adoption and consumption of wireless telephony, Internet, digital television, and other communication technologies and its byproducts. In addition, it helps reinforce a consumer culture by participating in the production and distribution of media content. Telefónica’s ability to expand and grow in the last 30 years is based on the ability to seize opportunities during political and economic changes in the markets where it now operates. Its control of former national telecommunication systems, along with a preexisting infrastructure that

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has been updated and expanded over time, has given Telefónica the upper hand in various markets. Telefónica controls the cable and fiber optic networks in most countries where it operates, thus it has the power to sell bundled services capturing a larger number of clients. And, by controlling cable and fiber optic networks plus satellite communication, Telefónica has the ability to negotiate and control information and media content distribution. Thus, it is an important player in the media business as well as in the telecommunications arena. Telefónica has long since stopped being solely a “telephone company,” and it deserves close and serious attention as itundoubtedly participates in shaping culture and cultural consumption. Although the brand name perhaps remains associated with the notion of traditional telecommunication services such as placing and receiving of phone calls, the company as a group has become an institution that is highly influential in our consumption of new technologies and the information and media content we can derive from it.

Notes 1 Ranking the Brands. Global Top 100 Brand Corporations, www.rankingthebrands.com/The-BrandRankings.aspx?rankingID=221&year=854, accessed February 10, 2015. 2 Ranking the Brands. World’s Best Multinational Workplaces, www.rankingthebrands.com/The-BrandRankings.aspx?rankingID=355&year=864, accessed February 10, 2015. 3 See Robert Sobel (1982). ITT: The management of opportunity (New York: Truman Tally, pp. 82–133). This is the most comprehensive book on the history of ITT. It largely discusses ITT’s investment in Spain and the history of the CTNE now Telefónica. 4 In addition to Sobel’s book on ITT, all other early and contemporary historical information on this chapter comes from two books written and published by Telefónica. The first is Gráficas Reunidas (1974), which focuses on the early years of the company pretty much covering since the CTNE inception to the early 1970s. The second book is Telefónica (2000), which briefly cover the early years and then focuses on the 1980s to the late 1990s. 5 See Eli Noam (1992). Telecommunications in Europe (New York: Oxford University Press), pp. 82–83; 252–255. 6 Part the information on this section is from Gabriela Martínez, Latin American Telecommunications: Telefónica’s Conquest (Lanham, MD: Lexington Books, 2008), which draws on a wide variety of primary sources on Telefónica. 7 Maria Irazusta and Carmen Llorente (January 19,1997). Las ventajas de la ultima privatización de Telefónica [The advantages of Telefónica’s privatization], www.elmundo.es/sudinero/noticias/act-61–1.html, accessed March 24, 2015. 8 Part of the information on this section comes from Gabriela Martínez, Latin American Telecommunications: Telefónica’s Conquest (Lanham, Md: Lexington Books, 2008); and from current information on the Telefónica’s site. 9 This information is from Telefónica’s website under Key Figure for December 2014, www.telefonica. com/en/about_telefonica/html/in_brief/magnitudes.shtml 10 This information is from Telefónica’s website under Financial Data, www.telefonica.com/en/shareholdersinvestors/html/financial_reports/home.shtml, accessed March 23, 2015. 11 Atento Embarks on a New Era with Bain Capital, December 12, 2012, www.atento.com/news-center/ releases/260/atento-embarks-on-a-new-era-with-bain-capital 12 Telefónica loses mobile clients in Spain, Orange overtakes Vodafone. In Reuters, Madrid, October 3, 2014 by Robert Hetz and Julien Toyer, ed, David Evans, www.reuters.com/article/2014/10/03/us-spaintelecoms-idUSKCN0HS1A820141003, accessed March 23, 2015. 13 See Telefónica’s website under Geographic Spread and visit the hyperlink for each country to access the numbers. Telefónica provides information for each service and also the total accesses, www.telefonica. com/en/about_telefonica/html/geographic_spread/clientes.shtml, accessed December 4, 2015. 14 Francisco Lucotti (November 10, 2015). Telefónica Continues Adding Pay-TV Subscribers in Latin America. NexTVNews Latin America, nextvlatam.com/telefonica-continues-adding-pay-tv-subscribers-in-latinamerica-6565/?lang=en, accessed December 4, 2015. 15 Telefónica y América Móvil: Los dueños del Mercado en América Latina, http://hipertextual.com/ archivo/2014/01/telefonica-y-america-movil-duenos-mercado-america-latina/, accessed July 15, 2015. 16 Digital Telco in Telefónica’s terms means that connectivity (and hyperconnectivity) through a variety of networks and platforms is the new cornerstone of telecommunications, and that as a telecom organization finds itself at the center of the digital revolution; therefore it is rebranding as a Digital Telco

Telefónica

17 18 19

20 21 22 23 24 25 26

27 28 29 30 31 32 33 34

35 36

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and providing a wide variety of mobile digital services to its customers while sponsoring research to further advance digital technologies and new applications to our lives. More about Telefónica’s rebranding as a Digital Telco can be found on www.telefonica.com/en/mwc/telco_digital/index.shtml; in addition, access the A Digital Manifesto at www.digitalmanifesto.telefonica.com/manifesto/ This information appeared under the title Spain’s Telefonica Unveils New Organizational Structure published by EFE. It appeared on February 26, 2015 on http://latino.foxnews.com/latino/news/2014/02/26/spaintelefonica-unveils-new-organizational-structure Telefónica’s Consolidated Financial Statements for 2014, pp. 20–30, www.telefonica.com/en/ shareholders-investors/html/financial_reports/informesanuales.shtml This section on Telefónica’s brand draws from the following: Corporate Responsibility Report from 2002, where there is a whole section about the group brand and its strategies, pp. 14–18, www.telefonica. com/en/about_telefonica/pdf/informes/2002/ResponsabilidadCorporativa2002Ingles.pdf; Corporate Identity Report from 2006, pp. 1–6, www.telefonica.com/en/about_telefonica/pdf/informes/2006/ 02_1_CorporateIdentity_06.pdf; for brand value in 2014 and other relevant information see http:// brandirectory.com/profile/telefonica; also see Gabriela Martínez, Latin American Telecommunications: Telefónica’s Conquest (Lanham, MD: Lexington Books, 2008), pp. 58–60. Manuel Baigorri, Telefonica Gets E-Book Deal with Planeta in Kindle Challenge, March 1, 2012, www. bloomberg.com/news/articles/2012-02-29/telefonica-reaches-e-book-deal-with-planeta-in-kindlechallenge, accessed March 30, 2014. For more information on Movistar bq or Mundo Reader, visit www.bq.com/gb/corporate-info.html Prisa firma la venta de 56% de Canal + a Telefónica por 750 millones de euros. Madrid, June 2, 2014. El País, http://economia.elpais.com/economia/2014/06/02/actualidad/1401722938_860022.html Telefónica podrá controlar el 100% de Canal + tras vender Mediaset su participación por 365 millones. El Mundo. Article by Raúl Piña, Madrid July 4, 2014, www.elmundo.es/television/2014/07/04/ 53b6e8f4ca4741ec7d8b458c.html Telefonica and China Unicom strengthen ties. January 23, 2011. Business section BBC News, www.bbc.com/news/business-12261887 Telefonica, China Unicom form open innovation partnership. June 10, 2014. Article by Nick Wood for Total Telecom, www.totaltele.com/view.aspx?ID=486630 This information is taken directly from Telefónica. One can find the complete list of start-ups participating in Telefónica Open Future at www.globalsolutions.telefonica.com/en/news/2015/03/03/telef% C3%B3nica-open-future-china-unicom-and-thti-launch-a-joint-global-call-to-accelerate-startups-in-theiot-space/.accessed April 5, 2015. Vivendi, Telefonica seal 7.2-billion-euros Brazilian broadband deal. Reuters. Article by Dominique Vidalon and Tracy Rusinski, September 19, 2014, http://uk.reuters.com/article/2014/09/19/uk-vivendi-gvtidUKKBN0HE0F620140919 Most of the information on this section, including Tables 11.6, 11.7, and 11.8, is drawn from the Annual Corporate Governance Report for Listed Companies, pp. 1–10, www.telefonica.com/en/shareholdersinvestors/pdf/IAGC_2014_en.pdf, accessed March 27, 2015. Executive profile for Cesareo Alierta Izuel, www.bloomberg.com/research/stocks/people/person. asp?personId=357078&ticker=TEF:SM, accessed April 5, 2015. This information is taken directly from Telefónica’s site under Careers and Challenges, www. telefonica.com/en/careers/html/challenges/home.shtml, accessed April 27, 2015. Ranking the Brands: World’s Best Multinational Workplaces, www.rankingthebrands.com/The-BrandRankings.aspx?rankingID=355&year=864, accessed February 10, 2015. Reuters published an article on its business section on March 6, 2013. Telefonica Brasil to cut 1,000 jobs in fixed line overhaul: union, www.reuters.com/article/2013/03/06/us-telefonica-brazil-idUSBRE92 50YK20130306 In my book Latin American Telecommunications: Telefónica’s Conquest there is a section on labor practices during the 1990s and 2000s in various Latin American countries, pp. 66–78. There are several articles published by the Spanish newspaper El País addressing this strike and other labor issues related to Telefónica and the companies that are subcontracted by it. Also one can follow the issue through the CCOO union website, http://economia.elpais.com/economia/2015/05/05/actualidad/ 1430846755_030035.html; http://ccaa.elpais.com/ccaa/2015/04/16/catalunya/1429191709_362392.html; www.fsc.ccoo.es/webfsctelefonica/, accessed May 7, 2015. Social Development, www.crandsustainability.telefonica.com/society/socialdevelopment/#.VX9b90 hv1oE, accessed June 13, 2015. Media Services, UNESCO, March 12, 2015—Communication & Information Sector, www.unesco.org/ new/en/media-services/single-view/news/with_patronage_of_unesco_and_the_youthmobile_initiative_ telefonica_educacion_digital_launches_the_mobile_for_change_app_competition/#.VX96E0hv1oE

12 GRUPO PRISA Luis A. Albornoz1

Based in Madrid, Grupo Prisa (Promotora de Informaciones S.A.) has managed in the last decades to consolidate its Ibero-American reach, and its products and services today reach more than 60 million potential users in 22 countries. Its most prominent assets include El País, Spain’s leading newspaper, self-proclaimed as “the global newspaper” (with editions for Latin America, Brazil, and Catalonia); Grupo Santillana, a group of publishing houses producing books in Spanish, Portuguese, French, and English; and Prisa Radio, which holds 80% of the giant Spanish-speaking radio broadcaster Unión Radio. However, since the mid-2000s, Grupo Prisa has faced its most difficult time as it has been saddled with a bank debt in excess of €3 billion, against a backdrop of widespread economic crisis in its traditional and core market, Spain. In response to this situation, Prisa management has pursued a strategy of debt restructuring, divestitures, layoffs, and a search for new investors. As a result, the multimedia conglomerate has experienced profound changes in its shareholding structure and its presence in various cultural industries. The equity share of the Polanco family plunged, from 71% of shares in 2009 to less than 10%, while a number of financial institutions and hedge funds have gained prominence. This process was coupled with a decline in Prisa’s presence in certain industries previously considered its core business, including audiovisual and publishing. Harshly impacted by the economic crisis in Spain and by poor management decisions, the Group has been reporting losses every year since 2010, and one of its main assets, newspaper El País, is in technical bankruptcy (it reported current assets for €2.92 million versus short-term liabilities of €63.15 million for 2013).

History The origins of Grupo Prisa go back to January 1972, when five personalities of Spanish society— José Ortega Spottorno (son of philosopher José Ortega y Gasset, president of Revista de Occidente and managing director of Alianza Editorial), Carlos Mendo (journalist), Darío Valcárcel (journalist), Juan José de Carlos (lawyer), and Ramón Jordán de Urríes (aristocrat)—established the company Prisa. Additionally, they registered a new newspaper brand, El País, which went into circulation in 1976 when the government that took over after the death of Dictator Francisco Franco granted its authorization. Over the past 40 years, Grupo Prisa consolidated its public presence through El País, a leading daily in the Spanish language and key player in journalism in the Spanish-speaking world. The

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first issue appeared on May 4, 1976, and its founders defined it as an independent, high-quality newspaper, with a European vocation, and an advocate of pluralist democracy. Because of the unsuccessful coup d’état of February 23, 1981 (popularly referred to as simply 23-F), El País became a referent of democratic Spain. In those times of uncertainty—with the government officials and deputies taken hostage in Congress, and before Spanish television broadcasted the message of King Juan Carlos I condemning the attempted coup—El País published a special edition called “El País, con la Constitución” (“El País, for the Constitution”), calling citizens to pledge allegiance to democracy. Its commitment to democracy, the triumph of the Partido Socialista Obrero Español (PSOE; Spanish Socialist Workers’ Party) in the 1982 elections, and its support for the Felipe González administration paved the way for Prisa’s positioning in the 1980s as a leader of the Spanish press.2 The early years were also marked by a series of internal struggles in Prisa, between a cohort led by Jesús de Polanco (founder of Editorial Santillana in 1958) and a group of shareholders worried by what they claimed was excessive progressivism at El País. In 1983 Polanco got hold of a majority of shares, and in 1984 he was named chairperson. Chaired by him, the group started a process of intense business growth, emerging as the main multimedia group in Spain. Many competitors believe that such growth would have been impossible but for a chain of regulatory changes introduced by the successive administrations of socialist Felipe González (1982–1986, 1986–1989, 1989–1993, and 1993–1996). After the strong periods of cross-media expansion and internationalization in the 1990s and in the first half of the 2000s—with Polanco as Chairman till his death in 2007 and Juan Luis Cebrián as CEO of the company between 1988 and 2012—Prisa became the top multimedia conglomerate in Spain, and one of the leading players in both the Iberian Peninsula and Latin America. Table 12.1 lists Grupo Prisa’s major Iberian investments. In the mid-2000s, the firm engaged through its various companies in local free-to-air TV, Hertzian pay-TV (being the only operator), and satellite TV (only operator); audiovisual production and distribution; AM/FM radio (number one operator); print, with daily news (number one operator), sports news (number two operator), and economic news (number two operator); and the Internet and other industries (publishing, education, phonographic sector, and bookstore chains). Additionally, it experienced expansion in international markets, through acquisitions and startups, mainly in Ibero-American countries, including El País-Mexico and-Argentina, Santillana Educación (Argentina, Paraguay, Colombia, El Salvador, Bolivia, Chile, Guatemala, Costa Rica, Mexico, Peru, Venezuela, the Dominican Republic, and Brazil). Through the Prisa International Division, the group gained presence in the radiophonic sectors of Colombia, Mexico, Chile, France, and the U.S.A. In contrast with such accelerated expansion, 2007 is viewed as an annus horribilis for the company. The Group’s leader, Polanco, died in July, and some months later, Prisa launched a share acquisition public offer (APO) for Grupo Sogecable, owner of the leading satellite multichannel platform in Spain’s pay-TV market, Digital+, in spite of the fact that it already had the majority interest in the company (the share structure of Sogecable was Prisa 43%, Telefónica 17%, Vivendi 4%, Eventos 3%, and the remaining 33% was traded on the stock exchange). This APO forced Prisa to take a bridging loan for €1.9 billion from six banks (HSBC Bank, La Caixa, Caja Madrid, Banesto, BNP, and Natixis) to finance the final bid for Sogecable. This acquisition is at the heart of the group’s existing problems, as Prisa took over Sogecable but became deeply indebted: the gross financial debt exceeded €5 billion, and the company had to suspend the payment of dividends to shareholders—an unprecedented event since it went public in 2000. It should be noted that this major indebtedness was due to a number of asset purchases, funded by cheap loans made before taking over total control of Sogecable (the consolidated debt started to accumulate as of 2005, as a result of its aggressive policy of expansion that led to the Sogecable

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TABLE 12.1 Grupo Prisa’s Largest Media Investments, 1984–2006

Date and market

Asset

Business

1984 Spain 1989 Spain 1990 Spain 1990 United Kingdom

Acquisition of Cadena SER (100% by 1992) Acquisition of Cinco Días (100% by 1994) Launch of Canal+; becomes Cuatro in 2005 Acquisition of The Independent (19% by 1992); sold in 1998 Acquisition of Público (17%); sold in 1997 Takeover of Antena 3 Radio (main competitor of Prisa’s own radio network) Acquisition of the publisher of La Prensa (49%); sold in 1996 Acquisition of As (75%)

National radio network Weekly business newspaper National terrestrial pay-TV Daily national newspaper

1992 Portugal 1992 Spain 1993 Mexico 1996 Spain 1997 Spain 1999 Colombia 2000 Bolivia 2000 Spain 2001 Mexico 2003 Spain 2004 Argentina 2005 Spain 2005 France 2005 Portugal 2006 Chile

Launch of Canal Satélite Digital Acquisition of Radio Caracol (19%) Acquisition of Grupo Garafulic’s media assets (100% by 2003); sold by 2010 Launch of Localia Closed at the end of 2009 Acquisition of Radiopolis (50%) Launch of Digital+ (after the merger of Canal Satélite Digital and Vía Digital) Acquisition of Radio Continental and Radio Estéreo (100%) Launch of Cuatro. Sold in 2010. Acquisition of Le Monde (15.1%) Acquisition of Media Capital (94.4% by 2007) Acquisition of IberoAmericana Radio Chile (100%)

Daily national newspaper National radio network Daily national newspaper Second Spanish daily sports newspaper Satellite pay-TV National radio network Press, broadcasting Local television network Radio broadcasting Satellite pay-TV National radio networks National free-to-air TV National daily newspaper Media conglomerate National radio networks

Note: to these largest media investments would have to be added those made by Santillana, including the acquisition of textbooks publisher Editora Moderna (100%), in 2001, and the acquisition of the publisher of books for children and young people Editora Objetiva (75%), in 2005. Source: Nuria Almiron and Ana I. Segovia, “Financialization, Economic Crisis, and Corporate Strategies in Top Media Companies: The Case of Grupo Prisa”, International Journal of Communication, 6 (2012), 2897.

APO, plus another APO launched to acquire the Portuguese audiovisual group Media Capital in late 2006 and early 2007). CEO Cebrián explained to the Extraordinary Shareholders’ Meeting in December 2008: Prisa’s debt is associated with the extraordinary growth of the company during this decade. The Group has more than tripled its growth since it went public in 2000; since then and to the present day, it has distributed €232 million in dividends, has had to face the merger of the two satellite pay-TV platforms, and has invested almost €4.9 billion only in acquisitions, with an additional €1.29 billion in recurring investments. It made it all without any reinforcement of its own funds, in the midst of abundant and cheap money, with financial institutions queuing at the doors of the corporate headquarters, soliciting the taking of more and more loans at virtually negative interest rates.3 Almiron and Segovia4 demonstrated that the root of financial problems lies in what was until recently Prisa’s main audiovisual asset: Grupo Sogecable. With the Sogecable takeover, Prisa’s debt soared, reaching €2.5 billion in 2006 and exceeding €5 billion in 2008. Sogecable’s history includes the tough competition over broadcasting rights of the football games of the Spanish premier

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league, the first round of which occurred in 1997, and the expensive takeover of the competitive satellite-TV platform Vía Digital—driven by Telefónica—which in 2003 gave way to Canal+. Prisa paid a high price for the total acquisition of Sogecable at a time when the world economic crisis started to cause major disruptions in the Spanish market. The positive balance of €83 million in the company’s net profit in 2008 resulted from the €300 million obtained from the sale of the head offices of Cadena SER (radio), El País (press), and Radio Barcelona. The losses, however, grew visible and stronger after 2010. In the fashion of a pendulum swing, the momentum from the period of cross-media expansion and internationalization was followed by a counter-movement, which started in 2008 and is still evident. Divestitures and the cutting down of operating expenses, including layoffs and the outsourcing of business activities, mark this stage in the Group’s history. Only in 2014 did Prisa start to sell Santillana Ediciones Generales (Alfaguara, founded by celebrated novelist and Nobel prize-winner Camilo José Cela in 1964, and other publishing seals present in 22 countries), a 56% interest in the satellite pay-TV platform Canal+ to Telefónica, and its 13.68% interest in Mediaset España to the controlling company, Mediaset España. Table 12.2 lists the group’s main divestments. Triggered by the negotiation of the giant debt, financial entities took over the company, resulting in the bad debts becoming capital. Furthermore, new shareholders joined in through the company’s capital expansion. The last transaction closed by Prisa with Telefónica, a deal approved by the country’s competition watchdog, the Comisión Nacional del Mercado de Valores (CNMV, National Securities TABLE 12.2 Grupo Prisa’s Main Asset Disinvestments, 2008–2014

Year and Asset

Business

Type of Disinvestment

January 2008, Prisa Radio* (Spain) Radio broadcasting

8% sold to an investment fund (3i)

December 2008, Localia (Spain)

Local TV network

Closed

2008 to 2010, Grupo Garafulic (Bolivia)

Media conglomerate

100% sold to different investors

April 2009, Crisol (Spain)

Bookstores

Closed

September 2009, Santillana (Spain) Main publishing subsidiary

25% sold to an investment fund (DLJ South American Partners LC)

December 2009, Digital+ (Spain)

Satellite pay-TV

22% sold to Telefónica 22% sold to Telecinco (Mediaset)

December 2009, Cuatro (Spain)

National free-to-air TV

100% sold to Telecinco (Mediaset)

December 2010, Sogecine & Sogepaq (Spain)

TV and film production and distribution

Closed

June 2014, Santillana Ediciones Generales (Spain, Portugal, and Latin America, including Brazil)

Publishing house (publishing 100% sold to Penguin Random brands: Aguilar, Alfaguara, House Punta de Lectura, Suma de Letras, and Taurus; and in Brazil, Alfaguara, Foglio, Fontanar, Objetiva, Ponto de Leitura, and Suma de Letras, among others)

July–September 2014, Mediaset España (Spain)

Audiovisual group (TV, advertising, and multimedia)

13.68% sold to Mediaset España

April 2015, Canal+ (Spain)

Satellite pay-TV

56% sold to Telefónica

Notes: International disinvestments are shown in italics. *Formerly known as Union Radio, Prisa Radio was created in 2006 by Grupo Prisa (80%) and Grupo Godó (20%) to combine their radio assets. Source: update of Almiron and Segovia’s table (2012: 2898) made by the author using Prisa Annual Results, 2014

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Market Commission) in May 2015, is indicative of the deterioration occurring in recent years: Prisa sold a 56% share in Digital+ to Telefónica for €706.8 million, compared to triple that amount spent three years before by Prisa to purchase a similar equity share.

Economic Profile The following section provides data about the critical financial situation currently facing Grupo Prisa, together with a description of their main business units: Publishing–Education, Press, Radio, and Audiovisual. In a grim economic environment, the company’s energies are set to consolidate its presence in the markets of Latin America and meet the challenges posed by the new digital technology scenario.

Financial Data Prisa started the second decade of the twenty-first century with serious difficulties due to its large debt and the fact that its main market, Spain, was negatively impacted by the world economic crisis that commenced in 2008 (unemployment was at a historical high in 2013, with 27% of the economically active population out of job, while public debt reached 93% of the GDP versus 36% in 2007). Official figures on the paid consumption of cultural goods and services in Spain reported a 27.7% decline in five years (from €16,963 million in 2008 down to €12,262 million in 2013), without factoring in inflation.5 In such an adverse context, Prisa has been reporting a loss on its income statements year after year since 2010. Since 2008, under the leadership of Cebrián, the company has been selling and shutting down valuable corporate assets, and refinancing its debt. Table 12.3 summarizes the group’s finances for the 10 years to 2014. The net result for the year 2014 was a €2,237 million loss, due to the accounting impact of Canal+, which created a loss in Prisa’s consolidated financial statements of €2,064 million and a loss of €750 million in the individual financial statements. In 2014, the company paid back €780 million of its debt, through the repurchase of discounted debt with funds from the €100 million capital increase introduced the previous year, and the sale of 13.7% of Mediaset España. Thus, the Group’s net bank debt was €2.580 million at the end of fiscal year 2014.6 Table 12.4 summarizes the group’s revenue for 2013 and 2014. TABLE 12.3 Grupo Prisa: Revenues, Income, Assets, and Debt, 2005–2014 (in € millions)

Year

Revenues

Net Income

Total Assets

Net Debt

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

1,483 2,812 3,696 4,001 3,209 2,823 2,724 2,664 1,550* 1,454*

153 229 192 83 50,5 –73 –451 –255 –649 –2,237

2,147 6,018 6,526 8,107 8,193 8,151 7,878 7,662 6,704 n.a.

603 2,556 3,014 5,044 4,857 3,213 3,534 3,083 3,306 2,582

Note: *Not including revenues from Digital+. Sources: Grupo Prisa’s consolidated annual accounts, 2006–2012, www.prisa.com/en/datos/cuentas-anuales/; annual results 2006–2008 and 2011–2014, www.prisa.com/en/datos/presentaciones/; annual accounts January–December 2009, February 19, 2010, www.cnmv.es/Portal/HR/verDoc.axd?t={8353f298-c904–4c3b-99c9-eba05be41223}; and annual accounts January–December 2008, February 19, 2009, www.cnmv.es/Portal/HR/verDoc.axd?t={ac9b1d3e-e650–4c59-ac4ae98cfd68817f}

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TABLE 12.4 Grupo Prisa: Breakdown of Revenue, 2013 and 2014

2013 €M Media Capital Education – Publisher Spain and Portugal LatAm and USA Radio Radio Spain Radio International Music Consolidation adjustments Press El País AS Cinco Días Magazines Printing* Distribution** Others and Consolidation adjustments Others and Consolidation adjustments Prisa Brand Solutions Others> TOTAL

181.72 738.30 144.01 594.29 323.85 177.94 131.15 22.22 (7.46) 282.49 192.83 60.33 12.94 17.42 10.73 n.a. (11.76) 23.81 20.39 3.41 1,550.16

2014 Percentage of Total 11.7 47.6

20.9

18.2

1.5

100

€M 179.77 716.64 155.89 560.75 305.14 175.48 120.86 20.34 (11.54) 260.22 179.92 56.80 12.31 12.32 10.33 n.a. (11.46) (7.05) 18.99 (26.03) 1,454.73

Percentage of Total 12.4 49.3

21.0

17.9

(0.5)

100

Notes: *Printing fully consolidated since April 2012; from January 2013 included in the Press division. **Distribution classified as Discontinuing Operations in the Press division since January 2013; sale of the division took place in September 2013. >Primarily includes corporate business. Source: Prisa (2015: 41), www.cnmv.es/Portal/HR/verDoc.axd?t={4d02def6–0849–4ea0–9465–9765e195340c}

Furthermore, the 2014 results confirm that Latin America is the main source of operating income for Prisa (it accounts for 73% of the company’s EBITDA). Moreover, its flagship brand, El País newspaper, decreased its circulation by 11% (259,000 copies), reported 7% less income, and had 5% lower advertising revenues than in 2013. In 2014, Grupo Prisa’s income reached €1,454 million. This amount is broken down as follows: advertising, €490 million; publishing–education, €673 million; newspapers and magazine sales, €106 million; and audiovisual production, €23 million. Breakdown by geographical area is: Latin America, €684 million; Spain, €545 million; and Portugal, €182 million.

Corporate Structure At present, the Group is divided into four business areas: Publishing–Education, Press, Radio, and Audiovisual.7

Publishing–Education Grupo Santillana has been part of Grupo Prisa since 2000, and in 2012 it contributed almost half of Grupo Prisa’s revenues (49%). This includes the sale of textbooks and teaching-related services and materials. The sale of its Ediciones Generales to Penguin Random House (PRH) for €72 million in June 2014 undermined the power of Santillana. The deal included publishing houses Alfaguara,

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Taurus, Suma de Letras, Aguilar, Objetiva, Altea, Fontanar, and Punto de Lectura,8 and excluded the segment of the activities of the Children and Youth Division of Alfaguara, which is associated with Santillana’s school business. Following this transaction, Santillana announced its intention to fully focus all its efforts on the area of education, which is undergoing a thorough digital and pedagogical transformation. Santillana’s actions in Latin America include the expansion of the educational programs Sistema UNO (an integrated teaching service built around collaboration with school management, offering training and evaluation, bilingual education, and digitization of the educational system), and SANTILLANA Compartir (an initiative designed to introduce technology in schools in a less radical way than Sistema UNO). The Compartir system has spread further than UNO, with a presence in Argentina, Brazil, Central America (North and South), Chile, Colombia, Ecuador, Mexico, the Dominican Republic, and Peru. In the education business, Santillana holds a leading market position in virtually all countries where it operates. In Spain, it has a 19% market share, and in foreign markets it has high shares in Chile (39%), Argentina (28%), Brazil (20%), Mexico (17%), Colombia (17%), and Portugal (7%).

Press Prisa Noticias is the business unit focusing on the sale of newspapers and magazines, advertising, promotions, and print. It comprises several leading brands: El País, Cinco Días, As (75%), El Huffington Post (50%), Meristation, Rolling Stone, Cinemanía, Claves, Icon, and Car, in addition to other corporate magazines. In 2013, it launched El País Brazil, and in 2014 the digital publishing business of El País Mexico expanded significantly. It should be noted that the aggregate online readership of the main assets is 22.5 million. In 2014, the Press sector experienced an 8% decline in its income, dropping to €260 million. This decline, partially offset by the growth of digital advertising and the good performance of events and promotions, was due to a feeble advertising market for print media, and a decrease in circulation. El País, the leading general-interest newspaper in Spain, had a 30% market share according to December 2014 reports from Oficina de Justificación de la Difusión (OJD). In spite of its leadership, El País has been losing readership: while in 2007 the OJD certified that the newspaper had an issue of 435,083 copies, in 2014 that figure was down to an annual average of 259,775. This represents a total loss of 40% over seven years, which was signaled by a strong shrinkage of sales of print newspapers and of a loss of advertising income. Added to the gloomy picture was the internal crisis of the newspaper in 2012, associated with the layoff of 129 professionals out of a total payroll of 466 employees (almost 28% of the total).

Radio The main source of income for the radio business is advertising, as well as the organization and management of events and the provision of other ancillary services. Prisa Radio is the largest radio group in Spain, with almost 28 million listeners, more than 8 million unique Internet users, and more than 1,250 radio stations fully or partially owned by the company or affiliated with it. Prisa Radio has a direct presence in Argentina, Colombia, Costa Rica, Chile, Mexico, Panama, Spain, and the U.S.A, and it also has an indirect presence in the Dominican Republic, Ecuador, Guatemala, and Paraguay. Prisa Radio is well positioned in the main Spanish-speaking markets, and is the indisputable leader in Spain, Colombia, and Chile (see Table 12.5). The company has a matrix-like structure considering its four business areas—Radio, Music, Other Media, and Brand Development—and the 12 countries where it operates.

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TABLE 12.5 Prisa Radio Audience by Country (in Thousands of Listeners)

Accumulated audience

Position

Source

Spain LatAm Colombia Chile Gran Santiago Mexico Argentina USA Miami USA Los Angeles Costa Rica Portugal

12,143 15,756 10,772 2,137

1

EGM 3rd wave 2013

1 1

ECAR, July–October 2013 IPSOS, August-November 2013.

1,397 1,122 102 70 156 1,903

3 4 9 4 4 1

INRA, November 2013. México D.F. IBOPE, September–November 2013 Arbitron, November 2013 Arbitron, November 2013 EGM 3rd wave, July–September 2013 Marktest 2013

TOTAL Prisa Radio

29,802

Source: Prisa Sustainable Report 2014, p. 45, www.prisa.com/informe-anual-2014/wp-includes/flip/Informe_Anual_ EN/index.html#/44/

In Spain, the radio stands out for its competitive strength through its main stations: Cadena SER, 40 Principales, Cadena Dial, M-80, Radiolé, and Máxima FM. In 2014, Cadena SER was in a leading position, with 4,447,000 listeners (a 35.7% share in the general-interest radio market), while in the musical radio segment, 40 Principales and Cadena Dial were ranked number one and two with audiences of 16.5% and 13.1% respectively.9 At present, Prisa Radio’s shareholding structure is broken down as follows: Prisa (73.5%), Grupo Godó (18.4%), and private equity fund 3i (8.1%). In 2014, Radio revenues reached €305 million, of which 60% came from Spain and 40% from Latin America, mainly Colombia.

Audiovisual This business sector of Prisa obtains its revenues mainly from advertising and audiovisual production. Prisa TV is the audiovisual holding company in charge of content production, acquisition, and management of audiovisual, publishing, and distribution rights for television channels, marketing, and customer management. The main asset of Prisa TV was, until recently, Canal+, the satellite multichannel platform with approximately 1.7 million customers. However, in October 2014 Telefónica notified the National Antitrust Agency (Comisión Nacional de los Mercados y la Competencia, CNMC) of the acquisition of 56% of the shares held by Prisa in Canal+. It is worth noting that in 2013 the revenues of Canal+—then owned by Prisa, Telefónica Contenidos, and Mediaset España—amounted to €1,166 million. Furthermore, Prisa TV owns 94.7% of Media Capital, the largest media group in Portugal— owner of TVI, Portugal’s leading channel, with a daily average audience of 23%—whose 2014 revenues were €179.8 million. Additionally, Prisa TV owns Plural Entertainment, a prominent audiovisual production company (entertainment, fiction, documentaries, and animation) in the Spanish market, with offices in Spain, Lisbon, Miami, Buenos Aires, and São Paulo. From the Miami offices, it provides content to U.S. Hispanic TV stations and to the entire Latin American market. Finally, V-me, a channel targeting the Hispanic community of the U.S.A, completes the international presence of Prisa TV. V-me Media Inc. is the owner of Spanish-speaking channel V-me, based in New York, in which Prisa has a 42.6% interest.

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Digital In early 2013 the dismantling of the Prisa Digital division started, which put an end to an integrated digital strategy that included the creation of a platform that served as repository for the archive of all of the company’s media. The ambitious plan “has dissolved for different reasons, including the lack of clear direction, the complexity of the group, its growing lack of resources and the country’s recessive context.”10 The difficulty in monetizing digital content is a recurring one (the online version of El País, after two and a half years of being a paid newspaper, reopened in June 2005), and Prisa is present in markets whose consumers are reluctant to pay for content. As of summer 2015, the Group’s corporate website goes as far as to say that its four large business areas are undergoing a process of accelerated digital transformation. According to the 2015 annual report published by Prisa, it is the number one media group in the Spanish language, with an audience in 2014 of 29.9 million unique users worldwide, and 94.3 million unique browsers to its websites. The website with the largest number of visitors is ElPaís.com, with slightly over 11 million unique users. It is noteworthy that since 2013 the audience numbers in Latin America (43.9% in 2014) have exceeded those in Spain (39.1%) (see Table 12.6).11

Corporate Strategies and New Developments According to Almiron and Segovia,12 Grupo Prisa’s corporate history comprises three main stages. The first, 1972–1983, was marked by the launch and consolidation of El País. In the second, 1984–2007, under the leadership of Polanco and Cebrián, the company experienced cross-media expansion in all directions and grew increasingly internationalized, gaining a presence in Latin America. Finally, in the third stage, from 2008 to the present day, the company, under the burden of its heavy debt, started to dispose of or shut down some of its most valuable assets. In the current stage, the company is undergoing a financial crisis and is focused on consolidating its overseas presence and responding to the challenges posed by emerging information technologies. On the one hand, as CEO—and Chairman of the Group since July 2012—Cebrián has mentioned repeatedly, Prisa could be described as a “Latin American company” rather than a Spanish company. This claim is supported by Latin America’s share in the group’s total revenues. Prisa’s strategy in the Latin American and U.S. Hispanic markets is also reflected by the fact that two prominent businessmen, Roberto Alcántara Rojas, President of Grupo Toluca, from Mexico, and John Paton, CEO of Digital First Media, from the U.S.A, were appointed to serve on the Prisa Board in 2014. Furthermore, the growth of the digital media share in total revenues has been slower than predicted. Prisa’s Business Development and Digital Transformation department, in charge of leading and facilitating the digital transformation and contributing to the consolidation of global media leadership, is an instrumental area, and its scope runs horizontally across all business units of the conglomerate.

TABLE 12.6 Grupo Prisa: Digital audience by region, 2014 and 2013 (in Thousands of Individual

Users) Spain LatAm USA and others Total

2014

2013

11,732 (39%) 13,177 (44%) 5,054 (17%) 29,963

12,178 (39%) 13,921 (44.5%) 5,194 (16.5%) 31,292

Source: Prisa, Social Responsibility and Sustainability Report 2015, p. 40, taken from ComScore, www.prisa.com/informeanual-2015/wp-includes/flip/Informe_de_Sostenibilidad_EN_PRISA/#/8/

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Political Profile This section provides the shareholding structure of Grupo Prisa, which has been substantially altered during the process of refinancing debt faced by the company. In this context, the Polanco family has lost influence at the hands of new shareholders belonging to the finance sector. These changes are reflected in the current composition of the Board of Directors. In addition, data on the labor force of the company are provided, where the number of employees has fallen considerably in recent years. Finally, the relations cemented by Prisa with the Spanish State—including the Crown and the democratic governments that followed since the early 1980s—and some Latin American governments are outlined. They reflect both the harmony with different state establishments and the clashes with some governments.

Ownership Prisa today is a media conglomerate that has been losing certain assets, and whose main shareholders are financial institutions. Only five years after Jesús de Polanco’s death in 2007, the company was transformed from a Spanish multinational to a multinational owned by Wall Street banks and investment funds. As of December 31, 2014, the capital stock of Prisa was as follows: • •

Class A shares of common stock: 2,158,078,753 shares, with a nominal value of €0.10 per share traded on the Spanish stock exchanges (Madrid, Barcelona, Bilbao, and Valencia). PRISA 2013 Warrants: As part of the refinancing of the bank debt, the Extraordinary Meeting of the Shareholders of Prisa adopted, in December 2013, an agreement for the issue of warrants with the right to subscribe Class A shares of common stock newly issued by the company. The number of warrants pending execution is 17,562,798, and these give right to the issuance of 23,346,097 shares.13

At the close of 2009, the Polanco family—through companies Rucandio, Timón, and Promotora de Publicaciones—held 71% of Prisa. However, changes over recent years in the shareholding structure of the group, driven by a strong financialization process,14 frequently appear in the local headlines. Following a series of bond conversions and debt/equity swaps, the Polancos (Rucandio) and Mexican Roberto Alcántara (Grupo Herradura Occidente), having signed a paracorporate agreement, now share ownership with Telefónica, financial institutions, and hedge funds. As of December 31, 2014, Prisa’s main shareholders15 were: • • • • • • • • • •

Rucandio, 9.55% Grupo Herradura Occidente, 8.75% HSBC Holdings, 8.13% Banco Santander, 4.56% Telefónica, 4.50% Fundación Bancaria La Caixa, 4.17% Morgan Stanley, 4.09% Monarch Master Funding 2, 3.25% Amber Capital, 3% Nicolas Berggruen, 1.33%

HSBC, Santander, and La Caixa, with 16.86% of the capital stock, were the main financial institution creditors of Prisa, and in June 2012 they approved a debt restructuring in exchange

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for equity. This transaction was implemented by means of a subscription of bonds convertible into shares. The Shareholders’ Meeting also approved the entry of Telefónica, through the subscription of bonds convertible into shares for €100 million, which the telecommunications company pledged to pay in cash. The entry of Grupo Herradura Occidente was announced in July 2014, after subscribing a capital increase of another €100 million. Finally, in February 2015 the Board of Directors approved a capital increase of €75 million enabling the Qatar sultan, Ghanim Alhodaifi Al-Kuwari, the owner of International Media Group, to become one of the main shareholders (with approximately 7%). The capital increase automatically causes a reduction in the percentages held by the Polanco family and the rest of the shareholders.

Board of Directors According to Prisa’s bylaws, the Board of Directors should include a minimum of three and a maximum of 17 members, the Shareholders’ Meeting being responsible for their appointment and for determining the number of members. Since 2008, Juan Luis Cebrián, one of the founders of El País newspaper, its first director (1976–1988), and member of the select Grupo Bilderberg, chairs the Board of Management. The deputy chairman is Manuel Polanco Moreno, son of the late Jesús de Polanco. The current structure of Prisa’s Board of Directors reflects the changes that the company has gone through over the last few years. As shown by the CV data of the Board of Directors, it includes personalities enjoyinh fluent relations with the financial world (Claudio Boada Pallerés, Alain Minc, etc.), with experience in successful media and digital market companies (Arianna Huffington, John Paton), and with substantial networking in Latin America (Ernesto Zedillo Ponce de León, Roberto Alcántara Rojas) (see Table 12.7).

Labor At the end of 2014, Prisa had a staff of 10,593 employees, 89% with a permanent employment contract, 46% are women; nearly 49% of employees work for companies operating in Spain while 51% work in overseas units.16 Over the past years, however, there have been significant downsizings in Spain through the so-called employment regulation orders (expedientes de regulación de empleo, EREs)—a regulated process enabling companies in Spain to apply mass layoffs and cuts in compensations—as well as voluntary retirements. This process has left thousands of professionals jobless. In January 2011, Prisa announced a restructuring and operational efficiency plan that would include 2,500 layoffs throughout the world. The plan would be rolled out until the first quarter of 2012. “The headcount reduction [. . .] is due to restructuring and personnel downsizing efforts, and to the non-substitution of employees at all our companies, mainly in Spain,” explained the company.17 The figures show a sustained reduction in the headcount of Grupo Prisa, with 748 layoffs in 2013. In fact, the Group had 12,191 professionals at the end of fiscal year 2012; 13,159 at the end of 2011; 13,885 as of December 31, 2010; and 14,987 in 2009. That is to say, between 2009 and 2014, 4,394 employees were fired (i.e., 29% of the payroll Prisa had at the end of the previous decade). The bulk of the reduction was in Spain and impacted all professional categories. The average number of Prisa employees in 2014 was 10,593, of whom 4,878 (46%) were women. Also, of the 412 management positions, women held 29%.

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TABLE 12.7 Grupo Prisa Board of Directors, 2015

Juan Luis Cebrían (Chairman)

Also editor-in-chief of El País and a member of the board of newspaper Le Monde (France). Board member of the following societies: Le Monde, Le Monde Libre, and Société Editrice du Monde.

Manuel Polanco Moreno (Deputy Chairman)

Jesús de Polanco’s son. Since 2001 he has been a board member of PRISA and, subsequently, member of its Executive Committee since 2008.

José Luis Sainz (CEO)

Member of the boards of Prisa and El País. In October 2012 he was appointed CEO of Prisa Radio and SER, a position he combined with his responsibilities as head of Prisa Noticias. In October 2014, he was appointed CEO of Prisa.

Juan Arena de la Mora (Member)

Independent director of Prisa and serves as chairman of the audit committee. He is member of the appointments and remuneration committee. He currently sits on the boards of Ferrovial, Laboratorios Almirall, Dinamia, Everis, and Sol Meliá. He is chairman of the Advisory Board at Unience and a member of the Advisory Board of Spencer Stuart. He is President of the Fundación SERES, a foundation for corporate social responsibility. He is also President of the Professional Council of ESADE, a member of the European Advisory Board of the Harvard Business School and the board of directors of Deusto Business School.

Claudio Boada Pallerés (Member)

Chairman of the Advisory Board of Abantia Ticsa, whose activity is installation & maintenance of industrial facilities and Board Member of Abantia Empresarial, Board Member of Aegon España, Chairman of the Advisory Board of SAP España, Senior Advisor for Spain & Portugal of Blackstone, and of HSBC where he is also member of the European Advisory Board of the Bank.

Arianna Huffington (Member)

President and editor-in-chief of The Huffington Post Media Group. Shareholder of AOL, Inc. (0.01% of the social capital).

José Luis Leal Maldonado (Member)

President of the Hispano-French Association for Friendship and the Fundación Acción Contra El Hambre (Action Against Hunger Foundation), the Fundación Trabajadores de la Siderurgia Integral (Steelworkers Foundation), Vice-President of the Fernando Abril Martorell Foundation, and member of the Board of Tustees of both the Dukes of Soria and Euroamerica Foundations. Between 1990 and 2006, was President of the Spanish Banking Association.

Gregorio Marañón y Bertrán de Lis (Member)

Marqués de Marañón, is an independent director of Prisa. Chairman of the board of directors of Logista, Roche Farma, and Universal Music Spain. He is also a member of the board of directors of Viscofan and Altadis, as well as the chairman of the Advisory Board of Spencer Stuart, and a member of the advisory boards of Vodafone, Apax and Aguirre & Newman. Since 1983 he has been a director of Prisa, and is also a member of its delegated committee, corporate governance committee and chairman of its nomination and compensation committee. He is also a member of the board of directors of Prisa Televisión.

Alain Minc (Member)

Independent director of Prisa and a member of its delegated committee and of its audit committee. He has been a board member of numerous companies and the chairman of the supervisory board of Le Monde (1994–2008). He has been a Director and member of the Audit Committee of CaixaBank since 2007. He has been Chairman of SANEF since December 2011.

Agnès Noguera Borel (Member)

She has held a number of management positions in various companies and invarious industries. In 2005 she was named CEO of Libertas 7, S.A., an investment and real estate development company, where she had been a director since 1988. She also represents Libertas 7, S.A. on the board of directors of Compañía Levantina de Edificación y Obras Públicas. She is also a member of the boards of Bodegas Riojanas and Adolfo Domínguez (in both representing Luxury Liberty).

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TABLE 12.7 continued

Borja Pérez Arauna (Member)

He joined Timón in 1995 as Investments Director and currently works as Vicechairman and MD of Timón, Supportive Manager at Promotora de Publicaciones, Qualitas Equity Partners’ Chairman, and as Qualitas Venture Capital Director.

Ernesto Zedillo Ponce de León (Member)

Independent director of Prisa and serves as chairman of its corporate governance committee. Former President of Mexico (1994–2000). He is a trustee of the Fundación Carolina (Spain) on the Board of the World Economic Forum and sits on the Global Development Program Advisory Panel of the Gates Foundation. He is a member of the board of directors of Procter and Gamble, Alcoa and Citibank, as well as the international advisory boards of other global companies.

Roberto Alcántara Rojas (Member)

Owner and president of Toluca Group and the low-cost airline VivaAerobus, which he founded in 2006 with the Irish carrier Ryanair. He is the controlling shareholder and chairman of the Board of Directors of the consortium Iamsa—Investors in Mexican Transport—which encompasses the five largest bus companies in Mexico.

John Paton (Member)

CEO of Digital First Media, the second largest newspaper group in the USA, and the eighth-ranking news group in terms of Internet audiences. He is cofounder of Impremedia, the largest news and information company for Hispanics in the USA.

Antonio GarcíaMon (Secretary non Director)

In 2010 he was appointed secretary of the board of PRISATV and CANAL+. In 2011, secretary of both societies and in 2013, secretary and director of Legal Counsel of Prisa.

Xavier Pujol Tobeña (Nonboard member Deputy Secretary)

Since October 2014 he has been deputy secretary general of the corporate center, a post he holds simultaneously with that of secretary of the Board of Prisa RADIO and that of corporate General Counsel overseeing the Press and Radio business units.

Source: www.prisa.com/en/pagina/consejo-de-administracion/, accessed March 3, 2015

Ties to the State and Lobbying Efforts Over its four decades of experience, Prisa has established fluent relations with the entire political establishment, including both the Spanish Monarchy and business community. Proof of this is the multiple collaborations of the company with a large number of institutions related to both the state and the major companies of the country, including, but not limited to, Fundación pro Real Academia Española, Fundación Carolina, and Real Instituto Elcano. The Spanish state is a parliamentary monarchy regulated by the Constitution, and the Bourbon Family has reigned continuously since 1975 following the death of Dictator Francisco Franco. In spite of the spurious origin of the current monarchy (Juan Carlos I was crowned after promising to abide by the Principles of Franco’s National Movement), Spanish media have maintained a noisy silence around the most lurid affairs of the monarchy (corruption, sexual scandals, etc.). Grupo Prisa’s media outlets have joined this absence of investigative journalism into Royalty affairs, including El País, which has traditionally been associated with the more progressive side of the Spanish media scene. This “conspiracy of silence in which all media take part” was attributed, as John Carlin wrote in El País on the monarchy’s 25th anniversary, to the fact that “the Spanish royal family [. . .] symbolizes something new in Spain, relatively fragile, which all the people (or almost all the people) are equally interested in protecting: democracy.”18 Starting with the appointment of Javier Ayuso (former leader of Cinco Días and El País columnist) as director of Media Relations for the King of Spain in 2011, political analysts and readers have perceived a change in the information offered by Prisa about the Royal House. Of note, the editorial “El ‘caso Urdangarin’ y el futuro de la Monarquía”19 praised the King’s role, and cleared him from any association with his son-in-law’s charges for various offences.

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As far as the relationship between Prisa and the different democratic administrations is concerned, the harmony between communication media and the Felipe González (PSOE) administrations between 1982 and 1996 is well known. While the socialist administration supported Prisa’s business, its media provided favorable news coverage for government actions. After Felipe González lost power, journalists known to be his advocates (Jorge Semprún, Enrique Balmaseda, Carlos Solchaga, or Miguel Gil) joined Prisa as either managers or advisors. The situation during the José María Aznar administration (1996–2004), from the conservative and liberal Partido Popular (PP; People’s Party), meant a U-turn. The Aznar administration organized an offensive against Prisa’s development projects, through the instrumentation of Telefónica, and managed to prosecute the group’s leading officers (a case that vanished into thin air), raising the concerns of intellectuals, newspaper directors, and professionals in Europe and America.20 However, in spite of the strong confrontation in the journalistic, legal, and economic fields, the group maintained privileged relations with renowned PP personalities, including Rodrigo Rato, Alberto Ruiz Gallardón, Pío Cabanillas, and Rodolfo Martín Villa. Cabanillas and Villa even took management positions in Prisa. Only days before the end of the Aznar government, a curious situation arose that reveals a degree of ingenuity by the Spanish press (including El País) in its relations with political power. On the morning of March 11, 2004 (popularly known as 11-M), a local cell of Al Qaeda simultaneously exploded 10 rucksack bombs in four trains on the outskirts of Madrid. The bloodiest terrorist attack in the history of Western Europe (192 people dead and over 1,800 injured) was committed three days before Spain held its general elections. The question of the cause of 11M—and particularly, in an electoral context, of its immediate political consequences—was soon raised. If the separatist organization ETA (an acronym for Euskadi Ta Askatasuna; Basque Country and Freedom) was the cause of the virulent attack, the electoral potential of PP would have been increased (the Aznar administration had fought ETA effectively and had wielded its policy against ETA terrorism as an electoral weapon against the PSOE and the Basque and Catalan nationalist parties). Conversely, if 11-M was the work of a radical Islamic group, this could be interpreted as a response to Spanish participation, advocated by the PP, in the invasion of Iraq led by the U.S.A in 2003. Hours after the attack, and while the leading newspapers were preparing their special editions, phone calls were made from the seat of government to various media, in an effort to hold ETA responsible for the massacre.21 In an unprecedented event, the president Aznar telephoned the directors of major newspapers in Madrid and Barcelona to insist that ETA was responsible for the terrorist attacks, ruling out other possible avenues of investigation. One of these calls was answered by the then director of El País, Jesús Ceberio, who decided to change the headline on the cover that would have opened the special edition, replacing the original headline, “Matanza terrorista en Madrid” (“Terrorist slaughter in Madrid”) with “Matanza de ETA en Madrid” (“ETA slaughter in Madrid”), without even mentioning the source of information.22 A regrettable decision—resulting from a scheme of lies and information poisoning orchestrated by the PP leaders in office—which earned Prisa’s newspaper severe criticism.23 The historic error of El País, also repeated by other newspapers published in Spain (ABC, El Periódico de Catalunya, La Razón, and La Vanguardia), was partially offset by the outstanding performance of Cadena SER in the days following the terrorist massacre. Prisa’s main radio station was one of the media outlets that set the intensive news pace of those days with a series of exclusive scoops on how the research developed, giving special coverage to protest rallies that took place outside the headquarters of the PP in Madrid and other Spanish cities after the Islamic authorship hypothesis gained strength. On the Sunday after 11-M, the Spanish people, already aware of the scheme that had been orchestrated by the government, gave their votes to PSOE against the results

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of opinion polls that had been conducted before 11-M, which placed the PP on the verge of an absolute majority.24 The relations between Prisa and the socialist José Luis Rodríguez Zapatero’s administrations (2004–2011), though not showing the tough confrontation of the previous stage, were far from harmonious. The momentum of the Mediapro media group, an advocate of the Zapatero administration that had acquired football match broadcasting rights, challenged Prisa’s monopoly as the three-decades-long lynchpin of progressivism. The subsequent legal decree authorizing payterrestrial digital TV, and enabling Mediapro to premiere the channel Gol TV, aroused a reaction by Prisa. Prisa CEO Cebrián made a call for action in one article, to “each and every self-respecting democrat,” against such “governmental abuse.”25 Prisa’s overtly anti-Zapatero stance caught the attention of the international press—it even received coverage in The New York Times.26 The history of the relationship between Prisa and the Mariano Rajoy administration (PP) (2011–present) is still being written. But in this stage, a turn to the Right is perceived in the group, mainly expressed by the news coverage of its most influential media—El País and Cadena SER. Over the past years, the critiques of the conservative-liberal government have smoothed, an explicit defense of the Crown was undertaken, and fundamentally, an aggressive attack against the new political Left group Podemos had started. Finally, another front of analysis is the relationship between Prisa and the Latin American governments (of note, former Mexican president Ernesto Zedillo has served on the Prisa Board since 2010). In the last years, Prisa has been extremely active at an institutional level in Spain and abroad. As recently as 2014, through El País, the Group hosted a wide range of discussion forums and debates with top-level government officials and business leaders from various Latin American countries (including “Investing in Colombia”; “Mexico: Reforms for Growth”; “Investing in Puerto Rico”; “Investing in Chile”; and “Desenvolvimento, inovação e integração regional”). Further, in partnership with the Santillana Foundation, high-level events were held in the cities of Bogota, Brasilia, and São Paulo, with a focus on education.27 In its relations with Latin American governments, the company’s positioning seems to be related to its business interests. On the one hand, the company acted against a Latin American government when the findings of research performed by Left-wing political group Izquierda Unida (IU, United Left) on the role of U.S.A and Spain in the unsuccessful coup d’état against Venezuelan President Hugo Chávez in 2002 revealed “the shameful role of Grupo Prisa and, particularly, of newspaper El País in support of the coup.” IU’s parliamentary advisor, José Manuel Fernández, said: El País has acted as the figurehead of the Polanco empire and its subordinates in Venezuela, where Chávez did not want to give Polanco any rights on TV and textbook sales. It is no secret that publishing house Santillana (. . .) has a network deployed in Latin America, where it has juicy textbook and school materials distribution contracts with the governments of several Ibero-American states. The publishing company has been granted numerous soft loans, and has won bids with the Development Promotion program of the Economy Ministry and the Spanish Agency for International Development Cooperation.28 On the other hand, the company also appears to act in favor of a Latin American government. For example, on the occasion of the Mexican president’s visit to Spain in 2014, Mexican magazine Proceso claimed that newspaper El País “had virtually become the lobbyist of Enrique Peña Nieto during his official visit,” giving him an opportunity to “promote his reforms and announce his National Infrastructure Plan to members of the Spanish large capitals.” The role played by Prisa is directly related to its business in Latin America. It noted, “The model of promotion undertaken by El País is no news,” and added that it had already been tried with the governments of Colombia, Panama, Brazil, Chile, Peru, and Mexico, in Felipe Calderón’s term of office.29

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Corporate Responsibility In the last decade, Spanish companies have integrated in its business planning and management the notion of corporate social responsibility (CSR), viewing it is as a key driver of public relations to improve the reputation and social legitimacy of a company, while conveying a certain corporate identity. The media groups, including Prisa, have not been alien to this trend, and have included in their various programs a number of voluntary commitments to economically, socially, and environmentally responsible behavior.30 Prisa’s “Our Commitment” web page reports: • •

•

The company joined the United Nations Global Compact in 2008 and has been a member of the Spanish Global Compact Network since 2013. In 2010 and 2011, the Spanish Global Compact Network praised Prisa for its Progress Report, due to the quality of the attachments, the organization of the document, and the initiatives carried out by the company and business units to integrate CSR in the Group. The company has been part of FTSE4Good Ibex since its creation in 2008. This standard values corporate commitment in terms of social responsibility and sustainability.

Furthermore, there are web pages with brief explanations about the Group’s commitment to information, education, culture, entertainment, and management. Nevertheless, an analysis of these web pages evidences a conceptual divide between CSR and social action. Of note, the so-called commitment assumed in terms of CSR coexists with speculative trading in the stock market31 or complaints of labor law violations. These considerations lead us to believe that so-called CSR is more cosmetics than a genuine search of a business culture infused with socially desirable values.

Cultural Profile The newspaper El País has been the main political and cultural speaker of Grupo Prisa in contemporary Spain. The “key reference” of the media field in this country32 has built its history linked to the defense of democratic freedoms and values of the political Left. However, as described below, a shift to the Right is perceptible in the political orientation of the Prisa outlets in a context of increased business competition and loss of audiences.

Symbolic Universe/Ideology The symbolic/ideological universe of Prisa has historically revolved around its flagship newspaper El País. This daily first appeared in 1976, and during the early years of the return to the Spanish democracy, it became the undisputable leader in social democratic ideology, against conservative ABC (ex-leader in sales) and other press publications with a more clearly Left-wing ideology, such as Diario 16. Throughout the Spanish transition to democracy, the newspaper was able to build goodwill linked to democratic values, defending a social and modern perspective, and was associated with the liberal and Left-wing tradition. The impact came as Prisa grew its business and transferred the goodwill of the newspaper to its various other brands and properties. Since the 1980s, the paper has been the communication outlet that has stayed the closest to the PSOE and its leaders, maintaining, as mentioned above, an especially fluent relationship with the socialist González administration. While in the past decades the front pages of El País were capable of changing the course of the Spanish political agenda and the newspaper offered its readers a supply of scoops that made

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it the absolute leader of the general-interest press, the situation today is very different from what it used to be, and the leadership and impact of the old days have waned. Recently, with Javier Moreno (2006–2014) at the helm, the newspaper started changing its traditional editorial line, as part of what could be considered a turn to the Right. “Many longtime readers became aware of the turn, which run parallel to the growing economic troubles impinging on Prisa, which was forced to negotiate a huge debt in an underprivileged way with the country’s largest banks.”33 At the same time, the entry on the news landscape of Público, a newspaper founded in 2007 that claims to be progressive and Left wing, and defends republicanism and laicism, started to erode El País’s readership. A visible mark of Prisa’s turn to the Right in recent years has been the coverage of Left-wing Latin American governments. It was probably the aversion of El País directors to the Venezuelan government headed by Hugo Chávez and their eagerness to publish a scoop of international significance that led to what the paper described as “one of the biggest mistakes in its history.” On January 24, 2013, the newspaper published on the cover of his first edition a photograph in which the then President of Venezuela supposedly appeared intubated in a Cuban hospital. The false picture of Chávez was accompanied by the following caption: “El País has been unable to independently verify the circumstances under which the photo was taken, or the precise time or place. Political particularities of Cuba and informative restrictions imposed by the regime have made it impossible.” The readers of the newspaper, through the social networks, warned of the very serious mistake: it was the capture of an image corresponding to a video from 2008 found on YouTube. When the managers of El País reacted it was too late: in Spain, 4,100 copies had reached readers with the false picture, and in Argentina and the Dominican Republic 8,050 and 5,670 copies, respectively, had hit newsstands. The publication of the picture had a marked impact in Spain and Latin America and triggered protests from the Venezuelan government. Venezuelan Information Minister Ernesto Villegas said: “The publication of this grotesque photograph is merely the confirmation of the systematic campaign sustained by this and other papers, which are atrociously taking advantage of the health situation that Comandante Chávez is going through.” For her part, the president of Argentina, Cristina Fernández de Kirchner, posted on her Twitter account: “On the cover of El País I saw a picture. I correct myself; that is not a picture, it’s a dirty trick.”34 The change in political orientation of El País and Grupo Prisa seems to have grown stronger in recent years, when its editorials praised some of the economic measures of the Mariano Rajoy administration (PP). The so-called Caño Report, mistakenly made public in February 2014, triggered an internal crisis in El País. In the report, the now Editor-in-Chief of the newspaper, Antonio Caño (then the paper’s correspondent in Washington) listed the problems of the newspaper, which can be extended to the media outlets managed by Prisa: loss of credibility, lack of editorial motivation, non-existent leadership, confusion in the selection of the news agenda, and lack of connection with society, among others. Some months after his critical report, now as director of the newspaper, Antonio Caño expressed his views regarding the political positioning of the paper where he rejected the Left–Right dichotomy: El País is not a leftwing newspaper. It is not and has not attempted to be so. It is a liberal, progressive newspaper, connected with the trends to modernize and enable the society it addresses to progress. We are socially responsible and advanced. And we like change. We like justice. It is a majority newspaper that addresses the whole (. . .). All of this does not mean that we are rightwing.35 The truth is that the turn to the Right of the editorial of Grupo Prisa’s main intangible asset has not resulted in new readers. Additionally, in spite of the growing digital commitment, Elpaís.com

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has reported almost half the number of visits as its competitor, Elmundo.es. Readers with a more conservative profile have not been seduced, while readers from the left have turned to other journalistic offerings for news and information, including Público, Eldiario.es. or InfoLibre.

Conclusion It would not be fair to attempt a retelling of the history of post-Franco Spain without referring to Grupo Prisa, the publisher of influential newspaper El País. Through its media outlets, Prisa has had, and still has (albeit more feebly) a major influence in the political and cultural agenda of Spain. Over the past decades, its expansion towards Spanish- and Portuguese-speaking countries has turned Prisa into one of the leading players in these geo-cultural markets, sharing a presence with other prominent media conglomerates such as Organizações Globo, Grupo Televisa, and Grupo Clarín. However, the divestment policy fostered by Prisa’s management over the past years, driving the company to substantial reductions of its activities in the television and publishing businesses, may lead us to question the company’s ability to maintain its position between the regional and geolinguistical giants. In any case, Prisa, self-proclaiming to be “a global group,” is not an international giant but rather a (declining) multimedia company, mid-size, bearing a heavy financial burden, with stakes in two areas. On the one hand, its projection into Latin American markets, through its education and radio business areas, indicates that the company is looking for revenue streams that will allow it to emerge from its current predicament. On the other hand, a revenue stream from the world of digital content and platforms remains elusive for Prisa, despite the efforts made by the company over the past years to increase its activities in this area. A more sensitive analysis is that of the credibility and confidence that provide the foundation for growth of a communication media conglomerate. The changes that Prisa has undergone raise the question of whether or not censorship and self-censorship are gaining strength in the editorial line of a company that is in the hands of large corporations.

Notes 1 This chapter draws on research undertaken for the project on ‘Diversity of Audiovisual Industry in the digital era’ (reference number: CSO2014–52354-R), funded by the Spanish Scientific and Technical Research and Innovation Plan 2013–2016, Ministry of Economy and Competitiveness. The author is grateful for the support provided by the São Paulo Research Foundation (FAPESP, Brazil) through the 2014/03219–6 grant process. Furthermore the author would like to thank helpful comments on a previous version of this chapter made by colleagues Ana I. Segovia (Complutense University of Madrid), Belén Monclús (Autonomous University of Barcelona), Mª Trinidad García Leiva (Carlos III of Madrid University) and the editors of this book. 2 Gérard Imbert and José Vidal Beneyto (coords.) El País o la referencia dominante (Barcelona: Mitre, 1986). María Cruz Seoane and Susana Sueiro, Una historia de El País y del Grupo Prisa (Barcelona: Plaza y Janés, 2004). 3 Juan Luis Cebrián, “Intervención del Consejero Delegado del Grupo PRISA, Junta General Extraordinaria, Madrid, 5 de diciembre de 2008,” www.elpais.com/elpaismedia/ultimahora/media/200812/05/ economia/20081205elpepueco_2_Pes_PDF.pdf, accessed October 27, 2014. 4 Nuria Almiron and Ana I. Segovia, “Financialization, Economic Crisis, and Corporate Strategies in Top Media Companies: The Case of Grupo Prisa,” International Journal of Communication, 6 (2012), 2894–2917. 5 Enrique Bustamante (coord.), Informe sobre el estado de la cultura en España 2014: la salida digital (Madrid: Fundación Alternativas, 2015). 6 Information in this section is drawn from “PRISA Annual Results 2014” (February, 2015), www. prisa.com/en/sala-de-prensa/prisa-annual-results-2014/, accessed March 2, 2015. 7 Information of this section is drawn from “PRISA Informe de Sostenibilidad 2014,” www.prisa.com/ informe-anual-2014/?idioma=en) and “PRISA Annual Results 2014,” accessed January 25, 2015.

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8 The union of Ediciones Generales (Santillana) with PRH will bring together an impressive array of authors. Among those names are Nobel prizewinners such as Alice Munro, Mario Vargas Llosa, Gabriel García Márquez, José Saramago, J.M. Coetzee, Orhan Pamuk, Doris Lessing, V.S. Naipaul, and Günter Grass; as well as Cervantes Award winners Juan Marsé, Jorge Edwards, Guillermo Cabrera Infante, and Sergio Pitol. 9 AIMC, Estudio general de medios: Resumen general febrero-noviembre de 2014 (Madrid: Asociación para la Investigación de Medios de Comunicación—AIMC, 2015), www.aimc.es/-Datos-EGM-ResumenGeneral-.html, accessed March 10, 2015. 10 Jaime Carmona, “Prisa desmantela su división digital, su apuesta estrella, tras incumplir objetivos y quedarse sin recursos,” Capital Madrid, www.capitalmadrid.com/2013/3/1/28842/prisa-desmantela-su-division-digital-su-apuesta-estrella-tras-incumplir-objetivos-y-quedarse-sin-recursos.html, accessed November 30, 2014. 11 PRISA, “Social Responsibility and Sustainability Report 2015, www.prisa.com/informe-anual-2015/wpincludes/flip/Informe_de_Sostenibilidad_EN_PRISA/#/8/,” accessed May 2, 2015. 12 Nuria Almiron and Ana I. Segovia, “Financialization, Economic Crisis, and Corporate Strategies in Top Media Companies: The Case of Grupo Prisa,” International Journal of Communication, 6 (2012), 2894–2917. 13 PRISA, “Annual Results 2014” (February, 2015). 14 Nuria Almiron, “La financiarización de los grupos de comunicación en España: el caso del grupo PRISA,” Unión Latina de Economía Política de la Información, la Comunicación y la Cultura (ULEPICC) Conference 2006, Seville, www.almiron.org/ulepicc2006.pdf, accessed November 30, 2014. 15 PRISA, “Informe anual sobre gobierno corporativo, ejercicio 2014,” www.prisa.com/uploads/ ficheros/arboles/descargas/201503/descargas-informe-anual-sobre-gobierno-corporativo-ejercicio-2014_ 1-es.pdf, accessed March 10, 2015. 16 PRISA, “Social Responsibility and Sustainability Report 2015,” www.prisa.com/informe-anual2015/wp-includes/flip/Informe_de_Sostenibilidad_EN_PRISA/#/8/, accessed May 2, 2015. 17 Daniel Toledo, “Prisa da por cerrada la crisis tras enseñar la puerta a 3.750 trabajadores en un lustro,” El Condifencial (May 2, 2014), www.elconfidencial.com/comunicacion/2014-05-02/prisa-da-por-cerradala-crisis-tras-ensenar-la-puerta-a-3–750-trabajadores-en-un-lustro_124548/, accessed January 15, 2015. 18 John Carlin, “Reyes, guiñoles, ingleses y democracia,” El País, 2000, www.elpais.com/especiales/2000/ rey/rey18a.htm, accessed January 15, 2015. 19 “El ‘caso Urdangarin’ y el futuro de la Monarquía,” El País (March 4, 2012), http://elpais.com/elpais/ 2012/03/03/opinion/1330804101_655612.html, accessed January 15, 2015. 20 “García Márquez, Bobbio, Eco, Mailer, Fuentes y Sontag se solidarizan con el Grupo PRISA,” El País (March 21, 1997), http://elpais.com/diario/1997/03/21/sociedad/858898809_850215.html, accessed December 15, 2014. 21 Miguel Catalán, “Prensa, verdad y terrorismo: la lección política del 14-M,” El Argonauta español, 2 (January 15, 2005), http://argonauta.revues.org/1191, accessed January 25, 2015. 22 Jesús Ceberio, “A propósito de mentiras,” El País (March 27, 2004), http://elpais.com/diario/ 2004/03/27/espana/1080342027_850215.html, accessed January 20, 2015. 23 Malen Aznarez Torralvo, “La resaca,” El País (March 21, 2004), http://elpais.com/diario/2004/03/ 21/opinion/1079823606_850215.html, accessed January 25, 2015. 24 For more detailed information see the works of Ángel Rekalde, Santiago Alba Rico, Rui Pereira, Giovanni Giacopuzzi, and Jabier Salutregi, 11-M: tres días que engañaron al mundo (Tafalla: Editorial Txalaparta, 2004); and Rosa María Artal, 11-M 14-M: onda expansiva (Madrid: Ediciones Espejo de Tinta, 2004). 25 Juan Luis Cebrián, “Un desatino,” El País (August 21, 2009), http://elpais.com/diario/2009/08/ 21/opinion/1250805612_850215.html, accessed December 20, 2014. 26 Doreen Carvajal, “El País in Rare Break with Socialist Leader,” The New York Times (September 13, 2009), www.nytimes.com/2009/09/14/business/media/14elpais.html?pagewanted=all, accessed November 28, 2014. 27 PRISA, “Social Responsibility and Sustainability Report 2015,” www.prisa.com/informe-anual2015/wp-includes/flip/Informe_de_Sostenibilidad_EN_PRISA/#/8/, accessed May 2, 2015. 28 José Manuel Fernández, “La participación de España y EEUU en el golpe de estado en Venezuela,” www.ehu.eus/mediaberri/00tik10arte/08%20Astea/Investigaci%F3n%20realizada%20IU%20venezuela. htm, accessed December 3, 2014. 29 Alejandro Gutiérrez, “El diario El País, cabildero de Peña Nieto,” Proceso (June 13, 2014), www. proceso.com.mx/?p=374642, accessed December 3, 2014. 30 There is an open debate in Spain about whether CSR is helping to transform the internal culture of the companies or whether, on the contrary, “everything is been a gigantic hoax to make social marketing and simply try to improve corporate reputation” (see Ramón Jáuregui, “Responsabilidad Social Corporativa: ¿una experiencia frustrada?,” El País (November 13, 2014), http://economia.elpais. com/economia/2014/11/13/actualidad/1415915651_828767.html, accessed January 25, 2015.

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31 Audiencia Provincial Civil de Madrid, “Sentencia nº 431,” (Madrid, 2013), http://cdn27.hiberus.com/ uploads/documentos/2014/05/29/documentos_sentenciaprisa_d9711d76.pdf, accessed December 3, 2014. 32 Gérard Imbert and José Vidal Beneyto (coords.) El País o la referencia dominante (Barcelona: Mitre, 1986). 33 Iñigo Sáenz de Ugarte, “Por qué El País quiere irse más a la derecha,” Eldiario.es (February 25, 2014), www.eldiario.es/rastreador/testamento-Pais-periodicos_6_232786742.html, accessed December 3, 2015. 34 José María Irujo and Joseba Elola, “Relato de un error de El País”, El País, (January 26, 2003), http:// internacional.elpais.com/internacional/2013/01/26/actualidad/1359234203_875647.html, accessed May 2, 2015. 35 Ana Pastor: “Antonio Caño: ‘Este país lo primero que necesita es información, tenemos un exceso de opinión desmedido,’ ” Jot Down, www.jotdown.es/2014/06/antonio-cano-este-pais-lo-primero-quenecesita-es-informacion-tenemos-un-exceso-de-opinion-desmedido, accessed December 3, 2014.

13 GRUPO GLOBO Joseph D. Straubhaar

TV Globo holds power in three primary areas: economics, politics, and culture. It has tried in the past to hold power in technology as well, but has retreated from that area. This chapter will examine its economic and political power through its historical development, notably its past joint venture with Time-Life, and its evolving strategies, major holdings, financial power, and corporate structure. Its political power will be demonstrated by key historical episodes of interaction with the Brazilian government and its incursions into exercising power in elections. The chapter concludes with a focus on the cultural influence of the company by discussing the symbolic significance of the company’s products, primarily in television, where its core power lies.

History TV Globo rose to dominance in Brazil partly by confronting and borrowing from a fairly weak field of competitors, but in large part by assistance from Time-Life in finance and network operations. The company also rose to dominance because of its fairly cozy relationship with most governments, including the 1964–1985 military dictatorship, but also because of its fairly effective management and its ability to attract talent in production, programming, and management. Prior to TV Globo’s ascendance, six factors kept the previously existing stations from becoming true national networks: first, a narrow focus on their local market, as in the case of TV Record; second, poor discipline among stations belonging to networks, reinforced by a lack of network identity and distinction in programming products to inspire loyalty, as in the case of TV Tupi; third, an orientation by some large stations, like TV Record, toward selling programs instead of fully exploiting the revenue possibilities of network-wide advertising; fourth, an unclear idea of what the mass audience wanted in programming, except for TV Excelsior; fifth, limited financial resources, except at TV Excelsior, confounded by bad financial management in all the stations, including TV Excelsior, which limited the accumulation of financial resources for reinvestment; sixth, a failure by all the stations to reinvest sufficient of their profits to maintain equipment and adequately compensate their employees. TV Globo was able to overcome all of these problems, and it exploited the conditions that made a strong national network possible. Many critics have argued that TV Globo’s success was largely due to its relationship with TimeLife Broadcasting, Inc.1 While the explanation is more complex, TV Globo’s success was undoubtedly dependent on Time-Life, particularly at first. TV Globo might well have been able

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to solve the first four problems listed above on the basis of its own staff’s experience without technical assistance from Time-Life. Nevertheless, capital from Time-Life and financial management expertise from a Time-Life advisor, Joseph Wallach, were crucial in helping TV Globo over the fifth and sixth obstacles (i.e., financial resources and management). While TV Globo’s success was partially dependent on Time-Life, most of the factors that ultimately determined TV Globo’s success revolved around the qualities of its Brazilian staff and its ability to profit from previous examples, in both Brazil and the U.S., as well as its ability to create sound management structures and programming that was responsive to popular tastes. Until the mid-1960s, the advertising revenues invested in television were not sufficient to support all the television operations that were initiated.2 After TV Globo’s reinvention of the television advertising business, however, television became very profitable. TV Globo’s increasing success from 1966–1970 depended on a complex interaction of people, resources, and ideas: Brazilian businessmen like Marinho, Brazilian programmers like Walter Clark and José Bonifácio, and managers like Wallach and José Arce who decided to become Brazilians; equipment and salaries from Marinho’s money; Time-Life money and reinvested TV Globo earnings; and Brazilian ideas about programming to the Brazilian mass audience, which were reinforced and supported by American ideas about commercialization and network management. The 1970s became an era of complete dominance for Globo as they expanded to national coverage, perfected their key genres (telenovelas, variety, comedy, children’s shows, etc.), dominated national ratings and advertising revenue, and continued to reinvest in both quality of production and coverage. Despite the competition with new networks SBT and Manchete, which began in the early 1980s, TV Globo still had a majority share of the audience. As of 1991, TV Globo drew an average share of 66% of the nationwide audience.3 However, TV Globo began a slow steady decline in audience ratings, starting in the 1990s. For example, TV Globo had an average annual rating in prime time of 51.5% in São Paulo in 1979, and 53.5% in 1987. Its share of households actually watching in 1988 was in the 70–80% range, depending on the show. By 1997, its average rating in a national average of state capitals was down to 37%.4 Both TV Globo’s journalism and telenovelas declined in popularity. This resulted in internal debates and struggles that led to the dismissal of some of the founders of the Globo formula, like Boni, in1997.5 In the 2000s, a number of complex economic developments began to change the face of Brazilian television. The economy grew rapidly, bringing almost 40% of the population from the working class (class D in Brazilian market analysis) and working poor (class E) into the lower middle class (class C3), according to several economic analyses.6 Since almost all of those people and households already had a television set, one result was to increase their pursuit of other entertainment and information options. The number of television sets tuned in during prime time went from 66% in 2000 to 59% in 2009.7 Market studies from the late 2000s onward showed steadily increasing interest in cable television among the new middle class, and the overall trend was growth in the television sector through increasing diversity of technologies, channels, and audience choices.8 The advent of streaming services like YouTube or Netflix adds new layers of competition that appeal particularly to the young. Reflecting this increased level of competition by other broadcasters, by pay-TV and by new streaming options, Rede Globo currently still holds an average of 42% of the audience in prime time, far ahead of 12% each for SBT and Rede Record. However, its potential vulnerability to competition was shown by the fact that for the second time in 50 years, TV Globo’s main evening telenovela was beaten in the ratings by a telenovela, “The Ten Commandments,” by TV Record in September 2015 (Redação).

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Economic Profile TV Globo rose to dominance in part by focusing tightly on commercial advertising. Early on, by establishing a genuine national advertising market through increasingly national coverage of Brazil, TV Globo not only radically increased its own revenue but also tilted the whole market for advertising investment toward television. The percentage of total advertising money invested in television went from 24.5% in 1962 to 43% in 1967, 46% in 1972, and 59 percent in 1981,9 largely at the expense of radio and non-mass media advertising. Although TV Globo’s average audience has been falling since 2007, its revenues have been rising as it continues to dominate advertising investment in Brazil. In 2007, its audience rating was 20.3% while its advertising income was R$6.7 billion.10 In 2011, its audience rating was 17.8%, while advertising income was R$11 billion.11 Its audience rating fell 5% in 2014, but its share of advertising investment actually went up over 9%, to R$16.2 billion,12 since it still represents the most efficient advertising vehicle in Brazil. In 2015, it still received 60% of all the advertising revenue in Brazil.13 The Globo Organization had R$16.2 billion in overall receipts in 2014, R$14.5 billion in 2013, R$15.6 in 2012, R$11.5 in 2011, and R$9.2 in 2010, according to annual reports released to the press.14

Corporate Structure and Properties Roberto Marinho (1904–2003) inherited the Rio de Janeiro daily newspaper O Globo in 1925. He started Radio Globo in Rio in 1944, followed by TV Globo (Rede Globo) in 1965. Globo quickly expanded to set up the five owned and operated stations it was allowed by law. It also massively expanded its number of affiliates to cover all of Brazil. Globo expanded into various areas and came to be known as the Globo Organization [Organizações Globo]. To achieve a synergy between popular telenovelas and their soundtracks, Rede Globo set up a successful record company, Som Livre, in 1971 to sell soundtracks on records. Later it expanded to record studio albums and is now one of the largest national record labels. Within Brazil, it is very competitive with labels owned by the big four global record labels. In the 1990s, when satellite and cable pay-TV began to expand across the world, Globo hesitated somewhat to move massively into pay-TV in order to avoid cannibalizing its broadcasting audience. It did enter into a partnership with Murdoch’s SKY Latin America and created a national pay-TV company, GloboSat, in which it is a minority shareholder. It also began to make major investments in cable TV infrastructure with NET. The Globo Group suffered severe losses in those investments, which threatened the overall health of the group, until it sold an initial 30% of NET (the maximum that was then allowed under law) to Embratel/América Móvil, owned by Carlos Slim, and discussed elsewhere in this volume. In 2011, a new pay-TV law prohibited broadcast companies from majority ownership of cable or telecommunications companies.15 Following that, Globo sold most of its remaining half of NET to América Móvil, so Globo owned only 12% of NET, which operated in 93 cities across Brazil, connecting more than 10 million homes, including 4 million subscribing to pay-TV. In 1996, the group launched Globo News, which now has more than 2 million subscribers. Globo has moved more quickly into multichannel TV since the 2000s. Organizações Globo now has a free satellite channel (Futura) as well as 26 other pay channels broadcast via cable or satellite. NET holds a market share of about 50% in cable TV, and its market share of the broadband division comes close to 40%.16 In the general population of Brazil, about 47% had pay-TV in 2015.17 In the late 1980s, the Globo Group began to invest abroad. It acquired control of Telemontecarlo in Italy for several years,18 before being driven out by Berlusconi, and in 1992

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acquired one of the new private channels in Portugal, SIC.19 The Portugal station was very successful, in part by monopolizing the import of TV Globo’s own telenovelas.20 Although other competitors have become more capable in programming, the station still has a major share of the market. Globo also offers an international version of TV Globo, TV Globo Internacional. It is primarily oriented to the transnational Lusophone market, including Brazilian emigrants in Japan, the U.S., and Europe, as well as Portuguese-speaking populations in Portugal, several parts of Africa, and small populations in Asia. In the publishing sector, the Organizações Globo group publishes four daily newspapers via Infoglobo (O Globo, Extra, Expresso, and Valor Economico). The main newspaper, O Globo, has the second largest circulation in the country, just behind Folha de São Paulo,at just over 200,000 daily papers.21 It also has 27 magazines published by Editora Globo, including publications that cover news, leisure, fashion, cars, finance, education, home decoration, and celebrity news. Its primary newsmagazine Época, is second in the market but far behind Veja of the Abril group. Globo also publishes books through Globo Livros under the Editoria Globo. Although radio is one of the first businesses that the Organizações Globo entered after newspapers, the current audience is fragmented among a number of companies, only a few of which operate locally, so it is a profitable but not central aspect of the organization. Operating as Sistema Globo de Rádio (SGR), the group owns eight in-house radio stations and is involved in many other, national radio companies.22 Since it was set up in 1998, Globo Filmes has become the largest producer and co-producer of Brazilian cinema. Globo Films has produced more than 90 films. Some of these have been among the most popular in national cinema, often drawing on stars and genres that were successful on TV Globo, such as Xuxa and the comedy group os Trapalhões.23 It has been involved in around 15% of the films produced in Brazil since 1998. It is even more powerful in promotion and distribution. In one study of national films 2001–2005, Globo Filmes productions had 80% of the box office for national films.24

Typical Strategies One the factors that distinguished TV Globo from 1965 on was its professionalization of management. Muniz Sodré25 noted that Walter Clark (general manger) and José Bonifácio de Oliveira (head of production) were given greater freedom to implement their ideas than was customary in Brazilian broadcasting. In other family communications businesses in Brazil, the family intervened often and seldom contributed to the rational pursuit of the company’s overall economic goals. TV Globo’s strategy was also much more explicitly commercial than its competitors. The publication, Veja observed on October 6, 1976, “At TV Globo, in 1967, the key positions, with blank checks from the owners, were given to men with backgrounds in publicity instead of radio for the first time in the history of Brazilian television.” In the same publication, another Brazilian advertising expert, Mauro Salles, observed that, “The revolution [in Brazilian television] that TV Globo represented started with the adaptation that it made to Brazil of the American system of commercializing television. Television advertising time started to be sold in advance and as a package, not for isolated programs and at the last minute. Simultaneously, Globo organized itself in the areas of production and administration.” In designing television programming, TV Globo also used several kinds of research. Since 1971, the TV Globo programmers, under Bonifácio, have integrated their information into their program planning, tailoring programs to the audience that is most likely to watching at a given hour.26 The number of stations owned and operated by TV Globo grew until it reached the new legal limit of five (imposed in 1967), and after that the number of stations affiliated with Globo continued

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to grow rapidly. TV Globo needed affiliates to succeed in creating truly nationwide coverage, since it was limited to owning five stations and it wanted to present advertisers with a truly nationwide advertising vehicle. It also needed to minimize production costs as audience expectations grew, since the most successful and most expensive formula was high-quality Brazilian production.27 So the network turned toward higher-cost telenovelas as the cornerstone of its strategy, leading to the first color telenovela shot largely on location around Salvador, Bahia, O Bem Amado (1973–1974).

Political Profile The political profile of TV Globo and the Globo Organization has always been conservative in an overall political sense, although varied on different social issues. It was specifically favorable to the earliest (1964–1968) and final phases of the military government (1978–1985), but antagonistic to some of the leaders of the middle, more hard-line phase as it conflicted with them over censorship. It has been hostile to some political leaders, particularly on the Left, both in the early days of the military regime and more recently, such as Lula, the first Workers’ Party (PT) president of Brazil and current President Dilma of the PT. In 1989, TV Globo showed a controversial, heavily edited version of a political debate between Lula and Fernando Collor, which many thought helped push the election to Collor.28 More recently, TV Globo news has been very critical of Dilma. While their news still tends to associate Afro-Brazilians and slum dwellers with violence, TV Globo entertainment has been opening up on some social issues, such as showing more and more positive views of slums, slum dwellers, and working-class people such as maids and Afro-Brazilians.29

Ownership In January 1951, Roberto Marinho and Rádio Globo requested a license for a television channel. In July 1957, Juscelino Kubitschek awarded the license for Channel 4 in Rio de Janeiro to Globo.30 By mid-l961, Roberto Marinho’s Radio Globo had the land in Rio de Janeiro for its planned television station there and had much of the necessary equipment paid for. Nevertheless, Marinho did not feel confident about the resources he had for his venture.31 In 1962, his Globo Group (Organizações Globo) signed an agreement with Time-Life for an investment of over $6 million, which it used to buy equipment, facilities, staff, and, initially, a large amount of U.S. programming. In return, Time-Life was to receive 30% of the profit from TV Globo’s operations. The principal contract listed the following as the “responsibilities of Time-Life”: providing technical information, training people sent by TV Globo in Time-Life facilities, exchanging information on administrative or commercial management, giving advice on engineering, advising on acquisition of foreign-produced films and programs, and providing a financial contribution of up to 220 million cruzeiros (the Brazilian currency at the time). The financing was apparently crucial to TV Globo’s success. The American advisor on finances became a crucial element of TV Globo’s staff and naturalized to become a Brazilian citizen. The technical assistance in equipment appears to have helped, but the technical assistance advice on programming was a failure in the Brazilian market and Brazilian experts like Walter Clark and José Bonifácio overruled the American advisors. Regardless of the contracts’ success, they caused enormous controversy on three levels. First was the crucial question of whether the contracts violated Brazilian laws against foreign ownership of Brazilian media. Second was a broad concern that American influence over Brazilian media was becoming threatening. Third was the question of economic competition; the contracts gave TV Globo strengths that threatened the existing television broadcasters.

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This agreement was widely seen in Brazil as violating the Constitution of Brazil, which prohibited foreign persons or companies from owning interests in Brazilian media. The implementation of the agreement also violated another rule, that foreigners must not occupy top management positions in Brazilian media. Time-Life’s main representative in Brazil after 1965, Joe Wallach, took charge of the financial and administrative operations of TV Globo, essentially becoming its executive director.32 Much of the controversy that developed around the Time-Life contracts with TV Globo centered on the issue of whether Time-Life had the control that might be associated with the foreign partner in a real joint venture. This environment produced a stringent communications law, Decree Law 236, which tightened the provisions of the earlier D.L. 4.117 against foreign involvement in Brazilian mass media. The law also restricted to five the number of stations that any network could own. This guaranteed that the size of the TV Globo Network would be restricted. In 1969, Barry Zorthian, President of Time-Life Broadcasting, Inc. felt that Time-Life’s participation in television broadcasting companies in Venezuela, Brazil, and Argentina was becoming too visible. The decision to break them was made. Joseph Wallach, the business and financial advisor from Time-Life decided to stay and work for TV Globo, changing nationality to Brazilian to do so. Almeida Castro concluded that “Time-Life resources had a decisive effect on the original equipment and facilities of TV Globo but Globo’s success after that depended on Clark’s utilizing the facilities and resources and having the courage to change the original idea of TV Globo.”33 TV Globo’s success also depended on the willingness of Marinho and the other original founders to delegate authority and discard ideas about programming, which were proven inadequate. Marinho seems to have had definite plans to overcome the obstacles enumerated above and create a profitable national television network in Brazil. First, he looked to the national market from the beginning. His first station opened in Rio de Janeiro in 1965, his second in São Paulo in 1966, and his third in Belo Horizonte in 1968—thus he covered the country’s three most important markets quickly. Second, Marinho created a strongly centralized management system, which enforced the central program production and uniform programming pattern for all Globo stations that José Bonifácio had envisioned and earlier offered to TV Tupi. To do this, Marinho hired Bonifácio and other strong Brazilian television managers, who borrowed some U.S. network management ideas. Third, Marinho perceived the potential of the advertising market and determined to make as much money from it, as opposed to political patronage, as possible. Fourth, Marinho did not impose his own ideas about programming, like other station owners, but delegated responsibility to production, marketing, advertising, “creative,” and audience research specialists to create programming which would reach the broadest audience and draw in the maximum advertising revenue. Fifth, he perceived a need for outside financing and sought it. Sixth, he also imposed rigorous financial management, aided by Time-Life’s Joseph Wallach, and reinvested his profits to keep his equipment at the state of the art and to attract and keep an excellent staff. The Organizações Globo changed their name on August 25, 2014 to Grupo Globo. Today, Grupo Globo is managed by a holding company, OGP, a private corporation with all shares belonging to members of the Marinho family.34

Ties to the State and Lobbying Efforts Marinho supported the post-1964 military regime. The military had a vision of accelerating consumer capitalism in Brazil, to draw people into that paradigm and away from the competing appeal of socialism, as they saw it.35 In this, they had the full-fledged cooperation of the middle classes and ownership class of Brazil, including Marinho, who was personal friends with some of

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the original military revolutionaries, particularly the Castello Branco group, which included the first and last two military presidents.36 Some critics credit the success of TV Globo to political favors from the post-l964 Revolutionary governments. The post-1964 regime’s treatment of TV Globo was certainly deferential, but Marinho also got along well with the preceding government of João Goulart, which gave the original approval, in 1962, for his agreements with Time-Life. With both governments, Marinho tended to support the regime in power to facilitate his economic ambitions, but he evidently preferred to seek outside financial assistance rather than assistance from the Brazilian government, like other media businessmen, to lessen his dependence on government and his vulnerability to direct government pressure and censorship. From 1968 until the late 1970s, fear of government censorship limited some of the entertainment production options open to Brazilian television. Government censorship, and accompanying selfcensorship, made Brazilian television programmers somewhat more dependent on imported programs by hindering domestic production. Telenovelas, documentaries, and comedies were all restricted by censorship. TV Globo had at least two telenovelas already in production cancelled and one finished documentary refused, all at considerable expense. That made the network producers cautious, while they complained that they could not treat issues that appeared in imported American programs, such as drugs, crime, and other social problems.37 In 1978–1979, the military government began a gradual relaxation of censorship as part of a slow, planned return to eventual civilian rule. TV Globo received quite a bit of advertising from the military governments in the 1960s and particularly in the 1970s, when the state sector of the economy had grown considerably.38 Brazil’s military government in the 1970s also showed signs of being concerned about TV Globo’s power over communication with the mass audience in Brazil. The government in Brazil moved in 1981 to create competitors. TV Tupi’s licenses were broken into two groups and given to TV Manchete, linked with the weekly magazine Manchete and to TVS (now SBT, Sistema Brasileira de Televisão), owned by Sílvio Santos, a variety show host who had worked on Globo and other stations. In 1984, TV Globo initially supported the military government against a campaign for direct election of a civilian government, while other media, including other television networks, many radio stations, and most of the major newspapers supported the campaign for direct elections now. However, faced with erosion of its audiences, who turned to other channels for less biased news, TV Globo also switched sides and supported an early transition to a civilian regime which, in a compromise, was indirectly elected in 1985.39 The new civilian governments reduced political censorship and pressure on broadcasters, although some censorship on moral issues remained. TV Globo was accused of openly supporting the election of Fernando Collor in 1989, whose main opponent was Luis Ignacio da Silva (Lula). Several open acts of favoritism, including an edited version shown on TV Globo of a key debate,40 seemed to affect Lula’s support in the polls and subsequent election.41 Critics have argued that opposition to President Dilma in 2014–2015 on TV Globo news has reached similar levels42 but that other news outlets, such as newsmagazine Veja, are even more blatant.

Corporate Board Members and Interlocks Initially, TV Globo was set up as a limited stock company, limited to family members. After the death of Roberto Marinho, Roberto Irineu Marinho became the president of Grupo Globo, shareholder of the paper in partnership with Grupo Folha. His two brothers, João Roberto Marinho and José Roberto Marinho became Vice-presidents. The group is technically a stock company but is still closely held by family members.

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Social Marketing What became known as “merchandizing” in Brazilian telenovelas was the maximization of opportunities within the program itself to let certain products be seen, inserting an indirect form of advertising by associating certain products with the story or its characters. This type of exposure was sold, like other advertising time, and critics came to fear that too much attention was given to plotting such exposures in the writing and production of telenovelas.43 Social marketing began in the early 1970s as increasing numbers of major writers of telenovelas came in from the activist Left.44 They began to promote general social awareness of the authoritarian nature of the political system under the military, often in very indirect ways, such as showing abusive political bosses in small towns as metaphors for the national situation, as in the telenovela O Bem Amado (1975) or Roque Santeiro (1985). They also began to promote specific issues, such as ecology, the dangers of overdevelopment, abuses by land developers, women’s rights, urban poverty, rural land reform, etc.45 As the impact of the deliberate inclusion of ideas by writers began to become more apparent, TV Globo decided to make social marketing somewhat formalized by the mid-1990s and present it as a conscious contribution to Brazilian development.46

Cultural Profile TV Globo has always focused on commercial television, both news and entertainment. It started out in 1965 by focusing on extremely popular entertainment, primarily variety shows, but by the end of the 1960s it had refocused on creating higher-quality programs when it announced a “Globo standard of quality.” That largely meant more well-produced original melodrama in prime time. Despite its conservative position and ideology, Globo programming managers wanted to hire the best playwrights, who often came from the Left, even the Communist Party.47 However, key managers, particularly, Boni, wanted modern-looking drama, variety, music, and comedy. If leftist writers and actors were the best, he was willing to hire them.48 Marinho quickly discovered that the work of these writers was popular and increased audiences, particularly among men, who liked the social issues that these writers raised.49 Somewhat more surprisingly, the military permitted them to do so, since they also had a pragmatic interest in wanting a well-produced, modern television to help them unify the country.50 TV Globo has expanded its cultural universe over time, creating educational shows known as Telecurso Segundo Grau (High School Telecourse). It originally wanted to create the courses with government educational bodies but ended up creating its own courses that showed at off hours. After GloboSat began to more actively create new cable or pay-TV channels in the 2000s, it also created the Futura (Future) channel, an educational/entertainment channel, which is similar to the Discovery Channel. In that project it has partnered with some of the more active university television stations, such as that of Unisinos in Rio Grande do Sul, which create content used by Futura and also carry some of its content on their broadcast channels. GloboSat has also created a Brazilian film channel and a 24-hour telenovela channel, which shows its own classic shows from the past. The Roberto Marinho Foundation also works in the area of education. TV Globo has expanded its presence in the academic world with Globo Universidade, which grants controlled access to Globo’s archives and to Globo staff for interviews. It sponsors some academic projects and publications, such as the Obitel group, academics who study television drama creation and flow in Latin America and Iberia.

Symbolic Universe and Ideology TV Globo’s symbolic universe has traditionally focused on the urban middle class and uppermiddle class, although some of its more popular telenovelas have been situated in small towns in

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regions outside the urban centers of Rio, São Paulo, and Belo Horizonte. Most telenovelas have focused on the middle class in the affluent southern zone of Rio. One of the hallmarks of its programming is to promote a consumer economy and increased individual consumption, both by advertising and by extensive product placement within telenovelas.51 This consumer focus was on the initial expansion of the middle class in the 1970s, which was perhaps 20% of the population.52 This focus, gradually expanded to have a more diverse set of locales and peoples as economic growth, particularly from 1994–2013, lifted many people out of the working class, working poor, and even poverty into the lower middle class or even middle class.53 Given a country in which over half the population is Afro-descendent or mixed, Globo has been accused of clear racial bias in that its telenovelas featured few Black or poor people.54 One Globo marketing executive, interviewed by the author in 1979 and who asked to remain anonymous, said, “Look, this is not because we are racist. But the advertisers want to see the profile of their preferred audience [which at the time was the richest, whitest 20% of Brazil] on television.” Some telenovela authors, such as Dias Gomes in O Bem Amado (1974), deliberately created more diverse populations for their imagined locales, which is visible in frames from that novela that show at least half Black or mixed faces much of the time. However, Blacks were radically under-represented in most telenovelas until around 2012, when Globo realized that much of the new lower-middle class of consumers that it wished to target were now Black or mixed people who dwelt in areas formerly depicted as dangerous slums.55 Globo has been losing parts of that audience to two other stations, SBT and TV Record, which has targeted them with reality shows, variety shows, and more diverse telenovelas. So Globo switched gears with a series of telenovelas, starting with Duas Caras (2012), which featured the first Black leading man, the first inter-racial lead romantic couple, and the first predominantly positive view of life in a slum (favela).56

Popular Products and Place in Culture For the stations that could afford to produce them, by the end of the 1960s the telenovela had become the dominant Brazilian television entertainment and probably the most important product of Brazilian mass culture and the Brazilian cultural industry. TV Tupi produced telenovelas throughout the 1970s, and TV Bandeirantes began to do so in 1979 when it had begun to become a network. Nevertheless, as Rohter observed, “the emergence, growth and continued success of the telenovela is inextricably linked with the rise of TV Globo.”57 The October, 1976 edition of Veja also noted that, “Globo did not invent the [tele]novela but from its studios came the decisive contribution in the [tele]novela’s transformation into an almost cinematic genre of Hollywood dimensions and yet [a genre] most typically Brazilian in its language, plots and rhythm of production.” In the 1970s, the telenovela overtook the show de auditório as the archetypal “Brazilian” television entertainment, but the shows de auditório did not disappear. Through most of the 1970s, Sunday afternoons and evenings were dominated by a pre-recorded, slickly produced variation of the show de auditório produced by a veteran of the genre, Silvio Santos, known as “Fantastico.” TV Globo rapidly increased national programming, showing that by 1974, in their stations’ programming, “between six in the evening and eleven at night, 80 percent of the programs are Brazilian, created and produced in Brazil.”58 The network continued to expand national programming in the late afternoon and in the morning, eventually arriving at a point where 85% of its programming was produced nationally, nearly all of which was produced in house. José Bonifácio and other production managers for Globo put together an impressive production machine. They hired talented scriptwriters from theater and cinema. They hired producers from other stations. They brought over some existing stars, but began to work on creating their own stable of actors, which turned out a national star system somewhat equivalent to that of Hollywood

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in the studio era. In fact, in the October 6, 1976 edition of the Brazilian news magazine Veja, it called TV Globo “the Brazilian Hollywood.” TV Globo hired telenovela writers who were noted for activism on the Left, but controlled its news very tightly. In part, this is because television news and public affairs programming came under regular and strict censorship after 1968. Particularly after the decline of censorship after 1979–1980, as part of the military’s gradual transition to civilian rule, Globo began to experiment with further forms of television. It added more and more diverse comedies and music programs. It added more variety shows, which the military considered too unpredictable back in. It experimented with doing U.S. style series, and gradually expanded evening (10 or 11 pm) mini-series, which often adapted classic works of fiction for television, drawing heavily on cinema writers, actors, and directors. Its longest-running series, 1995–present, is in late afternoon, aimed at youth, Malhação (Muscle-building).

Cultural Exports and Imports Television imports into Brazil had declined overall since the 1970s,59 but the availability of foreign films and, to some lesser degree, foreign television programs, increased somewhat with new television technologies. Cable TV and satellite pay-TV were initially very limited in their growth in Brazil. In 1993, less than 1% of Brazilian households subscribed to cable, even though over 80% had television then. After TV Globo had achieved a virtual domination of the Brazilian national television market, it resolved to maintain its own momentum of growth by selling programs abroad. It began by selling telenovelas in Portuguese to Portugal in 1976 and in Spanish to other countries in Latin America in 1974. By 1979, TV Globo was selling telenovelas to stations in more than 50 countries, including the U.S., and these were dubbed into Spanish for U.S. Hispanics. In the 1980s and 1990s, Brazilian television networks, particularly TV Globo, not only emerged as major exporters of telenovelas to the rest of Latin America and the world, but also of other programming, such as music videos, variety shows, comedies, and mini-series. By 1991, TV Globo was exporting programming to 130 countries. By 1992, Globo was earning about $20,000,000 per year from exports—modest in light of roughly $700,000,000 gross yearly sales revenues that year.60 The group was also investing internationally. In some ways, the 1990s was the high-water mark of TV Globo program exports. They had a great deal of high-quality, low-cost programming to export exactly when, under a rapidly expanding set of neoliberal reforms in many countries, many state-owned stations were being privatized and/or commercialized, new private stations were starting up and looking for programming, and new satellite channels were doing the same. It was notable enough to start discussion of a counterflow of television exports South–South, or even South–North.61 Globo exports continue to be strong, even dominant in some areas, like the other Lusophone countries.62 Globo also now exports its primary broadcast television channel as a pay channel for overseas viewers.

Conclusion: Reflections on Globo’s Power TV Globo’s power might be thought of at four levels. First and foremost, although it has slipped from the position of strong cultural and even political dominance it had in Brazil from the early 1970s until the mid-1990s, it is still the dominant news source in Brazil63 although the ratings of the main evening news program have been falling rapidly over the last 2–3 years. Globo is probably still the dominant power in setting social and cultural agendas as well.64 Social or political issues raised in the 9 pm telenovelas, the most widely watched, are still likely to be discussed by a large number of people in Brazil. However, the ratings of the main telenovelas are also trending

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downwards as more and more people shift their viewing to pay-TV, Internet TV, and other channels. In political terms, when Globo lines itself up against a political leader, as it has against President Dilma, it has the ability to mobilize some degree of political sentiment against them. However, Globo has been burned in past times by going further on the political warpath than its audience wanted to go, and has had to retreat or even switch course to hang on to its audience share, as it did with the Direct Elections Now Campaign in 1985, when its dominance was much more solid. So it has been less inflammatory against Dilma than some print media. Second, TV Globo is still an export power in Latin America. It is still one of the top two exporters in the region, along with Mexico, as it has been for decades, since the 1970s.65 It is seen as a major source of soft power for Brazil in the region, primarily through the export of telenovelas, but also sports and music. Third, TV Globo is the dominant cultural power in the Lusophone world and has been since the 1970s. Although its hold over television markets in Portugal and Angola, in particular, has been diminished by the growth of national production there, it is still a primary source of television programs, music, even books and magazines in the Lusophone market. So it is a major source of soft power for Brazil in the Lusophone world as well. Fourth, TV Globo is a rising cultural and media power in the world at large, especially the global market for media and culture. It has been pretty well established in that role since the 1990s. Indeed some countries, which used to import telenovelas like Italy, much of Eastern Europe, etc., now import less since they have begun to do more of their own national melodrama. However, new markets also continue to open and Brazil is now firmly branded as one of the two primary sources for telenovelas in world markets.66

Notes 1 Daniel A. Hertz, A História Secreta da Rede Globo (Porto Allegre: Tchê!, 1987); Valério Cruz Brittos and César Bolaño, Rede Globo: 40 Anos de Poder e Hegemonia (São Paulo: Paulus, 2005). 2 José Raoul Silveira, “O desenvolvimento da televisão no Brasil,” O Estado do São Paulo, October 4, 1975. 3 Jose Marques de Melo, The Presence of the Brazilian Telenovelas in the International Market: Case Study of Globo Network (São Paulo: Universidade de São Paulo, 1991). 4 Silvia Borelli and Gabriel Priolli, A Deusa Ferida [The Wounded Goddess] (São Paulo, Brazil: Summus, 2000). 5 Ibid. 6 Ricardo Barros, Mirela de Carvalho, Samuel Franco, and Rosane Mendonça (2009), “Markets, the State and the Dynamics of Inequality: Brazil’s Case Study,” Research for Public Policy, Inclusive Development, ID-14–2009, RBLAC-UNDP, New York, accessed November 28, 2015, www.revistahumanum.org/ revista/wp-content/uploads/2012/02/14_RPPLAC_ID.pdf 7 Erika Thomas, “Organizações Globo,” INA Global, September 17, 2009, accessed November 28, 2015 from www.inaglobal.fr/en/television/article/organizacoes-globo 8 See dados.media,. Media Dados Brasil, 2011. From Grupo de Mídia. 9 Luiz G. Duarte, Television Segmentation: Will Brazil Follow the American Model. Unpublished M.A. Thesis, Michigan State University at East Lansing, 1992. 10 Keila Jimenez, “Globo fatura 7 bilhões em 2009,” O Estado de São Paulo, 25 de março de 2010, accessed November 28, 2015 from http://cultura.estadao.com.br/noticias/geral,globo-fatura-r-7-bilhoes-em2009,528779 11 Daniel Castro, “Globo fatura R$ 11,5 bilhões, dez vezes mais que Record e SBT,” Noticias da TV, February 5, 2014, accessed November 28, 2015 from http://noticiasdatv.uol.com.br/noticia/mercado/globo-faturar-11–5-bilhoes-dez-vezes-mais-que-record-e-sbt-2179 12 mediadb.eu, “Globo Communicação e Participações S.A.” 2015. Accessed December 11, 2015, from Institute of Media and Communications Policy. 13 Redação, “TV Globo Faz 50 Anos e Movimentos Sociais Preparam Protestos,” Carta Capital, April 25, 2015, accessed November 28, 2015 from www.cartacapital.com.br/sociedade/tv-globo-faz-50-anos-emovimentos-sociais-preparam-protestos-6361.html

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14 Globo, Globo Organizações e Participações, S.A., Investor Relations, accessed November 28, 2015 from http://globoir.infoinvest.com.br/enu/s-12-enu.asp 15 Aquino, M. (2012, 26/01/2012). Anatel quer TV Globo fora do controle da Net Serviços até junho deste ano. Tele Síntese. São Paulo. 16 mediadb.eu, “Globo Communicação e Participações S.A.” 17 dados.media, Media Dados Brasil. From Grupo de Mídia, 2015, accessed from https://dados.media/ #/app/categories 18 A. Netto, “Exclusivo: O Homen da Telemontecarlo,” Imprensa, October, 1987, 16–22. 19 J. Rattner, “Globo e Opus Dei Ganham Canais de Televisão Privada em Portugal,” Folha de São Paulo, February 7, 1992, p. C-1. 20 Helena Sousa, “The Re-Export of the US Commercial Television Model Time-Life/Globo/SIC: Replicating Business Strategies,” Paper delivered to the Political Economy Section of the Scientific Conference of the International Association for Mass Communication Research, Glasgow, July 25–30, 1998. 21 dados.media, Media Dados Brasil. 22 mediadb.eu, “Globo Communicação e Participações S.A.” 23 Randall Johnson, “TV Globo, the MPA, and contemporary Brazilian cinema,” in Lisa Shaw and Stephanie Dennison (Eds.), Latin American Cinema: Essays on modernity, gender and national identity (Jefferson, NC: McFarland, 2005), 11–38. 24 Erika Thomas, “Organizações Globo.” 25 Personal interview, 1978. 26 Larry Rohter, “The Noble Hours of Brazilian Television.” American Film: Journal of the Film and Television Arts, III (4), (February 1978), 58. 27 Personal Interview with Roberto Dualibi, DPZ Propaganda, Ltd., São Paulo. Interview, March 6, 1979. 28 Vinicio A. de Lima, “Brazilian Television in the 1989 Presidential Elections,” In Thomas E. Skidmore (Ed.), Television, Politics and the Transition to Democracy in Latin America (Washington, DC: Woodrow Wilson Center, 1993), 97–117. 29 Tania Cantrell Rosas-Moreno & Joseph D. Straubhaar, “When the Marginalized Enter the National Spotlight: The Framing of Brazilian Favelas and Favelados, Global Media and Communication, 11(1), April, 2015, 61–80. 30 GrupoGlobo, “AT 50, TV GLOBO,” 2015, accessed November 28, 2015 from www.grupoglobo. globo.com/ingles/news/interview_50_years_tv_globo.php 31 See O Globo, July 8, 1971. 32 João Calmon, O Livro Negro da Invasão Branca (Rio de Janeiro: Edições O Cruzeiro, 1966). 33 Personal interview with Almeida Castro, 1979. 34 GrupoGlobo, “AT 50, TV GLOBO.” 35 Mauro Salles, “Opiniao Publica, Comunicações, Marketing e Publicidade no Processo Brasileiro de Desenvolvimento.” (Public Opinion, Communications, Marketing and Publicity in the Brazilian Development Process.) Speech at the Escola Superior de Guerra (National War College), Rio de Janeiro, September 10, 1975. 36 Personal interviews with Joe Wallach, 2011. 37 See Jornal da Tarde from November 6, 1975. 38 Sergio Mattos (1984), “Advertising and Government Influences: The Case of Brazilian Television,” Communication Research, 11(2), 203–220. 39 Joseph D. Straubhaar, “The Reflection of the Brazilian Political Liberalization in the Telenovela,” 1974–1984,” Studies in Latin American Popular Culture, Vol. 7, 1988. 40 Vinicio A. de Lima, “Brazilian Television in the 1989 Presidential Elections.” 41 Márcia Cavallari Nunes, Örjan Olsén, and Joseph D. Straubhaar, “O Uso de Pesquisas Eleitorais em Decisões de Voto—As Eleições Brasileiras de 1989,” Opinião Pública, Campinas, Vol. 1, No. 2, pp. 47–96, Dezembro, 1993. 42 Fernando Borges, “Faustão Ataca Dilma ao Vivo: ‘Este é o País da Corrupção e da Incompetência,’” TV & Famosos, Blasting News, September 14, 2015, accessed November 28, 2015 from http://br.blastingnews. com/tv-famosos/2015/09/faustao-ataca-dilma-ao-vivo-este-e-o-pais-da-corrupcao-e-da-incompetencia00557791.html 43 See the October 6, 1976 edition of Veja. 44 Igor P. Sacramento, Nos tempos de Dias Gomes: a trajetória de um intelectual comunista nas tramas comunicacionais. Tese de Doutorado em Comunicação e Cultura (Rio de Janeiro: ECO/UFRJ, 2012). 45 Antonio La Pastina, Dhaval S. Patel, and Marcio Schiavo, “Social merchandizing in Brazilian telenovelas,” In Arvind Singhal, Michael J. Cody, Everett M. Rogers, and Miguel Sabido (Eds.), Entertainment-Education and Social Change (Mahwah, NJ: Lawrence Erlbaum & Associates, 2004), 261–277. 46 Ibid.

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47 Igor P. Sacramento, Nos tempos de Dias Gomes. 48 Personal interviews with Joe Wallach, 2007. 49 Personal interview with Maria Aparecida Bacega, Escola Superior de Propaganda e Marketing, São Paulo, September 14, 2014. 50 Personal interview with Mauro Alencar, University of São Paulo, August 28, 2014. 51 Antonio La Pastina, et al, “Social Merchandising in Brazilian Telenovelas.” 52 Joseph D. Straubhaar, “The Transformation of Cultural Dependence: The Decline of American Influence on the Brazilian Television Industry,” 1981. Doctoral Dissertation, Fletcher School of Law and Diplomacy, Tufts University, Medford, MA. 53 Luis F. Lopez-Calva, andEduardo Ortiz-Juarez, A Vulnerability Approach to the Definition of the Middle Class. Policy Research Working Papers, The World Bank (Washington, DC, 2011). 54 Joel Zito Araujo, A Negacão do Brasil: O Negro na Telenovela Brasileira (Sao Paulo, SP: Editora SENAC Sao Paulo, 2000). 55 Samantha Nogueira Joyce, Brazilian Telenovelas and the Myth of Racial Democracy (New York: Lexington Books, 2012). 56 Tania Cantrell Rosas-Moreno & Joseph D. Straubhaar, “When the Marginalized Enter the National Spotlight: The Framing of Brazilian Favelas and Favelados, Global Media and Communication, April, 2015, 11(1), 61–80. 57 Larry Rohter, “The Noble Hours of Brazilian Television,” 57. 58 Mercado Global, Rede Globo de Televisão, São Paulo, Oct. 1974; Visão. “O dilema da imagem importada,” 16 December 1974. 59 Joseph D. Straubhaar, “Global, Hybrid, or Multiple? Cultural Identities in the Age of Satellite TV and the Internet. NordMedia, Helsinki, August, 2007. 60 Jose Marques de Melo, The Presence of the Brazilian Telenovelas in the International Market. 61 Daya Kishan Thussu (Ed.), Media on the Move: Global Flow and Contra-Flow (New York: Routledge, 2007). See especially the Introduction and Chapter 1, both authored by Thussu. 62 Joseph D. Straubhaar, “Brazil’s TV Fiction Export to the Lusophone world: Desire for Shared Cultural Experience,” In A. Sofie Jannusch & Christoph Dietz (Eds.), Promoting Alternative Views in a Multipolar World: BRICS and their Evolving Role in Developing Media Markets. (Berlin: German Forum on Media and Development, the Robert Bosch Stiftung and the Konrad-Adenauer-Stiftung, 2014), 61–68. 63 Mauro Porto, Media power and democratization in Brazil: TV Globo and the dilemmas of political accountability (New York: Routledge, 2012). 64 John Sinclair and Joseph D. Straubhaar, Television Industries in Latin America (London: BFI Press, 2013). 65 Rafael Roncagliolo, “Trade integration and communication networks in Latin America,” Canadian Journal of Communications, 20(3), 1995. 66 Timothy Havens, Global Television Marketplace (London, UK: British Film Institute, 2006).

14 SONY CORPORATION William Kunz

Sony Corporation assumes a unique place in the assemblage of global media giants. It owns one of the six major motion picture studios and is one of the three dominant corporations in the music industry, and it is the lone corporation that belongs to both of those groups. Unlike some other media giants, Sony is also a diversified conglomerate, with holdings in the manufacturing of media devices, from televisions to disc players to game consoles to smartphones, and the production and distribution of media content. It has also delved into financial services. The other difference is that Sony is a Japanese corporation, the only conglomerate based outside the United States to own one of the major studios, one that was built on start-up capital of just 190,000 yen in the aftermath of World War II with a stated goal to help rebuild Japan.1 Sony presents other contradictions. In terms of total revenue—approximately $75 million in revenue in 2014 based on end of fiscal year exchange rates—it is larger than the other global media giants, although its approximately $13 million in revenue from its pictures and music divisions over the same period pales in comparison to some other conglomerates in terms of core media production and distribution.2 There was also a time when Sony was viewed as one of the world’s most iconic brands, but such perceptions are now more mixed. It ranked fifth in the Global RepTrak 100 for 2014 for the best corporate reputation, behind only Disney, Google, BMW, and Rolex, but it was also ranked among most the hated companies in the United States around the same period, between General Motors and Dish Network.3 The reputational hit in the United States was related to the hacking of Sony Pictures Entertainment and the online PlayStation Plus system, as well as ongoing struggles with other products. Unlike other media giants that distribute products under various brands, Sony focuses on a single monolithic brand, so “a threat to one is a threat to all.”4 Sony is also a corporation in search of an identity. The acquisition of CBS Records and Columbia Pictures in the late 1980s was based on a desire to control the production and distribution of content for its electronics devices, but one must ask whether these strategic initiatives have been successful. In 2013, an activist investor called on Sony to break the corporation in two, dividing its electronics and content businesses, which indicates that such questions are no doubt swirling around its headquarters in Tokyo. To answer these and other questions, one must understand the evolution of Sony in post-war Japan, the move into content production and distribution on a global scale, and the challenges it now faces in its core businesses. It is also important to understand the different cultures in which Sony functions, for while the hacking of Sony Pictures Entertainment in 2014 made headlines in the United States, it was little noticed in Japan.

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Historical Background The launch of the Sony Corporation can be traced back to post-war Japan, but the relationship on which it was built was formed during the bombing of Tokyo in March 1945. It was at a meeting of the Imperial Navy Wartime Research Committee that month that Masaru Ibuka met Akio Morita, and 14 months later they co-founded the Tokyo Tsushin Kogyo Corporation (Totsuko) in May 1946. Prior to the war, Ibuka engaged in research on sound recordings and on the development and production of home sound movie equipment. That proved to be valuable experience, as the first product Totsuko produced was a reel-to-reel tape recorder. Ibuka came to the United States in 1952 to learn how Americans were using tape recorders and it was during that trip that he visited Bell Telephone Laboratories, which had announced the sale of manufacturing licenses for transistors. Ibuka received permission from MITI, the Ministry of International Trade and Industry in Japan, to obtain the license for $25,000 and the corporation released its first transistor radio in 1955. The TR-55 required a large battery, which limited its commercial success, but Sony soon after designed the TR-63, a “shirt-pocket” radio that used miniaturized components and ran on a 9V battery. The TR-63 was the smallest portable transistor radio in the world at that time and became the first Sony export model when it was released in 1957. From the formation of Totsuko in 1946, Ibuka took the lead in product development while Morita focused on marketing. In the late 1950s, it was Morita who took the lead in debates over the name of the corporation. While Totsuko became well known in Japan, the name was not easy to pronounce outside of Asia, which undermined the desires of Ibuka and Morita to expand to foreign markets. Sony became the brand name for Totsuko products starting in 1955 and Morita argued for the adoption of Sony as the corporate name as well. Some argued against the plan, including Totsuko’s primary Japanese bank, Mitsui, while still others suggested keeping electronics in its name, such as Sony Electronic Industries. Morita, however, was adamant, arguing that Sony would allow it to expand worldwide and in new directions, even those outside of electronics. Sony replaced Totsuko as the official corporate name in January 1958, and it established the Sony Corporation of America in 1960. The timeline for Sony through the 1960s, 1970s, and 1980s is dotted with the creation of new consumer electronics, including the first Trinitron color television in 1968, the Walkman personal stereo in 1979, the first CD player in 1982, and the Handycam video camera in 1989. It was also in this period that Sony Corporation became a diversified conglomerate, with Sony moving into the insurance business in 1979 with the creation of Sony Prudential Life Insurance, a 50–50 joint venture with the Prudential Insurance Co. of America. The diversification and creation of new products continued over time, with Sony at the forefront in the development of DVD and Bluray discs and players and the launch of its own line of video games consoles, the PlayStation and PlayStation Portable, as well as a move into computers and phones. Not all Sony initiatives were without challenges or even successful. The launch of the Betamax videotape recording system in 1975 provides an important chapter in its story that influenced later decision making. A short time after the release of the Betamax, JVC and RCA released a different home video system, the VHS, in Japan and the United States, respectively, and the format wars were born. The Betamax provided superior recordings than the VHS, but the original model was limited to 60 minutes of recording time, compared to 120 minutes for the JVC version of the VHS and 240 minutes for the RCA version. The sale price for the Betamax was also higher. Both of these differences became issues as Sony competed with JVC and others for market share. The longer record time on VHS tapes became a significant factor once the home video market began to develop in the late 1970s when Hollywood studios embraced the rental model. JVC also followed a more open policy with partners, and in 1984 more than 40 companies were producing VHS

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machines worldwide compared to just a dozen for Betamax. As the difference in market share between VHS and Betamax grew, it became less cost effective for motion picture studios to release films on Betamax and the Sony format became starved for content; it released a VHS machine of its own in 1988. The scars from the format wars had a lingering effect on Sony. In November 1987, Sony announced the intent to acquire CBS Records for $2 billion, with that sale coming two months after Michael Jackson’s Bad album reached number one on the Billboard charts under the CBS label. Less than two years later, in September 1989, Sony completed the acquisition of Columbia Pictures Entertainment for $3.4 billion. Sony was convinced that the future course was to combine Japan’s thirst for consumer electronics with America’s lead in entertainment software. A Japanese financial analyst at the time said: “Sony may be the only company with a corporate culture that is Americanized enough to pull it off . . . Everyone talks about the importance of getting into software. Sony really feels it.”5 The move into software had additional short- and long-term costs for Sony. After the purchase of Columbia was complete, Sony reached agreement with Peter Guber and Jon Peters to head the studio, a deal that included $200 million to acquire Guber-Peters Entertainment Co. as well as contracts with the two that paid them $14 million each over five years in addition to a percentage of the profits.6 At the time, Guber and Peters were under contract with Warner Bros., and it required an estimated $500 million in penalties and concessions to free them from their contract.7 The duo also proved to be lavish in the running of the studio, spending millions to redesign office suites and studios, including $100 million for the old Metro-Goldwyn-Mayer lot. Guber became the sole chairman in 1991 as Columbia adopted the Sony Pictures Entertainment name, but he was ousted three years later, a short time before Sony announced a $3.2 billion write-off from the acquisition of the studio in November 1994. The Sony discomfort with the studio was evident once again two decades later in November 2014. Late that month, when employees at the Sony Pictures Entertainment studios logged onto their computers they were greeted with an image of a skeleton and an acronym of an organization called the Guardians of Peace, which authorities later argued was linked to the North Korean government. Over the ensuing days and weeks, scores of sensitive emails and digital files containing confidential information were released. The hacking of Sony was linked to the release of The Interview, a comedy starring James Franco and Seth Rogen about a fictional attempt to assassinate North Korean leader Kim Jong-un. Leaked emails also showed the discomfort the film caused in Sony headquarters in Japan. In the months leading up to the release of the film, Sony chairman and chief executive officer Kazuo Hirai broke with precedent and became involved in the production process, asking for changes in the film. There was a focus on a particular scene in which the head of the fictional leader exploded, which was later toned down with “no face melting, less fire in the hair, fewer embers on the face and the head explosion has been considerably obscured by the fire.”8

Economic Profile The examination of the financial profile of Sony reveals the complexity of the corporation and establishes its unique position among media firms. An obvious focus in the analysis of Sony is on its dual role as a producer of media content as well as media devices. The relative strength and importance of those activities becomes evident in the financial data. That combination distinguishes Sony from other media giants, as does the existence of both motion picture studios and music labels under the same corporate umbrella. What is perhaps most significant, however, is the degree to which Sony has become a diversified conglomerate, defined as corporations that produce many products and services that may be unrelated. This is most evident with the prominence of the

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Financial Services division of the corporation, but its entry into phones, computers, and cameras represent an approach that is unlike other media giants.

Financial Data There were persistent concerns about the product competitiveness and financial well-being of Sony Corporation long before the hacking of Sony Pictures Entertainment made headlines. For decades the growth of Sony Corp. was impressive, with increases in total sales from $4.231 billion in 1980 to $18.343 billion in 1990 to $65.090 billion in 2000, but growth has been modest at best since the dawn of the new millennium (see Table 14.1). Between 2010 and 2014, Sony experienced a slight increase in sales from $77.193 billion to $77.556 billion, but it suffered a net loss in five of the six fiscal years (see Table 14.2). In 2009, Sony announced its first annual loss in 14 years, but that was attributable in large part to the prolonged economic recession and a strong Japanese yen.9 What was harder to stomach were the continued losses as the global economy rebounded. In September 2014, Hirai announced that the corporation expected to lose over 230 billion yen, an estimated $2.15 billion, in the 2015 fiscal year, almost five times what it forecasted four months earlier. At the same time, he announced that Sony would not pay a dividend in that fiscal year, the first time it had not done so since its stock was first listed in 1958. In keeping with Japanese tradition, Hirai bowed to journalists and photographers at a shareholder meeting and apologized, stating his desire to see through changes: “I am deeply sorry for shareholders . . . I’d like to take responsibility for finishing implementing structure reform efforts in this fiscal year and returning the company to profitability in the next fiscal year.”10 The evolution of Sony Corp. from an electronics manufacturer into a diversified corporation is evident in the organization of its business segments. In the mid-1980s, before Sony acquired CBS Records and then Columbia Pictures, its sales were reported in four product groups: video equipment, televisions, audio equipment, and other products. In 1984, for example, video TABLE 14.1 Sony Corp. Total Sales and Operating Revenue, 1980–201011

2010 2005 2000 1995 1990 1985 1980

Sony Corp. Total (in billions)

Sony Pictures (in billions)

Japanese Yen

U.S. Dollars

Japanese Yen

U.S. Dollars

Percent of Total

Japanese Yen

Sony Music (in billions) U.S. Dollars

Percent of Total

7,209.849 7,191.325 6,686.661 3,990.583 2,879.856 1,420.785 892.763

77.193 67.071 65.090 45.948 18.343 6.702 4.231

705.2 733.7 494.3 281.7 92.5 — —

7.55 6.84 4.81 3.24 0.59 — —

9.8 10.2 7.4 7.1 3.2

522.6 N/A 655.0 494.9 445.2 — —

5.60 N/A 6.47 5.70 2.90 — —

7.2 N/A 9.9 12.4 15.8

TABLE 14.2 Sony Corp. total sales and operating revenue, 2010-2014 (End of Year Exchange Rate)12

2014 2013 2012 2011 2010

Sony Corp. Total (in billions)

Sony Pictures (in billions)

Japanese Yen

U.S. Dollars

Japanese Yen

U.S. Dollars

Percent of Total

Japanese Yen

Sony Music (in billions) U.S. Dollars

Percent of Total

7,767,266 6,795,504 6,493,083 7,177,589 7,209.849

75.425 72.170 78.790 86.728 77.193

829.6 732.7 657.7 600.0 705.2

8.06 7.78 7.98 7.25 7.55

10.1 10.0 9.6 8.0 9.2

503.3 441.7 442.8 470.7 522.6

4.89 4.69 5.37 5.69 5.60

6.1 6.0 6.4 6.3 6.8

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TABLE 14.3 Sony Corp. total sales and operating revenue by segment, FY 2014 (in billions)15

Japanese Yen

U.S. Dollars

Percent of Total

Largest Shares of Segment Totals

1,630.1

15.83

19.8

Mobile Communications (73.1%) Personal and Mobile Products (26.5%)

Games

979.2

9.51

11.9

Imaging Products & Solutions

741.2

7.20

9.0

Home Entertainment & Sound 1,168.6

11.35

14.2

Televisions (64.7%) Audio & Video (34.4%) Semiconductors (57.2%) Components (42.4%)

Mobile Products & Communication

Devices

794.2

7.71

9.6

Pictures

829.6

8.06

10.1

Music

503.3

4.89

6.1

Financial Services

993.8

9.65

12.1

All Others

594.6

5.77

7.2

Corporate and Elimination

(467.3)

(4.54)

Digital Imaging Products (56.0%) Professional Solutions (41.6%)

Motion Pictures (50.9%) Television Productions (29.9%) Media Networks (19.2%) Recorded Music (70.7%) Music Publishing (13.6%)

equipment accounted for 40.6% of net sales, followed by televisions (23.6%) and audio equipment (21.5%).13 A decade later, Sony reported revenue from its entertainment business, which included its music group and pictures group as well as insurance and financing, but the electronics business still accounted for 75.9% of total sales in 1994.14 The transformation of Sony was most evident in 2014, when the electronics products identified in 1984 were combined into a single segment, Home Entertainment & Sound, and that group accounted for just 14.2% of total Sony sales. That year, Sony was divided into nine business segments: Mobile Products & Communications, Games & Network Services, Imaging Products and Solutions, Home Entertainment & Sound, Devices, Pictures, Music, Financial Services, and All Other (see Table 14.3). Some of the issues outlined above become evident in the segment results for 2014. The mobile segment reported sales and operating revenue of $15.83 billion, but suffered a net loss of $748.9 million. The games division generated $9.51 billion in sales, with a loss of $80.8 million. Home entertainment experienced an increase in sales and operating revenue, but suffered a net loss of $254.6 million on $11.35 billion in revenue. That deficit, once again, decreased from a $1.016 billion loss in 2013, but it is still representative of Sony’s struggles in the consumer television marketplace. Five of the nine business segments within Sony suffered losses in fiscal year 2014, an increase from two in 2013. What is most striking is that the most profitable segment in all of Sony was financial services, with a net income of $1.7 billion. That segment includes Sony Life Insurance, Sony Bank, and Sony Assurance, with the lattermost selling various products including auto, medical, fire, and even pet insurance. While many Sony products rely on the disposable income of consumers around the world, the financial services division focuses on more basic needs, although pet insurance could be debated. This also paints a richer picture of Sony Corporations and establishes a difference from other giants that increasingly focus on related products with clear synergies.

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The relative strength of Sony’s content businesses must be framed within that context. Those segments combined to account for 16.2% of total sales and operating revenue in fiscal year 2014, 10.1% for pictures and 6.1% for music. Both divisions increased sales in 2014, with pictures up 13.2% to $8.06 billion and music up 13.9% to $4.89 billion, although those increases resulted from the favorable impact of the depreciation of the Japanese yen against the U.S. dollar. On a constant currency basis, sales in the music division were more or less flat, while those in the pictures division were down about 6%.16 Both divisions, however, were profitable, with pictures showing net income of $515.2 million for the fiscal year compared to $501.2 million for music. That made them the second and third most profitable divisions within the corporation behind financial services.

Corporate Structure True to its Japanese origins, Sony Corporation is based in Tokyo, but it has deep roots in the United States. In 1985, even before it acquired CBS Records and Columbia Pictures, 33.6% of Sony’s total sales were in the United States, higher than even Japan (25.8%).17 The share of sales to customers in the United States declined over time and was half that in 2014, accounting for 16.8% of total sales compared with 28.3% in Japan and 22.6% in Europe.18 Sony’s operations in the United States fall under its subsidiary, Sony Corporation of America, with Sony Electronics Inc., Sony Mobile Communications (USA) Inc., Sony Computer Entertainment America LLC, Sony Network Entertainment International LLC, Sony Pictures Entertainment Inc., and Sony Music Entertainment its principal businesses.

Electronics Divisions Sony remains an electronics business at its core, but those same segments have been an area of concern over the past decade. That was most evident in the television business, which brought Sony an Emmy Award in 1973 for the Trinitron receiver, but lost more than $7 billion from the mid-2000s through the mid-2010s.19 The television unit was forecast to post a modest profit in the fiscal year ending in 2015, but the days of dominance are over. The Sony market share for televisions was down to just 8% in the third quarter of 2014, compared with 27% for Samsung Electronics and 15% for LG Electronics, and there was little hope that it could compete for market share after lagging behind in the development of plasma screens and liquid crystal displays.20 The focus for Sony, instead, was on high-end televisions, including the so-called 4K sets that offer four times the resolution of conventional high-definition television sets. This is consistent with the focus in its mobile division, where Sony had suffered significant financial losses and decided in 2014 to focus on the high-end market with the Xperia smartphones. Sony sold is devices segment, which focused on the Vaio personal computer, in 2014. While most of the electronics and content divisions are separated, in terms of structure, location, and culture, there is one segment in which Sony blends hardware and software, product manufacturing and content creation. That is the games division. Sony introduced the first PlayStation in 1994 and it became the first video game console to ship over 100 million units. The PlayStation 2 ranked as the best-selling console of all time with over 150 million units sold. Sony released the PlayStation 4 in November 2013 and it had sold over 18 million console units prior to the start of 2015. At that time, PlayStation had sold over 80 million game units. Another dimension of the Sony games model is PlayStation Plus, an online network that had 10.9 million subscribers at the start of 2015. This is also an area in which Sony has wrestled market share from Microsoft, with estimates that shipments of PS4 close to doubled those of the Xbox One through September 2014 after PlayStation consoles had lagged behind in previous years.21

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Pictures Division Sony Pictures Entertainment was the focus of the so-called Sony hack, and the headlines in late 2014 focused on the release of The Interview and the inner workings of a major Hollywood studio. In normal times, Sony Pictures Entertainment (SPE) is broken into three sub-units—motion pictures, television productions, and media networks. The motion pictures group is the most prominent of the three, featuring Columbia Pictures, Screen Gems, and Sony Pictures Classics. This collection represents the horizontal integration that is a trademark of the major studios, with Columbia focusing on big-budget, wide-release films on one end of the spectrum and Sony Pictures Classics acquiring and distributing independent and art films at the other. In 1999, Sony revived Screen Gems to produce and distribute films that fall in the middle of the other two. SPE also owns Destination Films, Stage 6 Films, and Affirm Films for various niche markets as well as TriStar Pictures. Affirm Films, for example, “acquires faith-based and inspirational content across a wide range of genres and budgets for the various global distribution platforms at SPE including theatrical, television, and home entertainment.”22 Sony Pictures ranks among the six major studios, but in most years it resides in the middle of that group at the box office in the United States. From 2005 through 2014, Sony ranked third through fifth in eight of ten years, with its number one rankings in 2006 and 2012 the exceptions.23 Sony Pictures Classics, on the other hand, was consistently ranked between 14th and 16th, with its highest market share since 2010 being 0.9% in 2011 (see Table 14.4). In 2006, an odd collection of films fueled the Sony box office at the domestic box office: The Da Vinci Code ($217.5 million), Casino Royale ($153.5 million), and Talladega Nights: The Ballad of Ricky Bobby ($148.2 million). In 2012, two franchise films were dominant at the domestic box office, with Skyfall ($304.4 million), the latest in the James Bond franchise, and The Amazing Spider-Man ($262.0 million) both ranking among the top seven films. The television productions and media networks groups remain outside of the spotlight within SPE, although the two combined for just under 50% of total sales for the segment in 2014.24 Television productions accounted for 29.9% of the segment total, a significant turn-around from the previous decade when Sony had announced that it would phase out Columbia TriStar Television. Back then there was little new in the Sony pipeline, but SPE has since put additional resources into television production. In 2014, the Jeopardy and Wheel of Fortune programs remained significant contributors to the bottom line, but Sony Pictures Television had experienced other successes, including basic cable sensation Breaking Bad, and had a significant number of shows on broadcast and cable networks in 2014-15. TABLE 14.4 SPE Domestic Gross & Market Share (in millions)25

Films Tracked

Total Gross ($)

Market Share (%)

Top Grossing Film

2014

Sony/Columbia Sony Classics

22 22

1,261.5 41.8

12.2 (4th) 0.8 (14th)

The Amazing Spider-Man 2 ($202.9) Magic in the Moonlight ($10.5)

2013

Sony/Columbia Sony Classics

20 21

1,144.6 70.2

10.5 (4th) 0.6 (15th)

Grown Ups 2 ($133.7) Blue Jasmine ($33.0)

2012

Sony/Columbia Sony Classics

25 24

1,792.2 50.0

16.6 (1st) 0.5 (15th)

Skyfall ($290.9) To Rome with Love ($16.7)

2011

Sony/Columbia Sony Classics

28 25

1,273.7 90.2

12.5 (3rd) 0.9 (14th)

The Smurfs ($142.6) Midnight in Paris ($56.4)

2010

Sony/Columbia Sony Classics

23 26

1,282.9 62.9

12.1 (5th) 0.6 (14th)

The Karate Kid ($176.6) Get Low ($9.1)

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For American audiences, properties within media networks are the least known in this group. Sony is the one parent corporation of a major motion picture studio that does not own a share of a broadcast network in the United States, where its ownership of cable networks was limited to a small collection of investments in 2014, including Game Show Network, 3net, and Sony Movie Channel. The picture was far different outside the United States, however. In corporate documents, Sony stated that it owned or had investments in 78 channels with 148 feeds in 178 countries worldwide in the first quarter of 2015, with 1.28 billion subscribers.26 This includes Animax, the first and largest network in the world dedicated to anime, which is carried via satellite throughout Asia, Europe, and North America. There are also networks focused on a particular region, such as Canal Sony, which is transmitted across Latin America, and Sony Channel Asia, available in 17 countries in the Asia-Pacific region. In India alone, Sony operates a large collection of channels, starting with Sony Entertainment Television, a Hindu-language version of the general entertainment channel that debuted in 1995. In addition to the networks designed for broad audiences, Sony developed a number of channels for the Indian marketplace alone, including Sony MAX, a Hindi movie channel, Sony PIX, a Hollywood movie channel, and Sony AATH, a Bengali movie channel.

Music Division Sony Music Entertainment, at least as an official name, dates back to 1991, which was two years after Sony acquired CBS Records. The roots of music within Sony run much deeper, however, as the corporation formed a 50–50 joint venture with CBS in 1968 known as CBS/Sony Records, which focused on the distribution of CBS labels in Japan. The relationship between CBS and Sony would change with the acquisition of CBS Records, and Sony has ranked among the leaders in the music industry since that date. Sony expanded the scope of its music operations in 2004 when it formed a 50–50 joint venture with Bertelsmann known as Sony BMG. Prior to that merger, Sony ranked third among distributors, behind Universal and Warner, but the combination of Sony and BMG moved it into second place. Sony acquired Bertelsmann’s interest in Sony BMG in 2008 and brought it under Sony Music Entertainment. Sony Music features some of the most influential labels the recording industry has ever seen. The foundation of CBS Records was built on the Columbia label, which traces its roots back to Columbia Phonographic in the late 1800s. Bertelsmann Music Group, on the other hand, included RCA Records, which adopted that name in 1929 when the Radio Corporation of America acquired the Victor Talking Machine Company. Sony Music Entertainment is also home to Epic Records. In 2014, Sony Music Entertainment labels accounted for four of the top ten in terms of market share: Columbia (2nd), RCA (6th), Sony Nashville (9th), and Epic (10th).27 Sony units also distributed 10 of the top 33 albums in the final Billboard charts, a group that ranged from Miley Cyrus to Barbra Streisand and included Beyoncé, John Legend, Pharrell Williams, Justin Timberlake, and Kelly Clarkson.28 The music industry is highly concentrated, with the horizontal integration evident in the combination of Columbia and RCA under the umbrella of Sony—a common pattern. It became even more so with the Universal Music Group acquisition of EMI for $1.9 billion in 2012, which included the sale of the EMI music publishing operation to a Sony-led consortium for $2.2 billion. In approving the acquisition, the European Commission mandated that UMG sell one-third of its operations to companies with “proven track record” in the music industry.29 The impact of those deals was evident in 2014, when the big three accounted for an 86.0% market share in the distribution of albums and track-equivalent albums. Sony was second behind Universal Music Group with a 28.5% market share, which was consistent with its market share the previous half-decade (See Table 14.5). The EMI deal gave Sony control over the largest music publishing operation in the world,

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TABLE 14.5 Sony Music Entertainment Market Share—Albums & Track-Equivalent Albums by

Distribution Ownership30 Year

Market Share (%)

Rank (Market Leader)

2014 2013 2012 2011 2010

28.5 29.6 30.3 29.3 28.0

2nd (Universal Music Group, 38.7%) 2nd (Universal Music Group, 38.8%) 2nd (Universal Music Group, 32.4%) 2nd (Universal Music Group, 29.9%) 2nd (Universal Music Group, 30.8%)

with Sony/ATV Music Publishing, a joint venture that Sony created with Michael Jackson in 1995, moving under the same management as EMI Music Publishing. In 2013, that combination accounted for a 29.4% market share, ahead of Universal Music Publishing Group (22.6%) and Warner/ Chappell Music (13.2%), and an increase from 21.7% in 2012 and 11.7% in 2011.31

Political Profile The political reach and influence of Sony is once again complicated, with its Tokyo base and the absence of a broadcast network in the United States, and in turn a network news division, making it less prominent in American politics. That does not mean it has been apolitical. In the late 1960s and 1970s, Sony was the focus of illegal dumping charges made against Japanese manufacturers, and a Time magazine cover in 1971 featured Akio Morito under the headline “How to Cope with Japan’s Business Invasion.” It was under Morita the corporation designated Sadami “Chris” Wada as Sony’s in-house lobbyist in the United States in 1977. There were also clear connections between Sony and Japanese political parties, as well as corporate policies that reflect the political and social context of its Japanese base. And it was the corporate headquarters in Tokyo that grew uncomfortable with the political dimensions of The Interview, concerns that were revealed in emails released through the Sony hack.

Ownership Sony is a multinational conglomerate with operations around the world but, despite the fact that more of its shareholders are outside Japan than within, its Japanese home impacts on corporate governance and strategic planning. There were a total of 1.150 billion shares of Sony stock issued as of September 30, 2014, with 607,649 shareholders.32 A majority of these shares, 52.8%, were in foreign hands, either institutions or individuals. That was an increase of almost 20% from March 31, 2013 when 32.6% of the total shares were held outside of Japan. The shares controlled by Japanese financial institutions were more or less constant, accounting for 25.1% of the total as of September 2014. The biggest difference was in the number of shares held by Japanese individuals and others, which declined from 38.4% in March 2013 to 18.6% in September 2014. The ownership of Sony stock is widely dispersed, with Sumitomo Mitsui Trust Bank of Japan the only shareholder with more than 5.0% of the common stock as of April 4, 2014, and the Sumitomo Mitsui total was just 5.04%.

Board of Directors The absence of a significant portion of Sony stock with any given group or individual has a clear impact on corporate governance and on the Board of Directors. There is also a clear connection between the Japanese foundation of Sony and the nature of governance within the corporation.

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TABLE 14.6 Sony Corporation Board of Directors as of January 201533

Internal Directors

Country of Birth Primary Position

Kazuo Hirai Kenichiro Yoshida

Japan Japan

President and Chief Executive Officer, Sony Corp. Executive Vice President and Chief Financial Officer, Sony Corp.

Japan Japan Japan Japan Japan Japan Japan United States Japan United States

Former Vice Chairman, Nissan Motor Co., Ltd Chairman, McDonald’s Holdings Japan Chief Executive Officer, Neoteny Co. and Director, MIT Media Lab Former Vice-Minister, Ministry of Economy, Trade and Industry Director and President, Sumitomo Mitsui Financial Group, Inc. Chairman and Chief Executive Officer, Chugai Pharmaceutical Co., Ltd. Former Executive Board Member, Ernst & Young ShinNihon LLC Chief Executive Officer, The Roos Group, LLC and Former U.S. Ambassador to Japan Chairman and Chief Executive Officer, Dow Corning Toray Co., Ltd Independent Startup Adviser and Former President, Sony Network Entertainment

External Directors Kanemitsu Anraku Eikoh Harada Joichi Ito Kazuo Matsunaga Koichi Miyata Osamu Nagayama Takaaki Nimura John V. Roos Eriko Sakurai Tim Schaaff

In the United States, the maximization of the wealth of shareholders is the narrow goal, whereas in Japan, firms are concerned with a broader collection of stakeholders, including employees. The concept of lifetime employment, which became prominent in Japan during the period of economic growth after World War II, is an example of this focus. Corporate boards in Japan have tended to be larger than those in the United States, with fewer outside directors who have little influence. Sony, once again, provides an interesting study since it is a rare Japanese corporation that brought in leadership from the United States, specifically the Welsh-born head of Sony Corporation of America, Howard Stringer. When Stringer was named chief executive officer in June 2005, the Board of Directors of Sony included 16 individuals, eight of whom were executives within the corporation. The chairman at that time, Nobuyuki Idei, started working at Sony in 1960 and five other board members had been Sony employees for 30 years or longer. The composition looked rather different at the start of 2015 (see Table 14.6), with the size of the group reduced from 16 to 12, only two of whom were Sony employees, the chief executive officer (Kazuo Hirai) and chief financial offer (Kenichiro Yoshida). The Sony board was consistent with other large corporations in Japan, notably in the absence of women. One study of corporate boards in 2014 found that women held 19.2% of board seats on S&P 500 companies in the United States, compared with just 3.1% on the Topix Core 30 Index, which is composed of the 30 largest corporations in the First Section of the Tokyo Stock Exchange.34 In 2015, there was only one woman on the Sony Board of Directors, Eriko Sakurai, the chair and chief executive officer of Dow Corning Toray Co., Ltd. The board did have a connection to Sony’s largest shareholder through the Sumitomo Mitsui Financial Group president. There are members of the board who provide strategic connections with governments in Japan and the United States. One of the newest members of the board, and one of the few from outside Japan, was John V. Roos, the U.S. Ambassador to Japan from May 2009 until August 2013. Another recent addition to the board was Kazuo Matsunaga, a former high-ranking official in the Ministry of Economy, Trade, and Industry (METI) in Japan, which replaced MITI in 2001.

Labor As of March 21, 2014, Sony had an estimated 140,900 employees around the world, with 52,200 located in Japan and 88,700 outside Japan.35 The highest percentage of employees was in the five

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business segments involved in electronics, with a combined total of 101,700. By contrast, the content segments—pictures and music—accounted for just 13,900 employees combined. Sony estimated that about 20% of its employees were members of labor unions in 2014. These unions range from various manufacturing facilities in China to trade unions in Hollywood. In 2014, for example, the pictures group concluded agreements with the Directors Guild of America and the Writers Guild of America and began negotiations with the Screen Actors Guild and American Federal of Television and Radio Artists. In corporate documents, Sony states that it considers its labor relations to be good.36 Japan presents an interesting framework for the discussion of labor relations. As discussed earlier, the concept of lifelong employment was an important one in post-war Japan. Lifetime employment is not guaranteed by statute or collective bargaining agreements, but employment laws and social norms in Japan make large reductions uncommon. When the Japanese economy faltered in the 1990s, corporations began to chafe at the limitations in this area that made downsizing impractical. Sony did announce a broad initiative to eliminate 17,000 jobs in 1999, although it did not plan outright layoffs and intended to use attrition to reduce its payroll.37 There has been a reduction in Sony employees in Japan since then, from an estimated 77,000 in 1999 to 52,200 in 2014, but still it continues to struggle in this area. An article in The New York Times in 2013 focused on an employee at the Sony Sendai Technology Center outside of Tokyo who had spent his work time in what was called a “chasing-out room” for two years after refusing to take an early retirement, which was his prerogative under Japanese labor law.38 Shinzo Abe promised changes in the Japanese labor system in an effort to stimulate economic growth when he became prime minister for a second time in 2012, but such reforms had still not materialized by the end of 2014. The location of the corporate home of Sony introduces another interesting dimension to the discussion of labor relations. In 2012, an AFL-CIO study found that the average chief executive officer of large U.S. companies received $12.260 million in compensation based on an analysis of the S&P 500.39 That was 354 times the $34,645 compensation for the average worker in the United States. An Economic Policy Institute study found a smaller but still significant ratio, 272.9to-1, in 2012.40 In contrast, in the AFL-CIO study, the average CEO of a large Japanese company earned almost $2.355 million in total compensation in 2012, which was just 67 times what the average Japanese worker earned. The average compensation for workers in Japan and the United States was similar, $35,143 to $34,645, with the difference in the compensation for executives. These differences became a focus of information released after the hacking of Sony Entertainment in 2014. In corporate documents, Sony listed the annual compensation for corporate head Kazuo Hirai in 2014 at ¥184 million, which converted to $1.837 million with the end of fiscal year conversion rate. This was much lower than his counterparts in the United States, such as Disney chairman and chief executive Bob Iger, who earned total compensation of $43.7 million in 2014, including $25.3 million in cash from his base salary and bonuses. Hirai was also below various Sony Entertainment executives, including Michael Lynton and Amy Pascal, who were both reported to receive $3 million per year. Pascal was the only female among the 17 Sony Entertainment executives receiving $1 million or more.

Ties to the State and Lobbying Efforts The assessment of government relations in the case of Sony Corp. is complicated, for it must be considered in the context of both Japan and the United States and framed within the dramatic changes since it was created in 1946. The role of the state was quite different in post-war Japan, with the MITI established in 1949 to coordinate international trade. MITI became the leading state actor in the economic development of Japan, and collaboration between the state and prominent corporations became a defining characteristic of the Japanese system and the foundation

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for the “Japanese miracle.” In the 1950s, Sony had to receive permission from MITI to acquire the transistor from Bell Labs, and its pursuit of that license was delayed while Sony convinced MITI that a small start-up was more appropriate than some of the larger Japanese manufacturers. Over time, MITI declined in prominence and Sony became a cornerstone of Japanese trade overseas, with co-founder Akio Morita one of its most prominent ambassadors. He was also a confidant to the leaders of the Liberal Democratic Party that ruled politics in Japan for decades, and he is reported to have had a direct phone line in his home to a series of prime ministers between 1969 and 1987.41 Sony often found itself in the crosshairs of debates in the United States as well, whether it was claims of dumping products in U.S. markets in the 1960s and 1970s or court battles related to time-shifting, the Betamax, and illegal music downloading. As such, it is not surprising that Sony also assumes a prominent role in U.S. politics through its subsidiaries, as well as numerous trade organizations. Lobbying is one avenue through which corporations and others attempt to influence government decision making, and Sony is active in this arena through Sony Corporation of American, Sony Music Entertainment, and SPE. In the decade from 2005 through 2014, Sony spent $31.6 million on lobbying, with $19 million of that coming through Sony Music Entertainment and Sony BMG Music Entertainment.42 That annual average of over $3.1 million was a significant increase for Sony, which averaged $694,000 per annum from 2000 through 2004. Between 2005 and 2014, the SPE Political Action Committee contributed $1.3 million to candidates while Sony Entertainment Inc. chief executive Michael Lynton alone donated at least $120,000 to national committees of the Democratic Party in addition to contributions to individual candidates.43 There was a second component of Sony influence in this area, as the corporation is active in three prominent trade organizations: Motion Picture Association of America, Recording Industry Association of America, and Consumer Electronics Association.

Cultural Profile The cultural profile of the Sony Corporation remains more ambiguous than with other media giants, not tied to a specific nation or product. Even in Japan, Tokyo Disneyland and Universal Studios Japan are far more prominent than any cultural imprint attributable to Sony or one of its subsidiaries. When one digs deeper, however, there are clear links between Sony and consumer behavior that are most prominent in Japan and across the globe, evident in the myriad of eversmaller media devices and the mainstream consumer media content that define the digital age. The promotion of that lifestyle in its media devices and media content is central to the success of Sony.

Symbolic Universe/Ideology The trans-Pacific nature of Sony complicates the analysis of its cultural impact and embedded ideologies. One could frame the discussion around the music of Beyoncé, John Legend, and Pharrell Williams that is released on Columbia labels, but the conclusions might be different with a focus on Arashi, a popular Japanese idol group whose music is distributed through Sony Music. There is also not a central theme to films released through SPE and there is no Sonyland theme park, although Jon Peters did push for one when he was co-chairman of the studio from 1989 until 1991. The one ideology that is at the core of Sony is consumerism, and its electronics unit has developed products such as the Walkman that were about both style and substance. When Sony released its first pocket radio in the 1950s, the model was too large for the average shirt pocket, so Akio Morita had new shirts made for his sales force in Japan and the United States with a larger

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chest pocket. As its electronics business has faltered in recent years, Sony has refocused on highend products, whether in televisions, smartphones, or tablets. Its past successes, and its future, are predicated on the disposable income of wealthy consumers around the world.

Popular Products/Services and Cultural Significance The discussion of popular Sony products could revolve around various devices, including the PlayStation and Blu-ray, but it has also been successful with action films that do well in international markets. Two superheroes, Spider-Man and James Bond, represented the most lucrative franchises within Sony Pictures in the mid-2010s. The Spider-Man franchise was built around a comic book series developed by Americans Stan Lee and Steve Ditko in the 1960s through Marvel Comics, while the Bond franchise is based on a character that Englishman Ian Fleming created in a series of spy novels that were first published in the 1950s. Sony Pictures became involved in the Bond franchise with the release of Casino Royale in 2006 and continued to co-finance and distribute the franchise with MGM through Skyfall in 2012. Casino Royale marked the rebooting of the Bond franchise with the debut of Daniel Craig as 007, and while Craig, like Fleming, is an Englishman, the big-budget, action-packed genre is pure Hollywood and a format designed for a global audience. Skyfall was the most successful of all the Bond films, grossing over $1.1 billion in theaters worldwide, with 72.5% of that coming outside the United States.44 The Spider-Man franchise follows a similar pattern. Sony Pictures released its first Spider-Man film in 2002 and grossed over $400 million at both the domestic and foreign box office for SpiderMan, which reached $821.7 million worldwide.45 The balance in the first in the series is no longer evident as the four that followed decreased at the U.S. box office, with the balance shifting towards the foreign markets. The domestic gross of the five films has decreased from $403.7 million for Spider-Man in 2002, 49.1% of the worldwide total, to just $202.9 for The Amazing Spider-Man 2 in 2014, just 28.6%.46 The rise in foreign revenue totals, with the last three topping $495 million, ensured that the franchise remained lucrative for Sony, even with the decline in the United States. The shifting balance between the box office in the United States and that elsewhere in the world also points to a central business tactic within Sony Entertainment. While Sony Music does produce localized content on some of its smaller labels, most of what is produced within its content divisions is created for worldwide audiences. The Spider-Man franchise, for example, features high-end special effects and storylines that translate with ease. While the films were based in New York City, the use of high-rise buildings makes a natural connection to major metropolitan centers around the world, including the 12 cities in Japan with a population of over 1 million. And SpiderMan did well in Japan, grossing over $56 million, second only to the United States. This approach is consistent with the other media giants that focus on big-budget products that are exportable to markets around the world.

Conclusion Sony is a corporation at something of a crossroads. Is it a manufacturer of devices that transmit and display media content, or is it a producer and distributor of that very same content? Sony has attempted to be both since it was scarred by the format wars that started in the 1970s, but there are real questions being raised about the path forward. New ventures such as computers and phones have presented challenges to the corporation, and it has lost market share to Samsung and others in televisions and other sectors. The content businesses were among the most successful over the first half of the 2010s, but the hacking of SPE in 2014 cast a negative light there as well. The corporate identity crisis is further complicated by the cultural gap between its Japanese roots and its Hollywood beachhead.

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There is one constant, however, as the success of Sony Corporation, whether in devices or content, hardware or software, is built on consumer culture and ideology. That extends from the corporate headquarters in Tokyo to its entertainment units in Hollywood to Sony operations around the globe. The films, television programs, and music, moreover, largely represent the Western culture in which they are created and from which they are shipped around the globe. In the end, it is media globalization that provides the roots of the Sony story and from which its power is derived.

Notes 1 Sony Corp., “The Founding Prospectus,” www.sony.net, accessed March 15, 2015. 2 Sony Corp. Form 20-F, 2014. 3 Reputation Institute, “Meeting the Demands of Consumers – 2014 Global RepTrak 100,” www.reputationinstitute.com, accessed February 15, 2015; William Pelegrin, “Sony, Uber, and Spring can count themselves Among America’s Most Hated Companies,” www.digitaltrends.com, accessed February 15, 2015. 4 Dr. Charles J. Fombrun, “Sony Reputation Challenge,” Reputation Institute, December 14, 2014. 5 Quoted in David E. Sanger, “Sony Had High Hope For Columbia Pictures,” The New York Times, September 28, 1989, D1. 6 Michael Cieply, “Lucrative Sony Offer to Managers Is Detailed,” Los Angeles Times, October 6, 1989, accessed December 6, 2014. 7 Nina J. Easton, “Sony Oks Paying Up to $500 Million to Get 2 Producers,” Los Angeles Times, November 17, 1989. 8 Quoted in Martin Fackler, Brooks Barnes, and David E. Sanger, “Sony’s International Incident: Making Kim Jong-un’s Head Explode,” The New York Times, December 14, 2014. 9 Hiroko Tabuchi, “Recession and Strong Yen Drive Sony to Annual Loss,” The New York Times, May 15, 2009. 10 Quoted in Takashi Mochizuki and Eric Pfanner, “Sony Turnaround Effort Falters, Expects $2.15 Billion Yearly Loss,” The Wall Street Journal, September 17, 2014. 11 Sony Corporation, Form 20-F, 2010; Sony Corporation, Form 20-F, 2005; Sony Corporation, Form 20-F, 2000; Sony Corporation, Form 20-F, 1995; Sony Corporation, Annual Report, 1990; Sony Corporation, Annual Report, 1985; Sony Corporation, Annual Report, 1981. All U.S. dollar totals were derived using the end of fiscal year exchange rate. Sony Corp. and Bertelsmann AG combined the bulk of their music interests in a 50–50 joint venture, Sony BMG Music Entertainment, in March 2004. Sony Corp. acquired Bertelsmann’s 50% interest in August 2008, at which time Sony BMG became Sony Music Entertainment. Sony Corp. did not break out sales for Sony BMG in corporate documents in the fiscal years from 2004 through 2008. 12 Sony Corporation, Form 20-F, 2014; Sony Corporation, Form 20-F, 2012; Sony Corporation, Form 20-F, 2010. All U.S. dollar totals were derived using the end of fiscal year exchange rate. 13 Sony Corp., Annual Report, 1985. 14 Sony Corp., Form 20-F, 1995. 15 Sony Corporation, Form 20-F, 2014. All U.S. dollar totals were derived using the end of fiscal year exchange rate. 16 Sony Corp., Form 20-F, 2014, 49. 17 Sony Corp., Annual Report, 1985. 18 Sony Corp., Form 20-K, 2014, 33. 19 Eric Pfanner and Takashi Mochizuki, “Sony’s TV Business Head for Profit, but Big Challenges Remain,” Dow Jones Newswires, December 12, 2014. 20 Ibid. 21 Kyle Orland, “Updated numbers show PS4 with at least 65 percent of two-console market,” www.arstechnica.com, October 31, 2014, accessed March 17, 2015. 22 Affirm Films, “Mission Statement,” www.affirmfilms.com, accessed February 16, 2015. 23 www.BoxOfficeMojo.com, accessed February 15, 2015. 24 Sony Corp., Form 20-F, 2014, 28. 25 Sony/Columbia includes films distributed under the Columbia, TriStar, and Screen Gems labels, www.Boxofficemojo.com, accessed February 16, 2015. 26 Sony Pictures Television, Worldwide Networks, https://sites.sonypicturestelevision.com/aboutspt/ spt.php?id=5, accessed February 16, 2015.

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27 “The Biggest Record Lables of 2014, By Market Share,” www.thatericalper.com, accessed February 21, 2015. 28 Year End 2014, Billboard; www.billboard.com/charts/year-end/2014/top-billboard-200-albums. Retrieved September 25, 2015. 29 Quoted in Ben Sisario, “U.S. and European Regulators Approve Universal’s Purchase fo EMI,” The New York Times, September 21, 2012. 30 “The Biggest Record Labels of 2014, By Market Share,” www.thatericalper.com, accessed February 21, 2015; “2013 SoundsScan Stats—Market Share of Major Record Labels Compared to Independent Labels,” www.routenote.com, accessed February 21, 2015; “The Nielsen Company & Billboard’s 2012 Music Industry Report,” www.Businesswire.com, accessed February 21, 2015; “The Nielsen Company & Billboard’s 2011 Music Industry Report,” www.Businesswire.com, accessed February 21, 2015; “The Nielsen Company & Billboard’s 2010 Music Industry Report,” www.Businesswire.com, accessed February 21, 2015. 31 “UMG and WMG see gains in recorded-music market share in 2013, while Sony/ATV dominates music publishing,” https://musicandcopyright.wordpress.com. 32 Sony Corp., “Stock Information,” September 30, 2014, accessed February 20, 2015. 33 Sony Corp., 20-F, 2014; www.Sony.net, CorporateInfo, accessed February 15, 2015. 34 Knowledge Center, “2014 Catalyst Census: Women Board Directors,” www.Catalyst.org, January 13, 2015, accessed February 21, 2015. 35 Sony Corp, Form 20-F, 2014, 108. 36 Sony Corp, Form 20-F, 2014, 109. 37 Mark Magnier, “Sony to Cut 17,000 Jobs in Bold Restructuring,” Los Angeles Times, March 9, 1999. 38 Hiroko Tabuchi, “Layoffs Taboo, Japan Workers Are Sent to the Boredom Room,” The New York Times, August 16, 2013. 39 “CEO-to-Worker Pay Ratios around the World,” www.aflcio.org, accessed February 21, 2015. 40 Lawrence Mishel and Natalie Sabadish, CEO Pay in 2012 was Extraordinarily High Relative to Typical Workers and Other High Earners,” Economic Policy Brief #367, June 26, 2013. 41 John Nathan, Sony: The Private Life. New York: Houghton Mifflin, 1999. 42 Sony Corp., Center for Responsive Politics, www.opensecrets.org, accessed February 20, 2015. 43 Donor Lookup: Lynton, Michael, www.Opensecrets.org, accessed February 20, 2015. 44 Skyfall, www.Boxofficemojo.com, accessed February 16, 2015. 45 Spider-Man, www.Boxofficemojo.com, accessed February 16, 2015. 46 Spider-Man and the Amazing Spider-Man 2, www.Boxofficemojo, accessed February 16, 2015.

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PART III

Regional Overviews

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15 SOUTH AMERICA Guillermo Mastrini and Martín Becerra

Several Latin American countries have approved new media laws that have been perceived by some as an opportunity to make the media landscape more pluralistic and less concentrated, and by others as an opportunity for the governments to act against media outlets that have been critical of their administrations. The same debate has applied to steps to revise out-of-date media laws, including those left over from military dictatorships. There has been a trend of public officials initiating criminal legal actions against journalists and media outlets, although in the majority of cases these do not move forward. Countries that have typically maintained international standards on freedom of expression and access to information have continued to do so.1

UNESCO’s 2014 Freedom of Expression Report lays the groundwork for analyzing the media situation in Latin America. The quote above raises some fundamental issues that are also present in this study: a high level of concentration in the various media systems, the development of new regulations intended to reconfigure the political scenario away from the traces remaining from the times of military rule, and a role of growing intervention played by the national states. To describe the full picture, one should add the emergence of telephone companies, which, in a setting of convergence, are emerging with dominant positions in the media sector, particularly in the cable TV segment. The study of the media ownership structure in Latin America is challenging in various ways: first, because one cannot overlook the fact that the region has one of the highest indices of media ownership concentration worldwide;2 second, because, unlike other regions, overall there are no reliable statistical data available from the national states, and media companies do not disclose information about themselves;3 and third, because the technology convergence process is driving a cardinal metamorphosis in the structuring of the industries involved in the production, circulation and trading of communication and culture flows. A close look at the main media groups of Latin America sheds light on the process of their transformation into large business conglomerates. They gather a range of activities under the same roof—a process that started in the last two decades of the 20th century. Previously, those groups had been family businesses that grew stronger in the 1950s and 1960s.4 Today, the paradigm of expansiííon of the main groups is based not so much in the political power of yesteryear, but rather in the exercise of their dominant positions in the marketplace.

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In addition to the high level of concentration and the conglomerate nature of the main groups in the region, the strategies of telecommunication companies have intensified the trend towards an oligopoly structure for the industry in Latin America. Indeed, Telmex and Telefónica have reinforced their presence on the subcontinent over the past two decades, and therefore the landscape for the region today looks more like a duopoly as far as both fixed and mobile telecommunications are concerned. Furthermore, the policy of several Latin American countries in this century has taken a new turn: the political sphere has turned towards a more active regulatory stance, thus reversing the traditional concurrence of interests between media owners and political power. On the one hand, this is due to the emergence of left, center-left, or populist parties in many countries of the region (Brazil, Chile, Bolivia, Ecuador, Venezuela, Nicaragua, Uruguay, and, partially, Argentina), many of which have shown an interest in establishing new regulatory frameworks for the media scene. It should be noted that not all of the above-mentioned countries fit into this description. On the other hand, technological developments including digitization have stimulated a convergence of sectors that have blurred the traditional lines that once separated telecommunications from audiovisual media (mainly radio and TV), which also have an impact on the need to revise old regulations that have become outdated in view of the rapid pace of evolution of the industries regulated. The large communication groups in the region are adjusting to the new environment. Internally, they are completing the transformation process from family businesses to conglomerate structures. Some of these groups have taken advantage of globalization, diversifying their interests in other countries (particularly, Televisa, Cisneros, and Globo among multimedia groups, and Telmex and Telefónica among telcos). Moreover, groups have to face the challenges that are posed both by political sectors that seek to redefine the regulatory framework and the corporate strategies of telcos, which have turned into real players following the consolidation of technological convergence and service integration (including triple play). In this regard, the large multimedia groups of Latin America are faced with the challenges of an emerging global regulatory system exerting major influence on national governments, in spite of the contradictions arising from the change in the nature of the state intervention that is being postulated by the new Latin American administrations. An assessment of the above-mentioned trends should not disregard the fact that the model of communication systems in Latin America was, in its beginnings, of a commercial nature, largely based on advertising, in which the main players were mostly from the private sector. Both radio and TV have shown a strong tendency to centralize their contents based on the large urban centers. The UNESCO report also underlines the threats that this process of geographic concentration represents for freedom of expression and diversity: An important trend in the LAC region impacting the plurality of representation in content has been concentration at a geographic level, and the fact that the production of content and news has been mainly based in the region’s large urban centers. Combined with the issue of concentration of ownership, concentration at a geographic level also affects pluralism and diversity by creating uniformity in terms of informational agendas and news content.5 Moreover, free-to-air TV used to show, during many years, a strong dependence on North American content. However, since 1990, a larger ability to create national content has been evident, and even during prime time, the fiction sector includes a majority of national productions. Foreign contents still prevail in cable TV, with numerous film and series stations, where Hollywood productions reign.

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Economic Profile of Main Players in South America The main groups operating in Latin America are, in most cases, of Latin American origin, except for Spanish capitals in the case of Telefónica, or United States capitals, in the case of DIRECTV. Table 15.1 provides a financial summary of the main communications groups in the region. TABLE 15.1 Main Communications Groups in South America

Group

HQ

Main media activity

Revenue Year ($ million)

Source

Telefónica Spain

Fixed and mobile 65,034 telephony, Internet service provider, and free-to-air and pay-TV

2013

Financial statements. Includes revenues in European countries (Spain, Germany, and UK) (10,582 million) 54,452 in Latin America.

Claro (América Móvil)

Mexico

Fixed and mobile telephony, Internet service provider, and pay-TV

50,590

2013

Financial statements. Includes revenues in USA (466 million) 50,124 in Latin America.

DirecTV

USA

Satellite TV

27,250

2014

Institute of Media and Communications Policy, “Media Data Base—International Media Corporations 2014” at www.mediadb.eu/en.html, accessed February 2015.

Globo

Brazil

TV

5,721

2014

Institute of Media and Communications policy,“Media Data Base—International Media Corporations 2014”

Televisa

Mexico

TV

4,951

2014

Institute of Media and Communications policy, “Media Data Base—International Media Corporations 2014”

Prisa

Spain

Multimedia (in Latin America it owns an extensive network of radio stations)

3,003

2014

Institute of Media and Communications Policy, “Media Data Base—International Media Corporations 2014”

Clarín

Argentina Multimedia (main source of revenues is cable TV)

2,592

2013

Fransisco Vidal Bonifaz, Francisco. “Ventas de empresas latinoamericanas de medios, 2013” La Rueda de la Fortuna November 3, 2013 at www.wordpress. com, accessed February 2015.

Cisneros

Venezuela Multimedia (mainly TV and audiovisual contents)

1,500

2013

Estimate based on Forbes. Revenues include all of the group’s activities not only in Latin America (the group has the following equity interests: AOL Latin America (50%); Ibero-American Media Partners (Latin American Media Investments, 50%); Playboy TV Intl. (broadcasting rights for UK, Spain, Portugal, Japan, and Latin America, and only Spanish for US, 80%); and Galaxy Latin America (satellite TV through DirecTV, 22%, as well as Venezuelan channel Venevisión). continued

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TABLE 15.1 continued

Group

HQ

Main media activity

Revenue Year ($ million)

Source

Abril

Brazil

Editorial

1,191

2013

Vidal Bonifaz. “Ventas de empresas latinoamericanas de medios, 2013”

Caracol Colombia TV (Grupo Sarmiento Angulo)

377

2014

Financial statements

RCN (Grupo Ardila Lülle)

Colombia TV

341

2014

Financial statements

Canal 13 (Grupo Luksic)

Chile

163

2013

Vidal Bonifaz. “Ventas de empresas latinoamericanas de medios, 2013”

TV

As shown in Table 15.1, the revenue scale of telcos is much larger than that of media groups in Latin America, and the scale of DIRECTV as a pan-American operator is much larger than that of Latin America multimedia. These scale gaps are an ineludible platform to evaluate projected convergence between industries with disparate magnitudes and volumes. These companies go beyond the Latin American market, embracing the global business environment. Additionally, multimedia groups in Latin America can be broken down into two categories: the main groups of Brazil (Globo and Abril), Mexico (Televisa), Argentina (Clarín), and Venezuela (Cisneros, though in this case its activities in U.S. count), which greatly exceed the revenue threshold of one thousand billion dollars per year, and the rest of the countries, which are far from reaching the size of the abovementioned groups. That is partly due to the fact that, considering the demographic and economic differences in the region, Latin America has three large information and communication markets—Brazil, Mexico, and Argentina—in which the major groups have greater magnitude. However, the ability of these groups to reach regional projection into the U.S. (the Mexican groups) or export contents (Globo) also counts when analyzing their strengths. Another quality shown by the table above is that, even though the large multimedia groups of Latin America rely for their main source of income on the audiovisual sector (Globo, Televisa, Clarín, Cisneros, Caracol, RCN, Canal 13), a special mention goes to a publishing group (Abril) that is the second largest group in Brazil. This means that telecommunications, in the first place, and audiovisual services, in the second place, are the most economically powerful activities in the converging information and communication system. This is one of the main reasons for mergers and acquisitions of publishing groups by audiovisual and telecommunication operators. It should be noted that in Latin America several audiovisual groups have been involved in the Internet service provider business through their cable TV companies. A case in point is Grupo Clarín, whose foundational company was the namesake newspaper, the leader in sales in the publishing sector of Argentina. However, for more than 10 years, over 75% of its revenue has come from its cable TV business. This service, which Grupo Clarín provides through Cablevisión, is supplemented by Internet connection services, taking advantage of the capillarity of its extensive cable network.

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Overview of the Main Groups in the Region Telefónica is the largest information and communication group in the region. It is mostly comprised of Spanish capitals, and its origins go back to the monopoly state-run telephone company of Spain. The José María Aznar administration privatized the telco, with a marked presence of the large Spanish banks among its shareholders. During the 1990s, the expansionist interests of Telefónica coincided with the process of privatizations of the telephone companies in Latin America. In that context, Telefónica gained control over a large share of the telephone business in Argentina, Brazil, Colombia, Chile, Peru, and Venezuela, among other countries. At present, it is involved in the markets of all countries in the region except for Bolivia and Paraguay. From its core in the fixed and mobile telecommunication markets—in many of which it operates as a monopoly—Telefónica has expanded to other segments: it is a prominent Internet service provider, but has also entered the media market with major investments in Cable TV and radio. It also has a share in the free-to-air TV space, though to a lesser extent. Of note, the largest portion of Telefónica’s global revenue comes from Latin America. Telmex is the second largest group in the region. Unlike Telefónica, its capital structure is mostly of a regional origin, with the predominant figure of Carlos Slim. This Mexican entrepreneur took advantage of the privatization of the Mexican telephone company and assumed quasimonopoly control of that market. Its expansion in the Latin American market occurred at a later stage than the expansion of Telefónica, though it was no less important. At present, its footprint comprises almost all countries in the region, except for Bolivia and Venezuela. Like its competitor, its strategy is to expand from the telephone market to the ISP market and cable TV, through a cross-subsidizing policy. It has an aggressive commercial policy that has won it several key audiences, particularly in the middle–low segments. In recent years, Telmex has faced pressures from the Mexican government to lessen its dominant position in its original telephone market, while preventing it from entering the TV service provision business, protecting the position of Televisa. A brief description was provided of the two groups, because they have a relatively low media importance, particularly regarding their capacity to have a say in the journalistic agenda, because they do not own newspapers or TV stations (with very specific exceptions). They are the largest ones in terms of economic dimension, but not in terms of opinion leadership. There follows a description of the main media in the region, differentiating the largest groups (Globo, Televisa,6 Clarín, and Cisneros)—which have aspirations to take part in the global market—from the situation in other countries where, due to market size and a different communication policy tradition (Colombia and Chile), there is an extremely high concentration of ownership in the national market, but with a low capacity to have an impact on the global market. Globo Group was established in 1925, with the emergence of O Globo newspaper, though its major expansion occurred when it gained access to the TV market. In Brazil, TV was introduced in a fragmented fashion through a number of private sector undertakings in the main cities of the country: São Paulo and Rio de Janeiro. Nevertheless, it was in the 1960s that the holding company owned by the Marinho family, leading with the newspaper O Globo, started to have a presence in the TV market. As Fox mentions,7 TV Globo was virtually born with the dictatorship that came into power in 1964, providing it with support for the military project of conservative modernization. For their part, the military did not hinder the continued progress of Marinho’s agreements with the Time-Life North American group, in spite of the fact that foreign capital was prohibited from being involved in broadcasting services. Based on the contribution of North American investments, Globo was able to outpace its main competitors, including Rede Tupi (which had started transmission in 1950). With the support of the military, Globo expanded beyond national borders and swept out the competition. Its internal growth

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leveraged the bulky investments made by the state to develop telecommunications through EMBRATEL, the Brazilian telecommunication company. The group created its own branded product: soap operas. Like Televisa, Globo not only took advantage of its horizontal and vertical integration with soap operas, but also turned them into the main ingredient that enabled it to join the international market. Grupo Globo is the largest content provider of Brazil, with an annual production of more than 4,400 program-hours, catering not only to its network of stations in Brazil, but also supporting an ambitious export plan, O Globo newspaper, and an equity interest (28%) in Sky, the second pay-TV operator in Brazil. After divesting the company NET (the main cable TV operator) in 2012, Grupo Globo turned its focus towards the production rather than distribution of stations. Through Globosat, it controls the five stations that are present in the basic packs of all subscription companies: SporTV, GloboNews, GNT, Multishow, and Viva. Additionally, Grupo Globo owns radio, satellite communication, and telecommunication companies through GLOPAR. With over $5.7 billion in revenues in 2014, Grupo Globo is the main media group in Latin America in terms of revenues. Mexico was the first Latin American country in which television became available. Emilio Azcárraga, founder of Grupo Televisa, belonged to a family of businesspeople. The concentration of Mexican TV ownership occurred at a time when the owners strengthened ties with the party in office, Partido Revolucionario Institucional (PRI). In fact, in the 1960s, Televisa was able to install TV stations throughout the country and it currently has 258 stations nationwide. Televisa usually introduces itself as the largest media company in the Spanish-speaking world and one of the main participants in the entertainment industry. With a production of over 50,000 TV programhours per year, Grupo Televisa indeed ranks as the largest Spanish-speaking production company. Televisa also controls 60% of the pay-TV market, mainly through the company Sky, of which it is the majority shareholder. Unlike the companies discussed so far, Grupo Clarín in Argentina did not take part in broadcasting until the early 1980s. Fear of repeating the experience of media use during the Peronist administration (1945–1955) led the military government that followed (1955–1958) to prohibit the involvement of foreign capital in broadcasting and in the establishment of nationwide chains. In the 1970s, foreign capitals completed their withdrawal from controlling interests, and the first national media groups appeared. Nevertheless, the broadcasting permits were restored to the state until it monopolized TV production and distribution. As mentioned by Jones,8 this development delayed the formation of multimedia groups, even though the country evidenced conditions similar to those of Mexico, Brazil, and Venezuela for the takeoff of those groups. Meanwhile, Clarín newspaper was rapidly gaining a hegemonic position in the print market, and it became the Spanishspeaking newspaper with the largest circulation. Its economic strength enabled it, after 1990, to start its expansion and become one of the leading media groups in the region. With the Carlos Menem administration, the restrictions for newspaper owners to acquire broadcast companies were lifted. Grupo Clarín, which in the 1980s had already started its expansion stage with the acquisition of Mitre,9 ventured into the TV segment. With the acquisition of Canal 13, Clarín became a multimedia group and started experiencing ongoing growth, broadening its scope beyond the print world into the audiovisual world. In 1992, it entered the cable TV market with the acquisition of Multicanal. This sector would become a mainstay of the multimedia group, and with time, it positioned itself as the largest cable TV operator in Argentina. In 2007, it merged with its main competitor, and since then it has dominated 60% of the pay-TV segment in the country. Even though in the beginning it shared Multicanal’s ownership with Telefónica and Citicorp Equity Investment (CEI), afterwards, through multiple transactions, it took over a majority of the shares. Grupo Clarín did not enter into any partnerships that subordinated it to other partners, but in 2000 it sold, for 500 million dollars to the U.S. investment bank Goldman Sachs, 18% of the entire Grupo Clarín, except for Multicanal. It is a consolidated group that controls the country’s

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263

leading newspaper, one of the most influential radios, and the second channel in terms of rating. In addition to the cable TV company, it has the pay-TV station with the largest audience in the country, Todo Noticias, which is present in virtually all subscription packs. It is a major publisher of magazines and has a presence in the filmmaking industry. Since the start of the Cristina Fernández de Kirchner administration (2007), the group has been in constant confrontation with the country’s authorities. The government enacted the Audiovisual Communication Services Law (2009), which limits the concentration of media ownership. However, more than five years into the approval of the law and through a succession of court filings, Clarín has managed to keep its structure intact, and is the main player in the Argentine media landscape. With annual revenues of approximately 2.5 billion dollars, Clarín is on the podium of Latin American media, though at a position that is far from Globo and Televisa. Another significant difference is that even though it maintains relations with international media, it does not have a significant involvement in the foreign market. Likewise, in Venezuela, the arrival of Grupo Cisneros occurred in the early 1960s. However, unlike the foregoing cases, the background of this group that emerged around the figure of Diego Cisneros was unrelated to the radio broadcast segment—it came from a very diversified business group. To consolidate its Venevisión station, Cisneros sold some of its shares to ABC and Paramount, despite the fact that radio broadcast regulations prohibited it. After long military dictatorships (prior to 1958), the relationship between the owners of Venezuelan media and the democratic political power was no exception to the continental rule. They were the ones that imposed de facto rules for the commercial game, without compromising the government’s political project. Grupo Cisneros shows two main differences compared to the groups that have been mentioned so far. First, it belongs to an industrial holding with multiple investments in different areas of the economy, even when cultural industries and in particular the audiovisual industry are its main source of income. Second, it does not have print media or any related news industries (news agencies, etc.), but it has achieved a substantial presence in free-to-air and pay-TV. Venevisión is the free-to-air TV station with more spectators in Venezuela, and together with Venevisión Plus, it has expanded to the pay-TV market of Venezuela and the Dominican Republic, and with VmásTV to the Colombian market. Though Grupo Venevisión managed to keep its ground in Venezuela, the policies of the Chávez and Maduro administrations led the Cisneros family to strengthen its position in Miami. Grupo Venevisión Internacional has production studios in the capital of Florida, from where it distributes contents to Latin America. The Group has oriented part of its interests to the digital market, focusing on the areas of digital advertising, e-mail, and virtual assets. In this area, it is one of the leaders in the region. To that end, it established the media investment trust (Ibero-American Media Partners—IAMP) jointly with the U.S. equity fund Hicks, Muse, Tate & Furst. In partnership with Televisa, it takes part in the U.S. chain Univisión and the station Galavisión, and through Galaxy Television América it has a share in the DIRECTV satellite TV service. With invoicing of approximately 1.5 billion dollars, it is the fourth largest media group in the region. A noteworthy case is that of publishing house Abril. Established in the 1950s, it experienced a process of expansion that placed it in the fifth position of the ranking of Latin American communication groups. It is the undisputed leader of the Brazilian magazine market, where it places millions of magazines every week. Owned by Civita family, the group does not have a presence in other media sectors, such as radio or TV. In Colombia, there are two media groups with a prominent presence among journalistic and audiovisual companies: Caracol and RCN. Caracol is part of the major business group Valorem (formerly, Bavaria) owned by the Santo Domingo family, originally engaged in the brewery industry, but now with a presence in various industries of Colombia. Its entry in the communication media sector was through Cadena Radial Colombiana, which in the early 21st century sold it to the

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Prisa Group.10 Even though TV was in the orbit of the Colombian state until the 1990s, CARACOL was a major producer of programs for those stations. When in 1995 stations were licensed to the private sector, CARACOL obtained one of the two licenses available and started broadcasting in 1998. Since then, it has gained positioning as a strong global producer and distributor of TV programs, particularly soap operas.11 In the TV sector, CARACOL has major partnerships with the Hispanic U.S. chain Telemundo, with which it produced a global success, Pasión de Gavilanes. It also has partnerships with Sony and the Mexican TV Group Azteca. It has also launched its own station in the U.S.A. It is the owner of El Espectador, one of the leading papers in Colombia, with investments in filmmaking and radio. With 2014 revenues of 377 million dollars, it is Colombia’s leading media consortium. The Valorem Group has major economic interests in the commercial sector: the transportation, agro-industrial, financial, and real estate industries, and it even owns soccer teams. Its main rival is the RCN Group, with slightly lower revenues. It also obtained a TV license in the 1990s, and since then it has shared with CARACOL a virtual duopoly in the TV market. Competing in the market, they joined forces in lobbying to dissuade the Colombian government from completing the bidding process of a third chain, which is still pending. RCN belongs to Grupo Ardila Lülle, whose track-record resembles that of Santo Domingo. RCN Group is present in virtually all cultural industries of Colombia. In addition to having one of the major national TV channels, in the audiovisual segment it has an international station designed for the North American market, as well as a news channel and a soap opera channel for cable TV. It owns companies in the film industry and radio stations. It is the representative of Televisa Group in the Colombian magazine market. In fact, the Mexican group is one of its main partners in the region for TV soap-opera co-production. Other partners of RCN include Brazil’s Rede Globo, Argentina’s Telefé and Venezuela’s Venevisión, as they are all members of a network for the distribution of TV contents and the exchange of rights and formats. RCN is part of a group established at the business initiative of Carlos Ardilla Lülle (85), the owner of one of Colombia’s largest fortunes. Its strength in the soft drinks market (it controls 60% of the Colombian market) has enabled it to expand into other segments, including radio and TV program production. Additionally, it has major investments in the textile and agribusiness sectors, and owns one of Colombia’s leading soccer teams. In recent years, the Ardilla Lulle Group has expanded to the biofuel business. As for Chile, none of the groups reach the dimensions of the large corporations in the region. However, it is a highly concentrated market. In print media, two groups have more than 80% of the market: Edwards, publisher of El Mercurio, and COPESA, whose main title is La Tercera. These companies are the clear leaders of both the national and the regional markets of print media.12 The Edwards Group is a family business that has been publishing the country’s leading newspapers for more than a century. For its part, COPESA (Consorcio Periodístico de Chile) comprises a group of entrepreneurs with activities in other areas of the economy. Both groups are very opaque and it is virtually impossible to access any financial performance data unless one is a shareholder. The radio market is a different case. Unlike other countries in the region, Chile has very flexible regulations in terms of foreign investment, which enables several audiovisual companies to be in foreign hands. In a TV market that has seven channels with nationwide coverage, there is participation by Mexican, North American, and Chilean capitals. Canal 13, owned jointly by Grupo Luksic (67%) and Universidad Católica de Chile (33%) stand out for its revenues and importance.13 With total turnover of 163 million dollars per year, it is the country’s leading media group. It has a stake in the radio market through company Radiodifusión S.A., which holds 18 licenses throughout the country. Understanding the business structure of South American media groups is not an easy task. Unlike the situation in Europe and the U.S.A., regulations requiring these groups to disclose the identity

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of their controlling parties are rare. Moreover, most of the groups still belong to family structures concealed behind a complex fabric of corporations. Since the 1990s, some groups (Clarín, Santo Domingo) have become publicly listed companies, bringing more transparency to their business structure. As John Sinclair said, the weight of the family power in South America media control is still evident. Contrary to other countries, banks and large conglomerates have virtually a nonexistent role. Argentina’s Clarín Group has four shareholders that own 71% of the shares: Ernestina H. de Noble, Héctor H. Magnetto, Jose Antonio Aranda, and Lucio Rafael Pagliaro. Ernestina H. de Noble is the widow of Roberto Noble, founder of Clarín newspaper. Héctor Magneto is the Group’s CEO and the mastermind behind the transition from a newspaper to a multifaceted group. Twenty percent of the shares is traded on the stock exchange. Finally, 7% is in the hands of Booth American Company Investment LLC, owned by the Ralph F. Booth investment group, which acquired the shares that were previously owned by Banca de Inversiones Goldman Sachs. El Mercurio Group is even more of a family business, as it is controlled by the Edwards family. Its main shareholder and chairman of the Board is Agustín Edwards Eastman, who inherited the company from his father. A similar, closed-family structure is found in Globo Group. While originally O Globo newspaper was owned by different members of the Marinho family, it was Roberto Marinho that obtained the license to strengthen the company’s position in the TV business. After his death in 2003, his children and grandchildren retained control of the group. The Globo Group takes pride in the fact that it keeps ownership in Brazilian hands. At present, Roberto Irineu Marinho, is the president of the group, and his sons, Roberto Marinho and José Roberto Marinho, are the vice-presidents. The Globo Group today is managed by the OGP holding company, a closed-capital private company, whose shares are fully owned by the Marinho family. Organización Cisneros S.A., also known as the Cisneros Group, is part of a large economic group controlled by the namesake family. Its President is Gustavo Cisneros, and his wife Adriana Cisneros, is the VP. In 2013, Adriana Cisneros (Gustavo’s daughter) was appointed the Group’s CEO. RCN is part of the business group controlled by the family of Carlos Ardilla Lülle. This tycoon built one of the most prominent economic groups in Colombia. Today, he is listed as Colombia’s third wealthiest individual, and is on the world’s ranking of the top 1000 fortunes (ranked 949). According to Forbes magazine, his fortune is estimated to be 1.69 billion dollars. The other shareholders in the group are Eugenia Gaviria, Carlos Ardilla’s wife, and their four children. The Santo Domingo Group, which controls the Caracol chain, is owned by the namesake family and is among Colombia’s major groups. The Group was founded by Julio Mario Santo Domingo Pumarejo. After his death in 2011, management was passed down to his son Alejandro Santo Domingo Dávila, who became the youngest CEO of a South American media group. In 2003, they sold the shares of the Caracol radio station to the Spanish Prisa Group. According to Forbes magazine, Alejandro Santo Domingo is the second wealthiest person in Colombia, with assets valued at 4.9 billion dollars. In the global list published by the U.S. magazine, Alejandro is ranked 369 among the wealthiest people on earth. The most emblematic company of the Santo Domingo Group was Bavaria, which merged in 2005 with the multinational company SABMiller —the world’s second largest brewery company—in which it now controls 15% of the shares. Alejandro Santo Domingo is Caracol’s CEO and a member of the SABMiller Board. According to the company’s sources, family control is exercised though the family company Invernac, which owns 46% of the shares, and Santo Domingo y Cia., which owns 9.65% of the shares. Minority investors include Morgan Stanley & Co International, with 2.46% of the shares. It should be noted that both Chile and Colombia were an exception to the paradigm prevailing in Latin America since the origins of TV until the 1990s. While in the region private channels

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were the rule, in these two countries television remained in the hands of the state (Colombia), and of the state and universities (Chile). In the 1990s, both countries started the market liberalization processes that led to the creation of private channels funded by advertising and oriented to maximize their audiences. The delay in the formation of powerful media groups, and a smaller market size than Brazil, Mexico, and Argentina, are the reasons behind the smaller size of the groups in these countries. The above-mentioned groups have led a process of growing concentration of ownership and centralization of information and culture production. That process was measured using the Concentration Ratio index (CR4), which studies the share of the four largest companies in the constellation of markets associated with communication, from print media to telecommunication services. For research, samples have been taken of media concentration in the years 2000, 2004, and 2008, with the goal to chart the evolutionary trend in the first decade of the 21st century. The levels of concentration in the print media market vary from country to country. While in Brazil the combined revenues of the four largest newspapers do not reach 40% of the total, in Argentina they exceed 60% and in Chile and Uruguay the ratios are even higher. The data stated here tend to confirm that diversity in the publishing business correlates with market size. Only a high readership can provide the economies of scale a newspaper needs to subsist financially. As regards the evolution of the concentration process, there is no single criterion, beyond certain stability in concentration levels. It is also worth noting that print media appear as a market with concentration ratios lower than TV or telecommunications. Figure 15.1 shows the share percentage of the top four operators in the newspaper sector. A strong concentration of revenues is also reported in the TV sector. According to survey data (Figure 15.2), this market is an oligopoly. In South Cone countries in particular, the four largest TV channels of each country control at least 50% of total industry revenues. Likewise, it can be claimed that very high concentration levels are found. Here too, it should be noted that in Brazil the concentration index is lower than in neighboring countries. Moreover, despite the marked variation in the number of licenses existing in the different countries (over 300 in Brazil, fewer

FIGURE 15.1

Share percentage of the top four operators in the newspaper sector.

Source: Own studies, based on Martin Becerra and Guillermo Mastrini, Los dueños de la palabra (Buenos Aires: Prometeo, 2009); Guillermo Mastrini and Martín Becerra, Periodistas y magnates: estructura y concentración de las industrias culturales en América Latina (Buenos Aires: Prometeo, 2006)

South America

FIGURE 15.2

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Share percentage of the top four operators in the TV sector.

Source: Own studies, based on Martin Becerra and Guillermo Mastrini, Los dueños de la palabra (Buenos Aires: Prometeo, 2009); Guillermo Mastrini and Martín Becerra, Periodistas y magnates: estructura y concentración de las industrias culturales en América Latina (Buenos Aires: Prometeo, 2006)

than 50 in Argentina), concentration levels are high in both cases. This finding points to the fact that those who gain dominant positions in terms of audience succeed in capturing the most substantial market share. Unlike the newspaper sector, the data point to a tendency of gradual increase in the levels of concentration in the TV market. Of note, in the case of Brazil, given that the Globo network decentralizes part of its daily programming, this affects the concentration ratio. If all the broadcasting stations comprised in the Globo network were taken into account, the concentration level would be much higher and would surpass others in the region. The mobile telecommunications market stands out as being the most highly concentrated market among those compared in this study. In all countries, CR4 reaches the highest possible mark. After disassembling the public telecommunication monopolies that existed until the 1990s, over a few years the market has become a strong oligopoly (in some cases, a duopoly), but of a private nature. The mobile telecommunications market—born in the so-called “competitive” regulatory environment—does not even allow the existence of more than four operators. This situation is also present in Brazil—though at the dawn of the century it showed a lower concentration ratio, the trend towards the scantiness of players has lately prevailed (see Figure 15.3).

Political Profile The concentration levels described above, and the consolidation of the main telecommunication and media groups, would not have been possible without the regulatory and political endorsement of different administrations that have succeeded each other over decades. Concentration of ownership and centralization of production are long-term processes, the institutionalization of which requires the intervention of public policy in terms of grants, permits, licenses, and political and economic support, on the one hand, and laws and decrees, on the other. The performance of the concentrated groups in the region has been aligned with national values, i.e., they are a hallmark assimilated with the (late) modernity of the countries, given that for decades

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FIGURE 15.3

Share percentage of the top four operators in the telecommunications sector.

Source: Own studies, based on Martin Becerra and Guillermo Mastrini, Los dueños de la palabra (Buenos Aires: Prometeo, 2009); Guillermo Mastrini and Martín Becerra, Periodistas y magnates: estructura y concentración de las industrias culturales en América Latina (Buenos Aires: Prometeo, 2006)

they have contributed to assembling the day-to-day news and entertainment. That make-up, linked with the national public space, is growing increasingly unstable due to the new social and political questioning that the sector is undergoing. Concentration of ownership, the editorial line which is irreconcilable with the political stance of many of the governments in the region that has for a decade taken a turn toward a “populist Left,” and the need to revise old regulatory frameworks that have not kept pace with digital convergence, are the main reasons behind the adoption of the new media regulations in Latin America, which run counter to the more relaxed policies in terms of concentration driven by central countries. The context for several of the new regulations was marked by attempts to overcome organic crises in the political system, mainly in the cases of Mexico, Brazil, Argentina, Venezuela, Ecuador, and Bolivia, at the turn of the century. As part of the strategy to solve the crisis, some governments and numerous organized civil society groups focused on the traditional media sector, which had been experiencing a regression in Argentina, Brazil, Bolivia, Ecuador, Mexico, and Venezuela both before and after the crisis (support for the coup against ex-president Hugo Chávez in Venezuela, in 2002; biased editions that either underestimated or dodged the crisis of the economic and social model in Mexico in 1994–1995, in Brazil in 1997–1998, or in Argentina in 2001–2002). The rules of the game of the communication media sector were called into question. The new Latin American regulations state the problem of private concentration and are complemented by policies that activate the role of the state as the communication sender and manager, with the subordination of regulatory agencies to the governmental administrations, and in specific cases, with a certain degree of control over contents. Thus, the closing of the first decade of the 21st century has completed in Latin America the consolidation of a set of processes leading to a turning point in the history of the media sector. The disruption of the links that had been established between politics and media (and, in particular, between governments and large news corporations); the determinations of a concentrated of ownership in the sector; the ease of expansion of multichannel pay-TV also with a concentrated

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structure; the technological transformation in the framework of the digitization of the audiovisual service; the reconfiguration of the basic challenges associated with the issue of freedom of expression; and the regulatory changes around a concept of the right to communication that emerges in the Latin American context with singular strength are the central processes at stake in the present environment of the information and communication industries in Latin America, coupled with the absence of state media of a public nature, as those existing in the region have either a marked governmental dependence or market orientation.14

Cultural Profile Historically, media groups in general and large media groups in Latin America in particular, have had major relations with the main media companies in the U.S.A. It is clear that there has been an influence of U.S. news agencies in international information circulating in the main newspapers of the region; it would not be risky to say that Latin Americans receive information about the countries of the region through the filter applied by U.S. agencies. It is in the field of television, however, that the influence of U.S. chains has been more strongly felt. Indeed, when Latin American TV gathered momentum in the 1960s,15 NBC, ABC, and CBS took part as direct investors in the channels of the region.16 Whether as owners of channels or as holders of exclusive programming rights, U.S. companies imposed their model in Latin America, presenting a generalist type of TV funded by advertising. The TV offerings in those years comprised mostly U.S. movies and series, with some local news programs and scarce production of local fiction. The advertising market was still limited and local TV channels could not afford the high costs of local production. It was in the 1970s that the sustained growth of Latin American fiction started, and materialized in what is today its most emblematic product worldwide: soap operas. The countries that led the productive development were Brazil and Mexico, followed to a lesser extent by Argentina, Venezuela, and Colombia. The latter country included the group of fiction producers later on, as until the 1990s, TV was in the hands of the state. According to Jesús Martín-Barbero,17 soap operas are a key driver of audiovisual production in Latin America, not only because of their weight in the TV market, but also because of the role they play in representing the cultural values of local audiences. With soap operas, some countries in the region ceased to be mere importers of fiction and became exporters. Latin American soap operas today are distributed to Asia and Europe as well as in the region. Sinclair draws a distinction between net exporters, such as Brazil and Mexico, and new importers, including Colombia.18 Argentina also qualifies as an exporter of formats and contents, which are not always soap operas in the classical sense, but other kinds of audiovisual fiction. A particular case is that of Venezuela, which was one of the main exporters, but in recent years its exporting capacity has declined as a result of changes in the audiovisual market of the country. According to the OBITEL yearbook, Latin American TV is still the main source of information and entertainment for audiences in the region. Even though in recent years there has been a decline in TV audiences, with TV being challenged by online or OTT contents, TV still has a vigorous supremacy, particularly in the lower social segments. Among the most popular fiction contents, soap operas play a leading role, followed by series and mini-series. The main producers, according to OBITEL, continue to be Mexico and Brazil, followed by Argentina and Colombia in second place. The main media groups in the region (Televisa, Azteca, Globo, Clarín, Telefé, RCN, Caracol) have agreements to market products and sell formats. However, co-productions are still scarce. According to the last OBITEL yearbook, there were only 10 Ibero-american co-productions in 2013.19

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While in open TV national fiction prevails, cable TV, with a high penetration in several countries of the region, is a different case. In the countries where pay-TV is more prevalent (Argentina and Uruguay), cable or satellite TV reaches 80% of homes. The situation is quite different because in the programming of pay-TV the historical predominance of U.S. stations continues. U.S. channels and series cover most of the pay-TV offering. However, it should be noted that in many households of the region, cable or satellite TV is used to access free-to-air TV signals. In this connection, a distinction should be drawn between the use of the middle and high classes on the one hand, with more diversified consumption patterns, and the lower social segments, which restrict themselves to the consumption of the main free-to-air TV channels. Another aspect that is worth mentioning is the growth of U.S. sports chains, such as ESPN and Fox, which draw major audiences because they hold the broadcasting rights for sports events including UEFA Champions League, the large tennis tournaments, and Formula 1 racing. These chains have been able to combine international sports events with regional and local productions, providing an account of the major sports events at a Latin American level. ESPN and Fox have specific channels for Brazil, Mexico, and Argentina, with regional programming for Colombia, Venezuela, Peru, and the rest of Latin American countries.

Conclusions The media system and converging industries such as telecommunications and the Internet in Latin America show an ownership structure that is strongly concentrated, with the presence of two large telecommunication conglomerates—Telefónica and Telmex—and multimedia groups, including Globo, Televisa, Cisneros, and Clarín. That structure is the result of a historical control by the state, which encouraged concentration in these markets, based on the premise of liberalism that argued that whatever regulation was introduced in the market meant an attack against freedom of the press. The concentration of these activities was historically resisted by organized groups of civil society, which, in certain countries, managed to articulate their press freedom defense as a social asset, with the inclusion of this right as part of a broader and more comprehensive agenda of basic human rights. However, these claims lacked any significant institutional transcendence at regional level (though there were occasional exceptions for short periods in certain countries) until the start of the 21st century, when several Latin American governments started to question the concentration paradigm and made attempts to introduce changes in the sector’s regulation. Regardless of the description of these governments as left or new left populists, it is true that the administrations that have addressed media reforms in the region over the past years were known for their broad ideological elasticity. The common denominator is the acute crises that have shaken those countries’ democracies since the late 1990s. The new media policies and regulations do not reach—except for Venezuela—the telecommunications sector or—except for Ecuador—the digital networks sector, which, in stark contrast to the politicized nature of the discussion on media regulation, appear to be seen as mere technological stages in a state of social weightlessness. Additionally, only in Ecuador has the reformulation of communication policy reached a key axis of the social circulation of culture, i.e., a new perspective of intellectual property, copyright, and public domain (in this aspect, for instance, the government of Argentina reinforced over the last years the status quo through new legislations). While Venezuela and Argentina changed their audiovisual services laws in 2004 and 2009, respectively, Uruguay enacted new legislation on community media in 2007 and, in late 2014, Congress passed its audiovisual services law, with major similarities to the Argentine law. Ecuador approved its Communication Law in 2013 and Mexico pushed an ambitious constitutional reform

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in the same year. Bolivia made constitutional changes that reach out to the media sector. In Brazil and Chile, over the past years there have been civil society initiatives which up to now have met with lukewarm support from the political system to make progress in regulatory reform. In almost all of the above-mentioned countries, there is consensus about the need to reserve more than 30% of the audiovisual licenses for the nonprofit sector of society (media in the hands of the community, aboriginal peoples, foundations, and cooperatives). The new media regulations set limits that are more stringent than the previous ones—which in some cases were nonexistent—to ownership by the same group. In doing so, the questioning of concentration of ownership in a few hands becomes institutionalized. All reforms raise the requirement for own production, national production, and independent production, with the expectation to encourage productive capabilities which overall have been focused only on the large urban centers. In all cases, they facilitate access to broadcasting licenses for nonprofit media outlets. But the commitment to new regulations with the tradition of freedom of expression as a way of guaranteeing the circulation of a diversity of voices and the contrast of antagonist perspectives is uneven: while Venezuela, with the Radio and TV Responsibility Law of 2004 and Ecuador, with the more recent Communication Law of 2013, authorized the control of information contents in the media, the Audiovisual Communication Services Laws of Argentina (2009) and Uruguay (2014) have broadened the right of access to licenses by nonprofit organizations, but are respectful of the freedom of opinion of each issuer. Moreover, the audiovisual services laws of Argentina and Uruguay have been praised by the areas of the UN and OAS specializing in freedom of the press, and have received the endorsement of journalistic and press freedom advocacy groups such as Reporters without Borders, for their respect for editorial contents and the weight they assign to the principles of the right to culture and press freedom. Regulatory changes were conceived in the framework of general public policy strategies that have, in a more or less coherent way, depending on the case, attempted to overcome the outlines of state intervention typical of the neoliberal model. Those changes have frequently caused the direct clash between the government and the commercial media groups. The best known case is that of Venezuelan former president Hugo Chávez (1999–2001; 2001–2007; 2007–2013), but the conflict with the major media was also prevalent in the administrations of Lula da Silva (2003–2007, 2007–2011) and Dilma Rousseff (2011–2015; 2015[–2019]) in Brazil; Cristina Fernández de Kirchner (2007–2011, 2011–2015) in Argentina; Evo Morales (2005–2010; 2010–2015; 2015[–2020]) in Bolivia; and Rafael Correa in Ecuador (2007–2009, 2009–2013, 2013[–2017]), to name but a few. Nevertheless, so far the new policies and regulations have not altered in any material way the concentrated nature of the structure of information and communication activities. Even though some countries have experienced a disruption in the continuum of concentrated business forces— because groups were forced to disinvest or give up audiovisual permits (mainly Venezuela and Ecuador)—the level of market concentration has not changed significantly until now. For that reason, this study summarizes information about the ownership structure of the main groups in the region, their lines of business, the type of conglomerate structure of the most economically relevant groups, and the differences in scale between those from the telecom business and those from the traditional media sector (and, within this subset, those whose revenues mainly derive from the audiovisual sector and from the print industry).

Notes 1 UNESCO, World Trends in Freedom of Expression and Media Development: Regional Overview of Latin America and the Caribbean (Montevideo: UNESCO, 2014), 7.

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2 This is based on the CR4 concentration ratio used in previous research, indicating that the top four companies dominate on average approximately 80% of the markets (Mastrini and Becerra 2006; Becerra and Mastrini 2009). 3 One of the ramifications of the media conglomeration build-up process was the obligation of listed companies to disclose more information on their financial statements. In recent years, there are more data available on the financial situation of the media, though only of the large groups that are listed on the stock exchange. 4 Guillermo Mastrini and Martín Becerra, “50 Años de Concentración de Medios En América Latina: Del Patriarcado Artesanal a La Valorización En Escala,” in Crítica de La Economía Política de La Comunicación Y La Cultura, Comunicación Social, ed. F Quirós and F. Sierra (Sevilla: Comunicación Social Ediciones y Publicaciones, 2001), 179–209. 5 UNESCO, World Trends in Freedom of Expression and Media Development: Regional Overview of Latin America and the Caribbean (Montevideo: UNESCO, 2014), 16. 6 En este capítulo se realizará una breve síntesis de las principales características de Televisa. Para más detalles ver el Capítulo . . . . En este mismo libo. 7 Elizabeth Fox, Días de Baile: El Fracaso de La Reforma de La Televisión de América Latina (México DF: FELAFACS-WACC, 1990), 72. 8 Daniel Jones, “El Despegue Frustrado de La Televisión Argentina,” Voces Y Culturas 1 (1993), 61. 9 By means of frontmen. 10 PRISA Group acquired the radio stations for its Latin American Radio Group. The TV stations and newspaper “El Espectador” are owned by Valorem Group. 11 Humberto Coronel: “Industrias culturales: Alta concentración mediática en Colombia,” in Encuentros 15 (Barranquilla, 2010), 79–88. 12 Guillermo Sunkel y Esteban Geoffroy, Concentración económica de los medios de comunicación (Santiago de Chile: LOM, 2001). 13 Alberto Mayorga, Carlos del Valle, and Luis Valdebenito, “Concentración de la propiedad de los medios de comunicación en Chile. La compleja relación entre oligopolio y democracia,” in Anagramas 17 (2010), 131–148. 14 Martín Becerra, De La Concentración a La Convergencia: Políticas de Medios En Argentina Y América Latina (Buenos Aires: Paidós, 2015). 15 Latin American TV started in the early 1950s, but it was not until the 1960s that it gained popularity and massive scale. 16 Mastrini and Becerra, “50 Años de Concentración de Medios En América Latina.” 17 Jesúa Martín-Barbero, De los medios a las mediaciones. (Barcelona: Gustavo Gili, 1987). 18 John Sinclair, Latin American Television: A Global View (New York: Oxford University Press, 1999). 19 “Estrategias de producción transmedia en la ficción televisiva,” Anuario 2014 OBItel, accessed September 19, 2015 at https://blogdoobitel.files.wordpress.com/2012/09/anuacc81rio-2014-espanhol.pdf

16 THE MIDDLE EAST Gholam Khiabany

In mapping the scholarship and recent interest in the Arab media scene, Helga Tawil-Souri suggests that pan-Arab satellite television is exploding in a number of ways: in quantity, in political terms, as well as an area of academic inquiry.1 The explosion of Arab media into the scene was heralded as the clearest indication of forces of globalization, renewed faith in the role of media in social change, and prospect of democratization. Yet the rapid process of internationalization from the very start contained a number of significant paradoxes and had the potential to unravel. The financial crash of 2008, followed by the Arab revolts of 2011 and the subsequent political earthquakes in the region, have indeed led to even further media concentration, especially in the hands of Gulf capital. The explosion of pan-Arab satellite television channels, however, did not happen in a vacuum. Broadly speaking, the concerns for Middle Eastern media are similar to those identified by Herman and McChesney as they pertain to global media in general: the dramatic restructuring of national media and the concentration of media power in the hands of a few players.2 In the past three decades, many states in the Middle East have introduced economic reforms and policies that have transformed and remolded the region. Such programs, negotiated with the International Monetary Fund (IMF) and the World Bank, are usually labeled as economic liberalization. However, structural adjustment and transformation programs cannot be simply reduced to “economic liberalization,” and the level and scope of economic transformation and changes have been complex. These processes are loaded with contradictions. Media systems in general, and the television industry in particular provide one important and visible example of the attempt to subordinate national economies to the powers of international and domestic capital. As others have suggested,3 some reforms have not only paved the way for the emergence of new business and social avenues, but have also created new sources of social, political, and cultural authorities that rival and subvert established authorities to certain degrees. The newly established and yet regionally and internationally recognized media “brands” in the Middle East have indeed been a major topic of international communications in recent years. To that end, however, we cannot begin to discuss the “media giants” of the region without highlighting a few crucial points. First, it is important to remember that while the Arab World is a historical, geographic, and cultural reality, the Middle East is a geographically leaky term.4 More precisely, the term is a construct, a strategic concept invented by the British Empire. Two major issues tie the region to the “international community,” the United States of America in particular: oil/gas resources and Israel.

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Second, as Sreberny has argued, the region is “a highly differentiated region, along many different kinds of social variables.”5 Even the Arab World, in which there is a strong and real feeling of collective national identity, is highly differentiated and can be divided into three groups: the oil states (the rentier states of Saudi Arabia, Kuwait, Qatar, United Arab Emirates, Oman, Libya, Iraq, and Algeria), the strategic states (Egypt, Lebanon, Palestine, Syria, Tunisia, Yemen, and Morocco), and the peripheral states, which are actually peripheries within the periphery (Sudan, Mauritania, Western Sahara, Somalia, Djibouti, and Comoros islands). The periphery states do not play a significant political role in in the region and it is no accident that they remained “immune” from the revolutionary fervor of the “Arab Spring” in 2011. To be sure, even these groupings can be a little bit misleading, for in each there are variations and diversities that cannot be ignored. For example, Egypt is the most populous country in the Arab World where more than 22% of the region’s people live. Compare this to Lebanon, another country in the “strategic states” group with only 1% share of the region’s population. Egypt also has been in the grip of brutal dictatorship, in contrast to Lebanon where the political structure is organized along sectarian divides. These two countries, however, have played a significant political and cultural role in the region. Nevertheless, both countries have been significant hubs for media and cultural productions despite their differences. Above all, it is no exaggeration to suggest that the countries in the “strategic states” group remain the weakest link in a region that is considered the weakest link in the world system. This is where the heart of Arab revolts beat strongest. Third, as will be discussed, the “media giants” in the region are explicitly linked to the growth of Gulf capital. Of particular importance has been the emergence and “formation of large capitalgroups that dominate the respective economies of the new regional block.”6 The members of the small Arab states gathered under the umbrella of Gulf Corporation Council (GCC), with a total population of 50 million (of which almost half are migrant workers), have a combined economic output of over $1.3 trillion. It is important to remember that gross per capita domestic product of some of these GCC countries is much higher than the average of member countries of OECD. Gulf capital is central to the rise, development, and expansion of media in the region and globally. The role of Saudi Arabia (the biggest country in the Gulf region and with a higher population than all other Gulf States combined together) is very central indeed. It is not just the size of audiences in the country that makes Saudi Arabia the major player in the Gulf but also the size of its capital. It is no accident that of the media conglomerates in the region, Aljazeera is the only company that is not controlled by Saudi’s interests.7 Fourth, in all cases the development, expansion, and consolidation of media companies have been an integral part of development of state capacity in the region. The economic and political links of media companies to the ruling elites, therefore, are not simply a matter of certain ties to the state or particular lobbying efforts. Trends that have usually been reduced to “economic liberalization,” including within the media industry, are entirely facilitated, maintained, and controlled by the state. Mohamed Zayani has aptly pointed out that in the “Arab world, the media in general and satellite channels in particular, operate under a patron who is either the government or some rich owner who in many cases is associated, in one way or another, with the ruling elite or the government.”8 The explicit link between media ownership and politics is of course not unique to the region. For example, Silvio Berlusconi’s media empire is a notable case of strong ties between the media and the state in Italy. In the Gulf region, however, one has to use the term “privatization” or “private capital” with extreme caution. The personal ties and patronage have remained key factors in the development and operation of media companies. As Sami Zubaida has pointed out in his discussion of historical forms of the public sphere in the region, “‘Print capitalism’ for instance was rarely capitalist (is it even now?), but dependent on patronage and subvention. And it never consisted just of private persons debating public issues, but always had ties to state, dynastic and colonial interests.”9 As will be shown throughout this chapter, this is

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still the case and even more so in Gulf-funded media companies. Capitalist development in the region, including the development of media, is politically determined in a number of ways. Fifth, the broader internationalization of capital in the region and emergence of pan-Arab satellite channels have brought with them not the decline of nation-state as advocated by globalization theories, but the formation of a state with a contradictory role. The product of such existing forces is the formation of a strong state, which is torn, to use David Harvey’s terms, between the “logic of capital” and the “logic of territory.”10 For example, Saudi Arabia invested the most in satellite channels and, yet, satellites are officially banned in that country. Finally, we need to use the label of “giants” for Middle Eastern media companies carefully and relatively. The media corporations that are discussed in this chapter are without a doubt the largest in the region and they are backed by the immensely powerful capital of Gulf States, especially Saudi Arabia. However, they pale in comparison with the likes of other global media giants, like Disney, Apple, Google, or others.

Middle Eastern Giants in Context Contrary to exceptionalist theories, which see the Middle East as a sealed space that can be explained either purely in terms of oil revenue or its “culture” (Islam), the region has developed not in isolation from but within the development of global capitalism. Global capitalism is not “external” to the region. As Hanieh points out in his detailed discussion of capitalism and class relations in the Gulf region, “the global economy is part of the actual essence of the Gulf itself—the development of the global ‘appears’ through the development of the Gulf.”11 The development of media in the region is no exception. Indeed, what has been hailed invariably as the emergence of “contraflow”12 Arab public sphere,13 etc. has to be seen as part of the much wider development and circulation of capital and labor in the region. The cross-border and transnational investments and productions in the region go beyond the production of tangible commodities: they encompass significant investment and activity in media and communications. The media field has emerged and become a focal point for the accumulation of capital and power. The “media giants” that are discussed below demonstrate this reality. In this sense, Naomi Sakr is absolutely right in insisting that the development of media in the Middle East, like all discussion of transnational media, should be seen in a much wider global context.14 Since the 1990s the number of media channels has increased rapidly. This is particularly the case for television. There were 18 channels in 1993, most of which were state-owned and operated. The first wave of expansion in that decade that took advantage of technological development that was mostly targeted at the richest audiences. By 2005 the number had increased to 150, and by 2010 the numbers of channels were estimated at 450. While the numbers have increased rapidly, the field as a whole has been dominated by Saudi Arabia. Since the 2000s, four conglomerates have dominated satellite TV as well as other media: (1) the Middle East Broadcasting Corporation (MBC), owned and controlled by Sheikh Walid al-Ibrahim, who is the brother-in-law of Saudi Arabia’s late King Fahd; (2) Arab Radio and Television (ART), owned by Saudi Arabia’s Dallah Al Baraka Group; (3) LBC-Rotana, owned and controlled by Saudi Arabia’s Kingdom Holding Group; and (4) Orbit Showtime Network, which was established after the merger of Orbit (owned by Saudi Arabia’s Mawarid Group) and Showtime Arabia (a joint venture between Kuwait’s KIPCO and North American giant CBS). The level of concentration becomes even more obvious if we consider the fact that the Arab World, in general, and the Gulf countries, in particular, is considered as a single market because of shared language. Saudi Arabia’s influence is also confirmed by the fact that Arab television industries are particularly keen to cater to the kingdom’s television audiences.15 Two Saudi conglomerates, MBC and LBC-Rotana control one-third of the free-toair television in Saudi Arabia, Kuwait, and UAE. The number of pay-TV channels is estimated

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close to 150, and audiences of these channels are divided between ART and Orbit Showtime Network.16 The sector as a whole has been international from the early days, with significant number of mergers and acquisition, cross-media and cross-border ownership, joint ventures with regional and international capital, as well as significant levels of activities across a number of industries.

Middle East Broadcasting Corporation It is no accident that the emergence of the Middle Eastern “media giants” can be traced back to the early 1990s when a number of factors began to remold the region, including the intervention in Iraq and increased pressure for economic liberalization. The trendsetter in the media field was the Middle East Broadcasting Corporation (MBC) Group. In approximately three decades, MBC has been transformed into a $2.9 billion business empire. MBC began its operation from London in September 1991, as the first privately owned Arab network offering non-stop free-to-air television programs. This project was the first promising to reach all Arab citizens inside and outside the region, including literate and illiterate men and women, who were dispersed and scattered in different countries. Two well-connected Saudi capitalists, Sheikh Saleh Kamel and Sheikh Walid al-Ibrahim, funded the creation of MBC. MBC’s desire and intent for international investment and expansion was made clear when it purchased United Press International (UPI), one of the four major international news agencies, for $3.95 million less than a year after the start of operations. After the acquisition, the company immediately injected $12 million to upgrade UPI services.17 It has been suggested18 that the owners had different visions for MBC, which is indicated by the fact that the partnership ended in 1993 and Walid al-Ibrahim took complete control of the company. Walid al-Ibrahim’s royal connections and deep pockets assured the success of MBC’s operation, as well as its expansion. MBC’s start-up capital was $300 million and its annual running costs around $60 million. Through the same royal connection, MBC was not only able to rent a powerful transponder in which Saudi Arabia was a majority shareholder (Arabsat satellite), but it also obtained a license to launch MBC-FM as the only commercial terrestrial radio in 1994. It also secured a contract to broadcast a number of channels to Saudi homes via a cable network. MBC’s budget and funding shrank as a result of sharp decline in Saudi’s oil income in the late 1990s. Cost-cutting measures soon followed. UPI was sold to the Unification Church of Sun Myung Moon (the owner of the Washington Times) in 2000, and in 2001 the company moved its headquarters from London to the newly inaugurated Dubai Media City, an economic free zone created primarily for media productions. Sheikh Walid al-Ibrahim justified the move to Dubai by saying that “they had done a pretty good job in convincing us to move.”19 The reason for relocation was apparently “ ‘freedom of speech’ which was the ‘only thing that made us to go to London in the first place.’”20 Undoubtedly the restrictions in Saudi Arabia are one factor that has prevented the company being based within the country where it is funded. However, the major disadvantage is that Dubai Media City insists on restrictions over content. As Sakr has suggested, the economic benefits of operating in Dubai Media City are immense. Companies operating in this media-focused economic free zone “were offered 100% tax exemption for 50 years and allowed 100% foreign ownership. But they were not allowed to operate uncensored.”21 Sakr also suggests that MBC was offered additional incentives. The move from London to Dubai indeed helped MBC to cut its overall costs by 30%.22 MBC settled in its new location and, with oil prices picking up again, began transforming itself into a multi-channel network. MBC is part of the Arab Group International (AGI) Holding Company, and the holding company already had a privileged position in Saudi Arabia. In 2003 it began adding to its portfolio of channels. MBC2 was launched in that year and made available by satellite in the region and terrestrially in Bahrain. Unlike MBC, which was a general channel and presented itself as “family

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viewing,” the additional channel tried to tap into a young audience market by acquiring many top American and British entertainment programs, as well as controversial formats such as Big Brother (al-Ra’is), which proved a costly experiment. As Naomi Sakr23 has suggested, the success of reality TV hits on other channels convinced MBC to be more daring. However while the “love interest” between the participants of the show was a big factor in attracting audiences in other countries, in the Arab World it was controversial. The public protests in Manama, Bahrain and the heated debate in parliament and newspapers forced MBC to suspend the show after just one week in 2004. Controversies over reality TV are not unique to the region. For Kraidy, however, Arab reality TV is intensely controversial “because it violates boundaries of identity and authenticity at a time when these boundaries have been hardened by widespread violence in the Middle East and various controversies over Islam. For some opponents, al-Ra’is and Star Academy were links in a chain of horrors—Abu Ghrayb, Guantanamo, the infamous Danish cartoons, and others baffling Arabs and Muslims.”24 The tension between the logic of the market, the expectation of various states in the Gulf, and competing ideological agenda were plainly obvious in this case. In 2004, the company launched MBC3 as a children’s channel and turned MBC2 into a movie channel. Sitcoms and other format programs were moved to MBC4. MBC entertained the plan for a news channel in the 1990s but the plan, despite—or perhaps because of—the Aljazeera success story, was shelved in 1998. The company later revived the idea when it launched Al-Arabiya in a joint venture with Lebanese and Kuwaiti investors ahead of the U.S.-led invasion of Iraq in 2003. Al-Arabiya came under the total control of MBC in 2006. In a further move to expand its activities, MBC operates the television news agency Middle East News (MEN). MEN not only shares facilities with Al-Arabiya, it also provides technical and logistical support as well as facilities for other clients, including TV stations in Bahrain, Oman, and Al-Ekhbariya, which is a news channel directly owned and controlled by the Saudi state.25 In 2007 the company launched MBC Action and the music channel Wanasah, and one year later it added MBC Persia, MBC Max, and MBC Plus to its portfolio, followed by the launch of MBC Drama in 2010. MBC’s radio channels include MBC-FM, Panorama, HI FM, and Hala FM, all launched between 1994 and 2007. MBC’s expansion has also seen the company making gains in its online presence through Al-Arabyia.net, MBC.net, Shahad Online, Jawal MBC, and MoBC. Such expansion, however, comes at a cost, and a huge one for that matter. This, of course, follows the logic of media capital across the globe, as many don’t really seem to be economically viable when reliant on commercial revenue streams. In 2011, Ali Jaber, the MBC Group TV director, announced that Arab satellite channels are notoriously stricken with financial losses, running at an annual aggregate loss of $5.5 billion. The running costs are high and are estimated at around $6.5 billion, while advertising revenue is estimated to be $1 billion.26

Arab Radio and Television Arab Radio and Television is part of the Dallah Al Baraka Group, which is controlled by Saleh Abdullah Kamel. The Dallah Al Baraka Group is a conglomerate with significant interests in banking, construction, and tourism. Saleh Kamel is one of the richest and well-connected capitalists in the region. In 2015, Forbes listed him as the 17th richest Arab with a net worth of $2.8 billion.27 Kamel was born in Taif, Saudi Arabia, grew up in Mecca, and attended Riyadh University. Earlier in his life he worked at the kingdom’s Ministry of Finance, but he left public office to start the Dallah Works and Maintenance Company in 1969 in Riyadh. Despite not being born into the royal family, he is well connected and has remained loyal to the Saudi ruling elite. As Enhab Galal28 has pointed out, his family was responsible for guiding pilgrims on hajj in Mecca and “his father was employed under the patronage of Prince Faisal bin Abdel-Aziz,” who later became the king of Saudi Arabia in 1964 and ruled the country till his death in 1975.

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The Dallah Works and Maintenance Company became the Dallah Avco Trans Arabia Company in 1975 and expanded its activities from construction to the provision of food, maintenance, and operation services at military bases and hospitals. The company also imports large volumes of consumer products, such as electrical appliances and household technologies. Its major subsidiaries include the Dallah Real Estate and Tourism Company, Al-Samaha Trade Holding Company, Al-Jazira Transport Company, and Dallah Telecom Company. The various activities of the conglomerate are organized through these subsidiaries. The company is also a major shareholder in the Albaraka Banking Group registered in Manama, Bahrain. The company is listed on both the Bahrain Stock Market and NASDAQ Dubai. It introduces itself as “a leading international Islamic banking group providing its unique services in countries with a population totaling around one billion.”29 The group operates “strictly in accordance with the principles of the Islamic Shari’a,”30 and in addition to the board of directors it also has a Shari’a supervisory board. The total assets of the group at the end of 2011 were more than $17 billion, and its principle shareholders are Shaikh Saleh Abdullah Kamel (30.11%), Dallah Al Baraka Holding Company EC (24.64%), Altawfeek Company for Investment Funds (20.65%), and Abdulla AbdulAziz Al Rajihi (6.81%). It has 560 branches in Turkey, Jordan, Egypt, Algeria, Tunisia, Sudan, Bahrain, Pakistan, South Africa, Lebanon, Syria, Iraq, and Saudi Arabia, as well as in Indonesia and Libya. The Dallah group also owns 19% of Al-Jazira bank, which is ranked 34 in the Arab World. In total, Saleh Kamel is active as a shareholder and owner of 340 companies that operate in 42 countries.31 The Dallah Al Baraka Group also has interests in media and communication. Dallah Telecom, thanks to the company’s contacts with the Saudi ruling elite, has won major contracts providing CCTV, access control, fire alarm, and anti-intrusion for military facilities, hospital, universities, and private companies in Saudi Arabia. The group’s substantial resources and its rights to major sporting events also allowed it to control and manage the mobile broadcasting rights of large sporting events like the FIFA World Cup, Golf Cup, and Asian Cup. The main media activities of the company are managed and operated through the Arab Radio and Television Company (ART), which was launched in 1993 as a pay-TV subsidiary of the Arab Media Corporation. Saleh Kamel set up Arab Media Corporation in 1977 as one of the early production companies specializing in radio, film, and television. It was, however, through his involvement with MBC that Kamel’s interests in media expanded significantly. In 1993 he sold his share (37.5%) to his business partner at MBC and immediately set up his own satellite channel, ART.32 Saleh Kamel’s Dallah Al Baraka Group controls 70% of ART, and the remaining 30% is owned by another Saudi Prince, AlWaleed bin Talal, who controls a vast range of media in the region, including LBC-Rotana. Bin Talal paid $240 million for 30% of ART in 1993. Saleh Kamel had a different vision from Sheikh Walid al-Ibrahim, his partner at MBC, and it was no accident that he set up his own satellite operation as a pay-TV venture. ART had no plans to compete with MBC. For Saleh Kemel, a massive initial investment of $300 million in this project was not simply a matter of making profits. In fact, as Sakr has argued, both owners of ART seemed happy and willing to subsidize ART from profits of their other businesses since there was no evidence to suggest that the company had made any money from 1994 to 1999. The annual loss of ART was estimated at $168 million per year. ART advertising revenue in 1998 was less than $26.5 million, which was a miserly return since in the same year the two shareholders had injected additional $250 million to cover the extra cost of adding four new channels.33 ART was based in Rome and began broadcasting initially from Fucino and later on from Avezzano. In 2002, and after eight years of operation from Italy, ART relocated to the newly inaugurated media city, Jordan Media City. This new location is next to the Jordan Radio and Television building. During the same period, many companies, including MBC and Orbit, began to move their base from Europe to the region. Saleh Kamel apparently believed that there was a

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campaign in the West to undermine Arab culture and tradition as a reason for the move.34 Undoubtedly there were (and still are) significant anti-Arab and anti-Muslims sentiments, including outright racism and campaigns in the aftermath of the terrorist attacks of September 11, 2001, but the targets of such sentiments were rarely Arab capitalists or ruling elites. But Kamel’s claims conceal the real reasons that many companies relocated to the region, which were the favorable tax arrangements and union laws.35 In fact, many of the big media conglomerates were significant investors in newly established media cities in the region. Jordan Media City, to which ART relocated, is owned by Saleh’s Dallah Media Production Company. The site had been there since the 1970s, but the project came to realization after Jordan’s free zone law made regulatory changes. In 2004, a spokesman for Jordan Media City announced that ART was expected to reduce its overall operation costs by 60%.36 ART’s initial catalogue of channels consisted of one general channel, one completely dedicated to sport, one for film, and one broadcasting children programs. This was a period of relentless privatization of media for a number of countries in the region, and Saudi investors or those with connections to Saudi companies and the royal family were the main beneficiaries of auctioning off public assets in the Arab World and elsewhere. ART purchased an extensive catalogue of Egyptian films after the Egyptian Ministry of Culture put them up for sale at a highly discounted price, reportedly $1200 per film.37 By 2004 two-thirds of the Egyptian film library was under the control of Saudi capital after Rotana (another Arab media giant) bought thousands of Egyptian films that had been made since 1935.38 Saleh Kamel also bought a share of the successful commercial broadcaster, the Lebanese Broadcasting Corporation (LBC) in 1996. LBC was the longest-running commercial channel since it’s founding in 1985 when the Christian-nationalist militia established it. In a short space of time, ART managed to put together a package of specialist channels of pay-TV, and it dominated this sector. Of reportedly 100 pay-TV channels in the region, ART owned 40. These included 10 sports channels, and Saleh Kamel purchased the rights to the 2002 football World Cup for $86 million. The next world cup in 2006 cost him $186 million. The desire for premium content and market domination was also the reason for the company’s involvement in the creation of the Arab Football Champion’s League. ART also purchased the right to broadcast many other sporting events, including NBA, F1, English and German Premier League Football, as well as UEFA Champions League. ART’s package also consisted of five music channels offering a combination of Western and regional music. Film, sport, and music were the kind of premium content that was supposed to make the operation of rapidly expanding Arab television channels commercially viable and successful. Yet, as Booz Allen Hamilton reported back in 2005, while pay-TV had shown strong subscriber growth in the region, this particular sector in the Arab world was highly fragmented. Pay-TV penetration was reported at only a modest 5% across the region, which ranged from 3% in Egypt to 29% in UAE. Therefore, even though ART might have claimed to be the leading pay-TV operator in the region with a market share of 52% in Saudi Arabia, 56% in UEA, 35% in Kuwait, and 85% in Egypt, the actual number of subscribers in a region of 190 million in 2005 barely passed 1 million.39 The regional and familial connections are not irrelevant here. ART in particular was a strong player in both Saudi Arabia and Egypt. Saleh Kamel the owner of ART has been keen and adamant that a key role and function of his company is to offer a different vision and view of Islam to the world. He explained the reason behind launching Iqra channel as part of his satellite TV package by saying that it aims to cater to “someone like me [who is] not completely to the left or the right—and there are millions like me. [I] wanted to present a more tolerant, middle of the road message to the Arab and other people of the world.”40 With so much controversy over the nature of some of the programs, including music video channels, he insisted that nothing on ART’s channels would be shown that he would not want his children to watch.41

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In 2009, Kamel sold his sports channels to Aljazeera Sports and the remaining channels to Orbit. Prior to that and in 2003, ART five music channels, which were under the control of Al-Waleed bin Talal, were sold to Rotana. Al-Waleed bin Talal reduced his share in ART to 5%, and Saleh Kamel was offered an undisclosed share in Rotana. Rivalry and competition were fierce and yet the “common good” of capital and the state remains the most prominent and lays the groundwork for overlaps and collaborations in media industry. The search for power and influence in the case of Saleh Kamel never included a news channel or even news bulletins on his services.

LBC-Rotana LBC-Rotana is without a doubt the largest media company in the Middle East. Saudi Arabia’s Kingdom Holding Company owns it. Kingdom Holding Group is the largest conglomerate in the region, with a wide range of interests from petroleum, gas, construction, and banking to agriculture, aviation, luxury goods, and the media; 95% of the Kingdom Holding Company and 90% ownership of LBC-Rotana is in the hands of Prince Al-Waleed bin Talal, a nephew of the late Saudi King Abdullah, a grandson of Ibn Saud, the first Saudi king, and a grandson of Riad Al Solh, Lebanon’s first Prime Minister. In 2015 Forbes magazine listed him as the richest Arab and the 34th richest person in the world, with a net worth of $22.6 billion.42 According to Forbes, he holds ownership stakes in Twitter, Citigroup, Time Warner, hotel management companies Four Seasons Hotels & Resorts, Movenpick Hotels & Resorts, and Fairmont Raffles Holding; and hotel real estate, including the swanky Hotel George V in Paris as well as a stake in the Savoy Hotel in London. He is among the biggest investors in the Middle East and among the largest foreign investors in the U.S. The commodity circuits of Kingdom Holding group include Savola, (supermarkets and hypermarkets); Herfy’s fast food; Licensee of SAKS Inc. (handbags, jewelry, cosmetics including Dior, Cartier, Prada, Roberto Cavali, and Valentino); and its financial circuits encompass SAMBA; Citigroup; Industry and Commercial Bank of China, and the Bank of China; Banks in Ghana, Nigeria, Togo, Senegal; PADICO and APIC; 1% or more of total shares in Ford, Eastman Kodak, Hewlett Packard, Motorola, Pepsico, Procter and Gamble, Walt Disney, eBay, Amazon.com; Twitter; News Corporation; and Azizia Commercial Investment Company.43 The Kingdom Holding Group provides a clearest example of the link between global and regional capitals. Al-Waleed is Citigroup’s largest individual shareholder and the second-largest voting shareholder in 21st Century Fox. He also holds approximately 7% stake in News Corporation, and in 2015 he increased his share in Twitter to 5.17%. According to Forbes this “equates to a whopping 34.9 million shares worth nearly $1 billion. It also makes him the second-biggest investor in the company behind co-founder Evan Williams, who owns 6.9%. It puts him ahead of new CEO Dorsey, who owns 3.2%.”44 In return, News Corporation bought 19% of LBC-Rotana for a reported $175 million, and in June 2015 France’s Sovereign Wealth Fund announced that it had agreed to invest a minimum of $150 million in the Kingdom Holding Company. They have also agreed on a separate plan for joint investment of around $400 million. Saudi Arabia has been at the forefront of Gulf States’ attempt to purchase the most significant and recognizable real estate landmarks in Paris, London, and elsewhere. Al-Waleed, an alumnus of Menlo College in California and Syracuse University, has also made generous donations and investments in North American and European universities. In 2008, the Times Higher Education Supplement reported that the prince had donated £16 million to the universities of Cambridge and Edinburgh to set up new centers for Islamic Studies.45 Both centers are named after him. The Islamic Studies Program at Harvard University, the Center for Muslim-Christian Understanding at Georgetown University, and the Institute for Computational Biomedicine at Cornell University have also received donations from and are named after

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Al-Waleed. On the other hand, he has also donated large sums to the University of Cairo and American University of Beirut to set up centers for American Studies and Research. Both of these centers are also named after him. The Kingdom Holding Group had cemented its reputation at the end of 1990 by paying $207 million for slightly less than 5% of the crisis-ridden and biggest American bank at the time, Citigroup. In February 1991, he increased his share to 14.9% after spending $509 million for an additional 10% of shares. In 1999, The Economist suggested that Al-Waleed’s investments were mysterious and speculated that the prince could not possibly have such deep pockets and asked whether he is a front man for other Saudi investors.46 During the 1990s, Kingdom Holding Group’s spending and investment spree which began with purchase of 30% of ART in 1993, 25% of Euro Disney SCA in 1994, and 25% of Rotana Audio Visual (the biggest music label in Saudi Arabia) in 1995, was followed by 50% of a Saudi Telecom company and 3% of Mediaset in Italy. Kingdom Holding Group also purchased shares in Apple, Sony, News Corporation, AOL, Motorola, and advertising agency Satchi and Satchi. By 2003, Kingdom Holding Group had taken full control of Rotana after increasing their stake to 100%. In the same year in a swap deal between the two owners of ART (Saleh Kamel and Al-Waleed bin Talal), the five music channels of ART were also added to Rotana’s already extensive catalogue. This significant and massive music library provided the ground for the launch of four specialized music channels by Rotana. As Kraidy has suggested, by the mid-2000s “Rotana had become a monopolistic giant in music and music video production, its roster encompassing leading Gulf, Egyptian and Lebanese stars.”47 In 2003, Al-Waleed also bought ART’s 49% stake in LBC-Sat for $100 million. LBC, with its entertaining and liberal content, was a particular hit among younger viewers in the Arab World. This represented a growing influence of Saudi’s capital in Lebanon. Kingdom Holding Company also has stake in Lebanese newspapers An Nahar and Ad Diyar. Another Saudi prince and former deputy minister of defense in Saudi’s government is also a shareholder of LBC and owner of pan-Arab newspaper Al Hayat. The merger between Rotana and LBC in 2007 consolidated the Saudi’s control over more media in the region and, in particular, Lebanon. The assumption is that such mergers and a concentration of media ownership in the region makes commercial sense. According to Kraidy, such development “reflected commercial calculation in a market in which everyone knows that the Saudi viewer is the target of satellite channels . . . because he is advertiser’s target (Badi, 2006)”48 There is not, however, much data to prove such assumption. The field as a whole is not transparent and figures are few and far between. Even though there is little doubt that Saudi Arabia is the biggest and richest market in the Gulf, there is no evidence that media conglomerates get a sizable return for their investments. In fact, as Paul Cochrane, contributing editor to Arab Media & Society, pointed out, Kingdom Holding Company’s overall assset slumped by 44% in 2008, a net loss of $8.26 billion.49 The company responded by slashing music CD prices by 70% (from $12 to $4) and sacking hundreds of staff. This is not unique to Kingdom Holding’s media business. Aljazeera (the best-known media brand in the region) is also a loss-making operation, with the Qatari government injecting $400 million every year to maintain it.50 The issue of location has been as important for Kingdom Holding Company as it has been for other media conglomerates in the region. LBC-Rotana has operated from a number of sites, but mostly from Beirut. However, the company moved most of its operations to Cairo in 2008 to overcome security concerns. In 2011, Al-Waleed moved his headquarters to yet another new free media zone, Manama Media City. Bahrain incentives included rent-free facilities and $15 million. However, the fate of Al-Arab news channels raises another layer of complexity and contradiction at the heart of collaboration and rivalry in the region. What was missing from Al-Waleed’s media business was a news channel that could compete with Aljazeera, MBC’s Al-Arabyia, CNBC Arabyia,

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the U.S.-funded Al-Huraa, Iranian channel Al-Alam, Sky News Arabia, France 24 in Arabic, and the BBC Arabic service. The plan for a news channel was announced in 2010 initially as part of LBC-Rotana and later on as independent from Al-Waleed’s other media business. The channel struck a partnership with Bloomberg Television, which was to provide five hours of regional and global financial and business news. Al-Waleed had already relocated much of his operation to Bahrain due to his close links with the Bahraini royal family, and Manama was chosen as the base for Al-Arab since Saudi Arabia doesn’t allow the existence of private news channels. The channel was launched and closed on the same day, February 1, 2015. As Gulf News reported, a news ticker appeared on screen explaining the abrupt interruption of broadcast in the following way: “The broadcasting has stopped for technical and administrative reasons and we will resume soon, God willing.”51 In fact, the stopping of coverage was not due to technical fault but rather because Al-Arab had decided to conduct an interview with a leading figure of the Al Wefaq Islamic Society (the main Shia political party in the Sunni-ruled monarchy) over the revocation of the nationality of 72 people in Bahrain. The Guardian newspaper reported that “Saudi opposition activists speculated that the decision might have been taken under pressure from Riyadh rather than from Bahrain, indicating a more hardline media stance under King Salman.”52

Orbit Showtime Network Adam Hanieh suggests that the internationalization of capital in the region’s media sector has been further confirmed by the merger of Showtime and Orbit that resulted in the creation of Orbit Showtime Network (OSN). This merger “is a strong illustration of internationalization in the [Gulf Cooperation Council (GCC)]—a joint Saudi/Kuwaiti company, headquartered in the UAE, holding a major share of the market in all GCC countries.”53 Kuwait Projects Company (KIPCO) owns 60.5% and the Saudi investment company, Mawarid Holding, controls 39.5%. Orbit Showtime Network is registered and based in yet another free zone, which is the Dubai International Financial Centre (DIFC). With the merger OSN became the biggest pay-TV provider in the Middle East and North Africa, offering over 100 channels featuring new movies, sports, Arabic content, and international shows. By the mid-2000s, Orbit, Showtime, and ART were competing in an uncertain and fragmented pay-TV market. Orbit’s operations were headquartered in Bahrain and consisted of 32 television and 20 radio channels offered in different packages (bouquet) in the Middle East, North Africa, and Europe. Its services were available through cable in the UAE and Qatar. Showtime, a joint venture between Viacom (21%) and KIPCO (79%), had initially started in London but later relocated to Dubai Media City. Showtime’s holdings consisted of 33 TV and 10 radio channels and, like its competitor, it was offering different packages and services in the Middle East and North Africa. A feature of Showtime was its strong Western content, which was secured through exclusive deal with Paramount, DreamWorks, Disney, Sony, and Universal Studios. In terms of their share of the market in the region, both companies were lagging behind ART, except in Kuwait where the Kuwaiti capital majority owning Showtime’s share of the market was 50%.54 The profile of both companies again indicates the diversity of circuits of Gulf capital and its close links with the royal families of the region. KIPCO is the biggest private company in Kuwait and has diverse interests in banking and finance, insurance, real estate, manufacturing, education, and media. The portfolio of KIPCO encompasses over 60 companies operating in 24 countries. In 2015, its assets were estimated at $31.3 billion. The KIPCO chairman is Sheikh Hamad al-Sabah, son of the Kuwaiti Amir. The company launched Showtime Arabia in 1996 as a joint venture with Viacom. This joint venture not only gave KIPCO a license from Viacom to use the Showtime name,55 but also heralded the entry of a global media player into the region.56

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Orbit began operating in 1994 from Italy by Mawarid Holding and in direct competition with Saudi-owned ART. The company is owned by a Saudi prince, Khalid bin Abdullah Al Saud. Like other conglomerates in the region Mawarid has diversified business interests in finance, construction, real estate, food chains, medical supplies, and telecommunication. Mawarid’s operation consists of 27 subsidiaries. Mawarid’s interest in media began with an interest in buying Star TV (based in Hong Kong), but it was Murdoch’s News Corporation that added Star to its rapidly expanding international portfolio. Nevertheless, Alexander Zilo, one of the founders of Star TV, was recruited by Mawarid to head his Orbit network.57 Orbit began with an initial investment of $1 billion and promised to offer a diverse package targeting affluent viewers. One of the very first acts of Orbit was to sign an agreement with BBC to deliver a news channel in Arabic. The 10-year agreement, however, came to an abrupt end in less than two years after Saudi Arabia objections to its coverage. Declaring itself private and being based in Rome didn’t mean that Orbit could escape its affiliation or loyalty to the Kingdom. Through its link with Star TV, Orbit also offered a package of nine channels from Star, which included Star Movies, Star Sports, CNBC, Sky News, and FOX Kids Network. In the same year, 1997, the company also signed an agreement with Disney that included the Disney channel in Arabic and ESPN Sport.58 In 2005, Mawarid established Integrated Telecom Company and it immediately consolidated its status as a leading provider of data, satellite, and broadband solutions. Mawarid’s intention for expansion of its operation was confirmed when Integrated Telecom Company signed a deal of around $1.06 billion with the Korean Middle East Engineering Company (KOMEE) to increase its network coverage by 10,000 square kilometres.59 However, the company was shut down in May 2013 because of concerns over its financial health and trading violations. The company had been fined $53 million in September 2012 for violating what Arab Business referred to as “markets laws and listing rules and failing to inform the Communication and Information Technology Commission in writing that it could not pay SR2.8bn worth of financial obligations.”60

Concluding Remarks Media concentration in the Arab World has rapidly surpassed and broken the old state monopolies. In the process, the Gulf states, and in particular Saudi Arabia, have emerged as the new masters. Since the 1990s, members of the Saudi royal family and their associates have established or gained control of MBC, ART, LBC-Rotana, Orbit, and dozens more. The process appears even more complicated because the details of investment, business deals, revenues, and audience figures are seldom reported openly.61 As Sakr has pointed out, the leading firms have the advantage of backing from powerful political forces and enjoy new forms of patronage. “Among the dominant firms in the Arab television, a high proportion of resource allocation continued to be the sole prerogative of a small, interconnected group of owners who kept their reasons and trade-offs to themselves.”62 We can conclude by highlighting some of the most significant paradoxes of recent developments. First, and as other have suggested,63 rapid internationalization of the media sector in the region has had profound cultural implications. The leading firms, dominated by Saudi Arabia, indeed have offered packages and programs that are significantly at odds with their owners’ and masters’ norms and views on morality. As I stated in the introduction, the feeling of a collective national identity in the Arab World is real and historical and not simply a creation of satellite TV. But the cultural implication of TV programs (of different varieties, including news) has been significant. The logic of capital has provoked a broader cultural transformation in the region. Many of the most popular genres, such as reality TV and music, as Tawil-Souri has observed, have also made their way into religious channels such as Al Resallah (owned by Kingdom Holding) and Iqra (owned by ART). However, we might also consider how we can understand these explosions now that

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the Arab Spring has given way to freezing winter and the region is experiencing unprecedented turmoil. In 1998, Jon Alterman suggested that the new Arab media might also pave the way for a new kind of Arab identity. Comparing this new kind of Arab identity to the heyday of nationalist movements in the region, Alterman suggested that this “‘new Arabism’ tends to be Islamic-leaning rather than secular, and it emanates from the Persian Gulf rather than the Levant.”64 The rise of Islamism (in its current phase) certainly provides ample evidence to support his claim. Second, and as can be seen from the fate of BBC Arabic services for MBC, the extremely short life of the Al-Arab channels and controversies over certain programs, the political and socalled moral sensitivities of the ruling elites impose more than minor limits on the media system. As such, labeling the media barons of the region as modernizers65 or reformists66 is deeply problematic. Skovgaard-Peterson is therefore right in highlighting that “however liberal these moguls consider themselves, they are first and foremost members of the topmost elite in undemocratic and illiberal countries, and the reformist tenets of their channels are not intended to change the power relations in them.”67 They have facilitated the entry of global giants such as Disney and News Corporation and their varied products. Likewise the global giants have been more than happy to collaborate with the ruling families of the region. The final point to consider is the role of the state. As the data show, the rapid rise and expansion of Arab media that has complicated the global media picture is facilitated and maintained with direct help from Gulf states and in particular Saudi Arabia. This reality inevitably brings to the fore the relationship between capital and state. Questions about the state and capital, as well as their possible independent determining effect on historical developments, remain a contentious issue. In particular, the idea that the state is not subject to immediate or direct control by capital but rather has a degree of autonomy has generated considerable discussion. The “relative autonomy” thesis also has been applied in analysis of the Middle East. Hanieh argues that Rentierstate theory in particular “relies heavily upon a notion of ‘relative autonomy,’ in which the state is seen as a distinct sphere of the political economy with a high degree of latitude to maneuver and deploy economic strategies free from the constraints of the capitalist class.”68 A general problem with relative autonomy is the difficulty of identifying and specifying the levels and limits of “relative.” But this difficulty is even more acute in the region in which, as Gilber Achcar has argued, the bourgeoisie is “deriving its economic power from the state, while functioning as private capitalism.”69 The cases examined in this chapter leave no doubt that the species of capitalism that are allowed to develop in the region do so under a particular political context. The difficulty with the thesis of “relative autonomy” of state can be solved if the state is not seen simply as being outside of social relation and an isolated thing. The state is not external to capitalism but, in fact, it is the mediator of capitalist class. Yet this manifests itself in different ways. The form of this “mediation” varies from country to country. It is precisely the social relations that can help us understand the forms and shifts in mediation. Bob Jessop has argued that “the social content of politics is related mainly to the economic interests of the contending classes and class fractions in specific conjunctures and/or periods, in particular social formation, rather than abstract interests identified at the level of a mode of production.”70 In regions such as the Middle East, particularly in the Gulf region, a simultaneous membership of state institution as well as capitalist class is not novel but rather common. The companies examined in this chapter are clear indicators of the close link between the state and capital. Simultaneous high-ranking positions in the state, the royal family, and the capitalist class are indeed possible and even appear to be the norm. This reality, rather than making the region appearing as “exceptional,” highlights the complexity and the specific conjectures that Jessop has in mind. The boundary between private capital and the state in the Gulf is so blurred that if one wants to insist on “relative autonomy” it makes sense to talk of relative autonomy of private capital from state, not the other way around.

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Notes 1 Helga Tawil-Souri, “Arab Television in Academic Scholarship,” Sociology Compass 2:5 (2008), 1400–1415. 2 Edward S. Herman and Robert W. McChesney, The Global Media: The New Missionaries of Global Capitalism (London: Cassell, 1997). 3 Marwan M. Kraidy, “The Rise of Transnational Media Systems: Implications for Pan-Arab Media for Comparative Research,” in Comparing Media Systems Beyond the Western World, eds. Daniel C. Hallin and Paolo Mancini. (Cambridge: Cambridge University Press, 2012); Naomi Sakr, Arab Television Today (London: I.B. Tauris, 2007). 4 Annabelle Sreberny, “Mediated Culture in the Middle East: Diffusion, Democracy, Difficulties,” International Communication Gazette 63:2–3 (2001): 101–119. 5 Sreberny, “Mediated Culture in the Middle East,” 102. 6 Adam Hanieh, Capitalism and Class in the Gulf Arab States (New York: Palgrave Macmillan, 2010), 23. 7 Kraidy, “The Rise of Transnational Media Systems,” 190. 8 Mohamed Zayani, “Aljazeera and the Vicissitudes of the New Arab Mediascape,” in Zayani, ed. The Aljazeera Phenomenon: Critical Perspectives on New Arab Media (London: Pluto, 2005), 14. 9 Sami Zubaida, “Capitalism, Democracy, the ‘Public Sphere’ and Globalization,” in Politics From Above, Politics From Below: The Middle East in the Age of Economic Reform, ed. Eberhard Kienle (London: Saqi, 2003), p. 22. 10 David Harvey, The New Imperialism (Oxford: Oxford University Press, 2003). 11 Hanieh, Capitalism and Class in the Gulf Arab States, 16. 12 Daya K. Thussu, ed. Media on the move: Global Flow and Contra-flow (London and New York: Routledge, 2007). 13 Marc Lynch, Voices of the New Arab Public: Iraq, Al-Jazeera and Middle East Politics Today (New York: Columbia University Press, 2006). 14 Naomi Sakr, Satellite Realms: Transnational Television, Globalization and the Middle East (London: I.B. Tauris, 2001). 15 Marwan M. Kraidy and Joe F. Khalil, Arab Television Industries (Basingstoke: Palgrave Macmillan, 2009). 16 Hanieh, Capitalism and Class in the Gulf Arab States. 17 Najat Alsaid, “Walid al-Ibrahim: Modernising Mogul of MBC,” in Arab Media Moguls, eds. Donatella Della Ratta et al. (London: I.B. Tauris, 2015); Sakr, Arab Television Today. 18 Sakr, Satellite Realms, 43. 19 Alsaid, “Alwaleed bin Talal: Modernising Mogul of MBC,” 102. 20 Alsaid, “Alwaleed bin Talal: Modernising Mogul of MBC,” 102. 21 Sakr, Arab Television Today, 198. 22 Kraidy and Khalil, Arab Television Industries, 23. 23 Sakr, Arab Television Today, 170–171. 24 Marwan M. Kraidy Reality Television and Arab Politics: Contention in Public Life (New York: Cambridge University Press, 2010), 13. 25 Kraidy and Khalil, Arab Television Industries. 26 Alsaid, “Alwaleed bin Talal: Modernising Mogul of MBC,” 108. 27 “The World Richest Arabs,” Forbes Middle East, accessed October 1, 2015, www.forbesmiddleeast. com/en/lists/people/pname/saleh-kamel/pid/83743/ 28 Ehab Galal, “Saleh Kamel: Investing in Islam,” in Arab Media Moguls, eds. Donatella Della Ratta et al. (London: I.B. Tauris, 2015), 83. 29 “About Al Baraka,” Al Baraka Banking Group, accessed October 1, 2015, www.albaraka.com/ default.asp?action=category&id=16 30 “About Al Baraka,” Al Baraka Banking Group. 31 Galal, “Saleh Kamel: Investing in Islam.” 32 Sakr, Satellite Realms. 33 Sakr, Satellite Realms, 46. 34 Kraidy and Khalil, Arab Television Industries, 23. 35 Kraidy and Khalil, Arab Television Industries; Sakr, Arab Television Today. 36 Sakr, Arab Television Today. 37 Sakr, Satellite Realms, 43. 38 Sakr, Arab Television Today. 39 Booz Allen Hamilton, “ Strategic Review of the Television Broadcasting Sector in the Middle East” (Dubai, November 2005). 40 Sakr, Satellite Realms, 47. 41 Kraidy and Khalil, Arab Television Industries; Galal, “Saleh Kamel: Investing in Islam.” For a good discussion of Iqra channels see Yasmin Moll, “Islamic Televangelism: Religion, Media and Visuality in Contemporary Egypt,” Arab Media and Society, 10(2010): 1–27.

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42 “The World Richest Arabs,” Forbes Middle East, accessed October 1, 2015, www.forbesmiddleeast.com/ en/lists/people/pname/prince-alwaleed-bin-talal-alsaud/pid/83727/ 43 Hanieh, Capitalism and Class in the Gulf Arab States, 187. 44 “The World Richest Arabs,” Forbes Middle East. 45 “Saudi prince donates £16m to improve Islamic studies,” Times Higher Educations Supplement, accessed September 10, 2015, www.timeshighereducation.com/news/saudi-prince-donates-16m-to-improveislamic-studies/401799.article?sectioncode=26&storycode=401799&c=1 46 “The mystery of the world’s second-richest businessman,” the Economist, accessed September 10, 2015, www.economist.com/node/187913 47 Marwan M. Kraidy, “Alwaleed bin Talal: Media Moguls and Media capital,” in Arab Media Moguls, eds. Donatella Della Ratta et al. (London: I.B. Tauris, 2015), 116. 48 Kraidy, “The Rise of Transnational Media Systems”, 191. 49 Paul Cochrane, “The coming contenders,” Arab Media and Society, 10(2010), accessed September 10, 2015, www.arabmediasociety.com/?article=749 50 Cochrane, “The coming contenders.” 51 “Saudi-owned news channel off air hours after launch,” Gulf News (February 2, 2015), accessed September 10, 2015, http://gulfnews.com/news/gulf/bahrain/saudi-owned-news-channel-off-air-hoursafter-launch-1.1450263 52 “Saudi prince’s Al-Arab news channel goes off air hours after launching,” The Guardian (February 2, 2015), accessed September 10, 2015, www.theguardian.com/world/2015/feb/02/saudi-prince-alarab-newschannel 53 Hanieh, Capitalism and Class in the Gulf Arab States, 123. 54 Booz Allen Hamilton, “ Strategic Review of the Television Broadcasting Sector in the Middle East.” 55 Sakr, Arab Television Today. 56 Kraidy and Khalil, Arab Television Industries. 57 Sakr, Satellite Realms, 43. 58 Sakr, Satellite Realms, 93–94. 59 “Over US$ billion to be invested in Saudi Arabia fiber network,” Albawaba Business, accessed October 10, 2015, www.albawaba.com/main-headlines/over-usbillion-be-invested-saudi-arabia-fiber-network 60 “Saudi telco shut down over financial concerns,” Arab Business, accessed October 10, 2015, www. arabianbusiness.com/saudi-telco-shut-down-over-financial-concerns-500814.html 61 Sakr, Arab Television Today; Kraidy and Khalil, Arab Television Industries; Jacob Skovgaard-Petersen, “Arab Media Moguls: An Introduction,” in Arab Media Moguls, eds. Donatella Della Ratta et al. (London: I.B. Tauris, 2015). 62 Sakr, Arab Television Today, 202. 63 Kraidy, Reality Television and Arab Politics; Tarik Sabry, Cultural Encounters in the Arab World: On Media, the Modern and the Everyday (London: I.B. Tauris, 2010); Kraidy and Khalil, Arab Television Industries; Sakr, Arab Television Today; Sakr, Satellite Realms; Tawil-Souri, “Arab Televison in Academic Scholarship.” 64 Jon Alterman, New Media, New Politics? From Satellite Television to the Internet in the Arab World, Policy Paper no.48, (Washington, DC: The Washington Institute for Near East Policy, 1998), xii. 65 Alsaid, “Walid al-Ibrahim: Modernising Mogul of MBC.” 66 Kraidy, “Alwaleed bin Talal: Media Moguls and Media capital.” 67 Skovgaard-Petersen, “Arab Media Moguls: An Introduction,” 8–9. 68 Hanieh, Capitalism and Class in the Gulf Arab States, 12. 69 Gilber Achcar, The People Want: A Radical Exploration of the Arab Uprising (London: Saqi, 2013), 76. 70 Mike Davis “Marx’s Lost Theory: The Politics of Nationalism in 1848,” New Left Review 93 (May–June 2015), 66.

17 SUB-SAHARAN AFRICA Téwodros W. Workneh

With the expulsion of European colonialism in what came to be known as the “Decade of African Independence,” the 1960s brought unprecedented optimism for many Africans in the areas of democratic governance, economic development, and nation building. This hope was short-lived, however, as the continent, for much of the remainder of the century, experienced widespread poverty, fragile institutions, a weak economic base, and self-serving governments that were enabled by both internal and external factors.1 Internally, the rise of dictators or “big men,” who, oftentimes, either evolved from being leaders of anti-colonization movements or rose from military ranks through coups and revolutions, sowed a predatory trajectory of one-man rule.2 The rise of big men resulted in rampant corruption and the private appropriation of public resources, culminating in the creation of neopatrimonial states such as Mobutu Sese Seko’s Congo or JeanBédel Bokassa’s Central African Republic (CAR).3 While the neopatrimonial predicament undoubtedly arrested African economic development considerably, the view that the economic woes of postcolonial sub-Saharan Africa are inherently internal is a common misconception. Such outlook ignores the monumental role that foreign interventions, both colonial and economic, have played in sabotaging Africa’s sovereign development paths. While some of the immediate post-independence state-sponsored Western interventions like the assassination of pan-Africanist leader Patrice Lumumba in 1961 were blatant and reminiscent of the anti-liberation colonial pushback, it was the ideological shift that swept Britain and the United States toward market fundamentalism in the 1980s that subjected the majority of sub-Saharan Africa to economic hemorrhage. Following neoliberal prescriptions of the Washington Consensus,4 the IMF and the World Bank began in the early 1980s linking loan guarantees for heavily indebted developing countries to structural adjustment programs (SAPs), which mandated that loan-receiving governments restructure their economies according to neoliberal principles.5 These include: putting more emphasis on production for export than on meeting the needs of national and local markets; severe spending cuts, especially for social programs; sweeping privatization measures; reduced regulation on the activities of transnational corporations; and, in a number of cases, significant currency devaluations.6 When the Third World Debt Crisis hit the world in 1982, the IMF and World Bank devised stringent SAPs that forced 29 sub-Saharan African countries to adopt the neoliberal model before the decade was over.7 During the 1990s, the familiar dynamics of deregulation, liberalization, and privatization measures enforced export-oriented production at the expense of domestic food

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production, thus exposing many already vulnerable African countries to famine, epidemics, and ensuing political instability. Consequently, despite Africa’s adoption of free-market imperatives constructed in the global North, the continent’s commodities trade fell from 7% of the world’s trade in the mid-1970s to less than 0.5% in the 1990s. Instead of economic recovery and repayment of all external debts, the past three decades of neoliberalism have seen the lowest rates of economic growth ever recorded in Africa, along with rapidly rising disparities in wealth and well-being.8 During and after the turn of the 21st century, however, new discourses of optimism in the development of the continent have been forming. Empirical evidences indicate that a large part of the continent is more democratic than ever, and many countries have sustained substantial growth rates for almost a decade.9 Nevertheless, opinions vary in interpreting these encouraging results. Some believe Africa is in an irreversible growth momentum, whereas others contend these results reflect short-term, project-focused solutions that are prioritized at the expense of long-term stability.10 Regardless, there seems to be consensus that the continent is economically stronger than ever. Africa’s economic rise and continued integration into the global economy has a direct effect on the trajectory of its media industries. The economic twists and turns of the 20th century between states and markets have impacted the media landscape of sub-Saharan Africa in several ways and resulted in the different outcomes in media ownership models, structures, and audiences. When it comes to the multi-million dollar multinationals, however, there are three important factors that shed some light in relation to their emergence. First, the privatization and liberalization climate of the 1980s and 1990s globally paved the way for some of the most important African media conglomerates to sow the first seeds of the transnational corporate blueprint. Second, the dissolution of the former Soviet Union in 1991 effectively ended the Cold War, and, as a result, sealed the unchallenged supremacy of the neoliberal order that conditioned the economies of many developing regions including sub-Saharan Africa. Finally, the end of apartheid in South Africa toward the beginning of the 1990s allowed the integration of the South African economy into the rest of the continent and the world, allowing South African multinationals to proliferate into formerly unwelcoming markets. Although there are several media corporations—both foreign and domestic—today in subSaharan Africa: telecommunication giant MTN Group; Internet, pay television, and publishing conglomerate Naspers; and East African print and broadcasting powerhouse Nation Media Group Ltd. are probably the most influential media multinationals in the region. In the following, I will discuss the financial, operational, structural, and governance makeup of these conglomerates in sub-Saharan Africa. This will be followed by a discussion on the mechanics of global content and infrastructure proliferation to the region involving transnational players.

MTN Group Ltd. Background Headquartered in Johannesburg, South Africa, and established in 1994,11 MTN Group Ltd. is Africa’s largest telecommunications operator12 and one of the most recognizable multinational brands of African origin in the world.13 Formerly known as M-Cell, MTN group has a customer base of more than 204 million people in 22 countries with a capital expenditure to the tune of 11 billion U.S. dollars14 Although MTN’s customer base stretches to countries like Afghanistan, Cyprus, Iran, Syria, and Yemen, its primary market base is in sub-Saharan Africa where it garners 93% of its entire revenue (Table 17.1).15 MTN continues to seek additional markets, and currently has Internet Service Provider (ISP) licenses in Namibia and Kenya. It has also recently secured a Value

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Added Service license in Ethiopia.16 MTN offers prepaid and postpaid voice, mobile, and fixed data, cloud computing, Internet security, software, enterprise mobility, mobile money transfer, and digital entertainment services in 17 sub-Saharan Africa countries (Figure 17.1).17

FIGURE 17.1 MTN Group’s Footprint in Sub-Saharan Africa Including Subscriber Numbers, Average Revenue per User (ARPU), and Subscriber/Population Ratio18

Nearly 62% of MTN’s revenue is generated from its voice services. Data services, however, represent the fastest revenue-generating driver of MTN, contributing 18.7% of total revenue of the group in 2014.19 This is an increase of 3.8% from the previous year. Data users increased by 22.8% to 101.2 million as the group’s expansion of 3G and LTE networks led to a surge in dataenabled devices and smartphones (Table 17.3).20 MTN is consolidating its mobile financial services by acquiring more subscribers and increasing the volume of transactions involving international remittances, saving, lending, and insurance. The Group’s chief mobile financial platform, Mobile Money, saw a 50% rise in 2014 resulting in more than 22 million subscribers, driven by increased activity in Ghana, Ivory Coast, Uganda, and Benin.21 By the end of 2014, MTN’s capital expenditure which comprised property, equipment, and intangible assets such as land, buildings, leasehold improvements, network infrastructure, information systems, furniture and office equipment, vehicles, software, and others totaled 2.14 billion U.S. dollars, a 15.8% decrease from the previous year.22

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Technological Convergence In broad terms, technological convergence represents the process by which telecommunications, information technology, and the media, sectors that originally operated largely independent of one another, are developing in an integrated fashion. Technically, technological convergence involves the ability of any infrastructure to transport any type of data. Functionally, it implies users’ ability to integrate in a seamless way the functions of computation, entertainment, and voice in a unique device (like a smartphone) able to execute a multiplicity of tasks.23 MTN sees convergence as a significant profit-maximization strategy that helps to “sustain revenue growth and healthy EBITDA margins.”24 Today, MTN’s business model envisions the marriage of previously separate industries: telecommunications (traditional operators and mobile virtual network operators); information technology (software firms, technology and hardware suppliers, network equipment suppliers); and adjacent industries (banks, insurance firms, publishers, entertainment industry). Products and services MTN sales today, such as Voice over Internet Protocol (VoIP), mobile TV, triple/quad play, cloud computing/storage, tailored applications and contents, are highly characterized by overlapping of formerly distinct industries and marketoptimized capabilities in skills, processes, and systems.25

Joint Ventures The MTN Group has undertaken a substantial number of joint ventures in the past few years in an attempt to scale up its business reach in sub-Saharan Africa and the Middle East. More recently, the Group invested 167 million U.S. dollars to partner with Rocket Internet to form the Middle East Internet Holding (MEIH), a joint venture where both parties have a 50% holding.26

Acquisitions Through an investment of 233.5 million U.S. dollars, the MTN Group has acquired a third of Africa Internet Group (AIG), a thriving Internet business company jointly owned by Rocket Internet and Millicom International Cellular.27 Operating in 26 countries, AIG is considered as one of the leading Internet business and entrepreneurship companies in Africa.28 Its vertically integrated 71 companies offer services such as online retail, a food ordering platform, online marketplace, a real estate marketplace, vehicle marketplace, taxi hailing, online travel agency, and P2P lending marketplace.29 MTN’s strategic acquisition of AIG aims to capitalize on Africa’s fastgrowing global e-commerce sales share that registered a 31% increase since 2011.30 Currently, MTN, Millicom International Cellular, and Rocket Internet are each 33.3% shareholders in AIG.31 In addition to AIG, the group acquired, with 34.4 million U.S. dollars, 51% of the share capital of Afrihost Proprietary Limited (“Afrihost”), which essentially gave MTN control over the latter.32 Afrihost is a company that specializes in web hosting, domains, mobile data, DSL modems and mobile devices, search engine optimization, website building, and Internet security services.33 MTN’s acquisition of Afrihost aims to increase revenue potentials by optimizing the group’s virtual market, content, and cloud offering. MTN considers Afrihost’s incorporation to its subsidiaries as part of one of its important expansion strategies that targets small and medium-sized enterprises (SMEs).34 In the same year MTN acquired Nashua Mobile, a domestic wireless provider, for 105 million U.S. dollars.35 The acquisition involves the migration of 897,000 mobile phone contract subscribers from Nashua Mobile to MTN and rival company Vodacom Group Ltd.36 The acquisition expands MTN’s postpaid subscriber base by incorporating newly migrated users into the Group’s existing entity.37

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MTN’s expansion positions the group strongly compared with its peers in sub-Saharan Africa. However, the company’s yearly margin of revenue between 2012 and 2014 has shown a considerable decrease (Table 17.2). This is due to growing competition in the sector both from other multinationals like Vodacom and Orange and domestic telecommunications service providers across the region.

TABLE 17.1 Revenue Breakdown of MTN Group by Country (in $ millions)38

Jan–June 2014

Jul–Dec 2014

2014 Total

Jan–June 2013

Jul–Dec 2013

2013 Total

Sub-Saharan Africa Benin Cameroon Congo-Brazzaville Ghana Guinea Guinea-Bissau Ivory Coast Liberia Nigeria Rwanda South Africa South Sudan Sudan Uganda Zambia

136 253 115 315 58 14 268 50 2,249 52 1,590 31 108 218 123

139 261 127 279 48 16 264 35 2,232 55 1,640 37 117 221 151

275 514 242 593 106 29 533 86 4,482 108 3,231 68 224 439 274

98 192 86 332 61 12 211 50 1,851 50 1,645 24 102 170 89

122 240 108 354 64 11 244 60 2,146 53 1,736 30 105 201 123

221 432 194 686 125 23 455 110 3,997 103 3,382 53 207 371 212

Sub-Saharan Africa Total

5,805

5,622

11,204

4,973

5,597

10,571

Rest of the World Afghanistan Cyprus Syria Yemen

109 57 150 153

115 68 137 153

224 125 286 306

100 43 148 131

105 55 120 150

205 98 268 281

Rest of the World Total

469

473

941

422

430

852

6039

6092

12131

5389

6026

11400

Cumulative Total

TABLE 17.2 Year-end EBTDA and revenue summary of MTN Group, 2004–2014 (in $ millions)39

Year

EBTDA

Revenue

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

1,408 1,735 3,184 4,523 5,303 5,295 6,881 7,636 7,177 6,101 6,740

3,712 4,205 7,329 10,390 12,595 12,867 15,625 16,999 16,557 14,159 13,558

Revenue increase from previous year (%) 23.0 13.3 74.3 41.8 21.2 2.2 21.4 8.8 –2.6 –14.5 –4.2

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TABLE 17.3 Data Technology Coverage and Market Share of MTN Group in Select Sub-Saharan Africa

Markets40 Country

Cameroon Ghana Ivory Coast Nigeria South Africa Sudan Uganda

Technology coverage 2G (%)

3G (%)

90.5 80.0 94.4 87.2 98.7 57.1 79.0

26.0 50.6 60.5 87.0 33.1 19.7

WiMax (%) LTE% 40 43 11.8 5 21.0

1

Market share (%)

Market share position

Contribution to revenue (data) (%)

59 50.2 39 49 34 36 57

1 1 1 1 2 2 1

8 19 11 19 24 15 25

Ownership and Governance Structure The MTN Group is a publicly traded company that is listed under the share code “MTN” on JSE Limited in Johannesburg, South Africa, the largest stock exchange in Africa.41 The Group’s highest governing body is the board, consisting of executive and non-executive directors. A nonexecutive chairman, currently Phuthuma Nhleko, oversees the board. The group president and CEO is responsible for the day-to-day business end of the company.42 This position, currently assumed by Sifiso Dabengwa, is distinct from that of the non-executive chairman. This distinction “ensures a balance of authority and power, with no individual having unrestricted decision-making powers.”43 The board’s responsibilities range from overall monitoring of operational performance to overseeing director selection and evaluation. The board consists of the board committees and the executive. The board committees are composed of five clusters: audit; risk management, compliance and corporate governance; nominations; social and ethics; remuneration and human resources. The board committees operationalize specific board agendas. For example, the nominations committee is responsible for the performance and assessment of the board, the board committees, and individual directors. The executive branch, on the other hand, within the scope of its delegated authority, implements the group’s operational activities as per the recommendations of the board. The board’s gender composition is overwhelmingly male, with only three out of 14 members being female.44 Sixty-eight percent of the group’s shares are held by public while the rest are non-public. The majority of the non-public shares of the group, 16.91%, are controlled by South Africa’s retirement income business Government Employee Pension Fund (GEPF), Africa’s largest pension fund. Swiss bank Lombard Odier owns 9.72% of the non-public shares. The remaining shares are divided between MTN’s empowerment fund (MTN Zakhele), directors of the group, and mobile telephone networks holdings.45

Corporate Social Responsibility The group’s Nigeria-based MTN Foundation, funded by up to 1% PAT (profit after tax) from MTN Nigeria, is involved in economic empowerment, education, and health projects in collaboration with domestic and international groups.46 MTN South Africa (SA) Foundation, on the other hand, brands itself through an approach that is based on community-level corporate social investment (CSI) which emphasizes a holistic and cluster-based focus on Education, Entrepreneurship, Health and Arts & Culture in some of the remote, rural areas in the most underresourced provinces in South Africa.47

Sub-Saharan Africa

293

In terms of sustainability, the group emphasizes the integration of digital inclusion, ecoresponsibility concerns such as environmental management, energy, and climate, e-waste, and sustainable societies (anti-corruption, ICT as human rights) into its business operations.

Naspers Group Ltd. Naspers is a South African multinational media conglomerate with an extensive global presence. It was originally named Die Nasionale Pers (Afrikaans for the National Press) when it started its business as a publisher of print products, particularly newspapers and magazines.48 Although Naspers is evidently a global multinational corporation with significant revenues and market share originating in the African continent, its beginnings were controversial. When the parent of the apartheid and white supremacy political collective National Party was born in 1915, it decided to establish press products that would promote Afrikaans causes and interests.49 As a result, the Nasionale Pers (National Press) was born in Cape Town, and consequently a newspaper, De Burger (The Citizen), later to become Die Burger, started circulation.50 For decades, Die Burger unapologetically defended and propagated the apartheid policies of the National Party until the end of racial segregation in South Africa toward the beginning of the 1990s.51 In 1997, 127 Naspers journalists apologized for their role in upholding the apartheid regime in South Africa, marking a symbolic move by Naspers to reinvent itself for a changing political and demographic.52 Today, the Cape Town-based Naspers Group has operations in more than 130 countries in six continents, and primarily runs its businesses in areas it labels as “markets with growth potential” including emerging economies in Africa, Latin America, Central and Eastern Europe, the Middle East, and countries like China, India, and Russia.53 Although pay-television has been the most important segment in the past for Naspers, the Internet units, including its equity-accounted investments in Tencent Holdings Limited and Mail.ru, have eclipsed broadcasting to become the leading sources of revenue for the group since the 2013 financial year.54 In 2014, for example, 54% of total segment revenues were derived from Internet units. In the past 10 years alone, the online sector generated an average of 51% revenue per annum.55 Pay-television, in spite of being eclipsed by the group’s online services in terms of revenue, continues to dominate in sub-Saharan Africa.56 Currently, the number of unique subscribers across Africa is over 8 million households.57 In congruence with trends globally, the print subsidiaries of Naspers are relatively less profitable. The Internet segment of Naspers operates on two major fronts: e-commerce platforms and listed investments. The group’s e-commerce operations incorporate consumer-to-consumer (C2C) transactions involving transfer of information such as classifieds, and business-to-consumer (B2C) sales and services consisting of e-tail, marketplaces, online comparison shopping, payments, travel, and real estate. Its major listed investments, Tencent Holdings Limited and Mail.ru, target consumers in China and Russia respectively.58 Naspers, by means of its major subsidiaries including MultiChoice, GOtv, M-Net, SuperSport, MWEB, and Irdeto, is the largest pay-television provider in sub-Saharan Africa.59 The group uses different content delivery systems including direct-to-home (DTH) satellite, digital terrestrial television (DTT), online, and mobile services. The group’s premier pay-television provider, MultiChoice, has a reach over 8 million households in almost all sub-Saharan Africa countries.60 GOtv is a major DTT pay television provider in sub-Saharan Africa with fingerprints in eight countries and 92 cities.61 M-Net, on the other hand, aggregates content internationally and commissions local productions. Another pay-television subsidiary of Naspers, SuperSport, is the single most important African sporting content broadcaster, both in terms of importing international sporting events, ranging from European football to track and field, to African domestic sports competitions.62

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Naspers also has investments in the print industry in Africa and overseas. This segment consists of online news, magazines, newspapers, printing, distribution, and book publishing businesses primarily operating in Africa and investments in Brazil and China. Media24, an online news, newspaper, magazine, and digital publishing, as well as printing, distribution, book publishing and e-commerce platform, is the group’s leading operator in the print department. Other subsidiaries, 24.com and Paarl Media, are industry leaders in digital publishing and educational/retail markets in Africa, respectively.63 Figure 17.2 summarizes the Naspers Group’s interests.

PAY TV

24.com Abril Afrika Publishers Beijing Media Corporation (BMC) Jonathan Ball Media24 NB Publishers Paarl Media Publishers Xin An Media

Ecommerce

Digital Terrestrial Television (DTn

Direct-tohome (DTH)

Payments PayU

Marketplaces Allegro Ricardo

FIGURE 17.2

DStv Digital Media DStv Media Sales Irdeto M-Net MultiChoice South Africa MultiChioce Africa MWEB SuperSport

PRINT

Etail Avenida eMag Esky.ru Fash ion Days Flipkart Konga Markafon i Grou p Netretail Souq Takealot.com

Listed

GOtv

INTERNET

Online Comparison Shopping 7Pixel Buscape Group Ceneo.pl Heureka Price Check Online Services ibibo Group Korbitec Movile redBus.in SimilarWeb TraveIBoutiqueOnline(TBO)

Classifieds Avito Dubizzle OLX

Mail.ru Group Tencent

Naspers Group Operations, Subsidiaries, and Brands64

Sub-Saharan Africa

295

Acquisitions and Mergers Naspers has absorbed various start-ups, stakes, and media companies into its different segments in the past 10 years. The group purchased a 46% share in Tencent Holdings Limited in 2001, although this figure sat at 34% as of 2014. Headquartered in Shenzhen, China, Tencent and its subsidiaries provide mass media, entertainment, Internet, and mobile phone value-added services, and operate online advertising services in China. Shenzhen-based Tencent is the fourth-largest Internet company in the world by revenue, behind Amazon, Google, and Ebay, and is currently valued at $150 billion.65 In 2014 Naspers clinched 100% ownership of redBus, India’s largest online bus ticket and hotel booking company, for $102 million.66 The group acquired a 30% stake of Souq.com in 2012 and increased its shares to 40% in 2014.67 Souq.com is a major e-commerce platform in the Middle East and North Africa (MENA) selling products such as consumer electronics, household goods, watches, perfumes, accessories, and fashion. Another acquisition involved Flipkart, India’s leading e-commerce marketplace offering over 15 million products across 70+ categories. The original acquisition of a 10% stake in August 2012 was increased to 18.6% in 2014.68 Between 2010 and 2014, Naspers acquired a 95% holding in OLX.inc in August 2010, subsequently increasing it to 95%. OLX is one of the world’s leading free classifieds online platforms, available in more than 100 countries and 50 languages.69 In 2013, Naspers incorporated a 25% (later increased to 54%) stake in Dubizzle.com, an online classifieds and community portal targeting consumers in the Middle East and North Africa.70 In 2014, the group acquired 30.7% stake of Esky.ru, an online retailer of children’s goods in Russia.71 Other notable stake acquisitions for Naspers across the past 10 years involved Brazilian media company Abril, African satellite Internet provider Afsat (now part of iWayAfrica), broadcasters M-Net and SuperSport International Holdings Limited (SuperSport), C2C e-commerce provider Tradus (reorganized into Allegro and Recardo since), China’s Beijing Media Corporation (BMC), South African Internet business operator Tiscali, and Latin American e-commerce company BuscaPé.72 In 1995, MultiChoice Limited and Switzerland-based luxury goods holding company Richemont S.A. merged their global pay-television operations into a single venture under the name NetHold. NetHold was eventually subject to another merger in 1997, this time to French television operator Canal+.73

Sales In 2002, Naspers sold its state in OpenTV in addition to Thailand pay-television platform, UBC, and its investments in the Thailand Internet business, MKSC World Dot Com Co. Limited. Another big-money sale by the group involved its former Greek and Cypriot pay-television operations, Netmed, for €490m in 2008.74 While the footprints of Naspers Group reach global markets such as Asia and Europe, as demonstrated by some of the mergers and acquisitions it undertook in the last decade, its core base of consumers is based in Africa (Table 17.4). This is due to how the group gets the lion’s share of its revenue from pay-TV, Internet, as well as print platforms (Tables 17.6, 17.7), which also happen to be the primary areas of the group’s investment in Africa. The profitability of the African market, as well as the global expansion of services through mergers and acquisitions, among others, has seen the Naspers Group register an average of 20% yearly increase in revenue in the past seven years (Table 17.5).

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TABLE 17.4 Footprints of Naspers Group and Subsidiaries in Sub-Saharan Africa75

Country

Naspers operations Internet

Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Chad Côte d’Ivoire Democratic Republic of the Congo (DRC) Djibouti Equatorial Guinea Eritrea Ethiopia Gabon Ghana Guinea Guinea-Bissau Kenya Lesotho Madagascar Malawi Mali Mauritania Mauritius Mozambique Namibia Niger Nigeria

MultiChoice Africa MultiChoice Africa MultiChoice Africa MultiChoice Africa MultiChoice Africa MultiChoice Africa MultiChoice Africa MultiChoice Africa MultiChoice Africa MultiChoice Africa

OLX; PayU; PriceCheck

Konga; OLX; PayU; PriceCheck

Republic of the Congo Rwanda Senegal Seychelles Sierra Leone Somalia South Africa

South Sudan Swaziland Tanzania Togo Uganda Zambia Zimbabwe

Pay-TV

Korbitec; OLX; PayU; PriceCheck; Takealot.com

MultiChoice Africa MultiChoice Africa MultiChoice Africa MultiChoice Africa MultiChoice Africa GOtv; MultiChoice Africa MultiChoice Africa MultiChoice Africa GOtv; MultiChoice Africa MultiChoice Africa MultiChoice Africa GOtv; MultiChoice Africa MultiChoice Africa MultiChoice Africa MultiChoice Africa GOtv; MultiChoice Africa GOtv; MultiChoice Africa MultiChoice Africa GOtv; MultiChoice Africa MultiChoice Africa GOtv MultiChoice Africa MultiChoice Africa MultiChoice Africa GOtv MultiChoice Africa MultiChoice Africa M-Net; MultiChoice Africa; MultiChoice South Africa; MWEB; SuperSport MultiChoice Africa MultiChoice Africa MultiChoice Africa MultiChoice Africa GOtv; MultiChoice Africa GOtv; MultiChoice Africa GOtv; MultiChoice Africa

Print

Media24

Media24

Media24

Media24

Media24

Sub-Saharan Africa

297

TABLE 17.5 7 Year-end Revenue Summary of Naspers Group Ltd., 2007–2014 (in $ millions)76

Year

Revenue

Revenue increase from previous year (%)

2007 2008 2009 2010 2011 2012 2013 2014

2,811 3,109 4,701 5,075 6,291 6,890 8,381 9,694

– 10.6 51.2 8.0 24.0 9.5 21.6 15.7

TABLE 17.6 Revenue of Naspers Group Ltd. by Segment, 2012–201477

2012 Pay-television Print Tencent Internet Technology Corporate Eliminations Ecommerce Mail.ru Unallocated and other

2013

$

%

2,979 1,514 1,404 953 214 3

61.60 31.30 29 19.70 4.40 0.10

$

2014 %

3,330 1,331 2,241 104

60.70 24.30 40.90 1.90

2.6 –2,958 1,252 182

0 –53.90 22.80 3.30

$

% 3,349 1,080 3,162

57.80 18.60 54.60

1,880 222 –3,901

32.40 3.80 –67.40

TABLE 17.7 Revenue of Naspers Group Ltd. by Region, 201478

Region/Country

$

%

South Africa Rest of Africa Europe Latin America Asia Other

2,923 1,063 1,357 290 98 61

50.50 18.40 23.40 5 1.70 1

Ownership and Governance Structure Naspers is a publicly listed company at the Johannesburg Stock Exchange (JSE) under share code NPN. It is registered in the “media and entertainment” sector. Naspers is also listed on the London Stock Exchange (LSE) for its American Depository Shares (ADSs). Its subsidiary, Myriad International Holdings B.V., is listed on the Irish Stock Exchange.79 Like most publicly listed companies, Naspers Group’s highest governing body is the board. The board oversees and controls different functions of the Group. The majority of board members consist of non-executive directors numbering 10 in total. This is in addition to one non-executive director and two executive directors. The diversity of the board, as seen by the presence of four directors from “previously disadvantaged groups” and three female directors, is predominantly male and white although, according to the Group, this composition represents “figures [that] are above the average for JSE-listed companies.”80 Public Investment Corp Ltd., a government-owned investment manager, owns the majority of the group’s stakes (Table 17.8).

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Two positions are particularly important on the board: the chair and the chief executive officer. While both these positions provide management and operations oversight, their responsibilities are distinct and separate. Currently occupied by long-time Naspers executive chair Ton Vosloo, the chair, a non-executive director, is responsible for the overall function of the board and ensures that the goals of the group and interests of shareholders and stakeholders are in line with operations. The chief executive, on the other hand, reports to the board and is responsible for the day-to-day business of the group and implementation of policies and strategies approved by the board. This position is currently held by Koos Bekker, long-time Naspers associate in different capacities and founding member of M-Net/MultiChoice pay-television business in 1985.81

TABLE 17.8 Naspers Group Major Shareholders82

Shareholder

Shares

%

Public Investment Corp Ltd. Dodge & Cox The Vanguard Group, Inc. Capital Research & Management Co. (World Investors) Naspers Share Benefit Trust Fund Old Mutual Life Assurance Co. South Africa Ltd. Capital International Ltd. Fidelity Management & Research Co. BlackRock Fund Advisors Coronation Asset Management (Pty) Ltd.

59,547,481 20,468,575 10,329,439 9,775,300 6,625,454 6,381,555 5,785,900 5,450,602 5,043,580 4,103,722

14.30 4.90 2.47 2.34 1.59 1.53 1.39 1.31 1.21 0.98

Corporate Social Responsibility Naspers has sponsored different events and collaborated with domestic and international partners as part of its corporate social responsibility ethos. Its principal areas of engagement in this area include education, socio-economic development, and environmental protection. In terms of education and skills development, the group’s flagship project was launched in 2013 when the Naspers Academy was founded. Naspers Academy is “designed to deliver a series of elite master classes where world-class experts educate and collaborate with our top management” and “to capture knowledge from these master classes and make the key learnings available as free online courses to everyone in Naspers.”83 Other notable educational initiatives by Naspers include “Let’s Play,” sports development activities in primary schools and communities in South Africa, Nigeria, and, more recently, Kenya; “The Sports Trust,” an independent organization jointly established in 1994 by the private and public sectors to focus on sport development initiatives where SuperSport is involved; and “SuperSport Basketball Series,” the only televised wheelchair basketball competition in the world with the aim of raising the profile of the sport for people with disabilities.84 The group’s socio-economic engagement includes the ICASA Project, where MultiChoice South Africa’s community broadcasts skills and capacity-building packages. “Care More” is another initiative that gives subscribers the chance to nominate community projects of their choice to receive support from MultiChoice. “Giving You Space to Grow,” run between April and November 2013, is an initiative that offered 12 South African small, medium, and microenterprises (SMMEs) and non-governmental organizations (NGO’s) free advertising space across Media24’s publications.85

Sub-Saharan Africa

299

Nation Media Group Ltd. The East Africa-based Nation Media Group (NMG) is one of the largest media conglomerates in sub-Saharan Africa. Founded by Aga Khan IV, NMG has established itself as the most influential private media firm in East and Central Africa with extensive presence in countries such as Kenya, Uganda, and Tanzania (Table 17.9).86 The origins of NMG date back to 1960 when the Nation newspaper was founded in Kenya.87 The Nation quickly became a nucleus of the decolonization movement in East Africa, calling for the transfer of power from British colonizers and white settler communities to African majorities. The Nation struggled financially, however, since “its target African audience was high, while most of those with consumer power found its political stance too radical by far.”88 It was in the midst of this that the then Prince Karim Aga Khan, leader of the Shia Imami Ismaili Muslims worldwide, got involved in the introduction of the Daily Nation, a daily peer of the Nation (later Sunday Nation), a Sunday-only paper. The road to becoming a relevant daily was difficult for the Daily Nation as it took years for it to reach a significant mass, a feat the Sunday Nation achieved in few months.89 Ten years into their inception, the Sunday Nation and the Daily Nation were selling over 46,000 copies per issue. It became a profitable business toward the end of the 1960s, having overtaken its major rival The Standard in circulation at about the same time.90 TABLE 17.9 Major NGM Divisions and Operations91

NMG segment

Key facts

Monitor Publications Ltd (Uganda)

Began operations in 1992 Runs the Daily Monitor and Sunday Monitor papers. Controls an FM radio station, 93.3 KFM

Mwananchi Communications Ltd (Tanzania)

Publishes Kiswahili papers Mwananchi daily and Mwana Spoti, a weekly all-sports newspaper Launched an English-language daily, The Citizen in 2004

Nation Broadcasting Division

Launched in 1999 and runs NTV and Easy FM Obtained licenses to roll out television and radio services in major towns in 2003

Nation Carriers Division

NMG-controlled transport company distributing NGM Group products around the country Its subsidiary, Nation Courier, is a fast-growing courier operator with international networks involving global giant TNT Worldwide Express

Nation Marketing and Publishing Ltd (NM&P)

Distributes various international titles such as the Economist, Times, Newsweek and Fortune magazines Produces and distributes a local free sheet, The Weekly Advertiser

Nation Newspapers Division

Operational since 1960, it is the oldest of NMG’s segments. Runs Daily Nation, Saturday Nation, Sunday Nation, Taifa Leo, Taifa Jumapili, The EastAfrican, Business Daily, and Metro

The last decade of the 20th century marked an important era in the evolution of the Sunday Nation and the Daily Nation to the Nation Group. The EastAfrican, a newspaper with regional interests in Kenya, Uganda, and Tanzania, was born as one of the first indicators of the group’s ambitions outside of Kenya. This was also a reflection of the group’s increasing capital expenditure, which rose from $1.6 million to $12 million.92 During this period the group acquired a significant interest in East Africa Television Network Ltd (EATN), a move that resulted in it entering the highly regulated broadcasting industry. Toward the end of the 1990s, it restructured to take its current name, Nation Media Group Ltd.93

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In the following years, NMG expanded extensively beyond Kenya to capitalize on Kiswahiliand English-speaking East African communities. Today, NMG publishes several newspapers in Kenya, Tanzania, Uganda, and Rwanda, including Daily Nation, Saturday Nation, Sunday Nation, Taifa Leo, Taifa Jumapili, The East African, Business Daily, and Metro, as well as a television station, NTV, and a radio station called Easy FM. Two of NMG’s long-time publications, Daily Nation and Sunday Nation, have a hegemonic market share in the newspaper front as they make up 74% of the market and outsell their rivals significantly.94 In addition to producing and distributing its own content, NMG, through its subsidiary Nation Marketing and Publishing Ltd. (NM&P), distributes major international magazines and newspapers in Africa.95 With an annual turnover in excess of $50 million (Table 17.10), NMG is presently one of the largest companies on the Nairobi Stock Exchange (NSE).96

TABLE 17.10 Revenue Summary of Nation Media

Group, 2005–2014 (in $ millions)97 Year

Revenue

Revenue increase from previous year (%)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

74.4 88.6 115.1 123.5 109.6 126.1 128.6 150.2 157.8 154.2

– 19 30 7.3 –11.2 15 2 16.8 5 –2.3

Ownership and Governance Structure Since the beginning of the 1970s, NMG has been listed on the NSE. It is also parallel listed at the Uganda Securities Exchange and used “NMG” as its code for both listings. NMG had been under the direct proprietorship of the Aga Khan for many years until 2003, when this model was restructured in line with modern shareholding practices.98 The Aga Khan “made available 40% of his holding, 1.2 million shares at five Kenyan shillings each, and this offer was more than twice oversubscribed among 3,200 individuals and institutions.”99 As a result, the Aga Khan’s shares were transferred to the Aga Khan Fund for Economic Development (AKFED), making the latter the largest shareholder in NMG (Table 17.11). Wilfred Kiboro, a Kenyan, is chairman of the board of directors whereas Linus Gitahi, also a Kenyan, is the Chief Executive Officer.

Corporate Social Responsibility NMG’s corporate social responsibility strategy involves community sponsorship, education, and health, among other things. In 2013, for example, NMG partnered with the Mathare Mothers’ Development Centre to raise 5,000 textbooks for the causes of the latter. During the same year NMG sponsored the “Get on the Bus” Excellence & Mentorship Program that incorporated 26 new students, all receiving a full scholarship throughout their four years in high school.100

Sub-Saharan Africa

301

TABLE 17.11 NMG Major Shareholders101

No.

Shareholder

No. of shares held

%

1 2 3 4 5 6 7 8 9 10

The Aga Khan Fund for Economic Development (AKFED) Alpine Investments Ltd National Social Security Fund John Kibunga Kimani The Jubilee Insurance Company of Kenya Ltd Standard Chartered Nominees A/c KE14353 Old Mutual Life Assurance Company Ltd Kenya Reinsurance Corporation Ltd Standard Chartered Nominees A/c 9230 Standard Chartered Nominees A/c 1256B

84,198,343 19,136,566 5,467,416 2,529,733 1,939,134 1,669,214 1,035,380 958,320 762,250 753,548

44.66 10.15 2.90 1.34 1.03 0.89 0.55 0.51 0.40 0.40

Key Players in Sub-Saharan Africa’s Global Import While sub-Saharan Africa media conglomerates target African consumers for their products and services ranging from telecommunications to entertainment, the region is not insular to global capitalism and, therefore, the international import of content and merchandise. The rise of the region’s economy that has resulted in increased purchasing power, coupled with other factors such as increased urbanization, a heightened sense of cosmopolitanism, and better digital connectivity has not gone unnoticed by global media conglomerates. What is noteworthy, however, is that global media proliferation in the region has not historically come from traditional content powerhouses like News Corp, Bertelsmann, Viacom, Walt Disney, NBCUniversal, Sony, or Time Warner. Contrary to trends in most other continents, these corporations have had marginal to no strategic interest to directly reach consumers in sub-Saharan Africa. One of the few instances of these global multinationals’ reach in the region is Bertelsmann’s subsidiary Arvato, which provides a host of different services in the areas of production and distribution of printed materials, digital storage solutions, and IT services, among others.102 Time Warner’s CNN International has three regional offices in sub-Saharan Africa, in Johannesburg (South Africa), Nairobi (Kenya), and Lagos (Nigeria) that mainly feed into the network’s African-themed programs CNN Marketplace Africa, Inside Africa, and African Voices. Global giant Disney has a near inconsequential direct penetration in sub-Saharan Africa except in South Africa, where the company has identified the country as a “key priority” in the region.103 For example, South Africa is one of the 25 international and the only sub-Saharan African destination for the company’s Adventures by Disney (ABD), a group-guided family vacation service jointly carried out by Disney subsidiaries Walt Disney Parks and Resorts and Walt Disney Travel Company.104 South Africa is also the only country in sub-Saharan Africa to have a dedicated Disney website, Disney.com.za that serves as the consumer’s gateway to the company’s games, TV, movies, videos, and parks.105 Even if these conglomerates do not have a substantial direct presence in sub-Saharan Africa, their products are accessible to consumers through third-party relays. For example, Naspers Group’s pay-TV subsidiary DStv MultiChoice has an agreement with global television content providers for their channels to be incorporated in its bouquet model that bundles channels in its various bundling tiers such as DStv Premium, DStv Extra, DStv Compact, or DStv Family (See Figure 17.3). In this sense, there may not be substantial evidence to suggest that Western news and entertainment content providers have a direct strategic interest in sub-Saharan Africa as they have in Europe, Asia, Oceania, and parts of the Middle East. A business model involving an interlock with a third-party group like MultiChoice gives them access to African audiences, nonetheless. Like the entertainment industry, American tech companies are yet to have a solid direct presence in many sub-Saharan Africa countries. A common approach by Western tech industries in

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Discovery Communications Discovery Channel Discovery World TLC Entertainment

BBC/ BBC Worldwide BBC Brit BBC Earth BBC First BBC Lifestyle BBC World News Cbeebies The Home Channel*

NBCUniversal Studio Universal Telemundo Universal Channel E! Viacom BET BET2 Comedy Central MTV MTV Base Nickelodeon Nick Jr Nick Toons VH1 Classic

21st Century Fox Fox Fox Crime National Geographic National Geographic Wild* Sky News

Sony Sony Sony Max True Movies 1

CBS CBS Action CBS Drama CBS Reality

DStv MultiChoice

AMC Networks AMC Eva English Jim Jam Al Jazeera Media Network Al Jazeera Time Warner Boomerang Cartoon Network CNN International TCM

FIGURE 17.3

International State/Public Owned CCTV News (China) CCTV 4 (China) Duetsche Welle (Germany) ERT Sat (Greece) Rai Italia (Italy) Russia Today (Russia) RTP International (Portugal) TV5 Monde Afrique (France)

Disney Disney Channel Disney Junior Disney XD History Channel Lifetime* Miscellaneous Faith Fashion TV Food Network ITV Choice Rhema TV Trace Urban Travel Channel

Mapping DStv MultiChoice’s International Content Import Grid106

Sub-Saharan Africa

303

sub-Saharan Africa involves philanthropic narratives that see the region as one of their social responsibility projects. Multinational corporations in tech, mostly in collaboration with affiliate foundations, have traditionally approached the region through an aid lens, intending to showcase corporate responsibility programs. This is consistent with how other international multinationals have historically been interested in the region for extractive programs such as oil and gas exploitation, mining, and agribusiness which in turn are distributed internationally. For these corporations, the region has historically represented a market that is at “the bottom of the supply chain rather than a market for serious, business-minded investments.” As a result, companies like Shell, De Beers, and Monsanto have run small-scale philanthropic campaigns and showed little interest in real investment. Google’s Project Loon, for example, aims at providing free Internet access to rural and remote areas through high-altitude balloons placed in the stratosphere. More recently, tech giant Facebook has partnered with French satellite provider Eutelsat to beam Internet access down from space to 14 countries in West, East, and southern Africa.107 Although Facebook has presented the project, originally named Internet.org, as a philanthropic initiative “that expands Internet access in underserved communities,” there are indications this may as well be a long-term profit-driven expansion strategy.108 Access will be limited to what the company labels as the “Free Basics by Facebook” application.109 This essentially makes Facebook “a vertically integrated gatekeeper of carriage and content” where only Facebook and its partners will have access to African users through the Internet.org arrangement.110 Facebook’s strategy of connecting sub-Saharan Africa to the Internet will add millions of new users to the platform, thereby enhancing the company’s appeal to advertisers. In comparison to its American peers, Microsoft’s footprint in sub-Saharan Africa has had a longer history of business operation. The company opened its first office in South Africa in 1992 and expanded to other countries in the region including Senegal, Ivory Coast, Nigeria, Angola, Namibia, Mauritius, Réunion, and Kenya. Microsoft has historically focused on providing its Microsoft Windows operating system and Microsoft Office, the company’s office suite of applications, servers, and services to the region, although recent developments indicate ambitions for diversification. Most notably, the company has launched its $75 million project Microsoft 4Afrika in 2013 that aims at training African web developers, developing locally relevant, Africentric technologies, and increasing Internet accessibility through low-cost smart devices.111 Microsoft 4Afrika departs from comparative tech interventions in sub-Saharan Africa in that it represents a synergistic approach involving social and business ventures. Microsoft has also integrated local language support for its Windows OS (Windows Vista and Windows 7) in African languages such as Afrikaans, Amharic, Hausa, Igbo, isiXhosa, isiZulu, Kiswahili, Sesotho sa Leboa, Setswana, and Yoruba.112 The company’s synergistic approach, coupled with its historical knowledge of the region position it to profit from this largely untapped market that is projected to register substantial economic growth in the next few decades. While American companies are figuring out how to be relevant in sub-Saharan Africa it is Eastern multinationals that are visibly taking a more aggressive push for the region’s market, ranging from telecommunications infrastructure development to consumer electronics. The fast-growing Chinese presence in the region that mirrors recent developments in Sino-African bilateral relations is particularly noteworthy. Although modern Sino-African relations date back to the Bandung Conference of 1955 in which China played a prominent role by advocating for South–South cooperation,113 it wasn’t until the turn of the 21st century that Sino-African relations became institutionalized with the establishment of the Forum on China–Africa Cooperation (FOCAC). FOCAC serves as a platform to promote diplomatic, trade, security, and investment relations between China and African countries.114

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After the first China-Africa Consultative Forum (CACF) in Beijing in 2000, China quickly moved to offer an attractive bundle of incentives on economic, political, and security fronts that significantly departed from traditional Western bilateral practices of tied aid, conditionalities, and structural adjustments. These strategies include, among other things, targeted debt relief; cheap loans linked to infrastructure development; political “non-interference” in the internal policies of African countries; promotion of South–South linkages; support for Africa in global forums such as the United Nations, WTO, IMF, and World Bank; and the establishment of parallel funding agencies to institutions such as the IMF and the World Bank.115 The Beijing meeting was attended by over 800 officials from China and 44 African countries and advocated for “an equitable and just new international political and economic order.”116 Today, China has invested close to $75 billion in the African continent and eclipsed the United States as Africa’s biggest trade partner in 2009.117 In what is a symbolic gesture to the increasingly strengthening ties between China and Africa, the former has fully funded and overseen the construction of the $200 million tower and conference center for the headquarters to the 53 member states of the African Union in Addis Ababa, Ethiopia.118 The fact that China has eclipsed the World Bank to become Africa’s biggest creditor epitomizes the significance of Beijing to the African continent today.119 It is also important to emphasize the oft-overlooked aspect of China’s commitment to the notion of pan-Africanism, both practically and through policy making. As China’s alternative model that blends balanced doses of idealism and pragmatism coincides with Africa’s continued economic growth in the past decade, the current aim of the Beijing Consensus to displace traditional international development practices is momentous if not warranted.120 It is in the midst of this political climate that Chinese telecommunication multinationals, particularly Huawei and ZTE, have become dominant players in telecommunication infrastructure development not only in sub-Saharan Africa but also globally. ZTE, a publicly listed global provider of telecommunications equipment and network solutions with products ranging through “wireless, access & bearer, VAS, terminals and professional services,” is the fifth largest smartphone vendor, with a market share of 4.3% in 2012 at a yearly growth rate of 48.4%.121 After making an initial public offering (IPO) in 1997, ZTE exponentially expanded its overseas sales and services with clients that include major global brands like MTN and Glo in Africa; Etisalat in the Middle East; Vodafone, Telefónica, Telstra, and France Telecom in Europe; and Telus, AT&T, Cricket, T-Mobile, Sprint, Verizon, and Virgin Mobile in North America. It now provides products and services to over 500 operators in more than 140 countries. ZTE Corporation’s major subsidiaries include ZTE (Australia) Pty Ltd., ZTE Deutschland GmbH, ZTE U.S.A Inc., ZTE (HK) Ltd, and ZTE do Brasil Ltd.122 By the end of 2009, ZTE was one of the top three global vendors of GSM telecom equipment with a market share of 20%. ZTE is also a global leader in telecommunications innovation. For the second year running, it was ranked first in international patent applications by the World Intellectual Property Organization (WIPO) in 2012, exceeding other global multinationals like Panasonic, Ericsson, Nokia, and Alcatel-Lucent by some distance. This trend makes ZTE “one of the leading patent holders among vendors in the telecommunications industry internationally, having filed applications for 48,000 patents globally, with more than 13,000 patents granted.”123 ZTE’s nine-month net profit from January to September 2013 registered $90.5 million, a 132% increase from the previous year.124 Like ZTE Corp., Huawei Technologies is headquartered at Shenzhen, China, although its assets, global outreach, and profit margins enormously exceed that of ZTE. Founded in 1987 and registered as an employee-owned company, Huawei provides comprehensive and multi-platform telecom products and services that are related to radio access, fixed access, core network, transport network, data communication, network energy, application and software, server, storage, cloud computing, management and tools, and network security. In 2012, Huawei became the world’s largest telecommunications equipment maker overtaking Swedish telecommunications equipment

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giant Ericsson. In the same year Huawei reported a net profit of $2.5 billion, a 33% rise from 2011. Huawei’s products and services have been deployed in more than 140 countries and it currently serves 45 of the world’s 50 largest telecoms operators.125 Recent data show that Huawei is the largest telecommunications equipment provider in Africa while ZTE the fifth largest.126 There are a couple of different factors that have made ZTE and Huawei dominant in the ICT sector in sub-Saharan Africa. Both ZTE and Huawei have consistently offered lower prices to telecommunication infrastructure development bids, sometimes as high as 40% to displace former dominant players like Nokia, Ericsson, and Siemens.127 More importantly, both companies show a willingness to make investments in the region that would be deemed as high-risk and low-profit by their Western counterparts. Such willingness to scavenge for bids helps ZTE and Huawei establish dominance over an early market share of the region in addition to “future competitive advantage” and “build corporate reputation.”128 Nevertheless, what enables both ZTE and Huawei to enjoy a unique advantage in the region is the strategic financial partnership they have established with state banks to enable vendor-financing schemes. The China Export-Import Bank, established in 1994, has a mission to promote Chinese exports and FDI in infrastructure development including roads, power plants, telecommunications, and so on.129 The China Development Bank (CDB), also established in 1994, is another key player that offers loans to Chinese firms. CDB is particularly appealing to Chinese multinationals that operate on projects in the African continent since it launched an exclusive China-Africa Development Fund to support Chinese FDI in Africa. ZTE’s four-year contract to build a backbone mobile phone network in Ethiopia in 2006 was possible only because CDB handed ETC a 13-year, $1.5 billion loan to finance the project. SINOSURE (China Export and Credit Insurance Corporation) is yet another Chinese financial institution that has, since 2001, provided insurance against the risks involved in Chinese exports and foreign investment.130 Such vendor financing and cheap financing arrangements between these banks and the likes of Huawei and ZTE tip the balance in favor of the Chinese when it comes to competing with telecom equipment providers globally: China Development Bank’s support for Huawei and other Chinese companies is the cornerstone of the country’s “going out” policy, meant to nurture companies in telecommunications, alternative energy and oil. The bank’s low-interest loans dwarf those offered by U.S. and European development agencies, helping Shenzhen-based Huawei and crosstown rival ZTE Corp. increase market share.131 The benefits of vendor financing projects worldwide are therefore even more lucrative to China, particularly in the long run. By extending extremely attractive financing to Chinese multinationals operating globally from its immense capital, China makes it possible for its companies, particularly state-owned enterprises (SOEs), to increase their leverage in securing global contracts and building a global brand name in the process. Clients in sub-Saharan Africa will in turn find such low-cost financing irresistible. This puts traditional Western powerhouses in the global telecom sector, like GE, Siemens, Nokia, and Ericsson, at a disadvantage when competing for telecom markets in developing countries. While the practice of vendor financing is also common in many Western countries, the size of capital that China extends to its SOEs in this regard is incomparable.132

Conclusion The ecology of the media industry in sub-Saharan Africa today has mainly been affected by political changes that have taken place in the region since the 1990s toward market fundamentalism. The focus in this chapter of select multinationals such as MTN, Naspers, and NMG coincides with

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this shift to neoliberalism. A political economic analysis of these multinationals should not be seen as a suggestion that they are the only important regional players. In fact, there are powerful regional forces like the Nigerian film industry that cannot be adequately discussed and analyzed through conventional political economic approaches given their decentralized, vastly non-corporate operations. The likes of MTN, Naspers, or NMG point to the eventual but indispensable institutionalization and corporatization of these other industries in the informal sector as they seek, by their very profit maximization nature, further markets. Today, South African multinationals such as MTN and Naspers have firmly established themselves as the dominant forces in the production, distribution, and exhibition of content/service to sub-Saharan Africa consumers in print, television, digital, and telecommunications platforms. When apartheid ended toward the end the 20th century, conditions were ripe for capitalist South Africa to burst into sub-Saharan Africa and beyond. The rise of a neoliberal path to development after the collapse of the Soviet Union forced internally limited corporations like Naspers to seek further markets in the region. The diplomatic integration of South Africa with the rest of Africa after Nelson Mandela’s African National Congress (ANC) assumed power was accompanied by a “going out” policy of the country’s leading multinationals such as MTN and Naspers. It is no surprise that South African media multinationals currently enjoy a near hegemonic control of the region’s content/service traffic. For example, Naspers Group’s DStv Multichoice has excusive rights to broadcast elite global sports competitions such as the English Premier League, the UEFA Champions League, and the FA Cup to South Africa and the rest of sub-Saharan Africa.133 Another business strategy used by the likes of Naspers to continue as dominant players is to follow the “Netflix model,” where they become both gateways and producers of content, thereby delivering Hollywood blockbusters while producing locally relatable content at the same time.134 With growing mergers and acquisitions, both MTN and Naspers are set to grow in sub-Saharan Africa in the next few decades, further consolidating their position as leaders in their areas of service/content provision. The relative lack of interest in the region by traditional global media conglomerates has paved the way for South African-based companies to capitalize on a rapidly growing market, not only in terms of users but also purchasing power. Global media giants like 20th Century Fox, Disney, Viacom, and Sony have had a marginal direct interest in the sub-Saharan market while tech giants saw the region as a focus of corporate responsibility rather than serious business. The external push for having a stake in the African media and communication market share has rather come from the East, particularly China. China’s increasing bilateral relations with African governments and the attractive economic package it brings to the continent has paved the way for Chinese multinationals such as Huawei and ZTE to dominate African telecommunication infrastructure development projects through vendor-financing arrangements. The favorable financial and diplomatic support these multinationals get from the Chinese government has helped them to displace veteran multinationals such as Nokia and Erickson from the region’s telecommunications sector, which has resulted in ushering in an era of Sino-Africa relations in information communication technologies development.

Notes 1 Many African novelists, playwrights, and poets have eloquently captured the postcolonial disillusionment and frustration of the continent through their writings. Ayi Kwei Armah’s The Beautyful Ones Are Not Yet Born, Ousmane Sembène’s Xala, Chinua Achebe’s No Longer at Ease and Man of the People, Wole Soyinka’s The Interpreters, Ngu˜gu˜ wa Thiong’o’s Petals of Blood and Wizard of the Crow are notable examples. 2 Göran Hydén, “The Governance Challenge in Africa,” in African Perspectives on Governance, eds. Göran Hydén, Dele Olowu and Hastings Okoth-Ogendo (Trenton: Africa World Press, 1999). 3 There is a substantial amount of literature on the concept of neopatrimonialism, including Daniel Bach, “Patrimonialism and neopatrimonialism: Comparative trajectories and readings,” Commonwealth and

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5 6 7 8 9 10 11 12 13 14 15 16

17 18

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Comparative Politics 49, no. 3 (2011): 275–295; Daniel Bach and Mamoudou Gazibo, Neopatrimonialism in Africa and Beyond (Hoboken: Taylor & Francis, 2011); Steven Davies, “The Political Economy of Land Tenure in Ethiopia,” University of St. Andrews, 2008, http://research-repository.st-andrews.ac.uk/ bitstream/10023/580/3/StevenJDaviesPhDThesis.pdf; Gero Erdmann and Ulf Engel, “Neopatrimonialism Reconsidered: Critical Review and Elaboration of an Elusive Concept,” Commonwealth & Comparative Politics 45 no. 1 (2007): 95–119; Atul Kohli, State-directed Development: Political Power and Industrialization in the Global Periphery (Cambridge: Cambridge University Press, 2004); Richard Sandbrook, Closing the Circle: Democratization and Development in Africa (London: Zed Books, 2000). The Washington Consensus represents the set of views about effective development strategies that have come to be associated with institutions based in Washington, DC.: the IMF, the World Bank, and the U.S. Treasury. The Washington Consensus, according to Williamson was “a response to a leading role for the state in initiating industrialization and import substitution. The Washington Consensus said that this era was over.” See John Williamson and Institute for International Economics, Latin American Adjustment: How Much has Happened? (Washington, DC: Institute for International Economics, 1990), 102. Proponents of the Washington Consensus argue that the original conception had three central ideas: a market economy, openness to the world, and macroeconomic discipline. David Cingranelli and Rodwan Abouharb, Human Rights and Structural Adjustment (Cambridge: Cambridge University Press, 2007); Walden Bello, Dark Victory: The United States, Structural Adjustment, and Global Poverty (London: Pluto, 1994). Manfred Steger, Neo-liberalism: A Very Short Introduction (Oxford: Oxford University Press, 2010). Thandika Mkandawire and Charles Soludo, Our Continent, Our Future: African Perspectives on Structural Adjustment (Trenton: Africa World Press, 1999). Ray Bush, Poverty and Neo-liberalism: Persistence and Reproduction in the Global South (London: Pluto, 2007). Fred Swaniker, “Africa’s Rising Economies.” Survival 55, no. 4 (2013): 129–142. Devarajan, Shantayanan, and Wolfgang Fengler, “Africa’s Economic Boom: Why the Pessimists and the Optimists Are Both Right.” Foreign Affairs 92, no. 3 (2013): 68–81. MTN Group. “MTN Integrated Business Report 2005,” www.mtn.com/Investors/FinancialReporting/ Documents/INTEGRATEDREPORTS/2005/ar_2005_intergrated_sustainability.pdf, accessed March 2, 2015. “MTN’s FY Earnings up Nearly 9 pct after Nigeria Boost,” Reuters, www.reuters.com/article/ 2015/03/04/safrica-mtn-results-idUSL5N0W41RF20150304?type=companyNews, accessed March 11, 2015. David Furlonger, MTN Remains in Top Global Brand List, Financial Mail, May 22, 2014, www.financial mail.co.za/mediaadvertising/2014/05/22/mtn-remains-in-top-global-brand-list MTN Group. “Integrated Business Report for the Year Ended 31 December 2014,” www.mtn.com/ Investors/FinancialReporting/Documents/INTEGRATEDREPORTS/2014/MtnGroupIntegrated_ Report2014.pdf, accessed March 2,2015. Ibid. MTN Group, “Profile and Structure,” www.mtn.com/MTNGROUP/About/Pages/ProfileAnd Structure.aspx, Accessed March 7, 2015. Note that MTN Group Ltd. divides its operation in four clusters, namely, South Africa, Nigeria, large operating companies (Large opcos), and small operating companies (Small opcos). The Large opco cluster includes operations in Iran, Ghana, Syria, Côte d’Ivoire, Cameroon, Uganda, and Sudan. The Small opco cluster comprises units in Yemen, Afghanistan, Benin, Congo, Zambia, Guinea, Rwanda, Cyprus, Liberia, Botswana, Guinea-Bissau, Swaziland, and South Sudan. MTN Group, “Integrated Business Report for the Year Ended December 31, 2013,” www.mtn. com/Investors/FinancialReporting/Documents/INTEGRATEDREPORTS/2013/ar_integrated_ report_2013.pdf, accessed March 2, 2015. Two things need to be elaborated here: (1) Average Revenue Per User (ARPU) is a measure of the revenue generated by one customer per unit time, typically per year or month. In mobile telephony, for example, ARPU includes not only the revenues billed to the customer each month for usage, but also the revenue generated from incoming calls, payable within the regulatory interconnection regime; (2) the subscriber/population ratio shows the gross percentile of the subscribers against the entire population of the given country. It should be noted that each subscription doesn’t necessarily represent a unique user, as a single used can hold multiple subscriptions. MTN Group, “Integrated Business Report for the Year Ended December 31, 2014.” Ibid. 51.9 million 3G-enabled devices were operational on the group’s network, representing a 30.4% increase from the previous year. Ibid. Ibid.

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23 Stelios Papadakis, “Technological Convergence: Opportunities and Challenges,” International Telecommunication Union, www.itu.int/osg/spu/youngminds/2007/essays/PapadakisSteliosYM2007.pdf 24 MTN Group. “Integrated Business Report for the Year Ended 31 December 2014,” www.mtn.com/ Investors/FinancialReporting/Documents/INTEGRATEDREPORTS/2014/MtnGroupIntegrated_Re port2014.pdf, 9, accessed March 2, 2015. 25 MTN Group, “Integrated Business Report for the Year Ended 31 December 2014,” www.mtn.com/ Investors/FinancialReporting/Documents/INTEGRATEDREPORTS/2014/MtnGroupIntegrated_ Report2014.pdf, accessed March 2, 2015. 26 Ibid. 27 Ibid. 28 Africa Internet Group, “AIG,” www.africainternetgroup.com/about-us, accessed March 19, 2015. 29 Ibid. 30 See note 12 above. 31 Ibid. 32 Ibid. 33 Afrihost, “The Afrihost Story,” www.afrihost.com/site/page/the_afrihost_story?src=website_nav, accessed March 13, 2015. 34 See note 12 above. 35 MTN Group, “Integrated Business Report for the Year Ended December 31, 2014.” 36 Ibid. 37 Ibid. 38 MTN Group, “Integrated Business Report for the Year Ended 31 December 2014,” www.mtn.com/ Investors/FinancialReporting/Documents/INTEGRATEDREPORTS/2014/MtnGroupIntegrated_ Report2014.pdf, accessed March 2, 2015. 39 EBITDA reflects a company’s net earnings before interest expenses, taxes, depreciation, and amortization are subtracted. EBITDA is commonly used to assess how much profit a company makes with its present assets and its operations on the products it produces and sells. Also, it should be noted that EBITDA and revenue figures are converted from the South African rand (as reflected in MTN Group annual integrated reports) to USD. The conversion rate between the rand and the dollar changed across the 10 years addressed in this summary. The average yearly rate of the rand against the dollar used in conversion calculations is presented as follows: 6.43 (2004); 6.47 (2005); 7.04 (2006); 7.04 (2007); 8.14 (2008); 8.7 (2009); 7.34 (2010); 7.17 (2011); 8.16 (2012); 9.16 (2013); 10.83 (2014). 40 Coverage here indicates population coverage. 41 MTN Group, “Integrated Business Report for the Year Ended December 31, 2014.” 42 Ibid. 43 Ibid., 11. 44 See note 12 above. 45 MTN Group, “Director’s Report for the Year Ended 31 December 2010,” www.mtn-investor. com/mtn_ar2010/fin_dir_report.php, accessed March 15, 2015. 46 MTN Foundation Nigeria, “About MTN Foundation-MTN Nigeria,” www.mtnonline.com/ mtnfoundation/, accessed March 15, 2015. 47 MTN SA Foundation, “History,” www.naspers.com/our-history.html, accessed March 19, 2015. 48 Naspers Group, “History,” www.naspers.com/our-history.html, accessed March 22, 2015. 49 David Lewis, “Apartheid Inc, the story of Naspers, Media24 and Channel Life,” Medialternatives: Alternative Media Perspectives from the South, November 15, 2011, http://medialternatives.com/2011/11/15/mediainc-the-story-of-naspers-media24-and-channel-life/, accessed February 4, 2015. 50 John McDuling, “The Former Mouthpiece of Apartheid is Now One of the World’s Most Successful Tech Investors,” Quartz, January 9, 2014, http://qz.com/161792/naspers-africas-most-fascinatingcompany/, accessed February 4, 2015. 51 Ibid. 52 Ibid. 53 Naspers Group, “Integrated Annual Report 2014,” www.naspers-reports.com/2014/pdf/full-integrated. pdf, 8, accessed March 2, 2015. 54 Naspers Group, “Integrated Annual Report 2014,” www.naspers-reports.com/2014/pdf/full-integrated. pdf, accessed March 2, 2015. 55 Ibid. 56 Ibid. 57 Ibid. 58 Ibid. 59 Lloyd Gedye, “MultiChoice Entrenches its Monopoly,” Mail & Guardian, July 28, 2012, http://mg.co. za/article/2012-07-28-multichoice-entrenches-its-monopoly

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60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97

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Major exceptions include Sudan and Central African Republic. See note 51 above. Ibid. Ibid. Naspers Group, “Our Group,” www.naspers.com/page.html?pageID=3, accessed October 22, 2015. Tencent Holdings Limited, “2012 Annual Report,” www.tencent.com/en-us/content/ir/rp/2012/ attachments/201202.pdf, accessed March 9, 2015. See note 51 above. Naspers Group, “Annual Report 2012 Including Notice of Annual General Meeting,” www.naspers. com/pdf/financials/integrated-annual-reports/ar2012.pdf. See note 51 above as well, accessed March 2, 2015. Ibid. Naspers Group, “OLX,” www.naspers.com/page.html?pageID=20&parentID=70&contentIDChosen =4&operation=olx, accessed March 12, 2015. Naspers Group, “Dubizzle,” www.naspers.com/page.html?pageID=20&parentID=70&contentID Chosen=104&operation=dubizzle, accessed March 12, 2015. See note 51 above. Ibid. See note 46 above. Ibid. Naspers Group, “Our Footprint” www.naspers.com/where-we-operate.html, accessed October 22, 2015. Naspers Group, “Integrated Annual Report 2014,” www.naspers-reports.com/2014/pdf/fullintegrated.pdf. Please refer to note 37 for conversion rates, accessed March 2, 2015. Ibid. Ibid. Naspers Group, “Corporate Governance,” www.naspers.com/pdf/governance/corporate-governance. pdf, accessed March 12, 2015. Ibid., 4. See note 72 above. Financial Times, “Equities,” http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s= NPN:JNB, accessed February 4, 2015. Naspers Group, “Education and Skills,” www.naspers.com/page.html?pageID=45, accessed March 12, 2015. Ibid. Naspers Group, “Case Studies Library,” www.naspers.com/page.html?pageID=49, accessed March 12, 2015. Aga Khan Development Network, “Aga Khan Fund for Economic Development,” www.akdn.org/ akfed_media.asp?type=p, accessed February 23, 2015. Nation Media Group, “Annual Report and Financial Statement 2009,” www.nationmedia.com/ docs/2009_NMG_Annual_Report.pdf, accessed March 2, 2015. Ibid., 7. Ibid. Ibid. Nation Media Group, “Our Business,” www.nationmedia.com/, accessed March 2, 2015. Ibid. Ibid. BuzzKenya, “Daily Nation Newspaper and Facts about Nation Media Group,” http://buzzkenya. com/daily-nation-newspaper-media-group/, accessed February 3, 2015. Ibid. See note 80 above. Nation Media Group, “Annual Report and Financial Statement 2009,” www.nationmedia.com/ docs/2009_NMG_Annual_Report.pdf, accessed March 2,2015.; Nation Media Group, “Annual Report and Financial Statement 2012,” www.nationmedia.com/docs/NMG_2012_Annual_Report.pdf, accessed March 2, 2015.; Nation Media Group, “Audited Group Results for the Year Ended 31st December 2014,” www.nationmedia.com/docs/2014AnnualResults.pdf, accessed March 2, 2015. Nation Media Group, “Annual Report and Financial Statement 2009,” www.nationmedia.com/ docs/2009_NMG_Annual_Report.pdf, accessed March 2, 2015. Ibid., 11. Nation Media Group, “Annual Report and Financial Statement 2013,” www.nationmedia.com/ docs/NMGANNUALREPORT2013.pdf, accessed March 2, 2015.

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101 Rwanda Investor, “NMG Shareholding,” http://rwandainvestor.com/companies/nation-media-group/ overview/shareholding/, accessed October 22, 2015. 102 Arvato Bertelsmann, “About Us,” www.arvato.co.za/en/about-us/who-we-are.html, accessed October 10, 2015. 103 The Walt Disney Company, “South Africa,” https://thewaltdisneycompany.com/about-disney/disneyaround-the-world, accessed October 15, 2015. 104 Adventures By Disney, “South Africa,” www.adventuresbydisney.com/asia-africa-australia/southafrica-vacations/, accessed October 15, 2015. 105 Disney, http://disney.co.za/, accessed October 15, 2015. 106 DStv Multichoice, “Products and Packages,” https://selfservice.dstv.com/products, accessed October 20, 2015. 107 Heather Kelly, “Facebook to beam free internet to Africa with satellites,” CNN Money, October 5, 2015, http://money.cnn.com/2015/10/05/technology/facebook-africa-satellites/ 108 Internet.org, “About us,” https://internet.org/about, accessed October 21, 2015. 109 David Post, “Facebook, Internet.org and the Net Neutrality Bugaboo,” Washington Post, August 17, 2015, www.washingtonpost.com/news/volokh-conspiracy/wp/2015/08/17/facebook-internet-organd-the-net-neutrality-bugaboo/ 110 Ibid. 111 Elise Knutsen, “Microsoft’s 4Afrika Initiative is Good Business,” Forbes, February 6, 2013, www.forbes. com/sites/eliseknutsen/2013/02/06/microsofts-4afrika-initiative-is-good-business/ 112 Microsoft Corporation, “National Language Support (NLS) API Reference,” www.microsoft.com/ resources/msdn/goglobal/default.mspx, accessed October 19, 2015. 113 The Bandung Conference of 1955, attended by representatives of 29 Asian and African countries, marked the first serious attempt to renew Afro-Asian relations in the areas of the role of the Third World in the Cold War, economic development, and decolonization. It set important benchmarks in shared concerns of participant nations like political self-determination, mutual respect for sovereignty, nonaggression, non-interference in internal affairs, and equality. 114 Ian Taylor, China’s New Role in Africa (Boulder, CO: Lynne Rienner, 2009). 115 Deborah Brautigam, The Dragon’s Gift: The Real Story of China in Africa (Oxford, New York: Oxford University Press, 2009); Joshua Eisenman, Eric Heginbotham, and Derek Mitchell, China and the Developing World: Beijing’s Strategy for the Twenty-first Century (Armonk, NY: M.E. Sharpe, 2007). 116 FOCAC, “Beijing declaration of the Forum on China-Africa Cooperation,” www.focac.org/ eng/ltda/dyjbzjhy/DOC12009/t606796.htm, accessed May 12, 2015. 117 Benjamin Chantelle, “Africa isn’t a Big bull in China’s Shop,” Mail & Guardian, June 21, 2013, http://mg.co.za/article/2013-06-21-00-africa-isnt-a-big-bull-in-chinas-shop; Claire Provost and Rich Harris, “China Commits Billions in Aid to Africa as Part of Charm Offensive,” The Guardian, April 29, 2013, www.theguardian.com/global-development/interactive/2013/apr/29/china-commits-billionsaid-africa-interactive 118 Ighobor Kingsley, “China in the heart of Africa: Opportunities and Pitfalls in a Rapidly Expanding Relationship,” Africa Renewal Online, January 15, 2013, www.un.org/africarenewal/magazine/january2013/china-heart-africa 119 Christopher Swann and William McQuillen, “China to surpass World Bank as top lender to Africa,” Bloomberg, November 3, 2006, www.bloomberg.com/apps/news?pid=newsarchive&sid=aZ4KJu1kja.g 120 The “Beijing Consensus” was originally coined by Joshua Cooper Ramo to indicate the preeminence of a new Chinese-inspired strategy in global economic development that contrasts with the so-called Washington Consensus. The Washington Consensus proposes policy recommendations that espouse liberalization, privatization, and deregulation, principles that are closely associated with the neoliberal ideology, free market capitalism, or market fundamentalism. Instead of prescribing rigid recommendations for the problems of distant nations, the Beijing Consensus, Ramo argues, is inherently focused on innovation while simultaneously emphasizing ideals such as equitable development and a “Peaceful Rise.” For more, see “The Beijing Consensus” by Joshua Cooper Ramo (The Foreign Policy Centre, 2004). 121 Mat Smith, “IDC: Samsung extends Lead over Apple in Smartphone Marketshare, while Huawei and ZTE Increase Influence,” Engadget, January 25, 2013, www.engadget.com/2013/01/25/idc-samsungextends-lead-over-apple-q4–2012-smartphones/ 122 ZTE Corporation, “Annual Report and Financial Statement 2013,” wwwen.zte.com.cn/en/about/ investor_relations/circular/201304/P020130414674755060043.pdf,” accessed March 2, 2015. 123 ZTE Corporation, “ZTE Ranked no. 1 in Patent Applications for Second Strait Year,” wwwen.zte. com.cn/en/press_center/news/201303/t20130321_391025.html, accessed September 17, 2015. 124 Ibid.

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125 The Economist, “Who’s Afraid of Huawei?,” August 4, 2012, www.economist.com/node/21559922 126 Alfred Wong, “China’s Telecommunications Boom in Africa: Causes and Consequences,” E-International Relations, September 21, 2015, www.e-ir.info/2015/09/21/chinas-telecommunications-boom-inafrica-causes-and-consequences/ 127 Ibid. 128 Ibid. 129 Jian-Ye Wang, What drives China’s growing role in Africa?. No. 7–211. International Monetary Fund, 2007. 130 Mary-Françoise Renard, “China’s Trade and FDI in Africa,” African Development Bank Group Working Paper Series 126 (2011). 131 Bloomberg News, “Huawei’s $30 Billion China Credit Opens Doors in Brazil, Mexico,” April 25, 2011, www.bloomberg.com/news/2011–04–25/huawei-counts-on-30-billion-china-credit-to-open-doorsin-brazil-mexico.html 132 Huawei has a $30 billion credit line with China Development Bank, while ZTE has a $15 billion credit line. Such support for Chinese multinationals extends to every sector in which Chinese firms compete globally. 133 Channels TV, “SuperSport Retains Right to Show English Premier League in Nigeria till 2016,” August 4, 2015, www.channelstv.com/2012/09/27/supersport-retains-english-soccer-rights-til-2016/ 134 Mnet, “History,” September 12, 2015, http://mnetcorporate.co.za/history/

18 EASTERN EUROPE Sandra Baši´ c Hrvatin and Brankica Petkovi´ c1

Perhaps this contribution on media giants in Eastern Europe should begin with a remark that there is no Eastern Europe and there are no media giants there. Why? First, because the notion of Eastern Europe is not a harmless technical or geographical concept, especially where the political economy of media is concerned. Second, because the media giants there are of a peripheral and, in most cases, local character. Usually they emerge, operate, and disappear within the spheres that elude market laws, and their disputable giantism is most often not related to successful business strategies but rather to their convenient instrumentalization in the service of political-economic networks that have hijacked the states and their media systems. Rather than media giants in the market sense, they are in many cases local media oligarchs whose “business model” rests on vast (political) control over the non-transparent flow of money. Therefore, our attempt to present the political and economic context that enabled the emergence of such large media corporations and to delineate specific examples is obstructed by the problematic definition of Eastern Europe. It is the region that carries the stigma of post-communism and the related role of “nations in transition” under paternalism of the “West.” Consequently, the legal frameworks across this area unsuccessfully imitate “Western” models. What should be a media market is an area weighed down by the impacts of deplorable developments of the past two decades: the ill-conceived privatization of former stateowned media corporations, the arrival and then withdrawal of predatory Western money, nontransparent media ownership, and media financing controlled by corrupt political and economic groups that abuse national financial sources and institutions to achieve their own ends. However, it would be wrong to conclude that this pessimistic description is an acknowledgement of the historically or culturally conditioned inferiority of the media economy in Eastern Europe, or of Eastern society in general. Quite the contrary, these media systems are in a sense a product of the West and of an inefficient and essentially undemocratic policy of indiscriminate adoption of Western models, which are themselves in need of radical change.

Historical Context: There is No “Eastern Europe” The historical (over-)burden of the region analyzed here therefore began with the delineation of the region—where does Eastern Europe begin and how far does it stretch? The mapping of a region involves not only the determination of its geographical coordinates, but also political constructs about a specific region (too often transposed to theory without much reflection). The naming of the region is at the same time its interpretation—the point from which one observes

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determines what one actually sees. There is nothing that could really be called “Eastern Europe,” there are only (various) ways in which we perceive a specific region which the “Western Europe” (or the “West”) geographically placed in the East and thus excluded from its own political space. In the absence of historical reflection and self-reflection, the political (and consequently, the academic) discourse allowed another concept to creep in, that of “nations in transition,” and it resulted in the common political narration of “transitology.” The transition to democracy (or to be more precise, from communism to capitalism) has been presented as a radical reconstruction of societies without history or of immature nations that still have to learn how to live with democracy. As Buden claims, “it is amazing that no one has remembered to ask who if not civil society of Eastern Europe brought the downfall of an ancient regime.”2 The political elites of the East have perceived the process of change as “compensatory revolution,” one that makes up for the past and for what has been missed, its end goal being the integration into the Eastern “normalcy.”3 And vice versa, the West as the “owner” of the original concept obtained the right to exercise absolute control over the changes that swept the East. The result has been the creation of systems that have become more capitalistic than their Western counterparts, and on top of that ruthless, savage, and not bound by any restrictions.

The Political Context: The Hijacking of the State The emergence of the “media giants” in “Eastern Europe” is an outcome of the specific trends that produced the media landscape, including owners and ownership, as we know them today. One should also note that before “transition to democracy,” the media of these countries had been owned and controlled by the state (with the ex-Yugoslav countries having a special form of collective ownership), particularly the broadcast media. The advertising market was very restricted or nonexistent, while the state fully covered the costs of printing, gave subsidies for printing paper, and had control over the distribution system. The political changes of the early 1990s showed that the countries of “Eastern Europe” “had no strategy and still less political will to define the media policy for the future. [. . .] [T]he freedom of public expression was simply equated with the freedom of ownership. The opinion that prevailed was that the privatization of the media (the presence of known owners in the sphere formerly devoid of owners) would be a sufficient safeguard against interference by the state.”4 The gradual dissolution of the state and its public functions, orchestrated by the political and economic elites during the times of politically guided privatization, produced vague media legislation and media systems that became mired in political clientelism and nontransparent ownership. Further, these systems were overwhelmed by tycoons and oppressed by the politically guided advertising market, weak regulatory bodies that never managed to ensure real independence for themselves, the precarization of the journalistic profession, the erosion of professional standards, and the incessant politicization and financial exhaustion of public radio and television services. The “transition to democracy” resulted in a devastated media landscape with the biggest winners becoming small owner cliques with very influential political backing. A research on media ownership in 2004 that covered 18 Central and Eastern European (CEE) countries5 revealed “the close interrelation of media, political and economic capital (sometimes in the hands of a single person) [. . .] . In transforming their media systems, post-socialist countries looked for clear ‘European standards’ [. . .], they turned to the solutions and models employed by established European democracies.”6 The 2014 research study that covered five countries from the previous sample showed that the findings of the 2004 survey continue to be valid even today. As Hrvatin and Petković claim, “the only difference is that the problems identified in 2004 have in the meantime become part of the system which itself has become sacrosanct and therefore impervious to change. Moreover, what at first glance appeared to be a ‘problem of post-socialist countries,’ has turned out to be a global media problem. In this respect, no differences between

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the East and the West exist any longer.”7 In some countries, the situation today is even worse than it was a decade ago. In Macedonia, for example, a decade of changes led to a paradox where “media freedoms were broader under the restrictive media legislation and vice versa, once the legislation was fully harmonized with the fundamental European standards, media became much more dependable on various interests and journalism fully degraded and unprofessional.”8 In most of these countries, media laws were literally copied without taking into account the legal system, cultural context, and traditions of the target country (and accordingly, an overview of media laws across the countries of Eastern Europe will clearly reveal the country of origin of independent experts who were recruited as advisors in the process of drafting media regulation). During the period of accession negotiations, Slovenia, Croatia, the Czech Republic, Slovakia, Hungary, Bulgaria, Romania, and Poland adapted their laws to the EU legal framework, which indeed did not offer any solution or safety valves to protect their undeveloped and politically controlled media systems and media markets. Once these countries became EU member states, the external supervision over media policy and a national public debate on media freedoms ceased. As a consequence, some countries (Hungary, Romania, and Bulgaria) saw their media freedom decrease. Today, the media space in most of these countries is fragmented and dominated by local owners for whom media business is just a supplementary activity intended to advance their economic and political interests.

The Economic Context: The Politically Strong “Media Dwarfs” Media markets in Eastern Europe virtually do not exist in the purely economic sense of the word. The majority of the media critically depend on the advertisements commissioned by state bodies and institutions. These are awarded to select (politically loyal) media rather than being based on economic criteria. Although at first glance large media companies in “Eastern Europe” may appear to be media “dwarfs” compared to large European and global corporations, their influence importantly exceeds the value of their media capital. The (print) media privatization process and the uncontrolled commercialization of the broadcast media that began in the early 1990s probably constitute the “first sin” that led to the current state of affairs. In some countries (the Czech Republic, Slovakia, Hungary) the privatization was “spontaneous.” In others (the countries of ex-Yugoslavia and Bulgaria), the non-transparent and unfinished privatization process saw the entry of an important German media player—the WAZ Media Group. The offhand purchases hidden from the public eye (and from the eyes of the very employees working for these media) took place during the period when the chairman of WAZ was Bodo Hombach (2002–2012), the former chairman of the Stability Pact (a political association established by the EU with the goal of stabilizing the countries that emerged when Yugoslavia disintegrated) and a close friend of the former German PM from the Social Democratic Party. Hombach used his political connections to conclude agreements that were very favorable for WAZ. Less than a decade later, WAZ withdrew as the media owner, leaving behind virtually devastated media landscapes (Serbia, Macedonia, Bulgaria) and a dysfunctional advertising market (Bulgaria). New, local owners stepped in, obtaining media shares through non-transparent processes. In other countries, too, the former state-owned media were first sold to foreign investors and later re-sold to a company or owners who were close to the political elite of the time. In the television and radio sector, the rapid liberalization and commercialization led to a multitude of small owners. In most countries, this resulted in an excess of regional and local radio and television stations that depend exclusively on the subsidies from local or national bodies, or advertisements controlled by these entities, for their survival. A smaller number of radio and television stations are in the hands of the European or global media corporations (RTL, Antenna Group, Al Jazeera, CNN).

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One international media corporation that could be considered a major regional player is the American-owned CME—Central European Media Enterprises, founded by Ronald Lauder in 1994 and owned by Time Warner since 2009. Its strategy has been “to pair its financial power and expertise with local entrepreneurs who hold broadcasting licenses in various Eastern European countries and operate television stations with programming calculated to appeal to popular tastes” (Pederson, 2004). Partnering with local broadcasters was also a way of sidestepping the legal provisions that restricted foreign ownership. Starting with the Czech Republic in 1994, CME extended operations to Romania and Slovenia (1995), Slovakia (1996), Ukraine, Hungary, and Poland (1997), Croatia (2004), and Bulgaria (2010). It later abandoned operations in Ukraine, Hungary, and Poland, and now runs 33 television channels in six countries. Its channels are market and audience leaders in all of these countries, with a combined television advertising revenue in 2014 of approximately $908 million.9 It should be noted that, at the time when communism was collapsing, the owners and founders of this company had a very important political backing from American embassies in these countries. However, we should not overlook other peculiar East European “giants”—the more or less reformed state television and radio services. By virtue of their budgets, number of employees, scope of production, and political influence, they are media giants per se. Judging by economic indicators, in many countries they are among the most important players on the market. Ownership of cable and satellite platforms in the region went through major changes in the last decade. United Group, majority owned by the American investment firm KKR and the European Bank for Reconstruction and Development (EBRD) as a co-investor, is the largest payTV, telephony, and broadcaster operator in the region, operating in seven countries (Slovenia, Montenegro, Bosnia-Herzegovina, Croatia, Macedonia, Serbia, and Bulgaria). With production centers in Croatia, Serbia, and Bosnia-Herzegovina they produce a round-the-clock news program (N1) through exclusive partnership with CNN. The N1 news program is available to more than 20 million viewers in the Balkans through Total TV owned, by KRR. A second company which dominates the market is Liberty Global. It is the largest broadband Internet service provider in the world, operating in 12 European countries, in some of which, like Poland and Hungary as a market leader. In the terrestrial TV market the biggest television channels are owned by the U.S. companies—Time Warner owns TV Nova in Czech Republic and Markiza TV in Slovakia, Scripps Network Interactive owns TVN in Poland. The dominance of U.S. content is now guaranteed through the ownership of platforms.10 Although the advance of the Internet led to the general conviction that it would automatically entail the long-needed, albeit denied, regulation of media ownership, it gradually became clear that the Internet presented even fewer obstacles to non-transparent owner control over the media and their abuse for political and clientelistic goals. A research project in Macedonia, for example, showed that many media outlets simply serve as a smokescreen for the network of connected individuals and companies with conspicuous political connections who abuse the media to do away with their political opponents and to funnel state funds to their media. During the past two decades, the media space has mainly been controlled by the same individuals, the so-called “mandarins of communication,” as Serge Halimi named them.11 Their media power springs from the political power, and, in turn, reinforces it.

Cultural Effects: The Monochromatic Media World Devastated media systems cannot but have an impact on culture, both professional journalistic culture and that created by the production and dissemination of media content. The monochromatic media space is primarily reflected in media content production. The alignment of content, its commercialization, the dependence on advertising revenues, the almost destroyed

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professional organizations of journalists and other media employees, the lack of solidarity among them, the fall in daily newspaper readership, the fragmentation of radio and television audiences— all of this creates a media space in which quality, independent media work in the public interest can survive only with difficulty. Croatia, for instance, has been left without a quality daily newspaper; all that remains are tabloids and semi-tabloids. The conclusion of the author who researched media integrity in Croatia also holds true for many other countries in the region: “Media content and form has changed, especially in the last decade, and includes sensationalistic reporting, crime stories, celebrity coverage, and advertising to a large extent.”12 Inside this monolithic, corporate media world there are still “islets of freedom,” i.e., the media founded by journalists, or various civil group coalitions or associations of investigative journalists who attempt, primarily relying on international financial aid, to research the stories that the large media either find uninteresting or unappealing. The examples analyzed in the remainder of the chapter are locally created media conglomerates rather than those backed by international conglomerates. As such, they best describe the specific media situation in the region and the developments that led to it. The Pink Group initially comprised one radio and one television station in Serbia and later evolved into a leading broadcasting and production company in the Balkans. The Polish media company, Agora, started with an independent newspaper owned by journalists, Gazeta Wyborcza, but today it is a corporation listed on the London and Warsaw stock exchange. The Hungarian “party-controlled-state media empire” displays all the typical traits characterizing the interconnection of political clientelism and the hijacking of the state and media for political party needs.

Former Yugoslavia: Pink Media Empire The Pink Group is a paradigmatic example of the media empire that emerged from the chaos brought about by the war and disintegration of the socialist system in the former Yugoslavia. It pursues a commercial television model that offers cheap entertainment to the audience and media support to the political elite in power.

History The beginnings of the Pink media empire stretch back to 1993 when Željko Mitrović established Radio Pink, one of the first private commercial musical radio stations in the unregulated broadcast market in Serbia during the Milošević era. As Mitrović says, initially Radio Pink was a semi-pirate station, which later “made advantage of vague legal provisions to obtain the legal status.”13 In 1994, he launched Televizija Pink (Pink Television). The formal basis for this move was an agreement on business and technical cooperation with the state radio and television company, Radiotelevizija Srbija. Officially, Pink Television shared its broadcasting frequency with the state television station, and in return the latter had the right to use Pink Television studios. This business maneuver had political consequences. It was the period of war in the former Yugoslavia and Serbia was under sanctions. With its commercial programming content that consisted of “light programs, without news or any mention of the war and the economic sanctions,”14 Televizija Pink easily managed to attract a large audience. Mitrović was an active member of the parliamentary party led by Slobodan Milošević’s wife, Mirjana Marković, and her candidate at the elections. At that time, Televizija Pink’s head office was in the commercial building where both Slobodan party and his wife’s party had premises. This was the building that in 1999 was bombed by NATO for being “a symbol and the actual center of the political and media power of Milošević’s regime.”15 The democratic changes in Serbia

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in 2000 did not affect Mitrović; no legal or political sanctions were imposed on him for the unlawful launch and operation of the television station. Instead, he was even able to expand his media empire, not only across Serbia but also other territories of the former Yugoslavia.

Economic Profile Željko Mitrović is the sole owner of the Pink International Company, registered in Serbia, which is the legal entity behind the Pink Group. While the showcase part of his media empire is television—several tens of commercial, terrestrial, cable, and satellite channels broadcast in Serbia and other countries of ex-Yugoslavia—the company also owns a radio station, a record label, film studios, a CD/DVD publisher, and even an airwline company.16 The report on the ownership structure and control over media in Serbia, published in February 2015 by the governmental Anti-Corruption Council,17 lists a dozen companies with headquarters in Serbia founded by the Pink International Company or Željko Mitrović personally, in addition to four related entities with headquarters in other countries of the former Yugoslavia, all of them the publishers of television channels: PINK BH (Bosnia-Herzegovina), PINK M (Montenegro), PINK SI (Slovenia), and K-15 Televizija (Macedonia). Today, Pink Television is the second most popular station in Serbia, behind the public service broadcaster RTS (AGB Nielsen, December 2014), and it has a 40–45% share of the advertising market. Pink subsidiaries are also top-ranking television channels in terms of audience and market share in Bosnia-Herzegovina and Montenegro, closely competing with the national public service broadcasters. Television Pink reaches global audience through Pink International’s licensing arrangements with two satellite television channels, Pink Plus and Pink Extra, whose programming is supplied by Pink International (Pink Television) and Pink BH (Bosnia-Herzegovina). In addition, there are 60 Pink cable channels.18 It is not possible to establish precisely the size of the Pink empire, since media ownership and operation of media companies in Serbia and in other countries where Pink operates is extremely non-transparent. In some of these countries, even data about the media market are disputable and of dubious credibility.19 Pink’s financial report for 2013 (the latest available) shows that Pink International Company had a total income of €35,173,928 and 592 employees. However, the figures are much higher when Pink’s 12 active subsidiaries and affiliates are taken into account, amounting to 854 employees and a total income of €56 million (data for 2013).20 The company has been mired in debt, which is comprised primarily of unpaid taxes accumulated over many years. In February 2015, Pink International Company announced that it had finally settled its state debt by paying 500 million dinars (approximately €4.1 million) for taxes, but it is not clear whether this information is true. The scope of dubious financial transactions is suggested, among other things, by more than 60 lawsuits filed by Pink’s business partners for unpaid bills.21 Pink’s debt also includes unpaid social contributions for employees and unpaid salaries in Macedonia22 and Slovenia.23

Political Profile Željko Mitrović launched Televizija Pink and led it to commercial success during the authoritarian political regime in the 1990s. However, many democratically elected governments, ranging from liberal to nationalistic, have been in power since 2000, and Pink was in favor with each one of them. Such coexistence that rests on the exploitation of populism has thrived not only behind the closed doors, safeguarding Mitrović from unpaid tax penalties and enabling him to obtain broadcasting frequencies, but was also openly displayed on television programmes.

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Cultural Profile While the material scope of the Pink empire is the subject of speculation, its symbolic influence and impact on culture are indisputable. It has played a major part in establishing a paradigm of light entertainment that pays no attention to the distressing heritage of the war and related conflicts. Its hallmark is “turbo folk,” widely popular in the region, promoting an ostensibly apolitical culture that Mitrović described as “an alternative to politics” and one that undoubtedly hits home with consumers. For instance, after the end of the war in the former Yugoslavia, Pink first expanded from Serbia to Bosnia-Herzegovina, quickly achieving great popularity among all the national groups of that fragmented country; obviously, the politics-ignoring entertainment was a common point shared by all the warring parties.24 Pink has also launched aggressive campaigns against anyone threatening the interests of the media group or its owner. It is a symbol of the manipulative and para-political potential25 of commercial channels in societies which, after the rise of nationalism and the disintegration of Yugoslavia, was marked by the public’s disappointment over a non-functioning democracy and the intractable greed and corruption of the political and economic elites.

Poland: Agora Group The rise of the Polish media empire Agora is in many respects a movie-like “success story” about the market economy in an ex-communist state. It is a story about a group of dissidents who launched an opposition newspaper and 10 years later became a billion-dollar company with thousands of employees and shares listed on the London stock exchange.

History Agora SA was founded in April 1989 by the renowned film director Andrzej Wayda and two leaders of the Solidarity opposition movement, Aleksander Paszyński and Zbigniew Bujak. In 1989, Jaruzelski began his famous Solidarity roundtables, during which he agreed to hold partly free elections and allow the opposition to have its own newspaper for the election campaign. Lech Walesa offered editorship to Adam Michnik, a long-time opposition figure and a historian by profession. While Michnik provided a recognizable “face” for the newspaper, operative tasks were entrusted to Helena Łuczywo and Wanda Rapaczynski. Temporarily taking up shop in an empty nursery school, Łuczywo brought her crew to put out what became the first legally independent newspaper in the Soviet bloc: Gazeta Wyborcza (Electoral Gazette). Rapaczynski took over the financial management of the company.26 The first issue of the newspaper had only eight pages and all 150,000 copies were sold. Although initially the newspaper was a body of the coalition of opposition parties, it soon became clear that this “harmony” was short-lived. Walesa repeatedly attacked its editorial policy and demanded that Michnik be sacked, but the newspaper adhered to its journalistic autonomy and professionalism. The reasons for Agora’s success, which largely rest on a successful business model and the struggle for autonomous journalistic work, should also be contextualized within the political climate of the time. The state-controlled privatization and deregulation policies in the print media sector had the goal of creating an economic environment guided by private ownership and market forces. To achieve that goal, it was necessary to dismantle the huge state-owned publishing company RSW (The Workers’ Publishing Cooperative), which for almost half a century fully controlled the operation of the print media. In the late 1980s, at the peak of its performance, RSW was the largest media company of this type in Central Europe.

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Agora began as a company owned by its employees and a large part of its profit was channeled to a fund dedicated to socially responsible journalism. As the company grew, the employee shareholders were confronted with the challenges posed by large institutional owners. In 1993, the American corporation Cox Enterprises bought a 12.5% share (this silent partner was introduced by Rapaczynski). In 1999, Agora became a public company listed on the London Stock Exchange. Overnight, former dissidents become the owners of shares worth several tens of millions of dollars. Ever since then, the business policy of Agora involved successive purchases and takeovers within all media sectors (local radio, journals, outdoor advertising, etc.). In practice, this meant more ownership concentration and less media pluralism. Its ownership structure today reveals the gradual entry of investment funds: an 11% share is owned by the largest Polish insurance corporation, PZU S.A., whose majority owner is the State Treasury, while a 9% share is in the hands of the Dutch investment fund, ING PTE S.A.

Economic Profile Agora’s ownership portfolio is diverse. It includes the most widely read daily newspaper, Gazeta Wyborcza, which has a number of local editions and weekly supplements; Metro, the largest free newspaper in Poland, which is intended primarily for young people; and Gazeta, a photo agency. Furthermore, it owns five widely read specialized journals, three radio stations and the AMS advertising agency that holds one-third share of the advertising market, plus the most visited web portal in the Polish language, www.gazeta.pl. In 2010, it added to its portfolio Helios S.A., a company that manages 34 cinemas, and on March 15, 2014 it launched the movie channel Stopklatka TV in cooperation with Kino Polska TV S.A. Agora is also engaged in book publishing and film coproduction. With more than 3,000 employees and an annual income of €263,131 million (data for 2014), Agora is one of the most powerful media players in Poland and the region. Most of the group’s operating segments have been reporting increasing revenues, with the film and book segments leading the list. This growth results from higher attendance in cinemas and revenues from film distribution and film co-production. Segments that reported lower revenues included Press and Outdoor. In the case of the Press segment, the drop in revenues is mainly connected with the overall drop in advertisers’ expenditures.27

Political Profile It is difficult to pinpoint any direct political connections of Agora. In 2002, Gazeta Wyborcza revealed a corruption scandal later dubbed “Rywingate.” In an interview with the newspaper’s chief editor, Adam Michnik, the movie producer Lew Rywin offered to orchestrate the adoption of a media law (Broadcasting Act), which would enable Agora to obtain a stake in the television company Polsat. Although Lew Rywin claimed that he acted in the name of “a group in power,” suggesting that Leszek Miller, the Prime Minister at the time, was not ignorant of the idea, the investigation (political and criminal) could not prove it. The controversial bill was withdrawn from the parliament and the Prime Minister resigned in 2004.28

Cultural Profile Gazeta Wyborcza is undoubtedly Agora’s most recognizable public “face,” while its public “voice” is its long-time editor Adam Michnik. As the first private and independent newspaper in the former communist bloc, it introduced to the media sphere the standards of professional journalism, investigative journalism, and accountability to the public. In contrast to the majority of new media

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outlets in the region, it also showed that internal owners (employees) could sustain a successful business model. A point that should not be overlooked is that pivotal to the success of this project were two women: one managed the newspaper and then took over the development of online communication, while the other laid the foundations of the financial success of the group, attracted new investors, and remained an influential member of the supervisory board. Since 1999, when Agora became financially oversized and needed additional investments that also contributed to its transformation into the public company, it is clear that the financial success has its price. The ownership structure now includes companies whose primary goal is to make profits. Unfortunately, the experience of many countries (with the “East” brutally displaying all the systemic limitations hampering the survival of independent and quality journalistic work) has shown that financial speculators who own the media put profit before the public interest.

Hungary: A “Party-Controlled State Media Empire” A singular example of an “East European” media giant is one controlled by the Hungarian ruling party, Fidesz. It hijacked the state, colonized the media system, and distorted the media market to create a unique system of influence. To understand how, in about two decades or so, the Hungarian media system became a hostage of the state and its affiliated oligarchs, it is necessary to delineate the long journey that took the media away from the state and then pushed them back into its embrace. The state lost monopoly over the print media in the early 1990s through the process of “spontaneous privatization.”29 In the broadcasting sector, the process lasted until 1997 because of the delays in allotting national radio and television frequencies. Hungary thus earned the status of the best student of the West: privatization was quick and efficient, and the state no longer had any noteworthy role in the media field. In 2004, in his research of media ownership in Hungary, Mihály Gálik noted as follows: “This is clearly not the outcome one would expected from the media transformation accompanying revolutionary changes in the political system in 1998–1990, and this is not the type of scene media scholars draw as a framework for the so-called democratic media.”30 However, with the deepening of the financial crisis in 2008, the perceptible decline in advertising revenues, and the withdrawal of foreign corporations, the predator role of the state in the media sphere began to increase. In this context, we should first give a more precise explanation of what is meant by the term “state.” The Hungarian media space is controlled by the “rightwing media empire,”31 with a group of oligarchs closely related to the ruling party using the media to politically support the government in exchange for a large share of the advertising market. To understand how this system works, it is not required to know who particular media owners are (they too are mired in internal conflicts), but it is necessary to explain how the government— through the legislation and financial power—sustains the system. It rests on an elaborate centralized system of numerous, closely intertwined mechanisms of influence, and the connecting tissue is the ruling party. The product is a monstrous “media giant.”

The Legislative Framework and the Power of the Politically Controlled Media Regulator The new media laws passed in 2010, after the conservative Fidesz Party headed by Viktor Orbán acquired a two-thirds majority in the parliament, established a regulatory framework that enabled a politically controlled and centralized media system. In response to heavy criticism from media freedom advocates and intergovernmental organizations such as the EU and OSCE, the legislation was partly amended in 2011. The amended legislation includes content requirements like the

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obligation to present balanced media content, but this can be freely interpreted by the politically appointed regulatory body and exploited to discipline the critical media. The regulation reduced the protection of journalistic sources and introduced very high fines (up to €700,000) for violation of the law, as well as the option to sanction a media outlet by closing it. In addition, it subordinated all public media—their assets, means of production, employees, and finances—to centralized financial and administrative management under the auspices of the new Media Support and Asset Management Fund, MTVA. The newly established National Media and Infocommunications Authority—whose chairman is appointed by the Prime Minister for a period of nine years with no limitation on the number of terms in office—was invested with the power to impose sanctions against the media, to monitor their compliance with the legislation (including broad powers to launch an investigation into administrative procedures against the media), allocate licenses and concessions, exercise supervision over MTVA, and appoint its leadership. Part of this regulatory body is the Media Council, whose members are appointed by the Parliament for a period of nine years.

MTVA In 2011, MTVA became the owner and financer of many public media. Four television channels are under its control: Hungarian Television M1 and M2, Duna TV, and Duna World. It also controls Hungarian Radio, including MR with six radio stations (the dominant ones being national broadcasters Kossuth Rádió, Petófi Rádió, and Bartók Rádió) and nine regional studios. In addition, it controls the Hungarian News Agency, MTI and six online media. In other words, it now controls all “public” media. The 2014 amendments enable the merging of these media into the joint company Duna Media Service Non-Profit Limited Company. MTVA is also directly involved in the “production, ordering and purchasing of the programmes” for the public service media.32 Information on MTVA business operation is not transparent. Even investigative journalists who file lawsuits for violations of the law on access to public information cannot obtain complete information/data. Despite these restrictions, one thing they managed to uncover was that MTVA had signed many agreements with government-linked private companies and individuals to produce programs for the Hungarian public media.33 MTVA’s annual budget is based on funds allocated by Parliament and the revenues accrued by the regulator (Media Council) through tendering, license fees and fines. The funds allocated by the state to MTVA have been increasing—from $260 million in 201134 to $325 million in 2014.35 In 2011, the commercial revenues of the MTVA amounted to $211 million while more recent data are not available to the public. On the other hand, the number of employees fell from 3,100 in 2011 to 1,800 in 2015; most employees, 900 of them,36 were dismissed immediately after the public media came under centralized management, and among them were many journalists and editors critical of the government. MTVA is practically given its own legal system, or at least an exemption from numerous Hungarian laws. Essentially, it is not subject to copyright laws or, rather, it is subject to an amended version of these laws, and the same goes for labor laws, asset management, public procurement, motorway fees, and value added tax regulations.37

Impact on the Media Market An important element of the media empire under the control of the ruling political party is the channeling of revenues from state-commissioned advertisements. Ever since 2010, the scope of state-commissioned advertisements has been increasing, as has its share of the advertising market

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in Hungary because of the economic crisis and the overall decline in commercial advertising, among other reasons. State-commissioned advertisements are entrusted to loyal media and those owned by party members and allies, which completely disregard market laws. They can secure business success for a media outlet, and vice versa, and the absence of these advertisements may cause business difficulties for the critical media. Furthermore, the practice also influences the behaviour of commercial advertisers, who tend to favor the media preferred by the ruling party for fear of repercussions if they do not follow suit.38 The advertising agencies market is also distorted and instrumentalized. Media advertising agencies play an important role in funneling state funds; those controlled by people close to the ruling party are awarded contracts. It should be noted that two currently favored agencies (IMG and Bell and Partners) had been minor players before the current party won the elections. However, in January 2013 one of them (Bell and Partners), which appeared as a sole bidder, was awarded a contract with the Hungarian Development Bank worth $1.8 million. Another telling piece of information is that the other favored agency was denied membership of the Hungarian professional association of media agencies.39 Interventions into the advertising market were in 2014 extended by introducing advertising tax for the media. The special tax on advertising revenue rises progressively and can reach 40% of advertising income once it exceeds $89.2 million. It strongly affects commercial television, mainly the market leader, German-owned RTL Klub, which is the only media company in Hungary with sufficient revenue to be taxed at the highest rate.

Ruling Party Connections with Media Oligarchs and the Constant Invention of New Controlling Mechanisms of the National Media System The regulatory levers pulled by the government—the allocation of frequencies and imposition of sanctions for the violations of law; the centralized management through the conglomerate of state media; the squandering of state funds through advertising and advertising agencies and the channeling of money to the local media and political party circles; and the instrumentalization of taxation to discipline the media—are used in connection with oligarch media owners loyal to the ruling Fidesz Party. Various analysts mention the dominant trio of Lajos Simicska, Zsolt Nyerges, and Károly Fonyó, who are businessmen with extensive interests in different industries and are protected by their media activities favorable to the government.40 The Hungarian ruling party has created many mechanisms to achieve its goal of controlling the national media system and it continues to invent new ones. Some of these do not involve high financial gains but, when used in combination with other instruments, the financial effect is enormous, as is their political influence and political potential. Once such a highly undemocratic media system is in place, its dismantling becomes an arduous undertaking.

Conclusion Eastern Europe is a difficult subject of analysis. It is burdened by its own history and incapacity to create its own vision for development. The political changes that began in the late 1980s introduced into the political and public discourse the conviction that the market economy is a synonym for democracy. Therefore, it is not surprising that political pluralism was equated with partitocracy and privatization with the creation of new clientelistic networks, and that successive political elites turned the state into their private enterprise. The commitment to liberalize the media sphere and transfer media ownership to private owners was present, or at least professed, but the development over the past 20 years has revealed the

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irony of the undertaking. After the fall of communism, Hungary was the first country in the region to “spontaneously” privatize the media and sell them to foreign owners. Today, it has a media empire controlled by the ruling party that operates with the help of a tight network of legal instruments and institutional obstacles preventing media independence. The global economic crisis proved to be especially detrimental to the weak and small markets of Eastern Europe. It forced foreign media owners who bought local media at low prices in the 1990s to withdraw, leaving media companies to collapse or be bought by local oligarchs. The companies analyzed in this chapter hardly deserve to be called “media giants” according to general criteria. They are far behind global media players in terms of their financial power. The three examples chosen are paradigmatic in that they clearly indicate various strategies used in the building of a national or regional media empire. None, however, accomplished the ostensible goal behind the dismantling of the undemocratic communist system: to democratize public communication. It was partly pursued by the Polish Agora during the early stages of its operation (with Gazeta Wyborcza), but its commercial expansion and eventual transformation into a public company exposed the company to the speculative capital and pushed it off its course, away from the initial ideals. The real winners of the mistaken and harmful media policies in Eastern Europe are media barons. The losers are journalists and other media workers who wasted the dignity of their profession without much resistance. But the greatest losers are citizens, although it should be noted that they willingly abandoned the critical attitude and enthusiasm that initially accompanied demands for freedom of expression and recklessly surrendered to the role of passive consumers of tabloid content. The ultimate consequence of the “transition” is the destruction of society and all social mechanisms that enable citizens to participate in political debates and political decisions. Finally, let us point out again that the story about the media giants and hijacked media in Eastern Europe is not one about the media economy falling victim to Eastern barbarians who are not capable of learning the democratic, market methods. Rather, it is a story about the absence of democracy within the model and the global system in general that protects private interests and suppresses public interest in the communication sphere.

Notes 1 2 3 4 5 6 7 8 9 10

11

The authors are grateful to Jaro Veselinovicˇ and Bojana Barlovac for their assistance in data collection. Boris Buden, Zona prelaska: O kraju postkomunizma (Beograd: Edicija Recˇ, 2012), 48. Buden, Zona prelaska, 69–72. Sandra B. Hrvatin and Marko Milosavljević, Media Policy in Slovenia in the 1990s: Regulation, Privatization, Concentration and Commercialization of the Media (Ljubljana: Mirovni insˇtitut, 2001), 9. Brankica Petković, ed. Media Ownership and Its Impact on Media Independence and Pluralism (Ljubljana: Peace Institute, 2004). Sandra B. Hrvatin and Brankica Petković, “Regional Overview,” in Media Ownership and Its Impact on Media Independence and Pluralism, ed. Brankica Petković (Ljubljana: Peace Institute, 2004, 10). Sandra B. Hrvatin and Brankica Petković, “Regional Overview,” in Media Integrity Matters: Reclaiming Public Service Values in Media and Journalism, ed. Brankica Petković (Ljubljana: Peace Institute, 2014, 10). Snežana Trpevska and Igor Micevski, “Macedonia,” in Media Integrity Matters: Reclaiming Public Service Values in Media and Journalism, ed. Brankica Petković (Ljubljana: Peace Institute, 2014, 259). Central European Media Enterprises, “Company Overview,” www.cetv-net.com/en/aboutcme/company-overview.shtml, accessed March 15, 2015. The authors have checked the data on ownership of cable and satellite operators in the region with kind assistance from media researchers Ilda Londo (Albania), Ilona Móricz (Hungary), Isuf Berisha (Kosovo), Vesna Nikodinoska (Macedonia), Daniela Brkić (Montenegro), Bojana Barlovac (Serbia), and Beata Klimkiewicz (Poland). For the position of the US-based channels in the Czech Republic, Poland, and Hungary in the context of the EU media regulation, see Beata Klimkiewicz, A Polyvalent Media Policy in the Enlarged European Union (Kraków: Jagiellonian University Press, 2014, 172–173). Serge Halimi, Novi psi ˇc uvaji (Ljubljana: Maska and Mirovni insˇtitut, 2002, 17).

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12 Helena Popović, “Croatia,” in Media Integrity Matters: Reclaiming Public Service Values in Media and Journalism, ed. Brankica Petković (Ljubljana: Peace Institute, 2014, 240). 13 Vanja Nezirović, “Mr Pink: Težak sam oko milijardu dolara” (Mr. Pink: I Am Worth Around a Billion Dollars), an interview with Željko Mitrović, Jutarnji list, August 19, 2007, www.jutarnji.hr/template/ article/article-print.jsp?id=232129, accessed March 15, 2015. 14 Jovana Mihajlović Trbovc, “‘Jugosfera’ pod televizijo Pink: od pozabe problematicˇne preteklosti do povezovanja v potrošništvu in zabavi” (The Yugo-sphere Under Pink Television: From Consigning the Problematic Past to Oblivion to Networking Through Consumerism and Entertainment), Medijska preža, 38 (2010): 36. 15 Ibid. 16 Pink Media Group, “About us”, www.pinkmediagroup.net/, accessed March 15, 2015. 17 Savet za borbu protiv korupcije, “Izveštaj o vlasnicˇkoj strukturi i kontroli medija u Srbiji” (Report on the Ownership Structure and Control over Media in Serbia), February 20, 2015, 19. 18 Pink Media Group, “60 Channels,” www.pinkmediagroup.net/download/60channels.pdf, accessed March 15, 2015. 19 For problems related to the transparency and credibility of media market data, see Sanela Hodžić, “Bosnia and Herzegovina,” in Media Integrity Matters, ed. Brankica Petković (Ljubljana: Peace Institute, 2014, 148–150). 20 Serbian Business Registers Agency, Companies Register, accessed February 12, 2015. 21 B. Anđelić, “Mitrovića tuže za 35 miliona dinara” (Mitrović Sued for 35 Million Dinars), Blic Online, February 28, 2015, www.blic.rs/Vesti/Ekonomija/538462/Mitrovica-tuze-za-315-miliona-dinara, accessed March 15, 2015. 22 “Protest ispred zgrade Pink” (Protests in Front of the Pink Headquarters), RTS, June 1, 2012, www.rts.rs/page/stories/sr/story/125/Dru%C5%A1tvo/1113876/Protest+ispred+zgrade+TV+Pink.html, accessed March 15, 2015. 23 Biljana Žikić, “The Inefficiency of Slovenian Regulatory Authorities in the Case of Pink Si,” South East European Media Observatory, April 28, 2014, http://mediaobservatory.net/radar/inefficiency-slovenianregulatory-authorities-case-pink-si, accessed March 15, 2015. 24 Jovana Mihajlović Trbovc, “‘Jugosfera’ pod televizijo Pink: od pozabe problematicˇne preteklosti do povezovanja v potrošništvu in zabavi” (The Yugo-sphere under Pink Television: From Consigning the Problematic Past to Oblivion to Networking Through Consumerism and Entertainment), Medijska preža, 38 (2010): 37. 25 Ibid. 26 Pamela Kruger, “The Best Way to Keep the Devil at the Door is to be Rich,” Fast Company, November 2000, www.fastcompany.com/41711/best-way-keep-devil-door-be-rich, accessed March 15, 2015. 27 Agora Group, “Report for 4Q 2014,” February 20, 2015, www.agora.pl/im/7/17458/m17458877, RAPORT-IVKW-2014-ENG.pdf, accessed March 15, 2015. 28 Beata Klimkiewicz, “Poland,” in Media Ownership and Its Impact on Media Independence and Pluralism, ed. Brankica Petković (Ljubljana: Peace Institute, 2004, 368). 29 For more about “spontaneous privatization” of the media in Hungary see Mihály Gálik, “Hungary,” in Media Ownership and Its Impact on Media Independence and Pluralism, ed. Brankica Petković ( Ljubljana: Peace Institute, 2004, 201, 212, 215). 30 Mihály Gálik, “Hungary,” in Media Ownership and Its Impact on Media Independence and Pluralism, ed. Brankica Petković (Ljubljana: Peace Institute, 2004, 192). 31 Media researchers in Hungary refer to the pro-government media groups as “Fidesz –affiliated media empire” or “right-wing media empire.” See Attila Mong et al., Gasping for Air: Soft Censorship in the Hungarian Media in 2014 (Budapest: Mérték Media Monitor, 2014, 8, 33, 41), http://mertek.eu/ sites/default/files/reports/gasping_for_air.pdf, accessed March 15, 2015. 32 It follows the provision in the Media Act (2010), Article 108(1). See National Media and Infocommunications Authority, Hungary’s New Media Regulation, http://mediatanacs.hu/dokumentum/2791/ 1321457199hungary_new_media_regulation_eng_web.pdf, accessed March 15, 2015; see also critical assessment of the Hungarian media laws, including the sections on public service media, Hungarian Media Laws in Europe: An Assessment of the Consistency of Hungary’s Media Laws with European Practices and Norm (Budapest: Center for Media and Communication Studies/Central European University, 2012), http://cmds.ceu.edu/sites/cmcs.ceu.hu/files/attachment/article/274/hungarianmedialawsineurope0.pdf, accessed March 15, 2015. 33 “Atlatszo fights to expose public media spending,” The Hungarian Media Monitor, May 22, 2013, http://mediamonitor.ceu.hu/2013/05/atlatszo-fights-to-expose-public-media-spending/, accessed March 15, 2015. 34 Zsófia Lehóczki et al., Capturing Them Softly: Soft Censorship and State Capture in Hungarian Media (Paris: WAN-IFRA, 2013, 35), http://mertek.eu/sites/default/files/reports/soft_censorship_angol.pdf, accessed March 15, 2015.

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35 “Hungarian Media Fund Head Resigns after Three Months, Replaced by Former Politician,” Politics.hu, February 14, 2011, www.politics.hu/20110214/hungarian-media-fund-head-resigns-after-three-monthsreplaced-by-former-politician/, accessed March 15, 2015; see also Csaba Toth, “MTVA to announce 4th round of layoffs in 4 years,” Budapestbeacon, November 27, 2014, http://budapestbeacon.com/news-inbrief/mtva-to-announce-4th-round-of-layoffs-in-4-years/15591, accessed March 15, 2015. 36 “Hungary’s MTVA To Axe Another 177 Jobs,” Xpatloop, January 9, 2015, www.xpatloop.com/ news/hungarys_mtva_to_axe_another_177_jobs, accessed March 15, 2015. 37 Attila Mong et al., Gasping for Air: Soft Censorship in the Hungarian Media in 2014 (Budapest: Mertek Media Monitor, 2014, 48 and 49), http://mertek.eu/sites/default/files/reports/gasping_for_air.pdf, accessed March 15, 2015. 38 Zsófia Lehóczki et al., Capturing Them Softly: Soft Censorship and State Capture in Hungarian Media (Paris: WAN-IFRA, 2013, 10), http://mertek.eu/sites/default/files/reports/soft_censorship_angol.pdf, accessed March 15, 2015. 39 Lehóczki et al., Capturing Them Softly, 10. 40 Lehóczki et al., Capturing Them Softly, 32.

19 SOUTH ASIA Pradip Ninan Thomas

Broadcasting in South Asia: The Early Years All countries in South Asia, with the exception of the small, hill kingdom of Bhutan, experienced British colonial rule for three centuries or more. Upon gaining independence, these countries, in particular Burma (now Myanmar), India, and Ceylon (now Sri Lanka) inherited a variety of British institutions including public broadcasting. Radio Colombo, the forerunner of Radio Ceylon was established in 1925, although it became a state corporation in 1966. Burma Broadcasting Service was established by the British in 1946, although it was renamed Myanmar Radio & Television in 1997 by the military junta. On the undivided Indian subcontinent, broadcasting was primarily employed to strengthen empire. All India Radio (AIR), the national network, came into being in 1936 and became an indispensable medium for propaganda, information gathering, and dissemination. In fact, the propaganda was directed at two enemies of the Empire—the nascent Congress pro-independence movement and the axis powers, Germany in particular. Support for Britain’s war efforts in India was not as forthright as the government thought that it would be, and radio was used as an instrument for gaining support. AIR’s role in intelligence gathering continued to be of prime importance. The following excerpt from a directive issued by the Empire Intelligence Service reveals the connections between radio and intelligence gathering: . . . we need our own intelligence organization on the spot, with headquarters in Bombay, controlled and administered by a specially chosen Indian . . . It is clear that the co-operation of All India Radio would be essential but there is every reason to suppose that it would be cheerfully forthcoming. The organization would also be able to produce a skeleton service of information about Burma.1 Pakistan Broadcasting Corporation was established on the eve of Independence on August 14, 1947 while Radio Nepal was established in 1951. Bangladesh Television was established soon after it became an independent nation in 1971. The relationship between state broadcasting and citizens in South Asia has, for the most part, been fraught. After independence, broadcasting continued to be a vehicle for state propaganda and remained a monopoly until the late 1980s. The lack of an identity for the state broadcaster in South Asia has been a recurrent, persistent issue. In Pakistan and Afghanistan this has led to BBC’s Urdu, Pashtu, and Darri language services becoming more trusted as a source of information by majority populations in these two countries, at the expense of their national broadcasters.2

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In the case of India, the largest media market in South Asia, the first Gulf War and the advent of CNN and satellite broadcasting played a pivotal role in hastening deregulation. The cable revolution that began within a regulatory vacuum as a pirate operation led to the eventual liberalization of broadcasting in India. In Pakistan, deregulation occurred a decade later in 2002 and led to the establishment of a number of private television channels with the dominant players including the Independent Media Corporation (IMC), owners of the influential Jang Group of Newspapers, and the ARY Digital TV Network. Table 19.1 illustrates the major private media houses in Pakistan. The IMC, which was established in 1940, is among the earliest media houses in South Asia. Rasul and McDowell, in an article on media ownership in Pakistan, highlight concentrations in media ownership in Pakistan. They argued that the regulatory body the Pakistan Electronic Media Regulatory Authority (PEMRA) has, in spite of rules that exist to curtail cross-media ownership, actively helped in the vertical and horizontal consolidation of media ownership especially by the four major media groups—Independent Media Corporation, Waqt Media Group, Pakistan Herald Publications, and Century Publications. These four companies attract the major share of advertising revenues, and their diagonal expansion has helped in the cross-marketing of products and thus to increased revenues.3 In the post-independence period, state broadcasting in South Asia was primarily used as the means to shore up support for whichever political party was in power. Each of the South Asian countries continued with mixed media ownership policies that were established during British rule, whereby the state controlled broadcasting but allowed all other media including the press and film to be privately owned. While Radio Ceylon did lease broadcasting space for commercial broadcasting, in India, radio broadcasting first, followed by television were resolutely controlled by the state and by the dominant political party, the Congress Party.

Post-Independence Media Concentration in India With the exit of the British in 1947, British owners of newspapers sold their interests to Indian business houses. In the words of Bhaskar: Seth Ramakrishna Dalmia, a leading industrialist, took over the Times of India group, a Chennai business man acquired The Mail . . . The Pioneer of Allahabad, which too was under British ownership went to another industrial house . . . The Statesman’s foreign owners also pulled out. They turned their shares to a consortium of Indian industrialists, including the Tatas and the Mafatlas . . . Towards the end of the colonial period, G. P. Birla, a leading

TABLE 19.1 Pakistan’s Major Private Media Houses

Independent Media Corporation

Geo TV, GeoNews, GeoSuper, GEO Tez, GeoKahani, AAG TV, Jang Group of Newspapers (8 dailies, 4 magazines)

ARY Digital TV Network (ARY Group)

Quran TV, Food & Textiles

Lakson Group

Express News TV, Daily Express, English Tribune, fast food, textiles, tea

Dawn Media Group

Dawn New TV, Daily Dawn, the Herald, www.dawn.com

Nawa-i-Waqt Group

Waqt TV (2 newspapers, 4 weekly magazines, 2 monthly magazines)

Daily Times Group

Business Plus, WikKid (2 newspapers, 4 weekly magazines)

Source: Sherry Ricchiardi, Challenges for Independent News Media in Pakistan (Center for International Media Assistance, 2012)

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industrialist had obtained controlling shares in the Hindustan Times . . . Ram Nath Goenka . . . picked up shares of the madras edition of the Free Press Journal and used it as a launching pad to began building a newspaper empire under the banner of the Indian Express.4 We also see in this period the consolidation of a number of private firms with an interest in the media, telecommunications, and software. The Tatas, one of India’s leading conglomerates, were involved in printing and publishing from 1931, consumer electronics from 1940, and information technology from 1968. In fact, Tata Consultancy Services, which is the premier software company in Indian today, was established in 1968 by a number of ex-IBM employees. Other family based business groups involved in the media industry included the Birlas, who owned the Hindustan Times along with a raft of vernacular publications; the Goenkas, who owned the Indian Express along with other a number of local language-based publications, including the Tamil Dinamani and the Andhra Prabha; and the Mammen Mappillai group in Kerala, who owned the largest circulation vernacular daily, the Malayala Manorama along with other print products. There were also large press houses, such as the Bennet Coleman print empire with their flagship Times of India and the Calcutta-based Ananda Bazar Patrika, who published the Telegraph along with a number of vernacular-language products. Big business houses such as the Birlas held an advantage over the smaller firms because of their access to financial resources and political connections with the ruling Congress Party, but also because of the unrivalled economic power that they enjoyed. The Birlas’ ownership of the Hindustan Times, which was the largest circulation English-language newspaper in North India, was complemented by their ownership of pulp estates, pulp mills, press printing houses, and distribution outlets. This multilayered ownership of the entire process and product chain—from raw material to finished product to the distribution channels—gave the Birlas a competitive advantage over other firms. Monopoly interests were also perpetuated through enduring family links such as those between the Goenkas and the Jains and through shared, mutually beneficial representation on the directorial boards of media houses.5

Deregulation and the Media in South Asia The advent of deregulation and privatization in South Asia from the 1990s onwards resulted in the dilution of cross-media ownership regulations and greater opportunities for a handful of media firms to own holdings across media sectors. A favorable economic environment and the opening up to foreign direct investment (FDI) and private capital investments have contributed to unprecedented media growth in South Asia. The small, land-locked country of Nepal alone is home today to 329 radio stations, 18 television stations, and 3,408 registered print media outlets.6 The major media groups in Pakistan, inclusive of the Jang Group, the Dawn Group, and NawaI-Waqt, have benefited from the economic environment in Pakistan although they have faced major struggles with successive governments. Some of the key challenges for the media in Pakistan include state censorship, an increasingly intolerant climate fueled by extremist, Islamic media, and the inability of the state to provide an enabling environment for media development in Pakistan. In Bangladesh, the liberalization of electronic media has led to private corporations increasingly owning large chunks of the media. An example of such a company is the Transcom Group, which has invested in electronics, mobile phones, food and beverages, along with newspapers, which includes the highest circulation Bengali newspaper Prothom Alo, highest circulation English newspaper, The Daily Star, and ABC Radio.7 In Sri Lanka, despite moves by the state to control broadcasting, there are private media companies, including the Edirisinghe Group that is involved in broadcasting and television, film production and distribution, financial services, and real estate. Media interests of their company,

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EAP Broadcasting Company Ltd., include control of the TV channels ETV1 and Swarnavahini and FM radio stations Ran FM, EFM, and Shree FM, and film distribution that includes 49 film theatres spread throughout Sri Lanka. One of the larger media conglomerates in Sri Lanka is the Maharaja Group, with interests in chemicals and pharmaceuticals, ICTs, media and entertainment, consumer products, plastics, and tea. Their media holdings include three terrestrial channels, including the leading Sinhala TV, as well as four FM radio stations. While there has been exponential growth in and the digitization of the media in South Asia, challenges faced by the media include internal and geopolitical instability in Pakistan, the rise of a nationalist and chauvinist politics in Sri Lanka, severe threats to the freedom of expression in Bangladesh, and a painful transition to democracy in Nepal. The Kingdom of Bhutan, with its commitment to the Gross National Happiness, is an exception to this rule, although it remains relatively insignificant in terms of media. While India too has endured political instability, its economy remains strong and there has been government support for economic liberalization across all media sectors. This makes India one of the world’s leading markets for digital media products and services, a strong manufacturing and IT sector, and a growing middle class who are avid consumers in India’s rapidly growing economy. Table 19.2 summarizes some of the key media houses in South Asia and the country in which they are located. The media industry in India is by far the largest in South Asia. Following the advent of deregulation and liberalization and the growth of regional media markets, there has also been a period of consolidation of ownership and the emergence of a handful of national and regional media empires. While the Telecommunications Regulatory Authority of India (TRAI), which functions as the de facto media regulator, has periodically acknowledged issues with media concentration (most recently in 2014 on cross-media ownership) and circulated consultation and position papers on media ownership (see Recommendations on Issues Related to Media Ownership)8 as a government body beholden to dominant politics, it has remained unable to reform broadcasting in India in any meaningful manner. This regulatory vacuum has facilitated the growth of large media houses, and the following case study of TV 18 illustrates the nexus between big business, politics, and the media.

The Case of TV18 In 2009, Bennet Coleman and Co. was the largest media company in India followed by News Corporation’s Star Network. In less than a decade, Network 18 emerged as one of the top players in the media in India. It is the fifth largest media company in India in terms of market capitalization after Zee TV, the Sun Network, Dish TV, and DB Corp. In 2015, the Zee Network emerged as the largest entertainment network in terms of market capitalization.9 Table 19.3 shows the five largest Indian media companies by market capitalization.

TABLE 19.2 Key Media Houses in South Asia

Zee Entertainment Sun TV Dawn Media Group Nawa-i-Waqt Group Edirisinghe Group Maharaja Group Transcom Kantipur Image

India India Pakistan Pakistan Sri Lanka Sri Lanka Bangladesh Nepal Nepal

TABLE 19.3 Indian Media Companies by Market Capitalization (in crores), 2015 (1 crore Rs = $151,584 according to Sept. 2015 exchange rate)

Zee Entertainment Sun TV Network Dish TV DB Corp TV18 Broadcast

37,399 ($5.6 bn) 14,185.08 ($2.1 bn) 12,092.21 ($1.8 bn) 5728.58 ($868 mn) 5451.67 ($826 mn)

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However, in the light of TV18’s takeover by India’s largest industrial house, Reliance Industries Ltd., it is unquestionably in a position to take advantage of and profit from the various synergies with cognate companies involved in mobile telephony and other digital media. The takeover of Network 18 Media and Investments Ltd and its subsidiary TV 18 Broadcast Ltd in May 2014 by Reliance Industries Ltd (RIL), India’s largest corporation, has effectively made it India’s largest media company. RIL’s consolidated audited information (March 31, 2014) reveals a total income of Rs 443,431 crores ($67 billion) along with a profit after tax of Rs 22,493 crores ($3.7 billion). RIL’s key interests are in petrochemicals, polysters, plastics, and oil and gas explorations, although it has significant investments in retail and joint ventures with a number of iconic global companies, including the U.K.-based Marks & Spencer and Hamleys. According to RIL: Backward vertical integration has been the cornerstone of the evolution and growth of Reliance. Starting with textiles in the late seventies, Reliance pursued a strategy of backward vertical integration—in polyester, fibre intermediates, plastics, petrochemicals, petroleum refining and oil and gas exploration and production—to be fully integrated along the materials and energy value chain.10 RIL is the first private sector company from India to feature in the Fortune Global 500 list of “World’s Largest Corporations” for the last 10 consecutive years. Owned by Mukesh Ambani, RIL’s deal will increase competition with his younger brother, Anil Ambani and his substantive interests in the mobile communications market. A stake in 4G telecom, access to national and regional television channels, commercial websites, and other media has given RIL advantages over all of its competitors, including the Bennet Coleman Group and News Corporation. Originally founded by Raghav Bahl, the company experienced financial difficulties in 2011 and RIL was approached and raised close to Rs. 4000 crores ($730 million) from rights issues (through shares being issued to existing shareholders) in 2012–2013. This led to RIL’s shareholding in Network18 rising to 78% and its shareholding stake in TV18 to 9%.11 In 2012 RIL invested in the Eenadu TV Group, based in Andhra Pradesh that is owned by Ramoji Rao, a benefactor of the late chief minister of Andhra Pradesh, N.T. Rama Rao and his son-in-law, Chandrababu Naidu who is presently chief minister of the newly bifurcated state of Andhra Pradesh. Eenadu controls a variety of regional television channels throughout the country in both North and South India, particularly in the state of Andhra Pradesh. Network 18 was listed on the Bombay Stock Exchange and the National Stock Exchange on 2 February 2007.12 Paranjoy Thakurta, who has co-authored the book Gas Wars: Crony Capitalism and the Rise of the Ambanis,13 is also among the most perceptive commentators on issues related to media ownership and control in India. He has highlighted the fact that Raghav Bahl’s approach to financing his company was very much like that of the Reliance Group. In his words: Like the Reliance group, the Network18 group set up dozens of companies, including some in tax havens like Mauritius, with complicated cross-holdings of shares. Like the Ambanis, Bahl and his associates struck multi-layered deals that often concealed more than what was revealed. Closely-held companies were used for this purpose. For instance, IMT subscribed to debentures in RB Mediasoft Pvt Ltd, RRB Mediasoft Pvt Ltd, RB Media Holdings Pvt Ltd, Aventure Marketing Pvt Ltd, Watermark Infratech Pvt Ltd and Colorful Media Pvt Ltd, all of which were controlled by Bahl.14

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TV18’s digital content covers news and entertainment, markets and finance, online shopping and ticketing, and mobile phone service and applications. This includes Moneycontrol.com, India’s leading business and finance platform, FirstPost; India’s sole and largest Digital Newsroom, IBN Live.com that is available in both Hindi and English and leverages the opportunity of cross-media convergence with podcasts and live streaming of definitive news content; IBN Khabar.com that represents IBN7 on Digital platforms; News18.com, the In.com portal that acts as their aggregator platform; and mobile applications across numerous mobile devices.

TV18’s Digital Future Reliance Jio is an integrated company that offers a voice and broadband network, smartphones, content, and applications that are based on a combination of telecom, high-speed data, digital commerce, and media and payment services. The company’s capabilities are based on its ownership of 250,000 km of fiberoptic cables that cover 18,000 cities and 200,000 villages. In addition, Reliance Jio provides the hardware and software for content distribution across multiple mobile devices. The company invested in a variety of digital platforms that are based on a broadband vision for the entire nation. The company’s services are detailed in Table 19.4. Reliance also owns a range of mobile retail shops and services including Reliance Digital, Digital Express, Digital Express Mini, iStore, and Reliance Digital Service Centre.

TV18 Financial Data Television 18 made a consolidated net profit, of Rs. 60.37 crores, in the third quarter fiscal ending December 31, 2014. Total income from operations stood at Rs 607.23 crores as compared with Rs 503.58 crores in 2013. In December 2014, the parent body RIL controlled 60.42% of shares (share value Rs 35.35), with the rest of the equity of 1,714,148,636 shares owned by a variety of public entities. Ambani’s investment arm, the Independent Media Trust, acquired 78% in Network 18 and 9% in TV18.15 The majority of the public shareholders are institutional investors, including mutual funds, banks, foreign institutional investors, and foreign portfolio investors, as well as nonInstitutional owners that include bodies corporate and individual shareholders. It is interesting that close to 12% of the public shares are owned by individuals and institutions associated with RIL and TV18, while around 15.71% of the equity is owned by individual shareholders. Revenues are raised primarily through advertisements and sponsorships of television programs, subscriptions, digital products, and publications. A summary of TV18’s finances is provided in Table 19.5. In the case of TV 18, information on shareholding is opaque. Shares are controlled through crossdirectorships and holding companies and there are serious questions as to the manner in which money has been raised in capital markets for TV18. Table 19.6 provides a snapshot of TV18’s shareholders, while Figure 19.1 is a graphical representation of the shareholding pattern. TABLE 19.4 Reliance Jio’s Services

Affordable Devices: Ultra-premium to entry level Digital currency: Direct payment business Jio Drive: Cloud storage technologies Digital Education Digital Healthcare Digital Entertainment & Social Connectivity: Synergies with TV18 content along with Jio Chat, Jio Play (HDTV across multiple devices), Jio Beats (digital music streaming), Jio Mags, jio News Digital Entrepreneurship

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TABLE 19.5 Profit and Loss of TV18, 2011–2015 (in crore Rs)

Mar 2015 12 mths

Mar 2014 12 mths

Mar 2013 12 mths

Mar 2012 12 mths

Mar 2011 12 mths

605.61 0.00 605.61 –106.26 0.00 499.35

516.05 0.00 516.05 –12.01 0.00 504.04

541.55 0.00 541.55 28.92 0.00 570.47

620.70 0.00 620.70 66.65 0.00 687.35

252.65 0.00 252.65 9.51 0.00 262.16

Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin. Expenses Miscellaneous Expenses Preoperative Expenses Capitalized Total Expenses

0.00 0.00 150.95 0.00 0.00 295.54 0.00 446.49

0.00 0.00 141.30 0.00 0.00 259.81 0.00 401.11

0.00 0.00 156.53 0.00 0.00 278.55 0.00 435.08

0.00 0.00 154.10 0.00 0.00 411.28 0.00 565.38

0.00 0.00 80.53 0.00 0.00 179.12 0.00 259.65

Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ordinary Items) Tax

159.12 52.86 17.30 35.56 20.94 0.00 14.62 0.00 14.62 0.00

114.94 102.93 22.47 80.46 20.91 0.00 59.55 0.00 59.55 0.34

106.47 135.39 101.02 34.37 22.91 0.00 11.46 0.00 11.46 1.23

55.32 121.97 85.40 36.57 24.46 0.00 12.11 0.00 12.11 2.87

–7.00 2.51 40.08 –37.57 11.69 0.00 –49.26 0.00 –49.26 0.00

Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax

14.63 446.49 0.00 0.00 0.00

59.21 401.11 0.00 0.00 0.00

10.22 435.08 0.00 0.00 0.00

9.24 565.38 0.00 0.00 0.00

–49.25 259.65 0.00 0.00 0.00

17,143.60

17,116.60

17,116.60

3,620.82

2,377.97

0.09 0.00 20.35

0.35 0.00 20.29

0.06 0.00 19.95

0.26 0.00 21.47

–2.07 0.00 28.99

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income

Per share data (annualized) Shares in issue (lakhs) Earning per Share (Rs) Equity Dividend (%) Book Value (Rs)

Source: MoneyControl, www.moneycontrol.com/financials/tv18broadcast/profit-loss/IBN

TABLE 19.6 TV18 Distribution of Shareholding, as of March 31, 2014

No. Category

No. of equity shareholders No. of equity shares %

1. 2. 3. 4. 5. 6.

Indian Public Bodies Corporate FIs/ Mutual Funds/ UTI/ Banks Indian Promoters/Promoter Group NRIs/ OCBs/ FIIs/ Foreign Body Corporate Trusts

64,520 1,256 21 18 366 16

36,144,874 180,727,306 311,352 763,896,237 53,990,706 11,596,060

Total

66,197

1,046,666,535

3.45 17.27 0.03 72.98 5.16 1.11 100

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Indian Public Trusts

1.11 % NRls/OCBs/ Fils/Foreign Body Corporate

3.45% Bodies Corporates 7.27 7.27 %%

5.16 %

Fls / MF / UTI / Banks

0.03 %

Indian Promoters /Promoter Group 72.98%

FIGURE 19.1

Graphic Representation of the Shareholding Pattern as of March 31, 2014

TV18 has major interests in broadcasting, with content comprising television content and airtime sales, film production, and distribution business. Its core business areas are in news broadcasting and entertainment. One of TV18’s major 50:50 joint ventures is with Viacom, and the company Viacom 18 offers a bouquet of channels including MTV, MTV Indies Nickelodeon, Nick Teen, Vh1, COLORS, COLORSRD, Rishtey SONIC, and Comedy Central. TV18 and Viacom are also involved in a successful film production company called Viacom18 Motion Pictures that has had a string of box office hits, including Gangs of Wasseypur and the sports biopic Bhaag Milkha Bhaag. In 2013, this company moved into regional cinema and was scheduled to make movies in Marathi, Tamil, Bengali, Telugu, and Punjabi, which indicates that it is on its way to creating a pan-Indian studio and a national footprint. In the same year, the company launched Integrated Business Solutions as a way to introduce a range of international products and properties to India, including a portfolio of entertainment derivatives. These include the MTV Video Music Awards, and there are plans to launch a range of other initiatives, including MTV World Stage, Vh1 Jazz festival, Vh1 God of Guitar, Comedy Central Comedy Festival, Comedy Central Comedy Nights, and Nick Kids Choice Awards.16 TV18 also has joint ventures with CNN and CNBC, which can be seen in Table 19.7 along with a list of TV18’s other channels. In addition to the channels under Viacom, TV18 also has a stake in CNBC-TV18, CNNIBN, IBN7, CNBC Awaaz, IBN-Lokmat, CNBC-TV18 Prime HD; a range of channels linked to the domestic Eenadu Group, including ETV Uttar Pradesh, ETV Madhya Pradesh, ETV Rajasthan, ETV Bihar, and ETV Urdu channel; a 50% interest in ETV Marathi, ETV Kannada, ETV Bangla, ETV Gujrathi, and ETV Oriya; and a 24.50% interest in ETV Telugu and ETV Telugu news. TV18 also distributes channels from the Chennai-based Sun Network. Network 18 also owns a number of web portals including moneycontrol.com, in.com, IBNLive. com, josh18.com, cricketnext.com, commoditiescontrol.com, tech2.com, poweryourtrade.com, easymf.com, and compareindia.com, First Post (India). It also publishes Forbes India. Network 18,

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TABLE 19.7 TV18 channels

Channel

Language

State

Company

CNN-IBN IBN-7 CNBC TV18 CNBC Awaaz IBN-Lokmat MTV India Nick India Nick Jr. India Sonic Colors Rishtey VH1 India Comedy Central HomeShop18 Topper History TV18 Colors Infinity ETV Andhra Pradesh ETV Telangana Colors Telugu ETV Urdu Colors Bangla Colors Kannada Colors Odia Colors Gujarati Colors Marathi ETV Bihar Jharkhand ETV Madhya Pradesh Chatishgarh ETV Rajasthan ETV Uttar Pradesh Uttarakhand ETV Haryana/Himachal

English Hindi Hindi Hindi Marathi English English English English Hindi Hindi English English English English English English Telugu Telugu Telugu Urdu Bengali Kannada Odia Gujarati Marathi Bhojpuri Hindi Hindi Hindi Hindi

Nation Wide Nation Wide Nation Wide Nation Wide Maharashtra Nation Wide Nation Wide Nation Wide Nation Wide Nation Wide Nation wide Nation Wide Nation Wide Nation Wide Nation Wide Nation Wide Nation Wide Andhra Pradesh Telangana Telangana Telangana West Bengal Karnataka Odisha Gujarat Gujarat Bihar Madhya Pradesh Rajasthan Uttar Pradesh Haryana

TV18 TV18 TV18 TV18 Lokmat Viacom 18 Viacom 18 Viacom 18 Viacom 18 Viacom 18 Viacom 18 Viacom 18 Viacom 18 Viacom 18 Viacom 18 Viacom 18 Viacom 18 ETV Network ETV Network ETV Network ETV Network ETV Network ETV Network ETV Network ETV Network ETV Network ETV Network ETV Network ETV Network ETV Network ETV Network

Source: www.wow.com/wiki/Network_18, accessed January 11, 2016

in other words, is a multimedia company with strong cross-sectoral interests in television, digital content, filmed entertainment, digital commerce, magazines, mobile content, and other related media businesses (see Figure 19.2).

TV18 Political Profile The attempt by Mukesh Ambani to move into the media market has been motivated by imperatives linked to internal and external politics. This move is to some extent a reflection of business rivalry between two brothers, Mukesh and Anil, who are each keen to establish themselves as the undisputed leader in corporate India. It is clear that the political climate is favorable to the Ambanis. The acquisition of TV18 was made two weeks after the general election in which Mukesh Ambani’s chosen candidate, Narendra Modi, became the Prime Minister of India. It is interesting to note that in 2014 the Telecommunications Regulatory Authority of India (TRAI, the chief regulatory body) had explored restrictions on cross-media ownership. The report from TRAI, while recommending that excessive market share through cross-media ownership be curbed, does not provide any recommendations related to restricting the entry of powerful conglomerates getting

South Asia

FIGURE 19.2

335

The Network18 Empire

Source: Annual Report 2013–14, Network 18

into the media market. Its key recommendation, given the neoliberal economic environment, is to minimize the involvement of state-related entities in broadcasting while allowing the private sector to take over broadcasting. Its recommendations related to ownership of news channels should, in theory, have an impact on TV18, given its ownership of a number of news channels including CNBC TV18 (English), CNBC Awaaz (Hindi), CNN IBN (English), IBN 7 (Hindi), and IBN Lokmat (Marathi) among other channels, although it is unlikely that the recommendations will be implemented by the present government: 6.3 The Authority recommends that the News and Current Affairs genre is of utmost importance and direct relevance to the plurality and diversity of viewpoints and, hence, should be considered as the relevant genre in the product market for formulating crossmedia ownership rules.17 The cultivation of the incumbent Prime Minister, Narenda Modi, by channels associated with TV18, including CNN-IBN, has been the focus of media attention. In a study carried out by the New Delhi-based Centre for Media Studies, it was found that in the coverage of five prime-time English news channels from October/November 2013 that CNN-IBN, a TV18 company, devoted 72 minutes to Narenda Modi, which was far more than any of the other channels, although these other channels also devoted more time to Modi than any of the other candidates.18 However, TV18’s political influence, although intriguing, pales in comparison with the power that its parent body holds over the political environment in India. In spite of the fact that Ambani is facing insider-trading charges and accusations that he was awarded the 4G license under opaque circumstances, it will be difficult for the serious fraud investigators to pin charges against a company

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that is a leading Indian and global conglomerate.19 This cultivation of the current Prime Minister Narendra Modi and his party, the BJP, needs to be seen against the background of many favorable deals that have been struck between the Reliance Industries and the government. This includes the acquisition of the state-owned Indian Petrochemicals Corporation Limited and a monopoly over the manufacture of a number of petrochemical products. They have also lobbied hard to privatize the key major public sector petrochemical companies inclusive of Bharat Petroleum, Hindustan Petroleum, and the Indian Oil Corporation20

TV18 Board of Directors Deepak S. Parekh, chairman of the Housing Development Finance Corp. Lts. and former chairman of McKinsey India, Adil Zainulbhai, have been inducted onto the board of Network 18 as independent directors following its takeover by Reliance Industries Ltd (RIL). Other nonexecutive directors include Raghav Bahl, the ex-owner of TV18, Rohit Bansal, a former managing director of India TV, and Vinay Chhajlani, a former chief executive of Indore-based Hindi daily Nai Duniya. This reinforces Thakurta’s views expressed in the media watchdog website, The Hoot, of the trend in media board directorships to include major media and corporate players. As Thakurta summarizes: . . . the boards of directors of a number of media companies now include (or have included in the past) representatives of big corporate entities that are advertisers. The board of Jagran Publications has had the managing director (MD) of Pantaloon Retail, Kishore Biyani, McDonald India’s MD Vikram Bakshi, and leather-maker Mirza International’s MD Rashid Mirza; besides the CEO of media consulting firm Lodestar Universal India, Shashidhar Sinha, and the chairman of the real estate firm JLL Meghraj, Anuj Puri. The board of directors of HT Media, publishers of Hindustan Times and Hindustan, has included the former chairman of Ernst & Young K. N. Memani and the chairman of ITC Ltd Y C Deveshwar. Joint MD of Bharti Enterprise Rajan Bharti and MD of Anika International Anil Vig are a part of the TV Today’s Board of Directors. The board of directors of DB Corp (that publishes Dainik Bhaskar) includes the head of Piramal Enterprises Group, Ajay Piramal, the MD of Warburg Pincus, Nitin Malhan, and the executive chairman of advertising firm Ogilvy & Mather, Piyush Pandey. NDTV’s Board of Directors has Pramod Bhasin, President & CEO of the country’s biggest BPO company GenPact as a member of its board of directors.21 Thakurta’s profile of interlocking directorships reveals the extent to which corporate India is represented on the boards of media houses in India. These include representatives from major accounting firms such as Ernst & Young, advertising companies such as Ogilvy & Mather, tobacco companies such as ITC, major conglomerates such as Piramal that is involved in textiles, healthcare, real estate, and the life science industries, and the fast-food sector including McDonalds. Such an alignment of directorships can result in favorable reporting and, in the case of the Hindustan Times, to a lack of critical coverage of a company like the Indian Tobacco Company whose representative is on their board of directors. The conflicts of interest afforded by interlocking directorships have been highlighted elsewhere, as for example in the U.S.A.22

Cultural Profile It is not easy to access precise information related to the ratings of programs. For example, TAM Media Research, a joint venture between AC Nielsen and Kantar, was the market leader in audience

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measurement, but they have been accused of using a flawed methodology and unfair trade practices.23 In 2012–2013, a number of major media outlets in India, including Sony, Viacom 18, Star, and TV18 withdrew their subscription to TAM, and a number of companies have filed suits against Nielsen in U.S. courts for alleged manipulation of TV ratings and viewership.24 The industry alternative could be the Broadcast Audience Research Council (BARC), which was established in 2013. In the absence of reliable ratings agencies, many media groups put out their own ratings and audience measurement data. However, in the absence of reliable data on ratings, the FICCIKPMG annual Indian Media and Entertainment Industry Report is a reliable indicator of trends. The 2013 report highlights TV18’s key programs and their audience share. In 2012 there were four key competitors in the Hindi-language segment, which is the largest audience segment. These companies were Sony, Star Plus, Zee TV, and Colors. Under the top 10 fiction program on TV in 2012, Balika Vadhu, produced by the channel Colors, was second with 18.1% of the audience share. In the top 10 non-fiction programs, four programs produced by Colors—Big Boss 6, Jhalak Dhikla Jaa, Indian Idol 6, and India’s Got Talent 4—were in the top 10. CNN IBN is consistently among the top four English-language news channels in India, although TV 18’s channels are by no means among the top Hindi-language news channels. India does have one of the largest numbers of news channels in any given country, which currently stands around 410, and a large number of these are in regional languages. The ownership of regional news channels includes political parties, real estate developers, and media corporations and conglomerations.

Reliance and Corporate Social Responsibility The Reliance Foundation is central to this organization’s corporate social responsibility outreach. Its focus includes rural transformation, health, education, sports for development, disaster response, art heritage and culture, and urban renewal. In the health sector alone, its activities include the following: Health Outreach Programs aimed at vulnerable communities and areas in Central and North India; the Reliance Foundation Drishti that works closely with the National Association for the Blind, Women and Child Health; and Health Care Services that include a variety of hospitals including the Reliance AIDS care hospital, Gujarat and the Dhirubhai Ambani Hospital, Maharashtra.

Conclusion The case study of TV18 from India highlights the synergies between politics and the media, as it illustrates the rise of a company aided by political connections in a relatively short period to become the market leader in India. The specific contours of media ownership in any given country are also shaped by the regulatory structures or the lack thereof. In the case of India, a regulatory vacuum has facilitated the rise of media behemoths such as TV18, which is owned by India’s largest conglomerate, Reliance Industries Ltd. Investments made by a petrochemical giant in broadcasting should ordinarily have been the focus of an investigation by the regulator of broadcasting in India, the Telecommunications Regulatory Authority of India (TRAI). However TRAI’s capacity to carry out an independent inquiry remains limited given the political capital of the owner of TV18, Mukesh Ambani, and his closeness to the ruling government. The flagship Digital India project launched by PM Modi in June, 2015 has been bolstered by the promise of a 250,000 crore ($39 bn) investment by Reliance Industries,25 while investigations by the Serious Fraud Investigation Office, Ministry of Corporate Affairs, into how Reliance acquired a controlling stake in the INX/NewsX group, allegedly through money laundering, are yet to be completed.26

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Outside of India, a handful of large media conglomerates and industrial houses control the media in South Asia. The media have played a key role in supporting the expansion of the neoliberal market economy in South Asia. While all countries in South Asia have experienced growth in the media, the media footprint in India is among the most extensive in the world. Television accounts for 45% of the media industry in India and it is the third largest television market after the U.S.A and China.

Notes 1 “Recommendations for an Empire Intelligence Service,” November 27, 1940, War Series File No.462/57 M, B.B.C. Empire Intelligence Scheme, L/I/1/962, India Office Library Holdings, London. 2 See W. Ghani (2007). “Is the BBC Urdu Service becoming Pakistan’s national broadcaster? An enquiry into the causes of BBC Urdu’s success in Pakistan (1–28),” www.globalmediajournal.com/open-access/isthe-bbc-urdu-service-becoming-pakistans-national-broadcaster-an-enquiry-into-the-causes-of-bbc-urdussuccess-in-pakistan.pdf 3 A. Rasul and S.D. McDowell (2009) “Consolidation in the name of Regulation: The Pakistan Electronic media Regulatory Authority ( PEMRA) and the concentration of media ownership in Pakistan (1–15),” Global Media Journal, 12 (20). 4 See B.R.P. Bhaskar (2005), “Flourishing Press, Floundering Craft: The Press and the Law” (19–36), in N. Rajan, ed. Practising Journalism: Values, Constraints, Implications (New Delhi, Thousand Oaks, London: Sage). 5 See P.N. Thomas (2010), Political Economy of Communications in India: The Good, the Bad and the Ugly (New Delhi, Thousand Oaks, London, Singapore: Sage). 6 See N.P. Rijal (2014). Media development in Nepal since 1990: Challenges and central role of regulation and reform. Ph.D. Thesis, RMIT, Melbourne, Australia, https://researchbank.rmit.edu.au/eserv/ rmit:160966/Rijal.pdf 7 T. Farhana (2014), “Bangladesh’s Media: Development and Challenges,” The Diplomat, March 24, http://thediplomat.com/2014/03/bangladeshs-media-development-and-challenges/ 8 TRAI (2014), Recommendations on Issues Related to Media Ownership, www.trai.gov.in/WriteReadData/ Recommendation/Documents/Recommendations%20on%20Media%20Ownership.pdf 9 “Top companies in India by market capitalization: Media & Entertainment,” www.moneycontrol. com/stocks/marketinfo/marketcap/bse/media-entertainment.html 10 Reliance Industries Ltd, “About Us,” www.ril.com/html/aboutus/aboutus.html 11 A.K. Mishra, V. Choudhary, and M. Philipose (2014) “Exits galore over RIL takes over Network18,” Live Mint, May 29, www.livemint.com/Companies/Vpo4RrEprzzsFI7xGJw3OP/RIL-to-acquirecontrol-of-Network-18-spend-Rs4000-crore.html#nav=most_read 12 Moneycontrol.com, “Network 18 Media & Investments,” www.moneycontrol.com/company-facts/ network18mediainvestments/history/NMI, accessed October 7, 2015. 13 P.G. Thakurta, S. Ghosh, and J. Chaudhuri (2014) Gas Wars: Crony Capitalism and the Rise of the Ambanis (New Delhi: Authors Upfront/FEEI Books). 14 P.G. Thakurta (2014) “What future for the media in India? Reliance take over of Network 18 in India,” Economic & Political Weekly, June 14. 15 See A. Chilkoti (2014) “Ambani’s Reliance Industries poised to win $677m India TV deal,” Financial Times-Media, May 30, www.ft.com/intl/cms/s/0/2cedbbb4-e7c6-11e3-9af8-00144feabdc0.html# axzz3pA4Gt3TZ 16 S. Vora (2013) “Viacom 18 looks to bring more international IPs to India through INS,” Campaign India, www.campaignindia.in/Article/337239,viacom-18-looks-to-bring-more-international-ips-to-indiathrough-ins.aspx 17 TRAI, Recommendations on Issues Related to Media Ownership, p. 79. 18 R. Bhatia, (2013) “The Network Effect: Reliance and right wing politics gain a foothold in Raghav Bahl media empire,” December 1, The Caravan, www.caravanmagazine.in/reportage/network-effect 19 M. Joseph (2014). “The image of India’s richest man loses lustre,” July 23, The New York Times, www.nytimes.com/2014/07/24/world/asia/mukesh-ambanis-reliance-industries-runs-into-trouble. html?_r=0 20 S. Dalal (2014) “Ambani ki Dukaan,” April 14, Moneylife, www.moneylife.in/article/reliance-and-itsinfluence-on-the-government/37016.html 21 P.J. Thakurta (2014) “What future for the media in India? Reliance takeover of Network 18 in India,” Economic & Political Weekly, June 14.

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22 K. Murphy (2009) “Single-Payer and Interlocking Directorships,” July 1, FAIR, http://fair.org/extraonline-articles/single-payer-and-interlocking-directorates/ 23 P. Jha (2013) “Big broadcasters walk out of TAM, call rating system ‘absurd’,” The Hindu, June 9, www.thehindu.com/news/national/big-broadcasters-walk-out-of-tam-call-rating-system-absurd/ article4795716.ece 24 “New York Court dismisses NDTV’s lawsuit against Neilsen” (2013), The Economic Times, March 11, http://articles.economictimes.indiatimes.com/2013-03-11/news/37623852_1_viewership-data-andratings-ndtv-nielsen 25 “Digital India: Mukesh Ambani commits Rs. 250,000 crores,” July 1, India Today In, http://indiatoday. intoday.in/story/mukesh-ambani-digital-india-commits-narendra-modi-reliance/1/448398.html 26 P.G. Thakurta (2015) “Keeping the veil on Reliance down,” September 25, The Hoot, www.thehoot.org/ media-watch/media-business/keeping-the-veil-on-reliance-down-8930

20 EAST ASIA AND CHINA Yu Hong

East Asia as a world region is characterized by the intensity, extensity, and velocity of interactions among contiguous nations within the region and between the region and the world at large. After driving the world economy for nearly two thousand years, East Asia entered a subdued period in the 19th century, followed by a long series of reforms and revolutions that were all intended to adjust the region to the contemporary Anglo-American industrial capitalist world system. The defeat of Japan in the Second World War, the establishment of the People’s Republic of China, the anticolonial movements that swept the whole region, and the end of the Cold War all led to economic integration and a political shift that heralded a “resurgent Asia.”1 As a world region, East Asia has presented contradictory directions. In the post-WWII context, the four “tiger” economies—Japan, South Korea, Taiwan, and Singapore—achieved rapid economic growth by participating in global production networks. They benefitted both from strong developmental states at home and favorable foreign relations bestowed by the U.S.-headed capitalist system. The resurgence of neoliberal ideologies, and the ensuing breakup of the Soviet Bloc as well as the integration of China into the global economy ushered in a wider scope of “regionalism.”2 In this new phase, the East Asian model of developmental states in no way contradicts the market-fundamentalist tenets of neoliberalism, although it leaves some potential space for other developmental goals such as harmonious and equitable societies.3 Market competition, digital technology, and globalization have all driven media reforms in East Asia. Despite distinct national trajectories, East Asian countries have shared such policy trends as liberalization, competition, and globalization since the early 1990s. As a result, advanced nations in East Asia have fostered business-savvy and nationally competitive media giants. In the late 1990s, Japan had 126 commercial broadcasting companies belonging to one of the five nationwide networks.4 In South Korea, public corporations, such as Korean Broadcasting System (KBS) and Munhwa Broadcasting Corporation (MBC), have operated like private corporations due to their dependence on advertising revenue.5 In 2013, KBS launched its flagship interactive TV service, Icon, which was developed with Samsung Electronics and LG Electronics. This platform is expected to deliver TV content to a multitude of devices. Like pubic counterparts, leading private broadcasting stations, such as the Seoul Broadcasting System (SBS), have tapped into new market opportunities enabled by digital communicative technologies, thus combining TV, radio, film, and online media production.

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Since the 1990s, U.S. exports of film and TV programs to Asia have grown considerably.6 Top-tier global media giants have extensively infiltrated their programs and channels in East Asia. WarnerTV of Warner Bros is the primary source for U.S. TV series and blockbuster movies in Asia.7 Fox International Channels of 21st Century Fox operates or distributes more than 30 channel brands. As the leading pay-TV network in Asia, it has offices in Hong Kong, mainland China, Taiwan, Japan, South Korea, Singapore, Malaysia, Indonesia, Philippines, Thailand, Vietnam, and India.8 Viacom International Media Networks’ Nickelodeon has channels in South Korea and Philippines. Walt Disney has Disney Channel, Disney Junior, Disney XD, and Hungama in the Asia Pacific, and it distributes program and channels to television, broadband, and mobile platforms across the region.9 Asian media giants have participated in the dominant power structure of the Hollywood system. Major Japanese networks are all tied up with American broadcasting networks. In the late 1980s, Sony’s purchase of CBS Records and then Columbia Pictures Entertainment launched this largest audio and video equipment provider, headquartered in Japan, into the U.S. entertainment market and into becoming a global media giant. Meanwhile, top-tier media corporations in East Asia forged a distinctive regional media market. From the late 1990s, South Korea’s cultural exports to neighboring countries surged, which have been dubbed the “Korean Wave.” The popularity and wide access of mobile phones, Web 2.0, as well as wired and wireless broadband in densely populated East Asian cities created a demanddriven expansion of media culture markets. Corporate partnerships within the region, and regional production, circulation, and consumption, then became a deliberate industrial strategy to “bypass the command of Euro-American media cultures.”10 The “regional corporate governance” emerged, facilitated by the nation states, to command interactions among local and transnational media industries,11 which contends, collaborates, and overlaps with the global Hollywood system.

The Rise of China The rise of China has affected the political economy of East Asia,12 and the same is true in the realm of communication. From the early 1960s to the present, Japan has been a media production and consumption hub within the East Asian region. In 2013, the Japanese media industry had total revenue of $93.1 billion, leading China at $75.3 billion and South Korea at $14.3 billion.13 However, in terms of growth rates, China and South Korea had more impressive records, which stood respectively at 12.8 and 9.6% and surpassed Japan’s rate of 0.6%.14 Into the 2000s and especially after the 2008 global economy crisis, the Chinese state accelerated the corporatization of state-owned media assets in order to tap into the explosively growing domestic market and to cater to bureaucratic capital’s desire for market freedom. As a result of this market reform, China Central Television (CCTV), Shanghai Media Group (SMG), and Hunan Broadcasting System (HBS) became the largest broadcasting groups in terms of revenue. These first-tier state media have consolidated their influence over the national market and are poised to venture into overseas markets. Apart from broadcasting power, they have also driven the development of digital subscription systems. Equipped with exclusive operational licenses and an expansionist spirit, they have reaped the lion’s share of the national interactive TV market. Broadband Internet, mobile broadband networks, and other kinds of new distribution channels have created a swelling market demand for programs and undercut traditional distribution venues. Network providers, including telecom and cable operators, are clamoring for market position in value-added digital and information services. By the early 2000s, Chinese telecom operators had become competitive national corporations thanks to market reforms in the 1990s. Cable networks operating along administrative divisions, however, only began digitization and corporatization into the 21st century. In order to gain scale advantages, provincial cable operators have used financial

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capital to take over network assets hitherto controlled by local operators at lower administrative levels.15 Although this progress is incomplete, it has created a slew of provincial corporate monopolies. In the Web 2.0 economy, private corporations have also emerged as formidable players. Because state capital ignored the Web 2.0 economy from the outset, this neglect has left private and shareholding companies to grow in a largely unregulated fashion. It is common that web companies set up shell companies in Caribbean islands in order to get listed on the New York Stock Exchange, circumventing the legal cutoff of foreign investment.16 The state’s condoning of such activity has created an oversized involvement of foreign equity funds. Also thanks to the country’s huge user base, China-based Internet companies now constitute a “parallel universe” of profitable conglomerates rivaling U.S.-based companies.17 Because of remaining state restrictions on investment and market access, China is on the threshold of a full-blown digital convergence. Thus, in each of the three adjacent yet still distinct market segments, this chapter discusses China Mobile Communications Corporation, Shanghai Media Group, and Tencent Holdings as the most influential companies. They all possess coveted resources and are united by the common practice of leveraging dominance in their traditional markets to claim commanding positions in the coming digital communication ecosystem. Before discussing these companies in greater depth, the following sector briefly reviews the footprint of global media giants in China.

China and Transnational Corporate Networks While turning state media into corporate or quasi-corporate entities, the state still retains a firm grip over market access. Global media giants can establish representative offices, but foreign joint ventures are still off-limits for TV, radio, and film production. The most common way for global media giants to enter China is through copyright sales or engaging in joint production projects. Although commercialization encourages Chinese media to increase the ratio of imported television programs, Western programs are hardly present on prime time television. Instead of Western programs, China imported one third of Korea’s television programs intended for export in 1998.18 This practice remains true today: of the 30 imported shows approved in 2011, most came from Hong Kong, Taiwan, and South Korea.19 One should note that in the much more liberalized film and digital media markets, Western film and TV programs have made major inroads. Digital media platforms have opened up new market entry opportunities for Western media content. China also participates in transnational corporate networks in order to build a China-based globally compatible media industry. Corporatization and digitization of telecom and cable networks, as well as claims about network convergence, fuel the desire to acquire Western programs, advance entertainment technology, and production and distribution capacities across platforms. In the film industry, China has ascended to the second largest box office territory outside of the United States. This huge buying power, in conjunction with the Chinese state’s administrative power over market access and the contracting of financing in Western markets, has opened the door to the global Hollywood system, enabling Chinese capital to participate in transnational projects of production and distribution. Accelerated in recent years, Chinese corporations have initiated a long series of transnational partnerships with regional and Hollywood corporate networks. This “go digital and go global” strategy bodes well for China’s global media presence. After 2008, in the wake of the domestic corporatization reform, China’s exports surged. In 2009, China garnered nearly $60 million from overseas sales of film and TV programming. In 2013, overseas sales of Chinese films alone made 1.4 billion yuan (nearly $222 million).20 In comparison, South Korea’s exports of TV programs and films garnered $150 million and $59 million, respectively.21

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China Mobile Communications Corporation The establishment of China Mobile was part of the telecom reforms in the 1990s. In 1999, China Mobile was hived off China Telecom. By 2002, China Mobile, in place of China Telecom, became the market leader. The group boasts the world’s largest mobile networks and the largest customer base. In 2010, the Ministry of Commerce ranked the company as the 10th largest Chinese nonfinancial transnational company in terms of the value of foreign assets and the 19th in terms of the value of outward-bound foreign direct investment.22 In 2013, it was the world’s largest telecom operator according to market capitalization. In 2014, it was selected as one of the “Global 500” by the Financial Times and as “the World’s 2,000 Biggest Public Companies” by Forbes magazine. The Chinese government is the majority shareholder, whose investor interest is represented by the state-owned Assets Supervision and Administration Commission (SASAC) under the State Council. This state ownership agency retains tremendous power over top personnel, assets, and business operation. Apart from the Chinese state as the majority shareholder, transnational financial capitals constitute minor shareholders in a dual corporate governance structure. Public listing on the Hong Kong and New York stock markets instigated China Mobile to institute market-oriented internal organizations. Hailed as a national champion, the group was the first state-owned company in China to use global financial capital to achieve network consolidation and business ramp-up.

Global Securitization From the late 1990s, corporate and shareholding reforms “plugged” China Mobile into the global financial networks.23 Following the advice of investment banks and assisted by global law and accountant firms,24 China Mobile absorbed foreign capital, which changed how the state-owned national champions operated, “who populated their senior management teams, what kinds of external stakeholders they were becoming reliant on, and what types of broader networks they became immersed in.”25 The group owns—via a convoluted offshore corporate structure26—nearly 75% of China Mobile Limited that is listed in Hong Kong and on the New York Stock Exchange. Apart from transnational financial capital, China Mobile turned to foreign technology and expertise to ramp up its position as national champion. It began talking to foreign strategic partners as early as 1998. The vice-president of China Mobile, Lu Xiangdong, revealed that the group signed “secrete agreements with foreign companies . . . some are strategic; some are in the fields of technology; some aimed at gaining from their experiences, some are joint investment projects.”27 U.K.-based Vodafone, the biggest telecom operator by revenue, was able to attain a 3.3% stake in Hong Kong-listed China Mobile Limited and a seat on the company’s board.28

Digital Diversification In 2006, China Mobile bought a 20% stake in Phoenix Satellite Television from News Corporation. In 2010, China Mobile bought a 20% stake in Pudong Bank in an effort to move into the provision of online payment services. Controlling the bulk of China’s wireless market, China Mobile’s short message and multimedia message services used to be a daily necessity for millions of people. The popularity of over-the-top applications, however, threatens to marginalize the network provider in the Internet economy. In response, China Mobile Limited established operating companies specialized in digital services and digital content, including China Mobile Online Services Company Limited and MIGU Company Limited. Its information services include wireless music, mobile reading, mobile video, mobile mailbox, mobile paper, mobile gaming, mobile payment, wallet, mobile TV, and location-based services. In 2014, its data services revenue reached 253 billion yuan, which accounted for 44% of the total revenue from telecom services.29 Its goal is to move away from voice-centric to data-centric operation.

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Overseas Corporate Expansion In 2007, China Mobile acquired Pakistan mobile operator Paktel for $460 million and has operated networks in Pakistan under the ZONG brand. In 2008, the group opened its European, Middle Eastern, and African headquarters in London. In 2014, China Mobile spent $881 million to purchase an 18% stake in Thai telecoms group True Corporation. As a corporate behemoth, China Mobile is discreet in making foreign acquisition deals, and its record of foreign operation is modest. Nevertheless, the group has played a pivotal role in setting global standards for the mobile Internet, as it sponsored the China-only third-generation (3G) mobile communications standard, TD-SCDMA, and its fourth-generation successor TD-LTD. Between 2009 and 2015, China Mobile spent 200 billion yuan on its 3G network. After the issuing of 4G licenses in 2013, China Mobile then spent another 200 billion yuan on 4G networks.30 By 2014, China Mobile set up 450,000 TD-SCDMA base stations and close to 500,000 4G base stations, making more than 300 types of handset available.31 By the end of 2015, it woud have set up more than 1 million 4G base stations altogether, making the world’s largest 4G network.32 China Mobile has led a coalition of network equipment and handset vendors to influence the next-generation technological evolution.33 In 2007, China Mobile proposed to the 3rd Generation Partnership Project (3GPP), an international standard development organization, to make its sponsored TD-LTE the only alternative to the dominant 4G standard FD-LTE. Following China Mobile’s recommendation, the organization also simplified the specification of TD-LTE, resulting in a high commonality between TD-LTE and FD-LTE.34 For China Mobile, high compatibility would enhance global acceptance of TD-LTE networks and create sufficient flexibility in the domestic market as well. In 2011, China Mobile, along with SoftBank Group, Vodafone, Clearwire, and Bharti Airtel, launched the Global TD-LTD Initiative. This move was meant to make TD-LTE a global standard.

Social Responsibility Profile The falling price of building mobile networks has facilitated network expansion. The percentage of villages with telephone access in Tibet, for instance, jumped from 4.3 in 2001 to 35 in 2005.35 After 2006, rural and migrant users became major growth drivers, accounting for half of China Mobile’s new subscribers. By slashing operational costs, China Mobile extended networks to remote areas without scarifying its overall profit margin. Knowing that new rural subscribers spend less on calls, China Mobile strenuously developed value-added services to boost revenue per user. In 2010, value-added telecom services, of which mobile communication took away 89.5%, amounted to 217.5 billion yuan, nearly 24% of the total business revenue.36 As a state-owned national champion, China Mobile insists principally on its universal service obligation. Its duty to global investors and to the state’s economic edicts, however, sidelines this public service obligation. Since the launch of the “telephone to every village” campaign in 2004, China Mobile had cumulatively spent approximately 19.5 billion yuan (or $3 billion). By contrast, its investment in 3G networks in 2009 alone amounted to 58.8 billion yuan (or $9.2 billion).37 This spending binge does not meet social needs on the ground, as nearly 649 million mobile phone users remained with 2G networks up to 2015.

Shanghai Media Group In 2001, Shanghai Media Group Limited (SMG) was born of the state-led consolidation between Shanghai TV and Oriental TV, which was owned and controlled by Radio and Television Shanghai and was part of the even larger Shanghai Media and Entertainment Group (SMEG).38 Other parallel subsidiaries operating in the SMEG structure included the Shanghai Oriental Pearl Corporation

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Limited (SOP) and Shanghai Film Group Corporation. The SOP, a company listed on the Shanghai Exchange and majority held by four subsidiaries of SMEG, specializes in hospitality, media buying and selling, foreign trade, and investment.39 BestTV, a TV service operator under SMG, also held its IPO in 2011.40 In 2014, reforms intended to unleash the corporate component of the state media organization made headway. The SMEG—a public institution—was annulled. Its corporate assets were injected into the Shanghai Media Group Limited (SMG) operating next to Radio and Television Shanghai. While the latter operates broadcasting assets, including stations and channels, the former is the state-owned holding company that oversees a slew of corporate subsidiaries, including publicly listed corporations. Although stock market listing had been restricted to two specialized companies that were marginal within the old SMEG structure, the latest reform turned them into the general financial vehicle and absorbed hitherto shielded media assets. In 2014, as part of the corporate reform, BestTV merged with the SOP. After delisting the two companies, the reform injected new corporate assets, including those of SMG Pictures, Oriental CJ, Wings Media, and Shanghai Interactive TV, into the re-listed and renamed Shanghai Oriental Pearl Media Corporation Limited. According to the reform plan, 70% of SMG assets, revenue, and profit will eventually be added into the listed company. As a result, the corporate arm was greatly enlarged while the enshrined public component contracted.

Digital Transition Dragon TV, SMG’s satellite broadcaster, reached 1 billion viewers in China as well as Hong Kong, Macao, the United States, and Canada. Apart from Dragon TV, SMG sits upon 14 TV channels, 15 pay channels, 13 radio channels, and 6 print products. The primary consideration of SMG is how it can accelerate capital accumulation through these venues and to sell content across platforms and across markets. In this context, thanks to flexible technological attributes and the state’s dual regulatory system, digital technology allows first-tier media organizations like SMG to bypass the regulatory constraints on traditional broadcasting and to open a new market window. In 2005, SMG got the first national license to develop IPTV with telecom operators. By collaborating with telecom operators across the nation, SMG had 22.5 million IPTV subscribers as of 2015.41 Although many cable operators saw this move as betraying the interests of broadcasters, SMG was happy to take advantage of the deep pockets of telecom operators to accelerate the digital TV deployment in which SMG controls content aggregation. One should note that the newly configured Shanghai Oriental Pearl Media Corporation Limited is intended to lead the digital metamorphosis of traditional broadcasters and to become a competitive Internet company. Having the full range of state licenses to operate content aggregation and distribution for a multitude of digital outlets, the Shanghai Oriental Pearl Media Corporation has become China’s largest multichannel video programming distributers. In addition to its IPTV user base, the company has 57.5 million digital cable users, 22 million mobile TV users, and 7 million Internet TV users.42 The company’s listing on the stock market facilitates gaining more control over the value chain, as SMG can use equity as payment to its strategic partners. It increased its equities in the leading cable operators in Beijing and Shanxi. It also sold more equities to a Shenzhen-based Internet television set manufacturer.

Strategic Partnerships Using investment funds as a financial vehicle, SMG left new global footprints. China Media Capital, a leading investment fund backed by SMG and the National Development and Reform

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Commission, formed Shanghai Oriental DreamWorks Film & Television Technology Corporation with Hollywood’s DreamWorks in 2012. The Chinese companies hold a majority stake of 55% and DreamWorks holds 45%. According to Chief Executive Jeffrey Katzenberg of DreamWorks Animation, the idea is that “[DreamWorks] would actually go to China, with stories that are made for China, by the Chinese, in China, at a quality that actually can be exported to the rest of the world.”43 In addition to this partnership, SMG announced the establishment of the Shanghai Fusheng Silicon Valley venture capital fund to focus on new media and technology in 2014. It also invested in Shanghai Disneyland Park.

Political and Cultural Profile SMG, and other state media organizations in Shanghai, are designated to spearhead state media reforms. The short distance “from the epicenter of power to major media organizations and individuals” ensures political compliance of a small network of bureaucratic-executive elites.44 Even after the stock market reshuffling in 2014, the majority shareholder of the Shanghai Oriental Pearl Media Corporation Limited is Shanghai Media Group, which in turn is 100% owned by the Shanghai Municipal Commission of state-owned Assets Supervision and Administration. Nevertheless, despite political compliance with the party state system, top SMG executives are also plugged into a transnational network of media capital and media elites, thus showing no reservation for self-aggrandizing moves. Leveraging the state’s edicts to pursue corporatization and capital accumulation in the realm of communication, the leadership of SMG has been known for their zealous claims and aggressive actions intended to take the company’s local monopoly to a national and international level. SMG is a leader in providing premium entertainment for its urban, middle-class digital viewers. To provide content unavailable for public viewers, SMG sourced digital content mostly from private entertainment companies, such as Enlight Media Group. The other big source are foreign channels, including Star TV, Channel V, ESPN, National Geographic, Discovery, HBO, and Phoenix TV.45 In 2015, the corporation forged strategic partnerships with BBC, Disney, and Viacom to enhance its supply of family-friendly content. It also attained a stake in international sports marketing companies, including SSport and Infront Sports & Media, to secure broadcasting rights.46 Targeting urban elites, SMG also spearheads the monetization of financial news. In 2003, SMG established China Business Network Corporation (CBN) to operate financial news services. In 2015, CBN struck a strategic deal with e-commerce giant Alibaba to make project-based crossinvestment. One should note that despite its much smaller market valuation, SMG as a leading state media organization still has the upper hand over private Internet giants when it comes to deciding the terms of strategic partnerships.

Tencent Holdings Tencent has a near monopoly on messaging applications in China. Its social media platforms, QQ and WeChat, aggregate a huge user base for its value-added services. As of March 2015, WeChat alone garnered 500 million monthly users worldwide, making it the number one chat application globally.47 The company earns the bulk of its money from online games and other value-added services for desktop computers, but it is best positioned to tap into the explosively growing smartphone market, which has become the current market frontier. Its revenue rocketed from 19.6 billion yuan in 2010 to 78.9 billion yuan in 2014.48 Tencent is a global media giant in the making. It has deliberately promoted its services overseas.49 In 2013, Tencent reportedly spent $200 million on advertising in emerging markets.50 In order

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to serve its international users, Tencent deployed international data centers.51 Thanks to this global push, WeChat’s overseas users increased by 1099% from the first quarter of 2013 to the first quarter of 2014.52 It built a substantial user base in Asia and has performed well in Latin America, the Middle East, and parts of Africa.53 Nevertheless, this overseas customer growth was not satisfying, especially in comparison with the staggering explosion of the domestic market. In 2015, the company decided to scale back international expansion by plowing investment back into the mainland.54

Global Strategic Partnerships Despite its current home-base strategy, Tencent has built a global portfolio that will serve as the springboard for its mature models and products. In turn, its domestic leadership in demand-driven value-added services will enhance its opportunity to extend global reach. Targeting emerging markets that have rapidly growing Internet sectors is Tencent’s pathway to acquiring local partners and to improving local exposure. In Russia, it bought a 10% stake in Digital Sky Technologies, which in turn holds stakes in more than 30 companies and has about 40 million monthly users in Russia, Poland, and the Baltics.55 In South Korea, Tencent acquired a 13% stake of the top mobile messaging provider Kakao.56 In India, Tencent has a 20% stake in Delhi-based ibibo Group. Teaming up with bankers and executives, Tencent also became one of the most aggressive buyers in the Silicon Valley.57 It uses investment to understand the U.S. market and to identify promising start-ups. It bought into venture capital firms, such as Andreessen Horowitz and SV Angel.

From Entertainment Hub to Cyber-trade Broker In 2010, Tencent started a buying spree. Between 2011 and 2014, Tencent spent more than $762 million on 10 disclosed deals.58 Among all Chinese Internet giants, Tencent was the most active with a total of 38 deals.59 Through mergers and acquisitions, Tencent intended to leverage its existing user base and to expand the “depth and breadth” of its platforms.60 One purpose was to fortify its status as the dominant online entertainment hub. In 2012, Tencent acquired a majority stake of U.S.-based game makers Riot Games and Epic Games.61 In 2014, it bought 28% of CJ Games Corporation, the biggest game publisher in South Korea.62 It also acquired a 20% stake in Korean mobile game developer, PATI games. Apart from strengthening its traditional foothold in online gaming, Tencent has cultivated a proprietary pool of intellectual property in literature, music, and videos. It set up business partnerships with HBO, NBA, Sony Music, Warner Music, and YG Entertainment.63 In addition, it created its own private equity fund called the Tencent Industry Win-Win Fund of $760 million to foster third-party digital application developers.64 In 2014, it completed a series of acquisitions to expand its scale of operation in the online literature business. More recent buying activities were intended to expand online influence offline and to become the middleman for cyber-trade. Tencent bought into mobile payment, software, e-commerce, and various online–offline value-added service models.65 In 2014, it bought a 15% stake in the second largest e-commerce company JD.com and a 15% stake in an online real estate services firm. To enrich its ecosystem and make more transactional services available, it then made strategic investments in 58.com (online marketplace for local merchants), Dianping (restaurant review and group buying platform), Dididache (taxi-hailing company), and Koudai Gouwu (mobile shopping portal). One should note that its Tenpay mobile payment system undergirds this online–offline ecosystem.

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Negotiating Cyberspace Policy Tencent has won seats in the People’s Congress, the top legislation authority, since 2010. This breakthrough, along with Tencent’s growing ties with local authorities and state media organizations, has considerably enhanced its capacity for policy advocacy on national and local levels. Although the Chinese state is on the fast track to establish a legal and regulatory framework for the Web 2.0 economy, the following examples show that with a strong commitment to the web economy, the state is willing to bend its own policy to create leeway. Tenpay is the second largest online payment system, accounting for 20% of the $156 billion in transactions processed by all service providers. In 2010, the People’s Bank of China (PBOC) required all third-party payment service providers outside of the banking system to get licensed.66 The PBOC indicated that foreign control over these companies would not be tolerated. Although South Africa-headquartered MIH Corporation (itself a part of Naspers Group) controls nearly a 34% stake of Tencent, let alone other foreign portfolio investors involved in this Hong Kongincorporated and listed corporation,67 Tencent obtained an online payment license in 2011.68 In 2015, Tencent’s collaboration with the CCTV Spring Festival Gala became the best publicity for the company. At the biggest variety show, corporate sponsors distributed around 500 million yuan in cash through WeChat, leading millions of users to register for Tenpay via “red envelope” activities. In 2015, Tencent received the first local state license for its taxi-hailing platform from the Shanghai Municipal Government, despite the resistance of traditional taxi companies and some disgruntled taxi drivers. In China’s decentralized bureaucracy and economy, these strategic ties are helping ease regulatory barriers and mainstream Tencent’s cyber ecosystem.

Conclusion Despite differences in terms of ownership, business, ties with transnational investors, and relationships with the state, China Mobile, Shanghai Media Group, and Tencent Holdings are media giants in the making. They are powerful players, because they have secured dominant positions by drawing upon global financial resources to make market consolidation and business ramp-up. Although state regulations continue to sustain distinct yet adjacent markets in the digital economy, the state is willing to tolerate loopholes and is poised to go down the deregulatory road. So, to be favorably positioned in the coming digital ecosystem, these corporations are using strategic investment and partnerships to grow their footprints. Their corporate power also stems from the Chinese state’s willingness and ability to partly reserve the home market in communication for domestic corporations. The state’s effective grip, China’s rising buying power, and leading corporations’ spending capacity are likely to create a systematic media power, propelling top-tier corporations to regional and even global status.

Notes 1 Giovanni Arrighi, Takeshi Hamashita, and Mark Selden, “Introduction: The Rise of East Asia in Regional and World History Perspective,” in The Resurgence of East Asia: 500, 150 and 50 Year Perspectives, ed. Giovanni Arrighi, Takeshi Hamashita, and Mark Selden (London and New York: Routledge, 2003, 1–16). 2 Ibid. 3 Jan N. Pieterse and Jongtae Kim, “Introduction,” in Globalization and Development in East Asia, ed. Jan N. Pieterse and Jongtae Kim (New York and London: Routledge, 2012, 1–11). 4 Shinichi Saito, “Japan,” in Handbook of the Media in Asia, ed. Shelton A Gunaratne (London: Sage Publications, 2000, 561–585). 5 Chul Heo, Ki-Yul Uhm, and Jeong-Heon Chong, “South Korea,” in Handbook of the Media in Asia, ed. Shelton A Gunaratne (London: Sage Publications, 2000, 611–637).

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6 Dal Y. Jin, “Regionalization of East Asia in the 1990s: Cultural and Economic Aspects of the Television Programme Trade,” Media Asia 29, 4 (2003): 215–228. 7 “WarnerTV,” Television Asia, 2013: 72, accessed September 30, 2015, Business Insights: Essentials. 8 “Fox International Channels,” Television Asia, 2013: 54, accessed September 30, 2015, Business Insights: Essentials. 9 “Disney Media Distribution Asia Pacific (DMD),” Television Asia, August–September 2010: vii, accessed September 30, 2015, Business Insights: Essentials. 10 Koichi Iwabuchi, “De-westernization and the Governance of Global Cultural Connectivity: A Dialogic Approach to East Asian Media Cultures,” Postcolonial Studies 13, 4 (2010): 403–419. 11 Ibid. 12 Pieterse and Kim, “Introduction.” 13 “MarketLine Industry Profile: Media in Japan,” June 2014, accessed September 23, 2015, Business Insights: Essentials. 14 Ibid. 15 See Yu Hong, Networking the Nation: Communication and Economic Restructuring in China (Champaign, IL: University of Illinois Press, in press), for more information. 16 See Tim Burroughs, “Is China Pushing VCs out of Third-Party Payment,” The Asian Venture Capital Journal 24, 27 (July 26, 2011): 14–15, for more information. 17 Duncan Clark and Eric Harwit, “WeChat—ver the Top from China,” Pacific Telecom Council 2014 Industry Briefings, January 19, 2014, www.ptc.org/ptc14/images/papers/upload/Presentation_IB1_ ClarkHarwit.pdf, accessed October 11, 2015. 18 “MarketLine Industry Profile,” 225. 19 Andrew Jacobs, “Chinese TV Rules Limit Foreign Shows,” The International Herald Tribune, February 15, 2012, accessed September 30, Lexis-Nexis. 20 “State Administration of Press, Publication, Radio, Film and Television of the PRC Issued the 2014 Blue Book of Radio and Television,” July 9, 2014, http://tv.sohu.com/20140709/n402007288.shtml, accessed October 1, 2014. 21 Kyodo, “TV program exports lag South Korea’s,” The Japan Times, April 23, 2014, www.japantimes. co.jp/news/2014/04/23/business/economy-business/tv-program-exports-lag-south-koreas/#. VY2fQ1adLwI, accessed September 1, 2014; “Korean Film Industry Logs Record Revenue in 2013,” January 28, 2014, www.businesskorea.co.kr/article/3096/movie-industry-korean-film-industry-logsrecord-revenue-2013, accessed September 4, 2015. 22 Dariusz Wójcik and James Camilleri, “‘Capitalist tools in socialist hands’? China Mobile in globalfinancial networks,” Transactions of the Institute of British Geographers 40, 4 (2015): 464–478. 23 Ibid. 24 Ibid. 25 Edward S. Steinfeld, Playing Our Game: Why China’s Rise Doesn’t Threaten the West (New York: Oxford University Press, 2010, 32). 26 Wójcik and Camilleri, “Capitalist tools in socialist hands?” 27 James Kynge and Dan Roberts, “China Mobile Looks Abroad for Expansion,” Financial Times, August 23, 2000. 28 Andew Parker, “China Mobile Fights to Retain Position in New Landscape,” Financial Times, March 6, 2009. 29 “Annual Report 2014 China Mobile Limited,” www.chinamobileltd.com/en/ir/reports/ar2014.pdf, accessed October 2, 2015. 30 Yufang Liu, “Fagaiwei hongguan yuan zhuanjia: yunyingshang duanyashi jiang fei bukequ ying jianjin youhua” [NDRC expert: telecom operators should not make abrupt price cuts but gradual improvement], Chinanews, June 12, 2015, www.chinanews.com/cj/2015/06–11/7337487.shtml,accessed July 15, 2015. 31 “China Mobile: Base Stations Amounts to 1.8 Million by End of 2014, with Huge Power Consumption,” June 26, 2014, www.cn-c114.net/576/a844124.htm, accessed September 1, 2014; Zhang Peng, “Ju jiao yunying shang zhuan xing zhi kun: OTT yewu tu wei yu guoyou zhidu jie suo” [Focus on the difficulty of transforming operations: OTT’s business breakthrough and the unlocking of state ownership], Tongxin Shijie, October 16, 2014, 26. 32 Zheng Wang and Miao Xin, “Zhongguo yidong xuanbu 4G yonghu tupo 1 yi hu” [China Mobile announced 4G subscribers passed 1 million], People’s Daily, February 16, 2015, http://media.people. com.cn/n/2015/0216/c40606–26573466.html, accessed September 1, 2014. 33 Jianzhou Wang, Yidong shidai shengcun [Mobilizing Everything] (Beijing: Citic Press, 2014), 101. 34 Ibid., 194. 35 Eric Harwit, “China’s Telecommunications Industry: Development Patterns and Policies,” Pacific Affairs, 71, 2 (1998): 175–193. 36 National Bureau of Statistics of China, “Shiyiwu jingji shehui fazhan chengjiu xilie baogao zhi shiyi: youdian dianxin ye qude xianzhu chengjiu” [The eleventh report of economic and social achievement during the

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“Eleventh Five Year”: the achievement in posts and telecommunications industry], 2011, www.stats. gov.cn/ztjc/ztfx/sywcj/201103/t20110308_71323.html, accessed August 11, 2015. “Zhongguo yidong leiji tou 195 yi yuan shi 6 wan ge pianyuan cunzhuang yonghsang shouji” [China Mobile cumulatively invested 19.5 billion yuan to enable 60 thousand remote villages to have cell-phone service], People’s Daily, 2009, www.gov.cn/jrzg/2009–02/12/content_1228500.htm, accessed September 1, 2014. Chin-Chuan Lee, Zhou He, and Yu Huang, “Party-Market Corporatism, Clientelism, and Media in Shanghai,” Press/Politics 12, 3 (2007): 21–42. Yong Zhong, “Relations between Chinese Televisions and the Capital Market: Three Case Studies,” Media, Culture & Society 32, 4 (2010): 649–668. BestTV New Media Corporation Limited, “Excerpts of the 2014 Report,” http://static.sse.com.cn/ disclosure/listedinfo/announcement/c/2015-04-02/600637_2014_nzy.pdf, accessed October 5, 2015. Shanghai Oriental Pearl Media Corporation, “2015 Interim Report,” http://static.sse.com.cn/disclosure/ listedinfo/announcement/c/2015-08-15/600637_2015_zzy.pdf, accessed October 2, 2015. Ibid. Erica Orden, “DreamWorks Animation to Make Films, TV Programs through China Venture,” Wall Street Journal (Online), February 17, 2012. Lee, He, and Huang, “Party-Market Corporatism,” 25. Yan Huang, Gang Chen, and Zhenyi Peng, “Shuzi dianshi meiyou shijianbiao” [Digital TV has no timeline], Hulianwang zhoukan, 44 (December 22, 2003): 25–33. Shanghai Oriental Pearl Media Corporation, “2015 Interim Report.” Jason Mander, “WeChat Retains Crowns as Top Mobile Messaging App,” November 20, 2014, www.globalwebindex.net/blog/wechat-retains-crown, accessed October 11, 2015. Tencent Holdings Limited, “2014 Annual Report,” www.tencent.com/en-us/content/ir/rp/2014/ attachments/201402.pdf, accessed October 16, 2015. Min Tang, “A Chinese Tencent? A Roadmap to its Transnationalization,” (paper presented at the International Association for Media and Communication, Montreal, Canada, 2015). Mirzaan Jamwal, “Buy Your Way,” The Asian Venture Capital Journal, August 20, 2013: 13. Bien Perz, “Tencent Takes No Chances on Data Needs Mainland Internet Giant Inks Second Deal This Year for Data Center Use in HK, Ensuring the Infrastructure is in Place for Growth Push,” South China Post, December 11, 2013: 4. Jason Mander, “WeChat Rises to Become Fastest Growing Messaging App in the Last Year,” May 16, 2014, www.globalwebindex.net/blog/wechat, accessed October 9, 2015. Ibid. Bien Perez, “Tencent Scales back WeChat’s Aggressive International Expansion,” South China Morning Post, March 20, 2015: A3. Bien Perz, “Tencent Targets More Emerging Markets after Push into Russia,” South China Post, May 14, 2010: 2. Bien Perz, “Tencent Expansion in Asia May be Bolstered by Kakao Connectons: Stake in Korean Messaging Service May See Mainland Firm Gain from Takeover of Web Portal,” South China Morning Post, May 27, 2014: B3. Evelyn M. Rusli and Paul Mozur, “China Buys Its Way into Silicon Valley,” U.S. Wall Street Journal (Online), November 4, 2013, www.wsj.com/articles/SB1000142405270230384310457917196380 1529056, accessed October 30, 2015. Winnie Liu, “Money to Burn,” The Asian Venture Capital Journal, March 4, 2014: 10–11. Tim Burroughs, “Survival of the Fittest,” The Asian Venture Capital Journal, May 14, 2013: 12–13. Ibid. Evelyn M. Rusli, “China Buys Its Way into Silicon Valley; Tencent’s Push for Stake in Snapchat is Latest Effort to Gain Foothold in China,” Wall Street Journal, November 4, 2013. Paul Mozur, “Tencent Buying Spree Continues,” Wall Street Journal, May 6, 2014. Tencent Holdings Limited, “2014 Annual Report.” Anita Davis, “Corporate Tech VC Funds Launch in China,” The Asian Venture Capital Journal, March 1, 2011: 12. Liu, “Money to Burn.” Tim Burroughs, “Is China Pushing VCs out of Third-Party Payment,” The Asian Venture Capital Journal, July 26, 11: 14–15. Tencent Holdings Limited, “2014 Annual Report.” Gordon G. Chang, “China Crippling Its Online Financial Industry,” Forbes, August 9, 2015, www.forbes. com/forbes/welcome/, accessed October 16, 2015.To contain the burgeoning online financial industry, on July 31, 2015 the PBOC proposed to cap daily and annual third-party online payments.

21 AUSTRALIA AND NEW ZEALAND Martin Hirst, Wayne Hope, and Peter Thompson

Within the British Empire, Australia and New Zealand became white settler capitalist dominions to the detriment of their indigenous populations. In retrospect, their political and economic histories are distinctively separate with important periods of overlap. The same can be said of their media histories and associated patterns of media ownership. In this context, we discuss the conglomeration, transnationality, and financialization of Australia and New Zealand corporate media via three case studies: News Corporation, Fairfax, and APN News and Media (NZME). The following pages will map their changing corporate structure, economic impact, and political ideological influence. In the case of New Zealand, the task of monitoring media corporations has become increasingly challenging. Data on media company revenues, circulations, and market share are no longer easily available from company or industry websites. The reasons for this deserve comment; they indicate a sharp decline in corporate accountability. First, some media groups have become private equity holdings. Because their shares are not publicly traded, disclosure obligations are relaxed. The Mediaworks group, for example, which controls free-to-air television channels TV3 and C4 and is the main rival to NZME in the commercial radio sector, is owned by the U.S. “vulture” fund Oaktree Capital. Second, changes in corporate organization have created discontinuities in the way that media company information is reported. Both Fairfax and APN (the latter controls NZME) have historically integrated their Australian and New Zealand company data into a single annual report. This has hindered media researchers because the two national data sets have been arranged and presented differently from year to year. Ongoing corporate restructuring across APN’s newspaper and radio holdings has led to a re-categorization of its media activities. It is thus difficult for media researchers to follow historical trends. Third, cross-platform competition for audiences, readership, and revenues has reduced investment in publicly available industry research and cooperative ventures. In 2011, Fairfax ended its involvement with the 132-year-old New Zealand Press Association news-pool system (on the basis that rival media companies benefitted disproportionately from Fairfax content). There is no longer a major source of long-term information about the newspaper sector. The Audit Bureau of Circulation, which has comprehensive archives, makes only the last two years’ data available on its website and is typically unresponsive to requests for information.

Australian Media History During the second half of the 19th century, Australia played a critical role within the Britishdominated world economy. Australia was the world’s largest provider of wool for Britain’s

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industrialization, a major supplier of gold, and one of the largest destinations for British surplus population.1 The foundations of an agricultural- and manufacturing-based national political economy were established between 1894 and 1911. Concurrently, colonial elites and the middle classes from different regions established an Australian Federation concerned with the practical issues of economic development, defence, foreign affairs, judicial authority, immigration, and postal services. This was a liberal democratic state with political parties, regular elections, universal suffrage, secret ballots, and universal legal rights. From 1911, the growth of regional-national union organization and the Australian Labor Party facilitated the establishment of a social democratic political economy. The key features of this arrangement were large-scale immigration to supply labor for agricultural and import substituting industrial growth, a centralized conciliation and arbitration system for industrial relations, education, social welfare, public health provision, and long-term state involvement in national infrastructure and production; that is, banks, airlines, railways, postal services, telegraph, telecommunications, and broadcasting.2 The federal integration of transport and communication infrastructures was, eventually, complemented by the establishment of a nationwide print media oligopoly. Initially, various family-owned newspapers and magazines catered for distinct, state, regional, and local readerships. Within fast-expanding metropolitan centers, various newspaper proprietors fought out daily circulation battles. In 1900, 17 independent proprietors owned 21 metropolitan dailies within a population base of 3,700,000. In 1920, 21 independent proprietors and 26 daily titles competed for a combined catchment of 5,400,000. Subsequently, however, battles for daily readership were reshaped by business takeovers and title closures. Twelve proprietors owned 20 dailies in 1930; 20 years later, 10 proprietors owned 15 titles. By 1960, four major groups produced 14 metropolitan dailies for a total population of 10,200,000.3 News Ltd (Rupert Murdoch), Consolidated Press Holdings (Kerry Packer), and John Fairfax Ltd were family-based listed companies. Sir Keith Murdoch originally established the Herald and Weekly Times Group. Family-owned titles within the group were divested to institutional shareholders after Murdoch’s death in 1952. These companies also obtained holdings in regional newspapers, magazines, publishing, commercial printing, film production, film processing, recorded music, and other business activities (e.g., real estate, transport, insurance). Australia’s media oligopoly was strengthened by the incorporation of broadcasting technologies and networks. In the 1920s and 1930s, most commercial radio stations were acquired by the four prevailing newspaper companies in compliance with media ownership regulations contained in the 1935 Wireless and Telegraph Act. Under this legislation, control of radio licenses by a single person or company was limited to one metropolitan station in any state, four metropolitan stations in the Commonwealth, four stations in any one state, and eight stations in the Commonwealth. By 1950, newspaper companies owned or partly owned 44 out of 102 commercial radio stations. Most of the outsider stations were indirectly controlled through information networking arrangements.4 During the 1950s and 1960s, Murdoch, Packer, Fairfax, and the Herald and Weekly Times gained most of the lucrative metropolitan television licenses. Cross-media ownership restrictions contained within Australia’s 1956 and 1965 Broadcasting and Television Acts prohibited an owner from having a prescribed interest in more than two nationwide television stations. This precluded monopoly or duopoly ownership of broadcasting networks but left opportunities for oligopolistic corporate manoeuvrings and government–corporate collusions over regulatory intervention.5 By 1980, each of the “big four” were publicly listed multimillion-dollar enterprises with diverse media holdings. Collectively, they owned every metropolitan daily, 90% of the Sunday Press, 50% of the regional and suburban press, 25% of metropolitan radio stations, and six commercial television stations in Sydney and Melbourne.6 Between 1983 and 1996, successive Labor governments under Bob Hawke and Paul Keating oscillated between the social democratic traditions of economic nationalism and the neoliberal

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imperatives of globalizing capitalism. Initially, the Hawke Government’s policy strategy relied upon a corporatist accord with the Australian Council of Trade Unions (ACTU). They acceded to wage indexation implemented by arbitration tribunals as the government pursued expansionist monetary and fiscal policies (to promote growth and reduce unemployment). Against this, tariffs were lowered, public expenditure reduced, and public service employees laid off.7 As the accord was established, the government deregulated interest rates and bank lending policies and partially floated the Australian dollar. The speculative activity and corporate takeovers that ensued furthered the concentration of media ownership, including the conglomeration of media holdings and the influence of transnational media corporates. Amendments to media ownership laws from November 1986 under the Hawke government did not alter these trends. Ownership conglomeration in two of three media sectors—newspapers, radio, and television—was subject to a diversity test.8 The Treasurer Paul Keating declared that a media owner could be a prince of print or queen of the screen, but not both. No company could control both a newspaper and a television/radio station in the same market. Neither could they hold a commercial television license and a commercial radio license in the same market. However, in 1987 Rupert Murdoch’s News Ltd was legally able to purchase The Herald and Weekly Times Group. At that point, News Ltd published more than 60% of Australia’s newspapers. News Corporation was in the process of becoming a transnational multi-media conglomerate alongside Disney and Time Warner. By the late 1990s, these three players had the largest media and entertainment holdings internationally.9 Meanwhile, as media researcher Trevor Barr observed, “a corporate circus of television takeovers began with multiple changes of ownership and control of licences.”10 Speculators Christopher Skase, Alan Bond, and Frank Lowy purchased the Seven, Nine, and Ten television networks before selling them after the stock market crash of 1987.11 The Seven network was eventually obtained by Kerry Stokes, a local media entrepreneur, who had bought and sold holdings in magazines, satellite television, pay television, and sports stadia. Kerry Packer repurchased the Nine network from Alan Bond at a substantial profit. Frank Lowy’s debt-ridden Ten network was taken over by Westpac and sold to an investor group led by Canadian media corporate Canwest. Three years after this purchase, in 1995, it secured affiliated stations in Perth and Adelaide thus obtaining 57% of the network. Because Canwest held only 15% of the voting shares, the then 20% foreign ownership was circumvented. In November 1996 and January 1997, an additional 19% holding was purchased from other investors. After the newly elected Liberal government, under John Howard, forced Canwest to divest these shares, the Ten network was floated on the Australian stock market. Canwest earned a windfall profit, maintained a 57% holding and retained its metropolitan licenses. Another transnational media corporate, Tony O’Reilly’s Australian Provincial Newspapers (APN) obtained a sizable stake in regional newspapers and regional radio networks.12 From October 2006 to April 2007, John Howard’s Liberal government weakened existing crossmedia ownership laws and eased restrictions on foreign media ownership. These regulatory changes triggered sales, acquisitions, and mergers across the media landscape. Amid the detail of these transactions, one must note the emergence of financialized ownership. As the Senate approved the new laws, Kerry Packer’s son, James, announced that he had sold half of his media business to private equity group CVC Capital Partners. Shareholders in Kerry Stokes’ Seven network approved a joint venture with private equity group Kohlberg Kravis Roberts.13 This pattern of ownership was to become a predominant feature of the Australian and New Zealand media domains. By 2008, the three largest media corporates were News Ltd, Fairfax Media, and APN. They owned every Australian newspaper except for one metropolitan daily and two regional dailies. News Ltd and Fairfax Media controlled more than 90% of newspaper circulation. As mentioned earlier, News Ltd’s parent company, News Corporation, had become a transnational, multi-media conglomerate. Earnings from film, DVD sales, and television holdings increasingly subsidized the

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newspaper arms of the business.14 After John Howard’s media ownership legislation, Fairfax merged with and absorbed the holdings of Rural Press. These included nine newspaper titles and seven commercial radio licenses.15 Fairfax’s general business strategy was to lessen their traditional reliance upon press advertising by focusing on radio, websites, agricultural magazines, and music.16 As will be discussed later, Fairfax’s New Zealand acquisitions during the early 2000s were centered upon newspaper titles. APN’s Australian holdings in 2008 included 14 regional newspapers, more than 75 community publications, a radio division that contained 12 metropolitan stations, an outdoor advertising company, and a range of websites. APN’s involvement in the New Zealand media domain will be considered in the following section.

New Zealand Media History From 1840 to 1880, colonial capitalism was established in each New Zealand province. Later in this period the provinces were nationally coordinated through a central government strategy of overseas borrowing for public works and infrastructure. The early modern political economy was directed by a ruling landowner oligarchy and shaped by the contradictory pressures of national development and dependence on Great Britain. In the absence of an urban-industrial bourgeoisie, public communication was dominated by the pronouncements of regionally based businessmen-politicians. Early daily newspapers were published in the four main centers: The Otago Daily Times (Dunedin), The Press (Christchurch), The Evening Post (Wellington), and The New Zealand Herald (Auckland). These were entrenched family holdings tied to insular business communities. Politicians, businessmen, and newspaper owners were often the same people. Readerships were informed about the virtues of colonial advancement, moral rectitude, and deference to the monarchy. Editorials contained occasional outbursts against Maori, vagrants, unions, and politicians from other provinces. Telegraph installation enabled the birth of the United Press Association (UPA) in December 1879, which was the forerunner of the New Zealand Press Association (NZPA). The resulting formats and newsgathering practices turned newspapers into annals of record rather than forums of political debate.17 After depression in the 1880s, local manufacturers, small traders, and small farmers mobilized against major landowners, bankers, and merchant financiers to elect a succession of liberal-reform governments. Their long-term achievement was the introduction of a modern pastoral economy. Politics became more democratically inclusive; landowner multiple voter rights were abolished in 1889 and women gained the vote in 1893. As the franchise widened, previously excluded economic and social perspectives began to inform government policy. A raft of labor and social reform legislation throughout the 1890s signified the beginnings of a welfare state and an industrial relations system.18 The impact of the depression gave social resonance to the views of liberal politicians. In 1890, as editor of The Lyttleton Times, William Pember-Reeves expounded the philosophy of benevolent state socialism.19 Reeves’ controversial opinions became institutionalized as the New Zealand political economy was transformed. This allowed other newspapers, such as the New Zealand Times to articulate Reeves’ philosophy. However, under later Reform governments dominated by farming interests, editors of major daily newspapers espoused antisocialist opinions and drove oppositional newspapers out of business. From 1900 to 1910, the expansion of pastoral capitalism spawned small towns, rural communities, and papers of different kinds. Publications declined as road and bridge construction brought rural populations within the orbit of commercially focused regional papers. From 1910 to 1920, twenty-five new titles were founded but thirty ceased publication. In the four main centers, the only successfully established daily paper was Wellington’s Dominion. This was founded in 1907 and absorbed its major opposition, The New Zealand Times, 20 years later.20 Urbanized economic growth reshaped the ownership and management structures of provincial dailies. Politically involved proprietors gave

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way to staid newspaper companies with modern divisions of labor that resembled their counterparts in Australia and elsewhere. From 1916, unions in larger cities and mining areas rallied behind the newly formed Labour Party. Labour politicians, economists, and their supporters confronted a conservative press and a nascent broadcasting system, which proscribed innovative journalistic practices and general public discussion. Official broadcasting regulations were gazetted in 1923 and policed by the Post and Telegraph Department. From the outset, all radio content was subject to restrictions and ministerial approval.21 National regulations authorized an institutional voice that equated the public with public service and public service with protection of the so-called public good. Meanwhile, newspapers such as the Maoriland Worker, the Weekly Herald, and the Transport Worker defined the contours of a marginalized oppositional public sphere embedded within the developing culture of working-class activism, socialist thought, and labor politics. During the 1930s depression, such a perspective entered the mainstream via churches, women’s groups, literacy journals, and the less regulated but more populist B-categorized radio programmes. In 1935, the newly elected Labour government, led by Michael Joseph Savage, introduced exchange controls, import licensing, and protective tariffs for local manufacturers. Agricultural production for export was bolstered by overseas government marketing and a guaranteed price scheme for dairy farmers. Labour’s philosophy was that if all available resources were used to create public goods and services, then this would expand employment and widen the tax base needed to fund the macroeconomic system. The consequent redistribution of income from taxpayer to beneficiary, combined with housing and public works programmes underwrote New Zealand’s version of Keynesian social democracy. From about 1960, old family configurations of agrarian and mercantile capital became transformed through corporate ownership. Among New Zealand’s 12 largest listed companies in 1962, individual shareholders accounted for 57% of the holdings and 40% of the capital.22 By 1974, individually held shares accounted for only 22% of the capital in large holdings.23 There was a corresponding shift from family to corporate press ownership. By 1969, about 75 of the 100 publications registered in New Zealand were owned and operated by nine major firms, of which three later dominated: New Zealand News, Wilson and Horton, and Independent Newspapers Ltd (INL), a partly owned News Corp subsidiary.24 Rupert Murdoch’s influence in New Zealand originated in 1964 with his acquisition of The Dominion, Wellington’s morning daily. By 1980, INL owned 70% of all daily papers. Over the same period, the Parliamentary Press Gallery supplemented NZPA newsgathering. Gallery correspondents provided day-to-day coverage of Parliamentary proceedings along with head office material from commerce, industry, agriculture, finance, and public service departments. By 1976, 45 journalists were accredited to the Press Gallery. Newspapers in the major centers each had between one and six journalists reporting daily.25 From July 1984, Labour’s election victory over the Muldoon-led National government facilitated major changes in the structure of New Zealand capitalism. Directorial elites, institutional investors, and shareholders were already caught up in an unprecedented wave of mergers and acquisitions. Corporate creditors used local or global markets to activate passive shareholders against target companies through buyouts and offers of higher dividend returns.26 From 1984 to 1987, the fourth Labour government accelerated this process by cutting tariffs, deregulating the finance sector, and floating the New Zealand dollar. Under Finance Minister Roger Douglas and with Treasury backing, government departments, such as telecommunications, lands and survey, forestry and mining were transformed into commercial enterprises. These measures prefigured a full-scale privatization programme after Labour’s re-election in 1987 and National’s first term of government in 1990. Directors from New Zealand’s major public companies administered newly formed state-owned enterprises and presided over their subsequent absorption into the corporate sector.

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Takeover activity throughout the corporate economy led to further concentrations of press ownership. From 1984 to 1987, three major players—New Zealand News (owned by Brierley Investments), Independent Newspapers Ltd (INL), and Wilson and Horton—dominated the newspaper market. In March 1987, Murdoch’s News Corp assumed a 40% interest in INL. During 1989 its holdings increased to 49%.27 In August of the following year, the Commerce Commission approved a rapid expansion in INL holdings. This resulted from the NZ News (Brierley) decision to sell off its Auckland suburban papers along with the Auckland Star and the Sunday Star. New Zealand was moving from a triopoly toward a duopoly in newspaper ownership. Over the same period, cross-media ownership started to assume a transnational configuration. Four pivotal events initiated this process: the deregulation of broadcasting (1989), the entry of TV3 and pay television (1989), the sale of Telecom (1990), and the lifting of restrictions on foreign media ownership (1991). In July 1987, a report prepared by Treasury and Trade and Industry officials recommended that broadcasting should have its entry barriers lowered, its ownership restrictions freed up, and a value placed on the use of the airwaves. In this environment, Television New Zealand (TVNZ) faced competition from private television within a finite advertising market at the same time as the broadcast licensing fee was declining as a proportion of annual revenue.28 In these uncertain commercial conditions, TVNZ executives extended their holdings to include Sky Television (16.3%), Clear Communications (15%), a Singapore-based Asian business news channel (29.5%), and a Fijian state-owned television channel (15%). The entry of TV3 was initially unprofitable as local shareholders went bankrupt. As of 1994, the new principal shareholders were Canadian media conglomerate Canwest (10%), Australian bank Westpac (48%), and an official receiver (32%).29 The sale of Telecom in June 1990 enabled American buyers Bell Atlantic and Ameritech (34.2% each) to enter the pay television market. Together with TimeWarner and Telecommunications Inc. they bought 51% of Sky. Correspondingly, in 1996, Radio New Zealand’s 41-station commercial network was sold to a consortium of Wilson and Horton, the United States radio giant Clear Communications, and APN News and Media. This consortium named itself The Radio Network and, in November, purchased Prospect, a local network of companies within the British media company GWR. The new holdings included 12 stations and the Independent Radio News and Sports service. By 2002, after further acquisitions, the Radio Network had established itself domestically as a transnational commercial radio operator with 53 stations and over 50% of national radio advertising revenue. By 2008, the vast majority of New Zealand’s radio stations were incorporated within a transnational duopoly. The Radio Network confronted Mediaworks, a Canwest subsidiary that had obtained full control of TV3 while acquiring radio stations throughout New Zealand.30 As indicated previously, APN News and Media was part of Tony O’Reilly’s holdings in Australia and the United Kingdom. From 1995 to 1998, his newspaper group, Independent Newspapers PLC (later called Independent News and Media, or INP) assumed control of Wilson and Horton, Auckland owners of the New Zealand Herald, the country’s largest newspaper. In April 2001, INP sold its shares to Australia’s APN News and Media (in which INP already had a 40% shareholding).31 Meanwhile, News Corp extended its media holdings into Sky Television. In 1999, most of TVNZ’s share was bought out by News Corp-controlled Independent Newspapers Ltd, which then owned 49% of New Zealand’s daily newspaper circulation along with holdings in national weeklies, magazines, and websites. In November 2001, the then Labour-Alliance government allowed Sky to broadcast TVNZ’s two channels (TV1 and TV2) through its newly established digital network. At that time, INL controlled 66% of Sky shareholdings.32 In June 2003, Fairfax Holdings paid NZ$1.88 billion for INL’s press and magazine titles. This was to have a major impact upon media ownership patterns, journalism, and news content. At that time, Fairfax was Australia’s largest print and media group, which was valued at A$10.2 billion. In 2006, the company paid NZ$700 million for Trade Me in order to increase its online

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holdings, exploit electronic commerce, and to capture the migration of classified advertising towards the Internet.33 Fairfax’s strategy was to centralize and restructure New Zealand newspaper operations. As we have noted, the company withdrew from NZPA’s news pooling system, whereby member newspapers would share news content with each other. Fairfax preferred to draw content from the Sydney Morning Herald, the Melbourne Age, and its New Zealand web-news site, www.stuff. co.nz. In July 2008, Fairfax announced the establishment of hubs in Wellington and Christchurch to centralize the sub-editing of features as well as world and business news across all major titles. In August of the same year, it announced 16 New Zealand redundancies and introduced a new editorial management structure to oversee the nationally delivered Sunday Star Times and the Auckland-based Sunday News.34 Independent News Ltd used cash from the sale of print holdings from Fairfax to purchase Sky’s remaining shares. Effectively, therefore, INL’s majority owner News Corp increased its commercial influence over Sky operations and its commercial share of Sky revenues. News Corp’s dominance was extended when INL merged with Sky in 2005. News Corp’s exclusive live coverage rights to the Australian and British Rugby League, test and one-day cricket, Premier League soccer, as well as professional tennis and golf all contributed to commercial returns. In February 2006, Sky paid NZ$30.26 million for the free-to-air channel Prime Television New Zealand Ltd.35 This allowed Sky to monopolize re-broadcast rights for live sports while competing for free-to-air television ratings. Additionally, Sky channels and networks were regularly promoted to prime viewers. By 2007, Sky had over 600,000 residential subscribers.36

Australian Media Giants: News Corp, Fairfax Media, and APN News and Media News Corporation Australia In July 2013, when Rupert Murdoch restructured his global holdings, Australian operations were split into two separate entities—News Corporation Australia and Twenty-First Century Fox. News Corp Australia owns the print assets, Fox Sports, and the company’s entertainment assets.37 It appears strange that the “entertainment” vehicles Fox Sports and Foxtel were bundled with News Corp rather than Twenty-First Century Fox. Given the opacity of News Corp, no definitive internal reasoning has been revealed. However, it is reasonable to speculate that the highly profitable subscription TV services have been retained within News Corp to disguise substantial losses incurred by Murdoch’s national newspaper The Australian. In the former case, News Corp had recently taken full control of the Fox Sports subscription TV operation and a 50% share of the subscription platform Foxtel. This occurred in November 2012, seven months after Foxtel’s acquisition of the second subscription provider Austar for A$2 billion.38 This gave the Murdoch-owned company a monopoly of paid television services in Australia. By contrast, one well-sourced Murdoch watcher has reported that The Australian was losing upwards of A$30 million a year since at least 2011.39 At the same time, News Corp’s Australian operations were able to secure a tax write-off from the government of more than A$800 million.40 For 1984, 2004, and 2014, News Corp’s share of Australian newspaper circulation was 25, 58, and 63%, respectively.41 In March 2015, News Corp reinforced its pre-eminence among Australia’s big three media corporates when it purchased 14.9% of APN News and Media.42

Fairfax Media Since 2008, Fairfax Media has tried to transform itself from a print news organization to a digital one amidst falling advertising revenues and boardroom battles over company ownership.

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The company has closed down non-core and unprofitable businesses, sold assets, outsourced jobs, and reduced the overall workforce. These measures have substantially affected the bottom line. For 2009, 2011, and 2012, losses before tax amounted to A$351 million, A$303 million, and A$2.75 billion, respectively (in 2010, a A$397 million profit was reported).43 In 2015, Fairfax announced net profits of A$83.2 million, 62% less than 2014 figures.44 Equity analyst Christian Guerra stated, in 2013, that “Fairfax has the highest exposure in the sector to publishing” and that revenue declines and business model erosion were likely to continue.45 In this respect, Fairfax’s difficulties were accentuated by vulnerability to News Corp’s advancing dominance in the newspaper market. In 2004, News Corp controlled 58% of national circulation and Fairfax 21%. By 2014, the comparative market shares were 63 and 23%, respectively.46 Over the last four years, Fairfax Media has fallen into the hands of financial institutions. In 2012, they held 56.5% of shares. According to Fairfax’s 2013 annual report, approximately 67.7% of its then largest shareholders were financial institutions.47 In 2014, just four financial institutions held 24% of Fairfax’s shares (Table 21.1). In February 2015, mining magnate Gina Reinhart sold her stake in Fairfax Media for A$300 million.48 Fairfax remains a financialized media company continually subject to organizational restructuring and staff lay-offs as shareholders prioritize revenue streams and short-term profits.

APN News and Media At present, APN News and Media holds a dozen newspaper publishers serving metropolitan and regional markets, 13 radio stations grouped within the Australian Radio Network (ARN), plus the outdoor advertising business, Adshel. Until 2014, ARN was a joint venture between APN and the U.S.-based Clear Channel. In February of that year, APN purchased all of Clear Channel’s ARN assets for Australian A$246.5 million. The deal was funded by raising equity from APN’s outdoor advertising company and from debt facilities with domestic and international banks.49 APN’s evolving shareholding structure exemplified the spread of financialized ownership. In 2010, 22.6% of their substantial shareholders were listed or unlisted financial institutions (5.9 and 16.7%, respectively). By 2012, 55.6% of APN’s substantial shareholders were in the latter category. Unlisted entities included private equity firms, unlisted fund management companies, hedge funds, and advisory businesses.50 In 2014, such firms included Allen Gray, an Australian investment management company, Baycliffe, a private investment company owned by Irish communications billionaire Dennis O’Brien, and IOOF Holdings, an Australian financial services company (see Table 21.2). This tendency lessened somewhat with New Corporation’s 2015 purchase of APN shares (14.9%).

Political-ideological Influence In Robert McChesney’s schema of media corporations, Fairfax and APN can be classified as large, second-tier regional players with international reach. News Corporation, however, is a first-tier TABLE 21.1 Fairfax Group Major Shareholders,

TABLE 21.2 APN Group Major Shareholders,

2014

2014

Fairfax Major Shareholders

%

APN Major Shareholders

%

Hancock Prospecting National Australia Bank Maple Abbot Brown UBS AG

14.9 7.5 5.5 5.1

Independent News & Media Allan Gray (Australia) Bayliffe (Dennis O’Brien) IOOF Holdings Ltd

18.6 15.6 12.2 7.2

Source: Merja Myllylahti (see n. 43, p. 365)

Source: Merja Myllylahti (see n. 49, p. 365)

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transnational conglomerate, which routinely translates its commercial power and market dominance into political-ideological influence within multiple national contexts.51 Rupert Murdoch learned much of his political acumen and ambition from his father, Keith, who was a minor political figure and newspaper editor of some note.52 Murdoch’s influence in Australia is perhaps greater than in either Washington or London, despite the fact that he has been a U.S. citizen for nearly 40 years. That influence was brought to bear with great intensity on the Australian electoral cycle between the years 2011 and 2013. This was a tumultuous period in Australia’s political history. In 2010, a Labor leader had beaten the conservatives in the Federal election against the odds. Murdoch had campaigned heavily for the conservative Liberal–National Party coalition and it did not take long for his newspapers to turn on Australia’s first female prime minister, Julia Gillard. However, News Corp was not on its own in attacking the government of the day. An attempt by the Communications Minister, Stephen Conroy, to introduce media ownership regulations attracted fierce criticism from all the major media companies who came together in a lobbying effort to prevent any legislative change. The anti-regulation campaign relied almost entirely on exaggerated arguments about the harm the proposals would cause. The government’s modest proposals to make it easier for complaints of media bias to be dealt with were met with vehement and unverified claims that freedom of speech and freedom of press were in imminent danger.53 Minister Conroy was compared to Stalin and Kim Il Jong on the front page of a leading Murdoch tabloid, as the mooted reforms were denounced by radio talkback hosts and conservative columnists throughout the country. The Murdoch newspapers, following their successful prevention of change, continued their campaign against the Labor government. The incompetence and infighting in the ALP did not help and a revolving-door prime ministership was easily exploited by the News Corp campaign. From mid-2011 until the election of September 2013, all the News Corp mastheads were vicious in their denunciations of Labor and enthusiastic about the conservative Opposition leader Tony Abbott. Murdoch’s editors and leading opinion writers campaigned vigorously for a Liberal–National Party government in 2013. This was not only in line with Murdoch’s considerable business interests and hatred of media regulation, it also comported with his neo-conservative politics.54

NZME News Corporation News Corp’s direct involvement in the New Zealand media domain has lessened recently. In 2013, its 44% holding in Sky Television was sold for NZ$815 million to banks and other financial sector investors. Although this may have reflected strategic corporate priorities, it is significant that Sky’s rapid growth over the preceding decade was slowing. Market penetration had plateaued at just less than 50% of households and the imminent market entry of several new online subscription services (including Netflix) represented an unprecedented form of competition within a monopolized market. Given that its current NZX market capitalization value of NZ$1,747 million is down from NZ$1,850 million in 2013, News Corp appears to have been correct in its financial assessment.55 According to the NZX, as of June 2015, Sky’s subscriber base had slipped 1.5% to 825,000 subscriptions, which represents 47.1% of households.56 Gross churn had increased 2% to NZ$928 million in the wake of new competition from video-on-demand services. Sky’s control by a global media conglomerate at least ensured its strategy was informed by a shareholder with a global perspective on media businesses. It is too early to predict how the new shareholders will change Sky’s priorities, but there is evidence elsewhere of a fixation with short-term profit returns

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TABLE 21.3 Sky Network TV Ltd Shareholdings over 5% (as of August 2014)

Shareholders

% shares

HSBC Nominees (NZ) JP Morgan Nominees (Aus) National Nominees Ltd. JP Morgan Chase Bank NA National Nominees (NZ) Ltd HSBC Custody Nominees (Aus)

16.17 13.96 8.94 7.08 6.34 5.20

Source: Sky Network Television Ltd, Annual Report 2011, www.skytv.co.nz/Portals/0/ Assets/AboutUs/Reports/Annual%20Report%202011.pdf, accessed November 1, 2014.

and a concomitant impatience with financial underperformance (e.g. the takeover of Mediaworks by U.S. “vulture” fund Oaktree Capital). News Corp recently regained a presence in New Zealand, albeit an indirect one, when they took over a 14.9% stake in APN, which controls New Zealand Media & Entertainment.57 The NZME stake is unlikely to have been a factor in the decision, although it does bring News Corp full circle insofar as it once more has a significant stake in the newspaper sector. News Corp’s disinvestment from Sky and subsequent reinvestment in APN exemplified the transitory shuffling of global shareholders in New Zealand media companies.

Fairfax NZ Fairfax has been facing a long-term decline in newspaper sales. The average net circulation of its largest New Zealand title. The Dominion Post fell from 83,169 in June 2011 to 64,851 in June 2015. Over the same period, circulation for the Christchurch-based Press went from 80,506 to 60,171.58 Since the 2008 financial crisis, New Zealand’s newspaper advertising revenue declined and has still not recovered. Between 2007 and 2014, revenue dropped from NZ$826 million (35.4% of the total media-advertising market) to NZ$484 million (20.3% of the market).59 This decline in advertising revenue and available advertising money reflects similar difficulties in the much larger Australian market. Fairfax Media’s profit performance and business model have been faltering since 2009. In 2011, five years after its purchase of Internet trading platform TradeMe, a third of its shares were floated on the New Zealand and Australian stock exchanges. In 2012, Fairfax further reduced its share of TradeMe to 51% before selling the remaining shares for NZ$810 million. These developments reflected shareholder pressure to reduce group debt levels.60 In this parlous situation, Fairfax decided to remove barriers between its Internet, print, tablet, and mobile news platforms in order to create an integrated one-newsroom model. This new structure was said to herald a new way of working: “We are a 24-hours-a-day, audience-focused, multi-platform newsroom embracing the digital future.”61 The net result has been editorial consolidation and cuts in journalistic staff. Most recently, in New Zealand, Fairfax disestablished 180 of its 700 editorial staff in its “News Rewired” and “Modern Newsroom” initiative.62 Although new positions are to be created, editing for local papers will be integrated within a centralized pool across key news areas such as Business, Lifestyle, and Sport. This will also require journalists to take more responsibility for their copy while increasing their story outputs.

APN (NZME) APN’s New Zealand arm, New Zealand Media and Entertainment (NZME),63 has also been facing a long-term decline in newspaper sales. The average net circulation of its major title, the

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Auckland-based New Zealand Herald fell from 170,704 in June 2011 to 139,209 in June 2015. Like Fairfax, NZME responded to falling press-advertising revenue by instituting a restructuring strategy. In 2007, it had outsourced sub-editing to Pagemasters; six years later these operations were brought back in-house with the creation of some 40 additional positions. However, this move also entailed greater expectations on NZME’s 700 print journalists to provide publish-ready copy across digital platforms.64 In September 2015, following a general decline in APN profits and the New Zealand share price, NZME announced reviews and redundancies for around 12 senior news columnists. At the time of writing, reports suggest that a shift toward centralized multi-platform operations could affect 40% of NZME’s sales staff.65 This exemplifies the impact of the Australian APN group’s strategic priorities on its New Zealand subsidiary. Such was also evident in 2013 when APN sold its magazine titles to the German media group Bauer. They now hold the nationally circulating New Zealand Listener, the New Zealand Women’s Weekly, along with the Auckland-based Metro.66 In 2014, APN restructured its New Zealand-based newspaper, radio, and online assets. They bought out Clear Channel’s share in the Radio Network, which forms a radio ownership duopoly with Mediaworks. The Radio Network was incorporated with APN’s newspaper holdings and its online retail operator GrabOne to form NZME. As with Fairfax, the organizational imperative was to advance cross-platform synergies in content, production, and sales. The NZME website divides subsidiaries into platform-neutral categories: news, sport, and entertainment. APN’s 2015 annual report specifically mentions the intention to create a single NZME newsroom and sales team across digital platforms.67 How well this strategy will work is not yet clear.

Political-ideological Influence Colonization of the national media system by transnational media corporates has had major politicalideological consequences. Media competition law and foreign ownership regulations are nonexistent. Across the print, television, and audio-domains, neoliberal orthodoxies pervade news coverage just as corporate-commercial imperatives shape journalistic culture. For News Corp the small size of the domestic media market makes it a peripheral consideration for senior management, notwithstanding Murdoch’s reputation for top-down direction of editorial positions. However, News Corp’s ability to acquire a controlling stake in Sky TV Network Ltd before 2014 reflected the prevailing laissez-faire approach to media regulation. Sky itself was a particularly active lobbyist in this regard, its senior management having a dedicated role for “government relations.”68 When the company was investigated and censured by the Commerce Commission (2013) for its restrictive content distribution contracts with various telecommunication firms, no prosecution was forthcoming. Successive governments deferred decade-long demands for investigations into Sky’s subscription service monopoly. The recent emergence of video-on-demand providers has allowed Sky to claim that online competition invalidates the need for regulation. Fairfax’s withdrawal from the New Zealand Press Association’s news pool had multiple repercussions. As mentioned, there is now no major source of historical data about the newspaper sector. It is thus difficult for critical media researchers to identify or analyse the correlations between ownership concentration and market dominance across media and genre. Once APN (NZME) also withdrew funding from the Association, an independent source of New Zealand news content was lost. The NZPA had been the only media organization to cover all parliamentary bills before the House. It also covered local news beyond the four main centers without a profit-oriented focus. Thus, NZPA’s closure undermined national news discourse and increased readers’ dependence on non-national sources. In September 2011, APN launched a news service for 50 New Zealand newspapers including its own titles. At the same time, Fairfax created its own news service and hired a senior NZPA journalist as national content editor. The Australian news agency

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AAP also started a new service, with 10 journalists in Wellington and Auckland.69 In general those developments signified the thinning of national news content and the further absorption of New Zealand news media by Australia media.

Conclusion Evidence for the conglomeration, transnationality, and financialization of media corporates in Australasia should not obscure major differences between the two countries. Australia’s geoeconomic size compared to New Zealand points to disparate experiences of media development. Australia’s three-level metropolitan, regional, and local media system contrasts with New Zealand’s simpler media ecology centered around small cities and provincial towns. Since the 1980s the cumulative impact of neoliberal policies in both countries has positioned New Zealand as an economic subsidiary of Australia. As of 2008, Australian banks and insurance companies dominated the New Zealand economy while Fairfax and APN maintained a substantial presence in the newspaper, radio, and online sectors. Meanwhile, the predominance of News Corporation, especially in Australia, reveals how first-tier transnational conglomerates colonize national media domains. As we have seen, News Ltd (now News Corporation Australia) has increasingly dominated the newspaper and pay-television markets while pressuring successive Australian Federal governments to weaken foreign media ownership regulations and media competition law. As this was occurring, over successive decades, Murdoch’s Australian media holdings became part of a burgeoning transnational media conglomerate. Although News Corp was less involved in New Zealand’s smaller and more peripheral media market, transnational corporate dominance of the national media landscape was, and is, extreme. In 2014, the leading media corporations in New Zealand—Fairfax Media, APN/NZME, Mediaworks, Sky TV, and Bauer Media—controlled or held substantial stakes in the newspaper, magazine, radio, and television sectors. Radio New Zealand (RNZ) and Ma¯ori Television (TVNZ) are the only public broadcasters in the country. Although Television New Zealand (TVNZ) is state-owned, its operations are 95% funded by advertising and it has no public service obligation.70 Transnational media ownership in both Austsralia and New Zealand has become financialized. Media conglomerates were seen not as structured wholes, but as assemblages of business units that ought to be continuously restructured to maximize profit rates. Corporate strategy thereby moved away from conglomeration toward the rationalization of holdings around strong market positions in certain media sectors. This process is well advanced for Mediaworks, Sky Television, Fairfax Media, and APN. In the latter two cases, debt and revenue difficulties have been exacerbated by a historic decline in print news readership and concerns about the commercial viability of online news provision. Consequently Fairfax and APN (and NZME) have initiated cross-platform consolidation, content synergies, and cost-cutting measures. The concomittant impact upon newsrooms, journalists’ working conditions, and general staff levels has weakened public spheres of communication in both Australia and New Zealand.

Notes 1 Christopher Lloyd, “Regime Change in Australian Capitalism: Towards a Historical Political Economy of Regulation,” Australian Economic History Review, 42(3), 2002: 238–266. 2 Lloyd, “Regime Change in Australian Capitalism.” 3 Bill Bonney and Helen Wilson, Australia’s Commercial Media (Melbourne: Macmillan, 1983). 4 Bonney and Wilson, Australia’s Commercial Media. 5 Trevor Barr, Newmedia.com.au: The Changing Face of Australia’s Media and Communications (Sydney: Allen & Unwin, 2000); Bonney and Wilson, Australia’s Commercial Media.

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6 Bonney and Wilson, Australia’s Commercial Media. 7 Stephen Bell, “Globalisation, neo-liberalism and the transformation of the Australian state,” Australian Journal of Political Science, (32 3) (1997), pp.345–367. 8 Marc Edge, “How the Camel got in the Tent: the Canadian Assault on Australia’s Media Ownership Limits,” Media International Australia, 132, 2009: 42–53. 9 Robert.W McChesney, Rich Media, Poor Democracy (New York: New Press, 2000). 10 Barr, Newmedia.com.au, 15. 11 Terry Flew and Callum Gilmour, “Television and Pay TV,” In The Media and Communications in Australia, eds. Stuart Cunningham and Graeme Turner (Sydney: Allen & Unwin, 2006). 12 Barr, Newmedia.com.au. 13 Michael Pusey and Marion McCuthcheon, “The Concentration of Media Ownership in Australia—From the Media Moguls to the Money Men?” Media International Australia, 140, 2011: 22–34. 14 Sally Young, “The Journalism Crisis,” Journalism Studies 11(4), 2010: 610–624. 15 Pusey and McCutcheon, “The Concentration of Media Ownership in Australia.” 16 Young, “The Journalism Crisis.” 17 Patrick Day, The Making of the New Zealand Press 1840–1880 (Wellington, Victoria University Press, 1990). 18 John Martin, State papers, Palmerston North, Massey University, 1981. 19 William David MacIntyre and W.J. Gardner (Eds.), Speeches and Documents in New Zealand History (Oxford: Clarendon Press, 1971). 20 Guy Scholefield, Newspapers in New Zealand (Wellington: A.H. and A.W. Reed, 1958). 21 Ian MacKay, Broadcasting in New Zealand (Wellington: A.H and A. W. Reed, 1953). 22 Tony Simpson, A Vision Betrayed: The Decline of Democracy in New Zealand (Auckland: Hodder & Stoughton, 1984). 23 David Pearson and David Thorns, Eclipse of Equality: Social Stratification in New Zealand (Sydney: Allen and Unwin, 1983). 24 J. Street, “Rich Pickings: Newspapers and Private Television,” New Outlook, August–September, 1983: 14–17. 25 T. Garnier, “The Parliamentary Press Gallery,” in Politics in New Zealand: A Reader, ed. Stephen Levine (Wellington: Allen and Unwin, 1978, 149–159). 26 Bruce Jesson, Behind the Mirror Glass (Auckland: Penguin, 1987). 27 Judy McGregor, “Who Owns the Press in New Zealand?,” in M. Comrie and J. McGregor (Eds.) Whose News (Palmerston North: Dunmore Press, 1992, 26–38). 28 Alan Bell, “An Endangered Species: Local Programming in the New Zealand Television Market,” Media, Culture and Society, 17(2), 1995: 181–200. 29 Bill Rosenberg, News Media Ownership in New Zealand, September 13, 2008, http://canterbury. cyberplace.org.nz/community/CAFCA/publications/Miscellaneous/mediaown.pdf, accessed November 1, 2014. 30 Matt Mollgaard and Bill Rosenberg, “Who Owns Radio in New Zealand,” Communication Journal of New Zealand, 11(1), 2010: 85–107. 31 Bill Rosenberg, News Media Ownership in New Zealand, September 13, 2008, http://canterbury. cyberplace.org.nz/community/CAFCA/publications/Miscellaneous/mediaown.pdf, accessed November 1, 2014. 32 Bill Rosenberg, “News media ownership: How New Zealand is foreign dominated,” Pacific Journalism Review 8, 2002, pp.59–95. 33 Peter Thompson, Wayne Hope, Matt Mollgaard, and Christine McCullagh, “The Media System in New Zealand,” in Christiane Matsen and Anja Herzog (Eds.), International Media Handbook (Baden Baden: Hans Bredow Institute/Nomos, 2009). 34 Bill Rosenberg, “Politics and the financial crisis,” Pacific Journalism Review 15(1), (2009), pp. 186–218. 35 Thompson, Hope, Mollgaard, and McCullagh, “The Media System in New Zealand,” 2009, pp. 1090–1104. 36 Ibid. 37 Lara Sinclair, “News Limited to Rebrand as Part of Split,” The Australian, June 26, 2013, www. theaustralian.com.au/business/media/news-limited-to-rebrand-as-part-of-split/story-e6frg996–1226670 066343, accessed June 15, 2015. 38 AAP and Reuters, “Foxtel gets ACC Nod to Swallow Austar,” The Sydney Morning Herald, April 10, 2012, www.smh.com.au/business/foxtel-gets-accc-nod-to-swallow-austar-20120409–1wlsv.html, accessed August 11, 2015. 39 Neil Chenoweth, “How much is the Australian Losing?” Trust the Toffs!, March 25, 2014, http:// neilchenoweth.com/2014/03/25/how-much-is-the-australian-losing/, accessed August 9, 2015. 40 Neil Chenoweth, “News Corp Won $1.4b on Luxembourg Tax Ruling, Secret Papers Show,” Australian Financial Review, November 9, 2014, www.afr.com/p/business/marketing_media/news_corp_won_on_

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54 55 56 57

58 59 60

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luxembourg_tax_BQsJO7O1u3m4qPIQQurXlK, accessed November 10, 2014.; Neil Chenoweth, “News Corp’s $882m Blew the Budget,” The Australian Financial Review, February 16, 2014, www.afr. com/p/national/news_corp_blew_the_budget_DFlluROVi0F6CV1fQ5UJvJ, accessed November 4, 2014. Rodney Tiffen, “From Punctuated Equilibrium to Threatened Species: The Evolution of Australian Newspaper Circulation and Ownership,” Australian Journalism Review 37(1), 2015: 63–80. Dominic White and Sarah Thompson, “Rupert Murdoch’s News Corp Takes 14.9% Stake in APN as Independent News and Media Exits,” Sydney Morning Herald, March 20, 2015. Merja Myllyahti, The New Zealand Media Ownership Report 2012, November 23, 2012, www.aut.ac.nz/ __data/assets/pdf_file/0005/323546/JMAD-New-Zealand-Media-Ownership-2012.pdf, accessed May 21, 2015. AAP, “Fairfax Media Reports a 62.9% Drop in Full-Year Profit after 5.3% Fall in Revenue,” The Guardian, August 12, 2015, www.theguardian.com/media/2015/aug/13/fairfax-media-reports-a-629-drop-in-fullyear-profit-after-53-fall-in-revenue, accessed October 21, 2015. Darren Davidson, “Kerry Stokes’ Ally Paul Xiradis joins Fairfax fray,” The Australian, February 2, 2013, www.theaustralian.com.au/business/media/kerry-stokes-ally-paul-xiradis-joins-fairfax-fray/story-e6frg996– 1226567078473, accessed December 8, 2013. Tiffen, “From Punctuated Equilibrium to Threatened Species.” Fairfax Media, Annual Report, 2013, www.fairfaxmedia.co.nz/Investors/Annual-Reports/annual-reports, accessed November 19, 2015. Paddy Manning and Robin Myriam, “How Much Did Gina Reinhart Make Out of Fairfax?,” Crikey, February 9, 2015, www.crikey.com.au/2015/02/09/how-much-did-gina-rinehart-make-out-of-fairfax/, accessed June 13, 2015. Merja Myllylahti, The New Zealand Media Ownership Report 2014, JMAD, 2014, www.nbr.co.nz/ sites/default/files/JMAD-New-Zealand-Media-Ownership-Report-2014.pdf, accessed May 13, 2015. Wayne Hope and Merja Myllylahti, “Fairfax in Trouble,” Foreign Control Watchdog 132, May 2013, www.converge.org.nz/watchdog/32/07.html, accessed September 20, 2015. David Folkenfink, Murdoch’s World: The Last of the Old Media Empires (New York: Public Affairs, 2013). Bruce Page, The Murdoch Archipelago (London: Simon & Schuster, 2003); William Shawcross, Murdoch: Ringmaster of the Information Circus (Sydney: Random House, 1992). Johan Lidberg and Martin Hirst, “In the Shadow of Phone Hacking: Media Accountability Inquiries in Australia,” The Political Economy of Communication 1(1), 2013: 111–121; Rodney Tiffen, “Finkelstein Report: Volume of Media Vitriol in Inverse Proportion to Amount of Evidence,” Pacific Journalism Review 18 (2), 2012: 37–40. Rodney Tiffen, Rupert Murdoch: A Reassessment (Sydney: Newsouth, 2014); Paul Barry, Breaking News: Sex, Lies and the Murdoch Succession (Sydney: Allen & Unwin, 2013); David McKnight, Rupert Murdoch: An Investigation of Political Power (Crows Nest: Allen & Unwin, 2012). See NZX, “Securities by Value Traded,” 2015, www.nzx.com/markets/NZSX/securities/values, accessed October 22, 2015. NZX, “Sky Network Television Limited Ordinary Shares (SKT) Analysis,” 2015, www.nzx.com/ markets/NZSX/securities/SKT, accessed September 2, 2015. Campbell Gibson and Jonathan Underhill, “News Corp Buys APN Stake in Share Sale,” National Business Review, March 19, 2015, www.nbr.co.nz/article/apn-news-media-halted-selldown-amid-speculationobrien-inm-exiting-bd-170335, accessed May 1, 2015; Tom Pullar-Strecker and James Were, “Rupert Murdoch’s News Corp takes APN Stake,” Business Day (Stuff), March 19, 2015, www.stuff.co.nz/ business/67448840/rupert-murdochs-news-corp-takes-apn-stake, accessed September 5, 2015. These figures and those later quoted for APN’s New Zealand Herald come from a breakdown of newspaper circulation figures supplied by Nick Campbell of News Works NZ (from Audit Bureau of Circulation Data). ASA, “New Zealand Advertising Industry Turnover Report (end of year 2014),” www.asa.co.nz/wpcontent/uploads/2015/06/ASA-Advertising-turnover-report.pdf, accessed June 20, 2015. Chris Keall, “Disbelief as Fairfax Sells 51% TradeMe Stake,” National Business Review, December 16, 2012, www.nbr.co.nz/article/disbelief-fairfax-sells-51-trade-me-stake-ck-134062, accessed September 28, 2015; Paul Macbeth, “Trade Me Shares Halted as Fairfax sees $1.5 billion Payday,” National Business Review, December 17, 2012, www.nbr.co.nz/article/trade-me-shares-halted-fairfax-sees-15-billion-payday-bd134085, accessed September 28, 2015. Fairfax Media, “Editorial Newsroom Review: Staff Information Pack,” June 27, 2012, http://resources. news.com.au/files/2012/06/27/1226409/8, 28527-fairfax-editorial-newsroom-review-staff-information. pdf, accessed August 26, 2015. RNZ News, “Fears Cuts Will Affect Quality Journalism,” RadioNZ.co.nz, May 29, 2015, www.radionz. co.nz/news/national/274866/fears-cuts-will-affect-quality-journalism, accessed June 2, 2015.

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63 In 2014, the New Zealand holdings of APN were renamed NZME. 64 Damien Venuto, “NZME to Take Sub-Editing In-House, Job Cuts Likely to Follow at Pagemasters,” Stop Press, June 26, 2015, http://stoppress.co.nz/news/nzme-take-sub-editing-house-job-cuts-likelyfollow-pagemasters, accessed September 29, 2015. 65 Nick Grant, “Experienced journos excluded from NZME integration,” National Business Review, September 18, 2015, www.nbr.co.nz/article/experienced-journos-excluded-nzme-integration-ng-178939, accessed September 29, 2015. 66 Matt Nippert, “APN Sells Magazines to German Publisher,” Business Day (Stuff), November 1, 2013, www.stuff.co.nz/business/industries/9351456/APN-sells-magazines-to-German-publisher, accessed June 7, 2015; Matt Nippert, “Bauer Cleared to Buy APN Magazines,” Business Day (Stuff), January 24, 2014, www.stuff.co.nz/business/industries/9645794/Bauer-cleared-to-buy-APN-magazines, accessed June 7, 2015. 67 APN News and Media, “2015 Half Year Results: Continued Revenue and Profit Growth,” August 20, 2015, http://phx.corporate-ir.net/external.file?t=2&item=o8hHt16027g9XhJTr8+weNRYaV9bFc 2rMd0Q/AXw4ztk/f7xxvuTba2xdjqC2W+RgF/0VtiFMdIOrRufw5Q40pOmCA7rXPnlFK5P4GYQ+ 0djNMk4VvXe9ClNrDDlOSBRCKA+q8Jw+oebOSE6cLa0Zg==&cb=635756191767284471, accessed November 19, 2015. 68 Peter A. Thompson, “Move Along Folks—Nothing to See Here: How National’s Broadcasting Policy Cover-up Favours Sky,” Foreign Control Watchdog 121, 2009: 18–28, www.converge.org.nz/watchdog/ 21/04.htm, accessed June 10, 2011; Peter A. Thompson, “The Murdoch Media Empire in New Zealand. Contribution to a Round-table on the International Dimensions of News Corp in the Light of the UK Phone Hacking Scandal,” Global Media and Communication 8(3), 2012: 21–25. 69 Andrew Stone, “Farewell NZPA Hello Three New Serivces,” New Zealand Herald, August 31, 2011, www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10748448, accessed April 27, 2015. 70 Myllyahti, The New Zealand Media Ownership Report 2014.

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PART IV

Internet Giants

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22 APPLE Toby Miller and Richard Maxwell1

The Company designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players, and sells a variety of related software, services, accessories, networking solutions, and third-party digital content and applications. Apple’s Annual Report 20142

“Can anyone tell me what MobileMe is supposed to do?” Having received a satisfactory answer, [Steve Jobs] continued, “So why the fuck doesn’t it do that?” For the next half-hour Jobs berated the group. “You’ve tarnished Apple’s reputation,” he told them. “You should hate each other for having let each other down.”3 Apple’s attitude is, “You have the privilege of working for the company that’s making the fucking coolest products in the world,” says one former product management executive. “Shut up and do your job, and you might get to stay.” Andrew Borovsky, former Apple engineer4

This chapter outlines Apple Inc.’s past and present as a designer, manufacturer, promoter, and supplier of digital technology. We present this profile within a broad political economic view of the brand and its operations around the world. Our story mixes details of interest to industry studies with a structural analysis of power that is central to political-economic approaches. Let’s start with a telling paradox: Apple sells gifts that keep on taking. Not only do their devices and services epitomize built-in obsolescence covered in designer beauty, but this company, like all market leaders of digital capitalism, is a precision instrument of consumer surveillance, a powerful merchant of needless upgrades, and a major exploiter of a global commodity chain with built-in mark-ups that pay the actual makers of their i-Things the equivalent of 0.5% of the retail price— that’s about three U.S. dollars in total labor costs for every $600 phone.5 Of course, Apple’s leadership sees this relation from a distinctly privileged point of view. Tim Cook, head of the firm since 2011, decreed, “we are in business to empower and enrich our customers’ lives.”6 And indeed, Apple’s improbable blend of the awesome and the aesthetic, the sublime and the beautiful, has made its commodities wildly successful over the past decade and a

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half. The brand has transmogrified from appealing to geeks and artists to its current cozy location at the core of middlebrow wannabe hipness. Built-in obsolescence is central to regularizing and governing that appeal. iPod batteries are made to last a year, iPhones can be recharged a finite number of times, and most established iThing sleeves and holders do not fit new versions because the company policy mandated for and implemented by Apple designers requires that customers keep buying replacement technology. It’s a business strategy with an ignoble pedigree of half-baked designs that exploit both consumers’ acquisitive individualism and the company’s lack of legal responsibility for its toxin-filled devices at the end of their lives.7

Time Line of Development: An Industry-Studies Perspective Apple Inc. was founded on April Fool’s Day, 1976 by Stephen Wozniak, Steve Jobs, and Ronald Wayne. The company started producing computers the next year, although Wayne sold his shares and left the partnership.8 The duo’s second computer, the 1977 Apple II, was the first mass-market success among computers, in part because Apple sold the hardware as a complete kit rather than as individual items that required assembly by customers. Apple’s great pioneering software effort was the graphic-interface software of the Macintosh, released in 1984. Both these innovations actually derived from research done at Xerox Park, whose parent company never decided to exploit them, which Apple did after securing a prototype. Then it introduced the first affordable laser printer.9 As a consequence of these successes, Apple shifted from being a backyard-inventor’s world in the 1970s, so beloved of Silicon Valley and Alley fantasists and their mythology, to a publicly traded company in the 1980s. By the mid-1980s, desktop publishing had taken off, but so had low-cost personal computers (PCs) running on Intel chips and Microsoft Windows operating systems (so-called Wintel computers). Like many small companies seeking to grow, Apple enlisted corporate managers to counter this tendency and went onto the capital market to attract investment. The resultant board soon replaced Jobs, because of his unpleasantness and youth, with a Pepsi executive, who then forced Jobs out of the company. Jobs departed and failed in his own computing venture, NeXT. Wozniak had already gone, citing a lack of interest in managerial roles and the desire to be an engineer.10 The 1990s saw Apple’s luster dim as it lost market share to Wintel PCs and produced some notable failures (when the Apple discovered Newton, so to speak).11 Apple stumbled and was offered to both AT&T and IBM, who passed on the opportunity. Then the floundering firm bought Jobs’ NeXT software system and reinstalled him as an advisor in 1997, which allowed him to orchestrate his way back as interim CEO of the company he had started. Jobs quickly fired three thousand people and ended the firm’s philanthropic activities, which remained dormant until his death. These saintly moves transformed the company from losses to profits.12 With Jobs again dominant by the late 1990s, the company revived its love affair with designers, artists, editors, and publishers. By the early 2000s, Apple emerged as a mainstream electronics brand with its iPod music players and iTunes virtual music store. In the last 10 years, the company has secured its lead as a designer brand selling a range of electronic products and services—from music players to networked terminals of various sizes (phones, tablets, watches, and if rumors play out, TVs and cars), with plans to expand its supply of luxury goods and cheap streaming content. Today, the company is a giant among giants, worth more than any of the corporations examined in this volume—its capitalization puts it in the same position as IBM 30 years ago, at double the size of Exxon (IBM is also Apple’s current partner in a corporate application sales venture).13

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Political and Economic Contexts: A Power-Structure Perspective Apple’s success is often attributed to the genius of Jobs—a common narrative device of the “great man” that repeats remorselessly in conventional histories about Silicon Valley and other centers of digital capitalism. But focusing solely on what happens when intelligent, creative people find themselves in the right place at the right time doesn’t explain the broader context in which Apple and other U.S.-based high-technology firms emerged. For that, we need to understand three interrelated political-economic contexts—conditions of possibility for Apple’s corporate power and mastery of consumer-electronics markets. First, there is the context of strategic U.S. governmental investments in research and development (R&D). These investments began during World War II and grew quickly in the post-war period. Companies like Apple emerged from a nexus of capital devoted to electronic engineering and computer programming, which in turn flowed from federally funded initiatives in military-industrial-academic R&D. The geographical cluster of these initiatives around Stanford University saw advances in semi-conductor manufacturing, computers, electronics, wireless and wired telecommunications, digitization, local area networks, the Internet, and other innovations that derived from weaponry, command-and-control infrastructures, and enterprise systems.14 The Homebrew Computer Club, where Wozniak was inspired to build the first Apple computer, may have been a respite for counter-cultural types who were interested in non-militaryindustrial computer forms. But its members were also and equally beneficiaries of strategic state investment in Silicon Valley know-how aimed at electronic engineers and computer programmers, even if most of them were seeking to profit from that knowledge rather than operate in the public interest. The second political-economic context concerns the company’s expanding supply chain and the movement of capital in search of ever-cheaper labor costs. When Apple first started, it built its products locally in California, but by the early 1980s it had also established plants in Texas, Ireland, and Singapore. It expanded to Colorado in 1991, but five years later, that factory was taken over by a contract manufacturer. Apple next moved most of its circuit-board production to Singapore (where it sold its plant a year later). By the end of the 1990s, not only had the company divested most of its own manufacturing plants, but domestic subcontracting had declined too, as offshore manufacturers began to take over electronics production (known today as electronics manufacturing services, or EMS).15 Third, the move to sub-contract production to offshore EMS, in particular East Asian manufacturing and assembly operations, was facilitated within a political-economic context of global trade and policy established after WWII. Production sites outside the U.S. were only viable because of East Asia’s statist policies of export-oriented industrialization (EOI), which bolstered production capacities in post-war Japan, Korea, Taiwan, Singapore, and Hong Kong by the 1970s, buttressed by U.S. government support for anti-socialist regimes in the region. This created a cohesive regional supply chain whose economies of scale Apple and other brands drew on to produce its devices at low cost, following a trend started by IBM and others in the 1960s when they began subcontracting production to Taiwan. As we discuss below, Apple now relies almost entirely on manufacturing undertaken in Chinese factories run by Taiwanese companies (Foxconn and Pegatron).16 These EOI strategies were important features of a New International Division of Labor (NIDL) that was forming in the 1970s and 1980s.17 The World Bank was already a big supporter of EOI and export-processing zones when a U.S.-led devaluation of the dollar relative to the yen, via the 1985 Plaza Accord, pushed Japanese capitalists to invest in East Asia. This further bolstered production capacities and deepened a reliance on productivity growth through low-wage labor. By the start of the new century, “China masters the model” by imposing low-wage EOI upon

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a vast reserve army of labor to become the factory of the world.18 Ever since, Apple’s fortunes have been intimately linked to China’s role in the East Asian commodity chain.

Political Profile: The Beneficiaries and the Power They Wield Exploitation of the political-economic arrangements discussed above has benefited a small group of wealthy owners and a wide swath of shareholders and consumers. Apple conducts ongoing lobbying and exercises political pressure in order to protect its lucrative operations and market position.

Ownership Apple is a publicly traded company, owned in part by over 26,000 shareholders.19 Its major institutional owners include The Vanguard Group, State Street, BlackRock Institutional Trust, Bank of New York, Northern Trust, BlackRock Fund, JP Morgan Chase, Invesco, and Wellington Management, while the big mutual funds represented are Vanguard in various iterations and TIAACREF. The more minor principal individual stockholders are Arthur D. Levinson, CEO Tim Cook, Federighi Craig, Angela J. Ahrendts, and Al Gore.20 Carl Icahn, a renowned quasiinstitutional investor who likes to limit managerial autonomy, has increased his holdings and seeks a buyback of shares.21 Buybacks are attempts by firms to purchase shares and reduce those on the market to increase their value or ward off unfriendly takeover bids. Still, Icahn and his group foresee nothing but clear skies for Apple.22

Corporate Board Members and Links to Other Organizations The board of directors that has responsibility for Apple stockholders’ interests has a typical profile, as Table 22.1 demonstrates.23 It is comprised of masters of politics, fund investment, and entertainment who form an elite set of interlocking directorships.

Ties to the State and Lobbying For a company rhetorically dedicated to the banalities of laissez-faire ideology, Apple remains solidly committed to corporate welfare. The policy center Good Jobs First estimates that Apple was the beneficiary of $446,485,233 in state and local government funding between 2009 and 2015. The largest subsidies came from North Carolina ($336,485,233), Nevada ($89 million), and Texas ($21 million). Such subvention covers a multitude of handouts: grants, low-cost loans, and tax rebates and credits.24 Apple’s indulgence in government largesse seems to have run afoul of regulators in the European Union (EU). Apple has European headquarters in Knocknaheeny, a suburb of Cork in Ireland. Joaquín Almunia, an EU Vice-President and its former Commissioner of Competition, has accused Apple of cleansing profits in Ireland by avoiding taxation that would be due in EU countries where its manufacturing, sales, and stockholders reside. The company is allegedly doing this via a massive state subsidy, which a Competition Commission report suggests involves the illegal payment of millions from Irish taxpayers to bloat Apple’s already wondrous profits.25 And in 2014, Apple was fined $450 million for colluding with publishers to increase electronic book prices. Plus corporate plans to dominate music by adding a streaming service to iTunes drew the ire of the European Commission, but a putative conspiracy with record labels to undermine free services, such as Spotify, could not be proven.26

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TABLE 22.1 Corporate Board Members and Links to Other Organizations

Arthur D. Levinson, Ph. D., Chairman of the Board, Apple; Former Chairman and CEO Genentech; Founder and Chief Executive Officer of Calico LLC (a biotech firm owned by Google); is connected to 19 board members in 3 organizations across seven industries. Timothy D. Cook, CEO Apple; Independent Director at Nike, Inc.; is connected to 20 board members in 2 organizations across two industries. Albert Gore Jr., Former Vice President of the United States; Director of Kleiner Perkins Caufield & Byers; Chairman of Generation Investment Management LLP; Senior Advisor to Google, Inc.; Chairman of the Board at Frito-Lay, Inc.; is connected to 58 board members in 10 different organizations across 9 industries. Robert A. Iger, Chairman and CEO The Walt Disney Company; Former Board Member of the U.S.China Business Council; Director of Hulu Japan LLC; Member of the Partnership for a New American Economy; Member of U.S. President’s Export Council; Director of ABC, Inc. and Infoseek Corp; is connected to 253 board members in 6 different organizations across 12 industries. Andrea Jung, President and CEO Grameen America, Inc.; former CEO of Avon Products Inc.; Independent Director at General Electric; is connected to 204 board members in 5 organizations across 8 industries. Ronald D. Sugar, Ph. D., Director at Chevron and Former Chairman and CEO Northrop Grumman; connected to 62 board members in 7 organizations across 8 industries. Susan L. Wagner, Co-founder and Director BlackRock; Independent Director at Swiss Re*; is connected to 58 board members in 6 organizations across 7 industries. * “Swiss Re” is the popular name for the Swiss Reinsurance Company, Ltd., which is one of the largest companies in the world and has been operating for more than 150 years. More information can be found at www.swissre.com. Source: “Apple Inc.,” Bloomberg Business, April 17, 2015

Labor Relations: Employment Practices, Exploitation, and Spin One of the hallmarks of political-economic analysis is its focus on labor, working conditions, and employment practices. In the context of Apple Inc., the reality of the NIDL must be juxtaposed to the political power structure outlined above to broaden our understanding of the corporation’s organization and culture. This section takes us around the world to all parts of the supply chain that researchers, activists, labor rights advocates, and others have been able to examine. There are still hidden areas, many of which are obscured by the company’s practices and influence with regulators.27 Let’s start in the U.S. Like all major U.S. corporations, Apple has long run an implicit personnel program of affirmative action for straight white men. Recognizing this industry-wide problem, the Congressional Black Caucus announced a TECH2020 initiative to encourage Silicon Valley to hire African-Americans.28 As we shall see below, Apple now seeks to emboss its image as a responsible firm that encourages minorities and women. But as of 2014, 70% of Apple employees were men. And while it is the most racially diverse of the major U.S. technology firms, over 60% of the firm’s senior managers are white, and most of the rest Asian.29 Needless to say, workers in the world periphery who actually make Apple devices do not even appear in these numbers—the technologies all seem to come from geniuses in California, rather than subcontracted employees in the Global South.30 No wonder this world leader in clandestine exploitation is described by Fortune magazine as “America’s most successful—and most secretive— company.”31 It petitioned the U.S. Federal Communications Commission to hide governmental review of the iPad, which would have disclosed to the public the way that it exploits multinational labor (see Apple’s letter to the Commission’s inquiry BCG-E2381A). Apple’s absurd desire for

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security and secrecy is reflected in its insistence that its forthcoming spaceship campus in northern California, designed by Norman Foster, be built exclusively by workers without criminal records, mandating background checks basically unheard of in the contemporary era.32 This first-world precaution might be over-reaching, but it fits weirdly as a piece with Jobs’ delusional comparison of luxury resorts to conditions in the overseas factories where Apple products are made.33 Current CEO Tim Cook reassures consumers of the company’s avowed principles by claiming, “We strive to do business in a way that is just and fair.”34 That noble precept hasn’t seen the company withdraw from business in states dedicated to misogyny, racism, and heterosexism, such as Saudi Arabia and China.35 The reality in factories is that there are not only worker suicides, which have gained massive publicity over the past five years, but real class struggle that has led to reprisals, threats, and violence on the part of factory bosses.36 Undercover investigations of working conditions at Apple partners are harrowing.37 The stories do not seem to read the same way in Cupertino, Apple’s grand California headquarters, as they do in the outside world. Cupertino has seemed more exercised by the fact that workers have sought higher pay at Foxconn, so it is moving rapidly towards Pegatron. China Labor Watch reports that the average working week is over 60 hours, and more than half the employees work over 90 hours of overtime each month, while even Apple’s pet, the Fair Labor Association, uncovered illegal exploitation.38 Interestingly, shareholder equity in Apple has grown steadily while it has sought to improve its reputation as an exploiter of labor, and net income increased sixfold in the period from 2007, when it started auditing suppliers’ factories. In fact, income has more than quadrupled since 2009, when the firm said it goaded suppliers to shield workers from exposure to dangerous chemicals. And revenues nearly doubled when it augmented supplier audits after the Foxconn suicides.39 Until 2009, the company had no plans to protect iPod production workers (who work in at least four different countries) from mercury, lead, and flame-retardants.40 Since then, Apple’s supplier audits have been notoriously thin on facts about violations, including the n-hexane poisonings of 137 workers at the factories of Lian Jian Technology Group, a supplier of iPhone touch-screens. n-hexane poisoning damages the peripheral nervous system. It is extremely painful and leads to numb limbs, chronic weakness, fatigue, and hypersensitivity to heat and cold.41 Workers at Lian Jian wrote a letter to Jobs, asking “When you look down at the Apple phone you are using in your hand and you swipe it with your finger is it possible that you can feel as if it is no longer a beautiful screen to show off, but the life and the blood of us employees and victims?” He never responded.42 Workers were also poisoned while degreasing the Apple logo with n-hexane at the Yuhan Lab Technology Company and the Yun Heng Hardware & Electrical factory. These subcontractors are among dozens of “suspected Apple suppliers” poisoning workers and polluting communities in China, according to the Beijing-based Institute of Public and Environmental Affairs.43 Finally, there are financial rules guiding relationships between brands like Apple and the EMS in China and other parts of the NIDL where assembly and manufacturing take place. These parameters ensure mark-ups of 30% by the brands on top of the EMS selling price. This covers “costs of development, shipping, distribution, marketing”. A further mark-up of 30% gives brand owners a profit margin. Additional costs are added for the retailer’s cut, taxes and tariffs, and Internet provider contracts. We noted earlier that the direct labor costs for devices Apple sells amount to about 0.5% of the final retail price. This starts off as about 2% of the EMS selling price for the finished good, 95% of which “is determined by material content,” and the rest is the EMS profit, about 3%.44 The EMS can improve their margin through various means—working with suppliers to purchase materials at a price lower than the brand corporation determined in their original cost estimate;

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delaying payment to suppliers until after they get paid by the brand company; and by “ramping up” production to meet deadlines and design changes.45 The latter strategy is a form of labor exploitation that has come to characterize the production of iThings and other brands, where the tempo of work—and output—can reach an unbearable frenzy without adding significantly to labor costs. Anthony Harris, author of the study we are citing here, says “fast ramp-ups are critical to the financial success of Brand Names [who] expect total EMS commitment to ramp up production at almost any cost.”46 Harris adds: Claims of astonishment, flapping of Brand Name corporate wings and stamping of feet at revelations of overtime, abuse and mistreatment of workers can only be explained as an extension of politically correct public media behavior that has become morally distasteful to a growing number of industry observers in recent years.47

Economic Profile The political and economic conditions enumerated above have made Apple Inc. the wealthiest corporation in the U.S. The firm’s estimated value of $1 trillion exceeds the gross domestic product of Indonesia, which has the fourth-largest population in the world.48 It reported net sales of $11.9 billion in 2014, up 7% on the previous year.49

Financial Data and Market Share Apple relies on the entire globe for revenue. In 2014, the Americas accounted for 36% of sales, Europe 22%, Greater China 16%, Japan 8%, and the remainder of the Asia-Pacific region 6%.50 Apple’s smartphones, which bring in most of its money, made up 15.4% of the global market in 2014.51 Revenue is increasing rapidly in China, to the point where the company has a third of the market52 as East Asia’s reserve army of labor is being supplemented by an emergent middle class that is providing a reserve army of consumption. Although Apple’s share of the total PC market is around 7%, it is the third largest vendor of PCs in the U.S., where its 11–13% of the domestic market in 2014 represented a 9% increase over the previous year.53 And its tablet took about 27% of world sales in 2014. That was down from 60% in 2012, which analysts say reflects both the appearance of cheaper simulacra and an overall decline in the popularity of the form.54 Apple sold about one million of its watches in the U.S. on the first day of pre-orders in 2015, and perhaps four million worldwide. By comparison, about 750,000 of the watches running on Google’s Android software were sold in 2014.55

Properties Following the lead of business-as-usual in the digital economy, Apple buys other companies in order to borrow younger firms’ ideas and applications or stifle innovations that might otherwise fall into the hands of wealthy others. It says this strategy is a rational effort to keep up with the competition.56 In the 15 months to March 2015, Apple purchased 26 firms, bringing its takeover total to 50 in less than three years. The identities of these mergers and acquisitions largely remain secret.57

Typical Strategies We have outlined Apple’s primary business strategy in terms of its ability to take advantage of lucrative political-economic arrangements that allow it to operate in a highly exploitative global

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commodity chain and take advantage of significant political largesse at home and in the EU. This aspect of the company’s business model doesn’t reflect well upon its official “Business Strategy,” which highlights innovation, uniqueness, and customer-oriented design and services.58 From the company perspective, it’s all about vertical integration, albeit with subcontracted manufacturing. And like its rivals, Apple adores digital-rights management technology, though it diverges from them by resisting the easy transfer of texts across devices that is promoted by the International Digital Publishing Forum.59

New Developments New developments include investment in data services (the cloud, iTunes, and applications), an emerging line of Internet-of-things products, with its watch the centerpiece, and a foray into financial services through Apple Pay. In 2015, Apple entered into discussions to establish U.S. and European virtual networks. Rather than laying down fiber-optic cable or paying for other forms of infrastructure, Apple would lease those elements from telecommunications firms and sell its customers a total package of hardware and software, including connectivity.60 The cloud has taken the company into alternative-energy production. Apple operates two twenty-megawatt plants with a third under development to power its huge data center in North Carolina (it is building another twenty-megawatt array in Reno, Nevada). And where it isn’t producing its own solar power, Apple is buying. The company closed a deal with a California solar power supplier to purchase sufficient electricity for its offices, stores, and a data center there.61 The Apple watch is probably the company’s most explicit declaration of its view that its consumers are things-in-themselves. At the center of the Internet-of-things are people—ur-things, if you like. Hectic, haptic puppet strings tie us to the cloud, through which brands like Apple bombard us with purchasable information, services, and money, as if the metaphorical contradiction of solar-powered clouds made the purchase still more satisfying.

Social Marketing Apple broadcasts the fact that it uses renewable energy to power its facilities, including server farms, very loudly. But serious doubts have been raised about such claims.62 It has also adopted a charitable role. Apple has devoted over $100 million to the Global Fund’s campaign against HIV in Africa; $100 million on U.S. government programs to improve disadvantaged schools; $40 million to the Thurgood Marshall College Fund, which supports historically black colleges and universities across the nation; and $10 million to the National Center for Women and Information Technology.63 This is all part of the contemporary rhetoric of the triple bottom line or corporate social responsibility, whereby firms obtain social licenses to operate by avoiding claims of instrumental utilitarianism—and more importantly, the threat of democratic regulation. Imagine redirecting this charity to raise wages and provide benefits to workers at its contractors in China. These social-justice efforts diverge from company attitudes under Jobs. Unlike Cook, Jobs had no interest in aligning Apple with such distractions from wealth and fame,64 and it’s significant that they have generated a backlash. A conservative think-tank called the National Center for Public Policy Research is opposed to “corporations who support the left.”65 The Center issued a shareholder resolution demanding information on Apple’s “associations and memberships and trade associations that work on [environmental] sustainability issues,” ostensibly to reveal that the company has come under the ideological spell of anti-market forces. The Center lost the vote, but claimed victory for its juvenile stunt.66

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Cultural Profile The Apple-1 computer had cost just $666.66. Four decades later, it sold for $671,400 at auction in Germany—a crowning moment when personal computers became part of high culture, valued as rare artifacts in a famous brand’s folkloric history. What was once viewed as cheap and common had been transformed into a stylish collector’s item.67 Apple refers to today’s iMac as a “modern art installation.”68 That desire to combine outsider status with vast money-making is the paradox at the heart of the beast. Thirty years ago, Apple cast itself as a feisty upstart in the most famous Super Bowl commercial of all time. Troping George Orwell’s 1984, the firm was presented as a champion of the people against IBM—Big Brother in search of total dominance. Jobs’ commentary juxtaposed IBM’s desire for control with Apple’s love of freedom.69 But equally tellingly, we should fast forward to 2010, when the company didn’t take kindly to Newsday’s amusing commercial for its new iPad application. The advertisement begins serenely enough: a white, heterosexual family is enjoying a meal. The patriarch reads his paper on an iPad and an off-screen narrator extols the virtue of this new means of subscription by contrast with the old. Then, a fly starts buzzing around the table. The father does what he would do with his old newspaper and tries to squash the fly with his new device, which shatters. The fly keeps buzzing. Apple reacted to this commercial satire by threatening to destroy the relevant application and make the newspaper unreadable on the iPad in the form advertised if the commercial wasn’t withdrawn. Newsday complied.70 Yet Apple persists in saying that “Our message, to people around the country and around the world, is this: Apple is open. Open to everyone, regardless of where they come from, what they look like, how they worship or who they love.”71 After you stop laughing, you’ll see Apple’s cultural text is not just irony; it is cruelly corporate irony. The company certainly knows how to promote its style to a certain model of customer, notably elite cybertarians and techno-bohemians working in the culture industries, cleverly wooing them with the Cupertino publicity machine. But it can’t control what it means to everyone when, for instance, it makes prominent mistakes, such as the iPhone 5’s proprietary mapping software, and becomes the butt of jokes from Indonesia to Ireland because it sent people walking onto a farm when they anticipated boarding an airplane.72 More distressingly, when 许立志 (Xu Lizhi), a Foxconn employee, committed suicide in 2014 after four years working on the line to produce the gadgets that relax by your bed and in your pocketbook, his friends collected his poetry for publication. The alienation, disappointment, and boredom of the daily grind that he expressed making Apple’s treasures resonated with young workers across the country.73 The parent firm, too, has generated intense annoyance because of its secretive ways and commodified and governed hipster culture. 贾跃亭 (Jia Yueting), billionaire head of the Leshi TV online video site, tastelessly likens Apple to Hitler.74 And as the grumpy young(ish) columnist Charlie Brooker puts it: I don’t care if Mac stuff is better. I don’t care if Mac stuff is cool. I don’t care if every Mac product comes equipped with a magic button on the side that causes it to piddle gold coins and resurrect the dead and make holographic unicorns dance inside your head. I’m not buying one, so shut up and go home. Go back to your house. I know, you’ve got an iHouse. The walls are brushed aluminum. There’s a glowing Apple logo on the roof. And you love it there. You absolute MONSTER.75 The culture of enchantment promoted by Apple helps to obscure its material connection to labor exploitation and ecological decline. Hong Kong-based Students & Scholars against Corporate

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Misbehaviour reminds us that as users of iThings, “we are consuming the blood and tears of workers, a fact hidden from us by fancy advertisements.”76 To counter such sentiment, Apple uses an ageold propaganda technique to unify its employees—the invented enemy: “in global economic warfare with Samsung. . . . Products must be brilliant, but be shippable in mass quantities in a global market.”77 Until 2015, Apple also tried to represent its treatment of artistic workers as standard operating procedure. The corporation’s successful music and podcast strategies replicate the methods used for generations by record companies, in that it has learned how to make money from musicians while the latter live from very little.78 The extraordinary success of iTunes is down to an efficient, reasonably cheap, and legal system for customers: Apple basically provides a post office populated by very few virtual mail haulers that pays very little if anything to very many cultural producers. Pop singer Taylor Swift brought this home with spectacular results following her Wall Street Journal op-ed in 2014 about Spotify, followed a year later by an open letter protesting Apple’s music streaming service contracts, which offered “zero percent compensation to rights holders.” This struck her and her friends as unfair. Apple cringed and caved in.79

Conclusion Apple holds $178 billion in cash, most of it stockpiled outside the U.S. In March 2015, it entered the Dow Jones Industrial Average, replacing AT&T. And lest we forget, it sells watches for $17,000.80 This is not an edgy outsider. This is not the-little-company-that-could, viewed sympathetically in contrast to, for instance, Microsoft’s links to the state and commerce. This is a nasty, brutish, massive business entity. Apple embodies the awesome power of technology and the beguiling beauty of consumption— a pragmatic aesthetics, where performance and design, utility and style, are blended. It promises a digital life that’s always in the present, always cool, always new. Like all digital merchants of upgrade, Apple promises transcendence in cyberspace in a minimalist package of wonder. Cybertarians fetishize each new “upgrade” as if it could reboot their hipster identity. We can shake off the magic if we treat innovation skeptically, questioning the planned obsolescence that confuses an abundance of i-Things with well-being and creativity. Doing so would give something in return: a connection to the present that comprehends the deplorable working conditions that bring these high-tech wonders into the world.

Notes 1 Thanks to the editors for commissioning this chapter and for a helpful remark or two that stimulated improvements. 2 http://investor.apple.com/secfiling.cfm?filingid=1193125–14–383437&cik= 3 Adam Lashinsky, “How Apple Works: Inside the World’s Biggest Startup,” Fortune, August 25, 2011, http://fortune.com/2011/08/25/how-apple-works-inside-the-worlds-biggest-startup-2/ 4 Ibid. 5 Anthony Harris, Dragging Out the Best Deal. How Billion Dollar Margins Are Played Out on the Backs of Electronics Workers (Amsterdam: GoodElectronics, 2014), http://goodelectronics.org/publications-en/Publication_ 4109/at_download/fullfile 6 Tim Cook, “Pro-Discrimination ‘Religious Freedom’ Laws Are Dangerous,” Washington Post, March 29, 2015, www.washingtonpost.com/opinions/pro-discrimination-religious-freedom-laws-are-dangerousto-america/2015/03/29/bdb4ce9e-d66d-11e4-ba28-f2a685dc7f89_story.html 7 Elizabeth Grossman, “Tackling the High Tech Trash: The e-Waste Explosion and What We Can Do,” New York: De¯mos, 2010, www.demos.org/publication/tackling-high-tech-trash-e-waste-explosion-whatwe-can-do 8 Rhiannon Williams, “Apple Celebrates 39th Year on April 1,” Telegraph, April 1, 2015, www.telegraph. co.uk/technology/apple/11507451/Apple-celebrates-39th-year-on-April-1.html; http://core0.staticworld. net/downloads/idge/imported/article/nww/2011/04/0411-applecomputer2.pdf

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9 Timothy B. Lee, “How Apple Became the World’s Most Valuable Company,” Vox, May 14, 2015, www.vox.com/cards/apple/what-is-a-macintosh 10 Owen W. Linzmayer, “30 Pivotal Moments in Apple’s History,” Macworld, March 30, 2006, www.macworld.com/article/1050112/30moments.html 11 Matt Honan, “Remembering the Apple Newton’s Prophetic Failure and Lasting Impact,” Wired, August 5, 2013, www.wired.com/2013/08/remembering-the-apple-newtons-prophetic-failure-and-lastingideals/ 12 Leander Kahney, “John Sculley on Steve Jobs, the Full Interview Transcript,” Cult of Mac, October 14, 2010, www.cultofmac.com/63295/john-sculley-on-steve-jobs-the-full-interview-transcript/; Timothy B. Lee, “How Apple Became the World’s Most Valuable Company,” Vox, May 14, 2015, www.vox.com/ cards/apple/who-was-steve-jobs; www.vox.com/cards/apple/how-did-steve-jobs-rescue-apple; www. vox.com/cards/apple/how-has-tim-cook-changed-apple-since-the-death-of-steve-jobs 13 Mikey Campbell, “Apple Closes in on $775B Market Cap, now Twice as Large as No. 2 Exxon Mobil,” Apple Insider, February 23, 2015, http://appleinsider.com/articles/15/02/23/apple-stock-closes-in-on775b-market-cap-now-two-times-larger-than-no-2-exxon-mobil; Sarah Perez and Ron Miller, “IBM and Apple Release Eight More Enterprise Apps for Healthcare, Airlines and More,” TechCrunch, April 1, 2015, http://techcrunch.com/2015/04/01/ibm-and-apple-release-eight-more-enterprise-apps-forhealthcare-airlines-and-more/ 14 Richard Maxwell and Toby Miller, Greening the Media (New York: Oxford University Press, 2012, 76–79). 15 See Harris, op. cit.; Marcelo Prince and Willa Plank, “A Short History of Apple’s Manufacturing in the US,” Wall Street Journal, December 6, 2012, http://blogs.wsj.com/digits/2012/12/06/a-short-historyof-apples-manufacturing-in-the-u-s/ 16 Jenny Chan, Ngai Pun and Mark Selden, “The Politics of Global Production: Apple, Foxconn and China’s New Working Class,” The Asia-Pacific Journal, Vol. 11, Issue 32, No. 2, August 12, 2013. The authors note that “Foxconn’s parent corporation is Taipei-based Hon Hai Precision Industry Company. The trade name Foxconn alludes to the corporation’s ability to produce electronic connectors at nimble ‘fox-like’ speed.” 17 Friedrich Fröbel, Jürgen Heinrichs, and Otto Kreye, The New International Division of Labor: Structural Unemployment in Industrialised Countries and Industrialisation in Developing Countries, trans. Peter Burgess (Cambridge: Cambridge University Press; Paris: Éditions de la Maison des Sciences de l’Homme, 1980). 18 Walden Bello, “Asia: The Coming Fury,” Foreign Policy in Focus, February 9, 2009, http://fpif.org/ asia_the_coming_fury/; Richard Higgott and Richard Robison, eds., Southeast Asia: Essays in the Political Economy of Structural Change (London: Routledge & Kegan Paul, 1985). 19 http://investor.apple.com/secfiling.cfm?filingid=1193125–14–383437&cik= 20 https://finance.yahoo.com/q/mh?s=AAPL+Major+Holders 21 Icahn makes a fetish of publishing his semi-private dealings with private-sector bureaucrats, as per a gentlemanly account of dinner with Tim: “We . . . could not be more supportive of you, the existing management team, the culture at Apple and the innovative spirit it engenders. The criticism we have as shareholders has nothing to do with your management leadership or operational strategy. Our criticism relates to one thing only: the size and timeframe of Apple’s buyback program. It is obvious to us that it should be much bigger and immediate.” Quoted in Arik Hesseldahl, “Carl Icahn Now Owns About $2.5 Billion Worth of Apple Shares,” All Things D, November 15, 2013, http://allthingsd.com/ 20131115/carl-icahn-now-owns-about-2–5-billion-worth-of-apple-shares/ 22 As his open letter of 2015 explains: “despite severe foreign exchange headwinds and massive growth in investment (in both R&D and SG&A), the company will still grow earnings by 40% this year, according to our forecast. After reflecting upon Apple’s tremendous success, we now believe Apple shares are worth $240 today. Apple is poised to enter and in our view dominate two new categories (the television next year and the automobile by 2020) with a combined addressable market of $2.2 trillion, a view investors don’t appear to factor into their valuation at all. We believe this may lead to a de facto short squeeze, as underweight actively managed mutual funds and hedge funds correct their misguided positions. To arrive at the value of $240 per share, we forecast FY2016 EPS of $12.00 (excluding net interest income), apply a P/E multiple of 18x, and then add $24.44 of net cash per share. Considering our forecast for 30% EPS growth in FY 2017 and our belief Apple will soon enter two new markets (Television and the Automobile) with a combined addressable market size of $2.2 trillion, we think a multiple of 18x is a very conservative premium to that of the overall market. Considering the massive scope of its growth opportunities and track record of dominating new categories, we actually think 18x will ultimately prove to be too conservative, especially since we view the market in general as having much lower growth prospects,” www.shareholderssquaretable.com/carl-icahn-issues-open-letter-to-tim-cook/ 23 “Apple Inc.,” Bloomberg Business, April 17, 2015, www.bloomberg.com/research/stocks/people/ board.asp?ticker=AAPL

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24 The figures exclude the ways that governments further subsidize the company through employees who are educated at public expense, transportation or energy systems that rely on state investment, and guarantees of fair dealing, http://subsidytracker.goodjobsfirst.org/prog.php?parent=apple 25 Alaska Miller, “Apple Takes Over Cupertino,” Business Insider, December 10, 2009, www.businessinsider. com/apples-dominion-over-city-of-cupertino-2009–12?IR=T; European Commission, State Aid S.A.38373 (2014/C) (ex 2014/nn) (ex 2014/CP)—Ireland Alleged Aid to Apple, http://ec.europa. eu/competition/state_aid/cases/253200/253200_1582634_87_2.pdf 26 Dawn Chmielewksi, “EU Finds No Evidence of Apple and Music Labels Colluding to Kill Free Music,” Re/Code, August 7, 2015, http://recode.net/2015/08/07/eu-finds-no-evidence-of-apple-and-musiclabels-colluding-to-kill-free-music/; Reuters, “Apple’s European Music Streaming Plans ‘Under Scrutiny from Regulator’,” Guardian, April 2, 2015, www.theguardian.com/media/2015/apr/02/apple-europeanmusic-streaming-eu 27 Lashinsky, loc. cit. 28 “CBC Delegation Takes Tech 2020 Initiative to Silicon Valley,” July 30, 2015, https://cbc-butterfield. house.gov/media-center/press-releases/cbc-delegation-takes-tech-2020-initiative-to-silicon-valley 29 J.P. Mangalindan, “How Tech Companies Compare in Employee Diversity,” Fortune, August 29, 2014, http://fortune.com/2014/08/29/how-tech-companies-compare-in-employee-diversity/ 30 “I’m a Mac. And I’m Un-PC,” Mother Jones, March/April, 2010, p. 51. 31 Lashinsky, loc. cit. 32 Wendy Lee, “Felons Barred from Constructing Apple’s Campus,” SF Gate, April 4, 2015, www.sfgate. com/business/article/Felons-barred-from-constructing-Apple-s-campus-6178429.php; Allison Arieff, “Apple,” California Sunday, April 5, 2015, https://stories.californiasunday.com/2015-04-05/miniseriesapple-campus 33 Claudine Beaumont, “Foxconn Suicide Rate is Lower Than in the US, Says Apple’s Steve Jobs,” Telegraph, June 2, 2010, www.telegraph.co.uk/technology/steve-jobs/7796546/Foxconn-suicide-rate-is-lowerthan-in-the-US-says-Apples-Steve-Jobs.html 34 Cook, loc.cit. 35 Reid J. Epstein, “Carly Fiorina: Tim Cook Opposition to Indiana Religious Freedom Law Hypocritical,” Wall Street Journal, April 3, 2015, http://blogs.wsj.com/washwire/2015/04/03/carly-fiorina-tim-cookopposition-to-indiana-religious-freedom-law-hypocritical/?mg=blogs-wsj&url=http%253A%252F %252Fblogs.wsj.com%252Fwashwire%252F2015%252F04%252F03%252Fcarly-fiorina-tim-cook-oppositionto-indiana-religious-freedom-law-hypocritical 36 Bloomberg News, “Foxconn Factory in China Shows Scars of Clash among Workers,” Los Angeles Times, September 27, 2012, http://articles.latimes.com/2012/sep/27/business/la-fi-foxconn-workers-20120927 37 Eddie Wrenn, “‘Humiliating Punishments for Working Too Slow, Bars on the Windows and Squalid Dorms’: Inside the Factory That Makes the iPhone 5,” Daily Mail, September 12, 2012, www.dailymail. co.uk/sciencetech/article-2202170/iPhone-5-release-Inside-shocking-conditions-Foxconn-factory.html; Richard Bilton, “Apple ‘Failing to Protect Chinese Factory Workers’,” BBC News, December 18, 2014, www.bbc.co.uk/news/business-30532463; China Labor Watch, Apple’s Unkept Promises: Cheap iPhones Come at High Costs to Chinese Workers, July 29, 2013, www.chinalaborwatch.org/upfile/2013_7_29/ apple_s_unkept_promises.pdf; Students and Scholars against Corporate Misbehaviour, “Well-Polished Apple’s CSR Report is Just Another Fairytale for Workers,” March 1, 2014, http://sacom.hk/statementwell-polished-apple%E2%80%99s-csr-report-is-just-another-fairytale-for-workers/ 38 China Labor Watch, Analyzing Labor Conditions of Pegatron and Foxconn, February, 2015, www.china laborwatch.org/upfile/2015_02_11/Analyzing%20Labor%20Conditions%20of%20Pegatron%20and%20 Foxconn_vF.pdf; Fair Labor Association, Independent External Assessment of Apple Supplier Factory Operated by Pegatron Corp, June, 2015, www.fairlabor.org/sites/default/files/documents/reports/june-2015-applepegatron-executive-summary.pdf 39 www.marketwatch.com/investing/stock/aapl/financials; “Apple Reports Fourth Quarter Results,” Apple Press Info, October 22, 2007, www.apple.com/pr/library/2007/10/22Apple-Reports-Fourth-QuarterResults.html 40 Nardono Nimpuno, Alexandra McPherson, and Tanvir Sadique, Greening Consumer Electronics—Away from Chlorine and Bromine, ChemSec (the International Chemical Secretariat) and Clean Production Action, 2009, www.cleanproduction.org/static/ee_images/uploads/resources/Greening_Consumer_Electronics. pdf 41 Richard Maxwell and Toby Miller, op. cit., pp. 94–95. 42 Institute of Public and Environmental Affairs, The Other Side of Apple, 2011, www.ipe.org.cn/En/ about/report.aspx, p. 31. 43 Richard Maxwell and Toby Miller, op. cit., p. 95. 44 Harris, op. cit., pp. 4–5. 45 Ibid., pp. 5–6.

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46 Ibid. p. 8. 47 Ibid. p. 9. 48 Rupert Neate, “Apple Soon to be Worth More Than $1tn, Financial Analysts Predict,” Guardian, March 23, 2015, www.theguardian.com/technology/2015/mar/23/apple-company-worth-1tn-marketvalue 49 http://investor.apple.com/secfiling.cfm?filingid=1193125–14–383437&cik= 50 http://investor.apple.com/secfiling.cfm?filingid=1193125–14–383437&cik= 51 Timothy B. Lee, “How Apple Became the World’s Most Valuable Company,” Vox, May 14, 2015, www.vox.com/cards/apple/where-does-apple-get-its-money; Gartner, “Gartner Says Smartphone Sales Surpassed One Billion Units in 2014,” March 3, 2015, www.gartner.com/newsroom/id/2996817 52 Neate, loc.cit; Rhiannon Williams, “Apple Reaches All-Time Sales High in China,” Telegraph, April 2, 2015, www.telegraph.co.uk/technology/apple/iphone/11512134/Apple-reaches-all-time-sales-high-inChina.html 53 Gartner, “Gartner Says Worldwide PC Shipments Declined 5.2 Per cent in First Quarter of 2015,” April 9, 2015, www.gartner.com/newsroom/id/2996817 54 Daniel Eran Dilger “Why Apple, Inc. isn’t Worried About iPad’s IDC Tablet Market Share,” January 12, 2015, http://appleinsider.com/articles/14/08/04/editorial-why-apple-inc-isnt-worried-about-ipadsidc-tablet-market-share55 Julie Bort, “Apple Watch will Become Apple’s ‘Most Profitable Product Ever’,” Business Insider, April 19, 2015, www.businessinsider.com/analyst-apple-watch-is-profitable-2015–4#ixzz3XnQ56C3W 56 http://investor.apple.com/secfiling.cfm?filingid=1193125–14–383437&cik= 57 Daniel Eran Dilger, “Apple Inc. Has Acquired 26 Firms in 15 Months While Pursuing Increased Diversity, a Confident Tim Cook Tells Shareholders,” AppleInsider, March 11, 2015, http://appleinsider.com/ articles/15/03/11/apple-inc-has-acquired-26-firms-in-15-months-while-pursuing-increased-diversity-aconfident-tim-cook-tells-shareholders 58 http://investor.apple.com/secfiling.cfm?filingid=1193125–14–383437&cik= 59 Association of American University Presses Task Force on Economic Models for Scholarly Publishing, Sustaining Scholarly Publishing: New Business Models for University Presses (New York: Association of American University Presses Task Force, 2011, 8). 60 James Cook, “Apple is in Talks to Launch its Own Virtual Network Service in the US and Europe,” Business Insider, August 3, 2015, www.businessinsider.com/apple-in-talks-to-launch-an-mvno-in-the-usand-europe-2015–8 61 Tom Randall, “What Apple Just Did in Solar Is a Really Big Deal,” BloombergBusiness, February 11, 2015, www.bloomberg.com/news/articles/2015-02-11/what-apple-just-did-in-solar-is-a-really-big-deal 62 Institute of Public and Environmental Affairs, The Other Side of Apple: Investigative Report into Heavy Metal Pollution in the I.T. Industry (Phase IV), 2011, www.ipe.org.cn/en/about/report.aspx; Nicki Lisa Cole, “Why is Apple Lying About Powering its Data Centers with Renewable Energy?,” Truthout, August 5, 2015, www.truth-out.org/news/item/32208-why-is-apple-lying-about-powering-its-data-centers-withrenewable-energy 63 Dilger, loc.cit; Michal Lev-Ram, “Apple Commits More Than $50 Million to Diversity Efforts,” Fortune, March 10, 2015, http://fortune.com/2015/03/10/apple-50-million-diversity/ 64 Cook, loc.cit.; Andy Meek, “Tim Cook’s Activism is Changing Apple—But His Future May Depend on a Watch,” Guardian, April 4, 2015, www.theguardian.com/technology/2015/apr/04/tim-cook-activismsteve-jobs-apple-watch 65 www.nationalcenter.org/fep.html 66 Joel Makower, “How GE and Apple Shareholders Became Tools for Climate Deniers,” GreenBiz, March 3, 2014, www.greenbiz.com/blog/2014/03/03/how-ge-and-apple-shareholders-became-tools-climatedeniers?mkt_tok=3RkMMJWWfF9wsRols6XOZKXonjHpfsX76e8vT%2Frn28M3109ad%2BrmPBy83 YUJWp8na%2BqWCgseOrQ8kl0JV86%2FRc0RrKA%3D 67 Harry McCracken, “This Apple-1 is the Most Expensive Apple Computer Ever,” Time, May 25, 2013, http://techland.time.com/2013/05/25/this-apple-1-is-the-most-expensive-apple-computer-ever/ 68 Quoted in Schafer and Durham, op.cit., p. 44. 69 www.youtube.com/watch?v=lSiQA6KKyJo 70 Stefan Constantinescu, “Apple Bullies Newsday into Taking down the Commercial for Their iPad Application,” IntoMobile, September 20, 2010, www.intomobile.com/2010/09/20/apple-bullies-newsdayinto-taking-down-the-commercial-for-their-ipad-application/. One active venue is www.funnyordie. com/videos/8a3000125f/newsday-ipad-app-commercial 71 Cook, loc.cit. 72 Chris Foresman, “Early Adopters Experiencing Issues with Apple’s iPhone5,” Ars Technica, September 24, 2012, http://arstechnica.com/apple/2012/09/early-adopters-experiencing-issues-with-apples-latestiphone-5/?utm_source=Ars+Technica+Newsletter&utm_campaign=a0bdec5fbd-September_02_ 2011_Newsletter&utm_medium=email

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73 Eva Dou, “After Suicide, Foxconn Worker’s Poems Strike a Chord,” Wall Street Journal, November 7, 2014, http://blogs.wsj.com/chinarealtime/2014/11/07/after-suicide-foxconn-workers-poems-strike-achord/; Nao, “The Poetry and Brief Life of a Foxconn Worker: Xu Lizhi (1990–2014),” LibCom, October 29, 2014, http://libcom.org/blog/xulizhi-foxconn-suicide-poetry; also see http://wb.sznews.com/page/ 1721/2014–10/10/A18/20141010A18_pdf.pdf 74 “Apple is Like Hitler, Says Chinese Billionaire,” The Register, March 30, 2015, www.theregister. co.uk/2015/03/30/apple_is_like_hitler_says_chinese_billionaire/ 75 Charlie Brooker, “Microsoft’s Grinning Robots or the Brotherhood of the Mac. Which is Worse?,” Guardian, September 28, 2009, www.theguardian.com/commentisfree/2009/sep/28/charlie-brookermicrosoft-mac-windows 76 Students & Scholars against Corporate Misbehaviour, Workers as Machines: Military Management in Foxconn (Hong Kong: Students & Scholars Against Corporate Misbehaviour, 4). 77 John Martellaro, “What is’s REALLY Like to Work for Apple,” The Mac Observer, April 16, 2014, www.macobserver.com/tmo/article/what-its-really-like-to-work-for-apple/page2 78 www.informationisbeautiful.net/visualizations/how-much-do-music-artists-earn-online-2015-remix/ 79 Taylor Swift, “For Taylor Swift, the Future of Music is a Love Story,” Wall Street Journal, July 7, 2014, www.wsj.com/articles/for-taylor-swift-the-future-of-music-is-a-love-story-1404763219; “Taylor Swift Reveals How She Stood Up to Apple,” Vanity Fair, September, 2015, www.vanityfair.com/style/ 2015/08/taylor-swift-cover-mario-testino-apple-music; John Jurgensen and Barbara Chai, “Apple to Pay Artists After Taylor Swift Protest,” Wall Street Journal, June 22, 2015, www.wsj.com/articles/taylor-swiftwithholds-album-from-apple-music-1434916050 80 Kevin Kelleher, “Apple is Turning Itself Into a Fashion Company,” Time, March 16, 2015, http://time. com/3745853/apple-fashion-culture/

23 MICROSOFT CORPORATION Benjamin J. Birkinbine

From its founding in 1975, the Microsoft Corporation has grown to become one of the largest and most dominant companies in the world. In its 2014 annual review of the world’s most valuable brands, Forbes ranked Microsoft the second most valuable brand in the world with an estimated value of $63 billion.1 Forbes also listed the company’s founder, Bill Gates, as the richest person on the planet in 2015 with an estimated $79.2 billion fortune.2 In addition, Gates topped the Forbes list of billionaires 16 out of the previous 21 years, which is indicative of the immense wealth that Microsoft earned during its rise to become one of the world’s largest new media giants. The company initially focused solely on producing computer software, but has since diversified its product lines and expanded into new areas of business. Microsoft now has regional offices in more than 100 countries worldwide, and offers products and services that range from video games and mobile phones, to operating systems and cloud computing solutions. The company’s growth, however, has not been without controversy. Throughout its history, Microsoft negotiated strategic partnerships with original equipment manufacturers (OEMs). Most notably, the company partnered with IBM, which ensured that its software would come pre-installed on personal computers. In effect, these partnerships and licensing agreements dramatically increased the ubiquity of Microsoft’s software and solidified its position as a recognizable brand worldwide. However, Microsoft’s corporate structure and its strategies have shifted in recent years, particularly as the company expands beyond personal computer and software licensing markets. This represents a fundamental shift in the focus of the company, which is reflected in its recent acquisitions as well as its change in leadership. As evidence of this new era at Microsoft, Satya Nadella was appointed as Chief Executive Officer in 2014, which made him only the third person to hold the position since the company’s founding. Despite these changes, Microsoft still remains one of the largest and most powerful companies in the world. To understand the current changes occurring within Microsoft as well as the events that led to its rise to power, this chapter begins by charting the history of the company before providing an overview of the company’s current economic profile, including its corporate structure, executive board members, and investors. Next, an analysis of the company’s political ties as well as its cultural and symbolic power is provided before the chapter concludes with reflections on the company’s core strategies.

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Historical Background Paul Allen and Bill Gates founded Microsoft in 1975 after they developed the Altair BASIC interpreter, which was designed to execute functions written in the BASIC (Beginner’s All-purpose Symbolic Instruction Code) programming language so that they could be performed on the Micro Instrumentation and Telemetry Systems (MITS) Altair 8800 microcomputer. Altair BASIC became Microsoft’s first product, which was distributed by MITS under contract with Microsoft. This initial product established the basis of Microsoft’s business model and its primary strategy, which relied on producing software and establishing contracts with equipment manufacturers as a way to ensure the company’s products were included with hardware devices. In the 1980s, Microsoft shifted its focus to the production of operating systems. During this time, Microsoft developed its Microsoft Disk Operating System, or MS-DOS, which became its core commodity until the mid-1990s. MS-DOS was developed in 1981 after IBM requested an operating system that could be used on its IBM-PC line of personal computers (PCs). Shortly after IBM’s initial request, Microsoft acquired the rights to 86-DOS, an operating system from Seattle Computer Products, eventually renaming it MS-DOS.3 Microsoft customized the newly acquired operating system to the specifications required by IBM and licensed the operating system to IBM. In turn, IBM included MS-DOS with its IBM-PC line of personal computers under the name PC DOS. The agreement with IBM was perhaps the biggest turning point in Microsoft’s rise to power. The agreement ensured that its software would be shipped with IBM’s hardware, which led to rapid adoption of its products and increased revenue. Based on its success with MS-DOS and its relationship with IBM, Microsoft held its initial public offering (IPO) in 1986, which earned $61 million. The funds earned from the IPO were primarily invested in developing an operating system that used a graphical user interface (GUI). The development of a GUI operating system was driven by the need to make personal computers more accessible to the consumer market. Both the investment in Windows and its relationship with IBM ensured that Microsoft Windows would be installed on all IBM-compatible computers. Ultimately, Microsoft Windows continued the company’s dominance of the personal computer software industry as well as ushering in an era of personal computer sales. Microsoft’s revenues and market share grew tremendously during this period. By some estimates, Microsoft’s market share rose to 90% of the entire computing market in the mid-1990s.4 By the time Windows 3.0 was released in 1990, however, the relationship between IBM and Microsoft became strained to the point that the companies decided to terminate their Joint Development Agreement, which specified the partnership between the two firms for the purpose of working on IBM’s OS/2 operating system.5 Because the Windows operating system was much more developed when the companies ended their relationship, Microsoft continued to gain market share, as its operating system was included on sales of IBM-compatible PCs. In fact, the relationship between IBM and Microsoft was what initially drew attention from the United States Federal Trade Commission (FTC) in 1990. The initial FTC investigation began as a result of a joint news release by IBM and Microsoft during the Comdex trade show in Las Vegas, NV, on November 13, 1989.6 In the press release, the companies claimed “Microsoft would hold back features for Windows in order to help industry acceptance of the OS/2 operating system.”7 The FTC was concerned that the companies were colluding to control the market for operating systems. Ultimately, the FTC investigation ended in 1993 because the commissioners were split 2–2 on whether to bring an administrative action against Microsoft. In the same year, however, the Antitrust Division of the United States Department of Justice (DoJ) took over the investigation, which eventually led to Microsoft’s conviction for antitrust violations. The main issues in that case did not center on Microsoft’s control of the operating system market but its web browser, Internet Explorer.8

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The Browser Wars The development of Internet Explorer occurred within the context of the “browser wars” in the mid-1990s. One of the most notable web browsers developed at this time was the Mosaic web browser, which was developed by a team of researchers at the University of Illinois at UrbanaChampaign. After gaining popularity, Mosaic changed its name to Netscape Navigator to avoid trademark disputes with the university. The truly novel characteristic of the Netscape browser was that it was freely available to the general public for personal use. As a result, Netscape Navigator quickly rose to hold nearly 90% of the browser market in April 1996.9 Based on this quick success, Netscape held its IPO in August 1995. Netscape’s success was not lost on Microsoft, which began to develop a browser to rival Netscape. Since Microsoft had not devoted any significant amount of time or resources to developing a web browser of its own, the company sought to acquire an existing browser rather than build one on its own. Microsoft approached Spyglass, which held the rights to the code base of the original Mosaic browser. Spyglass had been developing its own version of Mosaic, known as Spyglass Mosaic. Microsoft negotiated a license to use the Spyglass Mosaic code base in exchange for royalty payments for each copy of the browser issued, with an annual cap of $5 million.10 The resulting browser, Internet Explorer, was based on the same foundation as Netscape. As evidence of how aggressively Microsoft pursued its new browser strategy, the company originally had only five or six employees working in the browser department in 1995, but that number rose to more than 1,000 employees by 1999.11 In addition to assigning more employees to the browser division, Microsoft began packaging IE with distribution of its Windows operating system. As Microsoft held nearly 90% of the market for operating systems because of its contractual relationships with OEMs, the company quickly gained market share of the web browser market. In effect, Microsoft was giving away copies of Internet Explorer for free by bundling it with its Windows operating system. Microsoft began distributing versions of Internet Explorer to OEMs by sending discs to the manufacturers, but it eventually required the OEMs to install Internet Explorer with Windows 95. According to the Findings of Fact from the United States v. Microsoft antitrust case, Microsoft prohibited OEMs from “modifying or deleting any part of Windows 95, including Internet Explorer, prior to shipment” because of a non-negotiable licensing restriction that Microsoft placed on OEMs.12 In other words, the restriction did not allow OEMs to ship new PCs without Microsoft’s browser installed. The effect on the market for web browsers was almost immediate, as Netscape Navigator’s market share plummeted and Microsoft’s ascended.

The United States v. Microsoft Microsoft’s actions during the browser wars were what ultimately led to its conviction for violations of Sections 1 and 2 of the Sherman Act. Section 1 of the Sherman Act prohibits “every contract, combination . . . or conspiracy, in restraint of trade or commerce . . .”13 Section 2 prohibits any person or firm to “monopolize . . . any part of the trade or commerce among the several States, or with foreign nations . . .”14 In United States v. Microsoft, the court found Microsoft to be in violation of both sections of the Act. Microsoft violated Section 1 by unlawfully bundling Internet Explorer with its operating system and restricting OEMs from modifying or removing the software. In addition, the company violated Section 2 by maintaining its monopoly power by anticompetitive means and attempting to monopolize the web browser market. In light of these violations, the U.S. District Court Judge, Thomas Penfield Jackson, ordered Microsoft to divest its operating systems business from its applications business operations.15 The intent of the decrees was to separate Microsoft’s operating system business from the business operations that handled

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its web browser development. These actions would prevent Microsoft from engaging in the same types of anticompetitive behavior that it had used during the browser wars. However, Judge Thomas Penfield Jackson recused himself from the case in 2001 because of public comments that he made, which gave the impression that he had a personal bias or prejudice against Microsoft.16 In his place, U.S. District Judge Colleen Kollar-Kotelly took over the case, and approved a settlement between the parties that would not require the break-up of Microsoft’s two divisions. Instead, Microsoft agreed to a series of consent decrees in November 2002, whereby the company was prohibited from retaliating against any OEM that develops, distributes, promotes, uses, sells, or licenses any non-Microsoft products.17 In addition, Microsoft needed to establish a clearly documented schedule of all royalties received from OEMs for its Windows Operating System. These provisions were aimed at prohibiting Microsoft from engaging in any anticompetitive behaviors, but Microsoft was also required to promote interoperability with its products. Interoperability ensures that other companies could develop products that would operate with Microsoft’s products. As such, Microsoft was ordered to disclose its Application Programming Interfaces (APIs), which specify how software components should interact with one another. By releasing its APIs to independent vendors, OEMs, and other Internet providers, they could develop software that could communicate with Microsoft’s operating systems and other software. These consent decrees were ultimately renewed twice, but officially expired May 12, 2011.18 The antitrust conviction marked a turning point in Microsoft’ history, as well as the broader information technology market. The antitrust conviction occurred in 2001, which coincided with the bursting of the so-called “dot-com bubble” of speculative capital investment in information technology companies.19 Microsoft, which had risen to power because of its bundled software and strong intellectual property protections, needed to shift its business strategies to reflect the broader changes occurring within the information technology industry. The most significant of these changes was the growth of smartphones and tablets, as well as Microsoft’s entrance into the video gaming industry. It is within this context that Microsoft released its Xbox video gaming console in late 2001 and began developing tablets for personal computing. Later, in 2014, Microsoft acquired the mobile phone business of Finnish telecommunications company Nokia. The acquisition of Nokia’s mobile phone business as well as the change in leadership will be discussed in greater detail in the section on new developments, which appears later in the chapter. What follows, however, is an economic profile of the company, which includes financial data and its current corporate structure.

Economic Profile Figure 23.1 provides an illustration of Microsoft’s revenues and net profits from 1998 to 2014. The company’s revenues continued to grow during this period, despite its conviction for antitrust violations and the subsequent consent decrees. Moreover, Microsoft’s revenues were not affected by the dot-com crash during 2001. Indeed, the same can be said of the company’s profits during that time, although Microsoft did experience a dip in profits during the latest financial crisis that occurred between 2007–2008.

Properties (Corporate Structure, Holdings, Joint Ventures) In 2014, Microsoft acquired the Nokia Corporation’s Device and Services Business (“NDS”). The acquisition led to a change in Microsoft’s organizational structure and represents the company’s broader strategic transition to a “devices and services company.”20 The upshot of the restructuring was the creation of a new operating segment as well as renaming others. The new organizational structure is divided into two main areas: (1) Devices and Consumer, and (2) Commercial. Both

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100 90 80 70 60 50

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FIGURE 23.1

Microsoft Corporation Annual Revenue and Net Profit, 1998–2014 (in $ billions)

of these primary areas is further broken down into smaller operating segments. Brief descriptions of these operating segments are provided below.

Devices and Consumer (D&C) Microsoft’s Devices and Consumer (D&C) segments “develop, manufacture, market, and support products and services designed to increase personal productivity, help people simplify tasks and make more informed decisions online, entertain and connect people, and help advertisers connect with audiences.”21 The company’s D&C operations are divided into four smaller operating segments: D&C Licensing, Computing and Gaming Hardware, Phone Hardware, and D&C Other. D&C Licensing The D&C Licensing segment primarily derives its revenue from licensing fees for use of Microsoft software, including Microsoft Windows and Microsoft Office. The licensing revenues for Microsoft Windows come from the fees charged to original equipment manufacturers that sell hardware devices with Microsoft software pre-installed. Also included in this operating segment are patent licensing fees. Computing and Gaming Hardware The Computing and Gaming Hardware segment includes the Xbox video game console and accessories. This includes revenue from the subscription-based Xbox Live service, which allows subscribers to link with other Xbox players for collaborative or competitive video gaming. Premium Xbox Live accounts receive access to free games and special offers. This segment also includes royalties from second- and third-party video game sales. Sales of Microsoft Surface tablets and accessories as well as Microsoft PC accessories are also included.

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Phone Hardware The Phone Hardware segment is Microsoft’s newly created segment and was created because of Microsoft’s acquisition of Nokia’s Device and Services Business. This newly created segment includes sales of Lumia Smartphones and other non-Lumia phones. D&C Other The D&C Other segment includes revenue streams from those areas not otherwise covered by other segments. D&C Other includes sales from online marketplaces like Windows Store, Windows Phone Store, and Xbox Live as well as its retail stores. It also includes revenues earned from advertising on its Bing search engine, Xbox gaming console, and the Microsoft Network, also known simply as MSN, which is a collection of web sites and services provided by the company. This segment also includes Office 365 Consumer software, which is a subscription-based cloud service that provides access to Office 365 Home, Office 365 Personal, and other productivity software. The segment also includes Microsoft Studios, which develops and publishes video games. Microsoft also operates a Partner Network, whereby vendors can become an official reseller of Microsoft product licenses. Revenues from this service are also reported in this segment.

Commercial Whereas the D&C segments cater specifically to consumers, the commercial segments are focused on providing products and services for other businesses. These products and services are aimed at increasing business productivity and efficiency. The company’s commercial operations are divided into two segments: Commercial Licensing and Commercial Other. Commercial Licensing The Commercial Licensing segment derives revenue from licensing fees paid by other businesses for access to Microsoft’s software and services. This includes a range of server-level products like Windows Server, Microsoft SQL Server, Visual Studio, and System Center. The company also earns revenue from sales of its Microsoft Office for business software, including the productivity software offered by Office, the Microsoft Exchange email server software, the SharePoint web application framework and platform, and the Microsoft Lync instant messenger. Microsoft also licenses Skype to businesses, which enables voice and video calling from devices connected to the Internet. Through Microsoft Dynamics, the company offers software for resource planning, customer relationship management, financial management, supply chain management, and analytics. In addition, Microsoft also derives revenue from licensing of its Windows operating system, including Windows Embedded. Embedded systems are computer systems that are embedded within other devices, which allows for the expansion of Internet-connected automation in everyday objects and devices. Commercial Other The Commercial Other segment includes product support and consulting services offered through its Enterprise Services division. The company also provides services via Commercial Cloud, which includes Office 365 Commercial and other Microsoft Office services. In addition, Microsoft Azure is a cloud computing platform and infrastructure for developing and managing applications.

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Typical Strategies Throughout its history, Microsoft has relied on a few primary strategies. Microsoft ensured the ubiquity of its software by negotiating contractual relationships with original equipment manufacturers. Beginning with its initial contract with IBM to fuel adoption of its MS-DOS operating system, Microsoft continued this strategy with subsequent technologies like Microsoft Windows and Internet Explorer. Indeed, the findings from the United States v. Microsoft antitrust suit focused on the anticompetitive nature of Microsoft’s contractual agreements with manufacturers. In particular, Microsoft used “contractual and, later, technological shackles in order to ensure the prominent (and ultimately permanent) presence of Internet Explorer on every Windows user’s PC system, and to increase the costs attendant to installing and using [Netscape] Navigator on any PCs running Windows.”22 In addition, Microsoft restricted manufacturers from reconfiguring Windows 95 and Windows 98 in ways that could lead to greater use of Netscape Navigator. Finally, Microsoft “used incentives and threats to induce” certain manufacturers to make “distributional, promotional and technical efforts” that would favor Internet Explorer instead of Navigator.23 Once Microsoft achieved its market dominance, it relied on strong intellectual property protections of its software as a way to defend its ability to charge licensing fees for use of its software. Indeed, the company has consistently exhibited an antagonistic position with respect to alleged infringements on its intellectual property. In one early example, Bill Gates authored an “Open Letter to Hobbyists” in response to the fact that hobbyists were sharing copies of Microsoft’s Altair BASIC interpreter for the purposes of experimenting with the technology. In the letter, Gates claimed that most hobbyists steal software, and he rhetorically asked whether this is a fair practice because it ultimately prevents good software from being written. The “Open Letter to Hobbyists” is indicative of Microsoft’s longstanding position toward the hobbyist community and, more specifically, the model of open development championed by this community. The most notable example of an open development model is the open source operating system, GNU/Linux. In 1998, a confidential source leaked a series of documents to Eric Raymond, a well-known member of the free and open source software community, which provided evidence of Microsoft’s strategies and tactics for combatting GNU/Linux in particular and open source software in general. These documents, known as “The Halloween Documents,” show that Microsoft viewed free software products as a genuine threat to its own products because such products had “acquired the depth and complexity traditionally associated with commercial projects.”24 In the first Halloween Document, Vinod Valloppillil argues “to understand how to compete against OSS [open source software], we must target a process rather than a company.”25 The author also discusses possible strategies for competing with open source software, with special attention given to “FUD tactics,” which is an acronym for Fear, Uncertainty, Doubt. FUD tactics are used in sales, marketing, public relations, and other propaganda, whereby one attempts to instill feelings of fear, uncertainty, or doubt in consumers about the quality of competitors’ products. For example, in an advertisement for Microsoft Server 2003, Microsoft claimed that research had demonstrated “Linux was found to be over 10 times more expensive than Windows Server 2003.”26 Microsoft was asked to change the advertisement by the Advertising Standards Authority in the United Kingdom because the results of the study were deemed to be misleading to consumers. In subsequent Halloween Documents, Microsoft employees claimed that a possible strategy for fighting Linux was patent and copyright litigation.27 Indeed, Halloween Document X, leaked in 2004, features an internal email from the SCO Group, which discusses, albeit somewhat vaguely, the relationship between the SCO Group and Microsoft.28 The email appears to disclose the amount of money paid to SCO on behalf of Microsoft. The SCO Group was a software company that

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became infamous for engaging in a number of legal battles over alleged intellectual property infringement in Linux-related software. The SCO Group went bankrupt in 2007, but the leaked document suggests that Microsoft was contributing money directly to the SCO Group as a way to support intellectual property litigation against Linux vendors. The contractual agreements and vehement policing of its intellectual property allow Microsoft to derive revenue from licensing fees. Based on its 2014 annual report, nearly 70% of Microsoft’s revenue came from licensing fees.29 As such, Microsoft relies on strategies that increase its ability to derive licensing revenue, particularly by encouraging adoption of its technologies globally. For example, between 1999 and 2001, four Brazilian cities—Amparo, Solonopole, Recife, and Ribeirao Pires—passed a series of laws and directives that encouraged or required the use of free software in favor of Microsoft products.30 The rationale for switching to free software was primarily economic, as Brazil reported spending nearly $1 billion on software licensing fees to Microsoft between 1999 and 2004.31 By switching to free and open source software, Brazil estimated the savings at approximately $120 million per year.32

New Developments (Convergence, Integration, Expansion, etc.) In recent years, however, Microsoft’s stance toward free and open source software has thawed a bit from its previous position. This is indicated by the creation of an entirely new subsidiary in 2012 called Microsoft Open Technologies, which is dedicated to “interoperability, open standards, and open source.”33 This contrasts sharply with statements made by Microsoft’s previous CEO, Steve Ballmer, when he claimed, “Linux is a cancer” in 2001.34 The reason for the shift in embracing open source is, in part, driven by the need for interoperability. Interoperability is particularly important because it enables various technologies to communicate with one another, regardless of its original manufacturer. Microsoft recognizes the need for its software to communicate effectively with other devices and systems, and the company can no longer rely solely on developing software that will only run on Microsoft devices. Rather, Microsoft’s software will need to be adapted to a range of devices that may be manufactured or managed by different organizations. This change in perspective can also be contextualized within the company’s recent shift to prioritize mobile and cloud-based products and services. On a broader level, the shift in business strategy brings Microsoft in line with more general trends in the information technology market, exemplified by companies like Google, Amazon, and Facebook. These companies are increasingly trying to control various types of Internet infrastructure that they can lease to consumers and businesses as a way to provide access to increased computational power, unique applications or services, or to facilitate collaborative projects via the cloud. The strategy attempts to take advantage of demand for ubiquitous access to software and services across a range of different devices (i.e., laptops, tablets, gaming consoles, smartphones, etc.). One can view Microsoft’s recent acquisition of the Nokia Corporation’s “Device and Services” business within this broader context. The acquisition allows Microsoft to integrate the production of mobile phones, smartphones, and tablets into its corporate structure. Furthermore, the acquisition makes Microsoft vertically integrated in telecommunications, although not completely vertically integrated in traditional forms of telephony. While the company does not provide a traditional telephony service to its clients, it does control Skype, which offers Internet-based voice and video communication. As of 2013, Microsoft claimed that Skype had approximately 299 million users worldwide.35 As of the time of writing, Microsoft was in the process of integrating many of its products and services into a single service. The service will be driven by development taking place within its Windows operating system. The new system, Windows 10, is being built as an integrated operating system that will function with all types of hardware, including smartphones, the Xbox

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gaming system, tablets, laptop computers, as well as Microsoft HoloLens. The HoloLens is Microsoft’s attempt to bring three-dimensional immersive computing to consumers with the use of holographic technology. By wearing a piece of headgear, users of HoloLens will be able to view digital displays within their physical environment. For example, users could build a hybrid digital-physical environment in their living rooms by playing Minecraft with the HoloLens, which would enable digital structures to be built on top of a couch or coffee table.36

Political Profile Microsoft held its initial public offering in 1986, and it has remained a publicly traded company since that time. Currently, the ownership structure of Microsoft is composed of both institutional and non-institutional (or personal) investors. Institutional investors own approximately 72% of the company’s total shares, with the remaining 28% belonging to non-institutional members. Table 23.1 lists Microsoft’s top five institutional investors and the percentage of total shares owned by each company. The largest institutional investor is Vanguard Group, Inc., a U.S.-based investment management company. The Vanguard Group’s investment portfolio shows that the company also holds the greatest amount of total shares for General Electric, Bank of America, Pfizer, Apple, and AT&T. However, the most valuable shares the company owns are those of Apple, where its 330 million shares are worth more than $42 billion.37 While Table 23.1 provides a snapshot of Microsoft’s top institutional investors, two individuals are the largest non-institutional shareholders. Former CEO, Steve Ballmer, owns more than 330 million shares in the company, while founder Bill Gates owns approximately 239 million shares.38 When considered in conjunction with the institutional investors, Bill Gates arguably holds the most power to control the direction of the company because he is its founder, a major direct investor, and a current board member. However, ownership is not always the same as control; rather, management and equity owners form a “community of interest” in which the strategic decisions are informed both by management and financial interests.39 Gates is somewhat unique in that he serves as a member of both communities, although this may or may not translate directly to control. Complicating the analysis of Gates’ influence is the way in which his fortune is spread out through multiple other ventures outside Microsoft’s corporate structure. For example, Bill Gates controls Cascade Investments, LLC, which is a holding and investment company.40 Cascade Investments holds ownership stakes in companies across a range of industries, including food and beverage, transportation, waste management, biofuel, and real estate. Most notably, Cascade Investments holds a 7% ownership stake in Televisa, the Mexican media giant discussed in this volume.41 Another notable investment is the Four Seasons Hotels and Resorts, which Cascade Investments co-owns with Saudi Arabia’s Prince al-Waleed bin Talal’s investment company.42 TABLE 23.1 Microsoft Corporation’s Top Five Institutional Investors

Company

Percentage of total shares

Vanguard Group, Inc. Capital World Investors State Street Corp FMR LLC Barclays Global Investors UK Holdings Ltd

7.27 5.95 5.93 3.78 3.74

Source: NASDAQ, “Microsoft Corporation Ownership Summary,” www. nasdaq.com/symbol/msft/ownership-summary, accessed March 18, 2015

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Corporate Board Members and Interlocks On the other hand, Bill Gates has only recently returned to serve on the company’s Board of Directors. Table 23.2 lists the current board of directors and the corporate interlocks of the board members, but only lists the board members’ current and active involvement in other leadership positions. However, certain members previously served in positions that are worth mentioning here. John Wendell Thompson, the current Chairman of the Board, previously served on the National Infrastructure Advisory Council (NIAC), which was created in the wake of the September 11, 2001 attacks on the World Trade Center in New York City. The council provided advice to the President of the United States, through the Secretary of Homeland Security, about the security of critical infrastructures and may advise policies or strategies to keep those infrastructures secure.43 Mr. Thompson was also CEO of Symantec, a computer security company, TABLE 23.2 Microsoft Executive Board Members and Corporate Interlocks

Board Member

Interlocks with Other Companies

John Wendell Thompson, Chairman of the Board

Virtual Instruments (CEO) Liquid Robotics (Director) PernixData (Advisor) Wetlands American Trust (Trustee)

Satya Nadella, Chief Executive Officer Bill Gates, Corbis Corporation (Founder, Owner, Chairman) Founder & Technology Advisor Berkshire Hathaway (Director) Bill & Melinda Gates Foundation (Founder, Co-Chairman) Charles H. Noski, Director

Avon Products (Director) National Association of Corporate Directors (Director)

Charles W. Scharf, Director

Visa (CEO & Director) Johns Hopkins University (Trustee)

Maria M. Klawe, Director

Broadcom Corporation (Director) Math for America (Director) Mathematical Sciences Research Institute (Trustee) American Academy of Arts & Sciences (Fellow) Canadian Information Processing Society (Founding Fellow) Stanford Engineering Advisory Council (Member) Advisory Council for the Computer Science Teachers Assoc. (Member)

Garrison Mason Morfit, Director

ValueAct Capital (President)

Helmut Gunter Wihelm Panke, UBS AG, Switzerland (Director) Director Singapore Airlines Limited (Director) Bayer AG (Supervisory Board) Teri L. List-Stoll, Director

Kraft Foods Group (Exec. VP & Chief Financial Officer) Danaher Corporation (Director)

John W. Stanton, Director

Trilogy Equity Partners (Chairman) Trilogy International Partners (Chairman) Columbia Sportswear (Director) Year Up of Puget Sound (Chairman) Whitman College (Trustee) Seattle Foundation (Director)

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and a member of the Financial Crisis Inquiry Commission, which was charged with investigating the causes of the 2007–2008 financial crisis.44 In addition, Charles H. Noski previously served in various leadership positions at other large corporations, such as Bank of America, Northrup Grumman Corporation, AT&T, Morgan Stanley, and Merrill Lynch.

Ties to the State and Lobbying Efforts While corporate interlocks can provide a glimpse of Microsoft’s ability to negotiate strategic partnerships, they can also influence policies and regulations through its ties to the state and spending on lobbying efforts. Microsoft makes publicly available information about its participation in the political process. For example, Microsoft provides access to data on fees paid to consultants, lobbying expenses, and trade association dues spent on advocacy.45 The Center for Responsive Politics, through its OpenSecrets.org website, provides additional details about the connections between Microsoft and members of the United States government. During 2013–2014, Microsoft hired 113 lobbyists, 91 of whom previously held government jobs. Furthermore, 55 members of the United States Congress and Senate owned stock in Microsoft.46 These interlocks give a sense of Microsoft’s ability to influence legislation, particularly when paired with more specific details about their lobbying efforts. In 2014, Microsoft spent more than $8 million on lobbying. The top five issues for which the company lobbied were (1) taxes, (2) immigration, (3) copyright, patent, and trademark, (4) telecommunications, and (5) computers and information technology.47 More specifically, the company most frequently lobbied support for the Immigration Innovation Act, also known as the I-Squared Act, which increases the cap on H-1B visa availability for specialty occupation foreign workers and also allows spouses of H-1B recipients obtain work visas.48 Microsoft’s support for the bill is directly related to its interest in hiring foreign workers with specialized knowledge.

Labor As of 2014, Microsoft had approximately 128,000 full-time employees.49 Of these employees, approximately 62,000 worked in the U.S. and 66,000 worked outside the U.S. These figures include nearly 25,000 new employees that were part of the Nokia acquisition. Microsoft also provides details about how many employees work within each of its segments. Nearly 44,000 employees work in research and development, 30,000 in sales and marketing, 23,000 in support and consulting services, 20,000 in manufacturing and distribution, and 11,000 in administration.50 However, Microsoft were planning to eliminate nearly 18,000 jobs in 2015 as part of restructuring in the wake of the Nokia acquisition. This included nearly 12,500 professional and factory positions specifically related to Nokia products and services.51 In addition to the projected downsizing, Microsoft was also implicated in controversial labor practices related to its contract with Foxconn Technology Group, which is also known as Hon Hai Precision Industry Company Limited. Microsoft had a contract with Foxconn for assembly of its Xbox gaming console; after Foxconn announced that the production lines for the Xbox 360 would be closed, workers were told that they would receive severance packages. The company latter reneged on that promise, prompting workers to climb to the top of the six-story assembly plant and threaten a mass suicide in response.52 In response to the story, Microsoft conducted an independent investigation of the dispute. In the end, Microsoft determined that the dispute was “related to staffing assignments and transfer policies, not working conditions.”53 Microsoft also reaffirmed its commitment to a Vendor Code of Conduct, which includes specifications for ethical labor practices and a respect for human rights.54

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Social Marketing (Support for Certain Causes, Initiatives, Charities) The Microsoft Citizenship Report, which is released annually, provides an overview of the company’s activities in supporting various causes, initiatives, and charities.55 These include workforce diversity inclusion programs to promote underrepresented populations in the science, technology, engineering and math (STEM) fields. For example, the Digigirlz program encourages high school girls to pursue careers in technology. The company also awards scholarships to members of the lesbian, gay, bisexual, and transgender (LGBT) community as well as students with disabilities as a way to promote involvement in the technology industry. In addition to these programs, Microsoft’s philanthropic giving was more than $1 billion for the first time in 2014. These funds were primarily given for two broad initiatives: (1) providing access to technology and skills training for youth around the world, and (2) donating technology to non-profit organizations. For example, Microsoft donated more than $948 million worth of software and hardware to more than 86,000 non-profit organizations.56 Furthermore, the company encourages its employees to volunteer or donate to non-profits of their choice, and the company will match the donations up to $15,000 per employee.57 Although not specifically a Microsoft foundation, the Bill and Melinda Gates Foundation is also associated with the company through Bill Gates. The Bill and Melinda Gates Foundation has an endowment of approximately $43.5 billion, and claims to have paid out approximately $3.9 billion in grants during the 2014 fiscal year.58 The Foundation also claims to support global health and development programs in all 50 U.S. states and more than 100 countries.59 Its development activities include financial services for those living in poverty, agricultural development initiatives, and aid for areas effected by environmental disasters. Its health initiatives include the Global Fund to Fight AIDS, Tuberculosis and Malaria as well as programs for research and treatment of other diseases including the promotion of vaccinations.

Cultural Profile Microsoft’s place in culture is one that has been defined by its history of negotiating partnerships with equipment manufacturers, thereby leading to the ubiquity of its software in business settings. According to the company, more than 1.5 billion people use the Microsoft Windows operating system everyday, and more than 1.2 billion people use Microsoft Office, which includes Microsoft Word, Excel, and PowerPoint.60 These figures suggest that nearly one in every seven people on the planet use Microsoft products on a daily basis. However, the company’s image has generally been associated with “suits and megacorps,” which can be contrasted with Apple’s marketing that is directed at a younger and more fashionable audience.61 Indeed, Apple’s “Get a Mac” advertising campaign, which ran between 2006 and 2009, featured John Hodgman playing the role of a human incarnation of a PC. Hodgman was dressed in a suit and tie, and was typically portrayed as having a very dry personality, while Justin Long played the younger, cooler, and more relaxed Mac. On the other hand, Microsoft is working to change this perception by trying to attract more start-ups and Silicon Valley entrepreneurs to its company.62 Microsoft is also striking back at Apple in its advertising campaigns. Microsoft’s advertisements for its Surface Pro tablet feature the Surface Pro side-by-side with Apple’s MacBook laptop computer. The advertisements extol the wideranging functionality and portability of the Surface Pro in comparison with the limitations of the MacBook. Beyond Microsoft’s brand image, the company’s products still feature prominently in everyday life for many people around the world. Microsoft’s software products, particularly its Windows operating system, remain the global leader in the personal computing market. Outside of its more traditional operating system business, the growth of the global video gaming industry has been

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staggering, and Microsoft’s Xbox console has been a prominent player in the growth of this industry. When combined with the number of businesses that use Microsoft software, Microsoft truly constitutes a company that has become an integral part of both work and leisure time for many people worldwide.

Concluding Remarks As illustrated in this chapter, Microsoft rose to power after it negotiated strategic partnerships with original equipment manufacturers to have its software pre-packaged on shipments of personal computers. These partnerships ensured the ubiquity of Microsoft’s software worldwide, and they still enable the company to collect licensing fees for use of its products. However, the bundling of Microsoft’s Internet Explorer web browser with shipments of its Windows operating system ultimately led to the company’s conviction for antitrust violations in 2001. The antitrust conviction marked a turning point in Microsoft’s history, and the company began to expand its product lines, including the introduction of the Xbox gaming console in 2001. Beginning in 2007 with the smartphone boom, Microsoft began to fall behind competitors like Apple and Google in developing an operating system for mobile devices. But Microsoft is currently going through a period of restructuring along with a shift in its business strategy. This is reflected in its latest filings with the Securities and Exchange Commission in the United States. The company claims to be shifting to a “devices and services” company, which will reorient the company’s strategy to focus more on cloud computing platforms and mobile devices. However, the company’s core strategy of locking customers into Microsoft technology as a way to earn subscription or licensing revenue remains the same, regardless of the device or method used to access that technology. When viewed this way, even Microsoft’s philanthropic activities support this strategy, particularly when it donates software and hardware to developing countries and offers training and education on how to use software and devices. The same might also be said of Microsoft’s shift to embracing open source software. Seemingly, interoperability is a technical concern, but it is also an economic imperative. In other words, charity, sharing, interoperability, and a greater appreciation for open source are suitable corporate objectives as long as they attract more people to Microsoft products and ultimately contribute to the company’s bottom line.

Notes 1 Kurt Badenhausen, “Apple, Microsoft, and Google are World’s Most Valuable Brands,” Forbes.com, November 5, 2014, www.forbes.com/sites/kurtbadenhausen/2014/11/05/apple-microsoft-and-googleare-worlds-most-valuable-brands/, Aaccessed January 28, 2015. 2 Kerry A. Dolan and Luisa Kroll, “Inside the 2015 Forbes Billionaires List: Facts and Figures,” Forbes.com, www.forbes.com/sites/kerryadolan/2015/03/02/inside-the-2015-forbes-billionaires-list-facts-and-figures/, accessed March 2, 2015. 3 The original name for 86-DOS was actual QDOS, which stood for “Quick and Dirty Operating System,” but Seattle Computer Products changed the name to 86-DOS once it began marketing the product. 4 Richard J. Gilbert, “Networks, Standards, and the Use of Market Dominance: Microsoft (1995),” in The Antitrust Revolution: Economics, Competition, and Policy, eds. John E. Kwoka and Lawrence J. White (New York: University of Oxford Press, 2004, 409–429). 5 A digitized version of the Joint Development Agreement is available at http://tech-insider.org/ os2/research/acrobat/871126.pdf, accessed March 12, 2015. 6 James Wallace and Jim Erickson, Hard Drive: Bill Gates and the Making of the Microsoft Empire (New York: Wiley, 1992, 373. 7 Wallace and Erickson, Hard Drive, 373. 8 See United States v. Microsoft Corporation, 84 F.Supp.2d 9 (D.D.C. 1999). 9 Michael A. Cusumano and David B. Yoffie, Competing on Internet Time: Lessons from Netscape and Its Battle with Microsoft (New York: The Free Press, 1998, 9).

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10 Peter Elstrom, “Microsoft’s $8 million Goodbye to Spyglass,” Businessweek.com, January 22, 1997, www. businessweek.com/bwdaily/dnflash/january/new0122d.htm, accessed May 20, 2014. 11 William H. Page and John E. Lopatka, The Microsoft Case: Antitrust, High Technology, and Consumer Welfare (Chicago: University of Chicago Press, 2007, 26–27). 12 United States v Microsoft, 84 F.Supp.2d 9 (D.D.C. 1999), see Finding 158. 13 Sherman Antitrust Act, 15 U.S.C. §1 (1890). 14 Sherman Antitrust Act, 15 U.S.C. §2 (1890). 15 In addition, all the intellectual property rights previously held by the two businesses were to be transferred to the Applications Division, which was required to grant a perpetual, royalty-free license to the operating systems business so that it could license, develop, and distribute modified or derivative versions of the intellectual property. However, the Operating Systems Division was prohibited from doing this with the intellectual property related to the Internet browser (Internet Explorer). Aside from divesting the operations of these two businesses, Microsoft was ordered to transfer all the assets from either one of the divisions into a newly formed company, for which the transfer of ownership was to be accomplished by a distribution of stock to shareholders not connected with Microsoft. 16 Joe Wilcox, “Jackson Exits Microsoft Discrimination Case,” Cnet, March 13, 2001, http://news.cnet.com/ Jackson-exits-Microsoft-discrimination-case/2100–1001_3–254049.html, accessed March 12, 2015. 17 United States v. Microsoft, Final Judgement, Civil Action No. 98–1232 (Nov. 12, 2002), www.justice.gov/ atr/cases/f200400/200457.htm, accessed March 12, 2015. 18 Sharon Pian Chan, “Long Antitrust Saga Ends for Microsoft,” The Seattle Times, May 11, 2011, http://seattletimes.com/html/microsoft/2015029604_microsoft12.html, accessed March 12, 2015. 19 For more information, see John Cassidy, Dot.con: The Greatest Story Ever Sold (New York: HarperCollins, 2002). 20 Microsofot Corporation, Form 10-K, Annual Report (United States Securities and Exchange Commission, July 31, 2014, 3), www.microsoft.com/investor/SEC/default.aspx?year=2014&filing=annual, accessed March 18, 2015. 21 Microsoft, Form 10-K, 2014, 4. 22 United States v. Microsoft, Conclusions of Law, Civil Action No. 98–1232 (April 3, 2000, 11), www.justice. gov/atr/cases/f218600/218633.pdf, accessed March 18, 2015. 23 United States v. Microsoft, Conclusions of Law, 11. 24 Eric S. Raymond, “Halloween Document I (version 1.17),” August 11, 1998, www.catb.org/esr/ halloween/halloween1.html, accessed March 18, 2015. 25 Raymond, Halloween Document I. 26 BBC News, “Microsoft’s Linux Ad ‘Misleading,’” BBC.co.uk, August 26, 2004, http://news.bbc.co.uk/ 2/hi/technology/3600724.stm, accessed March 18, 2015. 27 Eric S. Raymond, “Halloween Document II (version 1.7),” August 11, 1998, www.catb.org/esr/halloween/ halloween2.html, accessed March 18, 2015. 28 Eric S. Raymond, “Halloween Document X: Follow the Money,” March 3, 2004, www.catb.org/esr/ halloween/halloween10.html, accessed March 18, 2015. 29 Ed Bott, “Apple, Google, Microsoft: Where Does the Money Come From?” ZDnet, February 6, 2014, www.zdnet.com/article/apple-google-microsoft-where-does-the-money-come-from/, accessed April 6, 2015. 30 Marcelo Tramontano and Nilton Trevisan, “A Dimensão Digital de Solonópole, Brasil,” SIGraDi: Proceedings from the 7th Iberoamerican Congress of Digital Graphics (Rosario, Argentina, 2003, 74–77), http:// cumincades.scix.net/data/works/att/sigradi2003_060.content.pdf, accessed March 18, 2015; Paul Festa, “Governments Push Open Source Software,” Cnet News, August 29, 2001, http://news.cnet.com/ 2100-1001_3–272299.html, accessed March 18, 2015. 31 Martin Kaste, “Brazil Switches from Microsoft to ‘Open Source’ Software,” NPR.org, September 15, 2004, www.npr.org/templates/story/story.php?storyId=3919175, accessed March 18, 2015. 32 Steve Kingstone, “Brazil Adopts Open-Source Software,” BBC News, June 2, 2005, http://news.bbc. co.uk/2/hi/4602325.stm, accessed March 18, 2015. 33 Microsoft Open Technology, “About,” 2015, https://msopentech.com/about/, accessed March 18, 2015. 34 Thomas C. Greene, “Ballmer” ‘Linux is a Cancer,’” The Register, June 2, 2001, www.theregister. co.uk/2001/06/02/ballmer_linux_is_a_cancer/, accessed March 18, 2015. 35 Matt Swider, “Microsoft Highlights 299M Skype Users, 1.5B Halo Games Played,” TechRadar, June 27, 2013, www.techradar.com/us/news/software/operating-systems/xbox-live-upgrade-includes-300–000servers-600-times-more-than-its-debut-1161749, accessed March 9, 2015. 36 Microsoft Corporation, “Microsoft HoloLens,” 2015, www.microsoft.com/microsoft-hololens/enus?ocid=WOL_HoloLensGlobe, accessed March 18, 2015. 37 NASDAQ, “Institutional Portfolio: Vanguard Group Inc,” NASDAQ.com, December 31, 2014, www.nasdaq.com/quotes/institutional-portfolio/vanguard-group-inc-61322, accessed March 9, 2015.

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38 Yahoo Finance, “Microsoft Corporation: Major Holders,” March 18, 2015, http://finance.yahoo.com/ q/mh?s=MSFT+Major+Holders, accessed March 18, 2015. 39 Thomas Guback, “Ownership and Control in the Motion Picture Industry,” Journal of Film and Video, 38 (1986): 17. 40 Bloomberg Business, Company Overview of Cascade Investment, LLC, November 9, 2015, www. bloomberg.com/research/stocks/private/snapshot.asp?privcapId=100912, accessed November 9, 2015. 41 Dow Jones Newswires, “Gates Buys 4% Stake in Televisa of Mexico,” The Wall Street Journal, July 31, 2003, www.wsj.com/articles/SB105960368386198100, accessed November 9, 2015. 42 Craig Karmin and Anupreeta Das, “Bill Gates’s Cascade Indicates Interest in Potential Talks with Strategic Hotels,” The Wall Street Journal, August 11, 2015, www.wsj.com/articles/bill-gatess-cascade-investmentindicates-interest-in-potential-talks-with-strategic-hotels-1439331777, accessed November 9, 2015. 43 United Stated Department of Homeland Security, “National Infrastructure Advisory Council Charter,” November 13, 2013, www.dhs.gov/sites/default/files/publications/niac-charter-renewal-cmotbs-final11–13–13.pdf, accessed March 18, 2015. 44 Virtual Instruments, “Leadership,” March 9, 2015, www.virtualinstruments.com/about/leadership/, accessed March 9, 2015. 45 Microsoft Corporation, “Corporate Citizenship: Political Engagement,” March 11, 2015, www.microsoft. com/about/corporatecitizenship/en-us/working-responsibly/principled-business-practices/integritygovernance/political-engagement/, accessed March 11, 2015. 46 Center for Responsive Politics, “Microsoft Corp.,” OpenSecrets.org, March 11, 2015, www.opensecrets. org/orgs/summary.php?id=D000000115, accessed March 11, 2015. 47 Center for Responsive Politics, “Microsoft.” 48 Center for Responsive Politics, “Microsoft.” 49 Microsoft, Form 10-K, 15. 50 Microsoft, Form 10-K, 15. 51 Microsoft, Form 10-K, 15. 52 Associated Press, “Xbox Assembly Workers in China Threaten Mass Suicide Over Jobs Dispute,” The Guardian, January 12, 2012, www.theguardian.com/world/2012/jan/12/xbox-assembly-workersthreaten-mass-suicide, accessed March 9, 2015. 53 Brian Ashcraft, “Report: Mass suicide threats at Xbox 360 plan [update],” Kotaku, January 10, 2012, www.theguardian.com/world/2012/jan/12/xbox-assembly-workers-threaten-mass-suicide, accessed March 9, 2015. 54 Microsoft, “Microsoft Code of Conduct,” 2012, http://download.microsoft.com/download/F/9/9/ F998F8EB-038A-4EEE-8B36–4B87362DBE96/Microsoft_Vendor_Code_of_Conduct_2011.pdf, accessed March 11, 2015. 55 Microsoft Corporation, Microsoft 2014 Citizenship Report, www.microsoft.com/about/corporate citizenship/en-us/reporting/, accessed March 11, 2015. 56 Microsoft, Microsoft 2014 Citizenship Report, 28. 57 Microsoft, Microsoft 2014 Citizenship Report, 30. 58 Bill and Melinda Gates Foundation, “Who We Are: Foundation Factsheet,” 2015, www.gatesfoundation. org/Who-We-Are/General-Information/Foundation-Factsheet, accessed March 27, 2015. 59 Bill and Melinda Gates Foundation, “Who We Are.” 60 Microsoft Corporation, “Microsoft by The Numbers,” 2014, http://news.microsoft.com/bythenumbers/ index.HTML, accessed March 11, 2015. 61 Peter Bright, “Microsoft’s Continuing Efforts to Be Cool,” ArsTechnica, February 11, 2015, http:// arstechnica.com/information-technology/2015/02/microsofts-continuing-efforts-to-be-cool/, accessed March 11, 2015. 62 Bright, “Microsoft’s Continuing Efforts to be Cool.”

24 GOOGLE Information Organizer Micky Lee

As of December 2014, Google Inc. was listed as the 46th largest corporation in the U.S. and the 162nd largest company in the world in terms of revenue.1 Founders Larry Page and Sergey Brin, and ex-CEO Eric Schmidt, are the 20th, 21st, and 148th wealthiest individuals, respectively, in the world.2 In addition, executives and investors rank Google the third most admired U.S. corporation, the most financially sound, the third most innovative, and the fourth most well managed.3 Because of its large revenues, the immense wealth of its founders, and its huge investment in innovation and employees, many see Google as a company that needs to be admired, not criticized. The “free” services offered by Google, its fun and energetic work environment, the boyish appearances of Page and Brin, and the simplicity of its homepage all imply that Google is an unconventional corporation—so unconventional that it may just happen to make a lot of money and employ a lot of smart people. This image of Google has effectively masked the economic, political, and cultural power that the corporation holds in the business of information. Even though Google has received criticism in recent years because of its violation of individuals’ privacy by photographing pedestrians for Google Maps, its compromise of national security by showing an aerial view of the White House, its short-termed submission to the People’s Republic of China (PRC) by sharing political dissidents’ personal data, and its infringement of copyright laws by scanning library books, the criticism focuses on Google not following established rules and regulations. In fact, some critics, such as the founder of Wired magazine, Chris Anderson, argue that the faults lie on the outdated laws impairing a free and open society advocated by Google. Few critics focus on Google’s capitalist tendencies to accumulate surplus capital, commodify public goods, create a near monopoly, or exploit workers. To this end, Google’s ideological power to maintain itself as the world’s primary information organizer is detrimental to achieving a truly free, equal, and open society because this single corporation controls too much information.

History Like a lot of Silicon Valley companies, the founding of Google follows a certain script: nonconforming geniuses innovate to better humankind and challenge established power. As the oftenrecited story goes, Page and Brin met at Stanford University in Palo Alto, California, and disliked each other at first before discovering their shared dislike of Internet search engines that take in

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advertising money and influence search results. The goal of creating a search engine with objective search results gave birth to an internal one hosted by Stanford. Wanting to show the infinite power of the Internet, Page and Brin initially named their company Googol. A spelling error made it Google, now a synonym with a, if not the, search engine. As in most Silicon Valley tales, Google first started in the garage of an employee. Within a few years, it set up its “campus” in Mountain View, California, a residential area in the greater San Jose area. Unlike most Silicon Valley companies, Google has refused to become an “adult company” like Apple or Oracle. Anecdotes such as employees spending lazy afternoons competing in volleyball matches on the lawn, the former chef for the Grateful Dead creating healthy menus for the canteen, and the founders cruising indoor on rollerblades all make Google appear like a never-never land of perpetual student life. Whether these anecdotes were carefully selected to mask Google’s capitalist tendencies or to illustrate a new kind of post-Fordist corporation, they are too simplistic to show how the political economy of information works in a capitalist society. In other words, Google would not have existed in another political economic system. Page the CEO and Brin the Director hold power in both management and ownership. While a lot of corporations have separated ownership from management, Page and Brin combine both. This is an anomaly rather than the norm. What it means is that not only do Page and Brin make final decisions on the company’s directions, but they also reap in the profits. Therefore, there are incentives to gear the company towards profit-making because not only can they please the shareholders, but they can also pocket in the profits. Therefore, to critique Google is to critique how it produces surplus value from information in a capitalist society.

Economic Profile In early 2015, Google’s revenue reached $17.3 billion.4 In terms of revenue, Google is a large company. Only seven technology or telecommunications companies are larger than Google: Apple, AT&T, Verizon, HP, IBM, Amazon.com, and Microsoft.5 Google Inc. went public in 2004, but it has been disclosing its revenue since 2000. Table 24.1 indicates the staggering growth of the company from 2000 to 2013. The increase in revenue from 2004 to 2013 was 1,700%. Other than a slow period in 2009, which featured only a 9% increase, Google achieved double-digit or even triple-digit growth every year. Although not explicitly stated, the decline of Google’s 2009 revenue most likely resulted from the effects of the global financial

TABLE 24.1 Google Revenue, 2000–2013

Revenues (in $1,000) Increase from the previous year (%) Net income (loss) (in $1,000) Revenues (in $1,000) Increase from the previous year (%) Net income (loss) (in $1,000) Revenues (in $1,000) Increase from the previous year (%) Net income (loss) (in $1,000)

2000

2001

2002

2003

2004

19,108 n/a (14,690)

86,426 352 6,985

439,508 409 99,656

1,465,934 233 105,648

3,189,223 118 399,119

2005

2006

2007

2008

2009

6,138,560 92 1,465,397

10,604,917 16,593,986 21,795,550 23,650,583 73 56 31 9 3,077,446 4,203,720 4,226,858 6,520,448

2010

2011

2012

2013

29,321,000 37,905,000 50,175,000 59,825,000 24 29 32 19 8,505,000 9,737,000 10,737,000 12,920,000

Source: Micky Lee, Free Information? The Case against Google (Champaign, IL: Common Ground, 2010)

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crisis that began in 2007–2008. There is no nation-state that has ever achieved such a growth in a decade, let alone the wages of an average worker! It is also interesting that Google has come to rely on non-U.S. markets for more than half of its revenues, more specifically between 51 and 56% from 2011 to 2013.6 Up until the 2008 annual report, Google listed Yahoo and Microsoft as its two main competitors. Google claims that it is competing with many companies in the markets for search engines and social networking. However, many searches go through its search engine and mobile platform. In the 2013 Annual Report, Google listed its competitors as: • • • • • •

General purpose search engines: Yahoo, Microsoft’s Bing; Vertical search engines and e-commerce websites: Kayak, Monster.com, WebMD, and Amazon; Social networks: Facebook, Twitter; Advertising: traditional means such as television, newspapers, billboards, and the yellow page; Mobile applications: various companies; Providers of online products and services: new and established companies that offer communication, information, and entertainment services.7

Four companies dominated the web browser market internationally as of November 2014:8 Microsoft’s Internet Explorer had a 58.94% market share, Google Chrome had 20.57%, Firefox had 13.26%, and Apple Safari had 5.90%. In the search engine market in the same period, Google had a 61.85% market share, China-based Baidu had 24.88%, Microsoft’s Bing had 8.92%, and Yahoo had 3.83%. In the mobile/tablet operating system market, two companies dominated the market in the same period: Google Android had 45.70% market shares and Apple’s iOS had 44.61%.9 Despite Google’s claims that it has multiple competitors, only Microsoft and Apple compete with them across markets, and these three companies are aware of their strength and weaknesses in select markets.

Corporate Properties Google has four major divisions: (1) search, (2) advertising, (3) consumer platforms, and (4) enterprise. The company acquired Motorola Mobility in 2011, but did not rename it because Google wanted to run it as a separate business.10 Google’s interest in this high-profile acquisition can be explained by the Android platform. By acquiring Motorola Mobility, Motorola handsets now use the Android platform. However, in January 2014, Google sold Motorola Mobility to Hong Kong-based Lenovo, and all Motorola smartphones continue to use the Android operating system. Not all Google-branded products and services are developed in-house. The company acquires start-ups and usually renames the products. Google only renames those services intended for end users (such as Google Earth, Google Maps). For services that already attract a sizable number of visitors, such as YouTube, Google did not rename the service. In recent years, Google has acquired start-ups to enhance existing products such as Google+. Previously, the company acquired them and made them stand-alone products. For example, the start-up Keyhole eventually became Google Maps. As the 2013 Annual Report states, “our brand is one of the most recognized in the world.”11 Because of the well-recognized and respected Google brand, the company rarely engages in joint ventures with other corporations. Instead of joint ventures, Google invests in start-ups through Google Ventures (www.gv.com) by supplying seed, venture, and growth-stage funding. The startups may or may not relate to Google’s core business, but they have to relate to digitized information.

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For example, Google invested in 23 and Me—a genetic mapping company founded by Sergey Brin’s wife Anne Wojcicki—and Uber—an online ride-sharing service. Google also negotiates deals and forms partnerships with established non-media companies, traditional media companies, and other hi-tech firms for both short- and long-term projects (see Table 24.2).

TABLE 24.2 Google’s Select Deals and Partnerships, 2000–2014

2000 Yahoo—partnered to provide web search services. Partnership terminated in 2008 because of potential violation of anti-trust. 2001 Universo Online (Latin America)—provides web search services in Latin America. 2002 AOL—provides web search services; bought 5% of AOL shares. 2005 T-Mobile—Google search services on mobile phone. 2006 Universal Music Group, CBS, Sony Music, Warner Music, and Sundance Channel—broadcast videos on YouTube. National Geographic and Discovery Channel networks—partners with Google Earth to provide contents to enhance users’ experience when surfing the globe. Various mobile phone companies: Motorola, Sony Ericsson, Vodafone (UK), Nokia, Beeline (Vietnam), KDDI (Japan), NTT DoCoNo (Japan), Bharti Airtel (India), China Mobile, Telefonica (Latin America; Spain), Samsung (Korea)—Google search services on mobile phone. Inuit, Verizon, AT&T—helped include more business information online. 2007 CNN—YouTube’s partnership to broadcast Presidential debate in real time. IBM—supercomputing initiative with students. 2008 Earthlink and AOL—AdWords appear in both search engines. T-Mobile—offers G1 phone with Android operating system. Cleveland Clinic—provides online medical records. 2010 Amazon.com and CNBC—provide contents for Google TV. AOL—provides web search for AOL portal. 2011 Jay-Z, Wall Street Journal, and Disney—create channels on YouTube. Heineken—advertising deal with the brewer to target users in Europe. General Motors—provides Google Apps to employees. Intel—improves its chip for Android. 2013 Audi—develops driverless car. 2014 VSP Global—a vision-care company—and Luxottica—owner of Ray-Ban and Oakley eyeglasses—offers Google Glass. Samsung—cross-licencing deal on technology patents. Credit Karma—invests in this online credit site. Source: Micky Lee, Free Information? The Case against Google (Champaign, IL: Common Ground, 2010)

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While it may not be surprising that Google’s Android mobile phone platform requests it to partner with cell phone manufacturers, such as T-Mobile, Google also works with traditional media content providers such as Wall Street Journal and Disney. In 2009, News Corp’s chairman Rupert Murdoch accused news aggregators such as Google News of stealing news headlines from online newspapers.12 Murdoch’s stance did not stop Wall Street Journal, a News Corp company, from partnering with Google in 2011. Similarly, Hulu—partially owned by Disney—was launched in 2009 to counter illegal contents uploaded on Google’s YouTube. In 2011, Google helped Disney to launch its channel on YouTube. While a “new media” company such as Google may appear to be a counter force of traditional media companies, they may help each other to consolidate power.

Typical Strategies Google has a large budget for in-house research and development (R&D), which increased by 185% between 2008 and 2013, from $2.8 to $8.0 billion. Close to 40% of employees work in R&D, which is more than those working in sales and marketing. Google also gives employees 20% of their work time to develop their own projects, some of which are later adopted by the company. For instance, Google News was a service developed from such a scheme. As mentioned, Google releases new products and services by acquiring start-ups. Table 24.3 shows Google’s acquisitions from 2001 to 2013. Some acquisitions have become popular services for end users (such as Google Earth and Android); others are for advertising professionals (such as DoubleClick and AdMoc); yet some others have not been promoted as a Google’s service, such as Zagat and Vevo. Unlike traditional media companies, Google is diversified in its products and services, but not diversified in its stream of revenue. Until 2012, more than 90% of its revenue came from advertising alone.13 After acquiring Motorola Mobility in 2012, 10% of its revenue came from hardware and mobile technology.14 While Google’s services and products are diversified, information is the core of its business. Google releases services and products online frequently for devoted fans to test the beta versions. Google’s corporate structure has been changing rapidly since its inception. The following four areas sum up its current operation.15

Search Google Search is a tool for locating information on the World Wide Web, which can be used on desktop, tablet, and mobile devices and is available to users for free in exchange for ad displays. In addition, there are specific search services such as Google Maps, Google Scholars, and Google News.

Advertising: AdWords and AdSense AdWords is an auction system in which advertisers “buy” keywords. Advertisers can either buy the “number of clicks” package (i.e., pay when a user clicks on the ad) or the “number of impressions” package (i.e., pay by the number of times the ad appears). AdSense is a partnership program with content providers (such as online newspapers and personal blogs) which display the ads on their sites.

Consumer Content and Platform Other than Google hardware, most Google services are offered to users for free. Some have ad displays and others require users to agree let Google collect information that users input online. These services include:

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TABLE 24.3 Google’s Select Acquisitions, 2001–2013

2001 Deja.com’s Usenet Discussion Service (renamed as Google Groups) 2003 Pyro Labs (renamed as Blogger) 2004 Keyhole (renamed as Google Earth) Picasa 2005 Urchin (renamed as Google Analytics) Android 2006 YouTube; acquired price: $1.65 billion Jotspace (renamed as Google Sites) Dmarc Broadcasting (radio advertising product); $102 million @Last software (renamed as Google SketchUp) Upstartle LLC’s Writely.com (online document editing) 2007 Postini (enterprise e-mail capabilities) DoubleClick (display ad); $3.2 billion Salesforce.com (on demand customer relationship management applications with AdWords) Jaiku (a Finnish company on microblogging, similar to Twitter) Gapminder Foundation (a Swedish company on ad placement in video game) Adscape (ad placement in video game) 2008 ZAO Begun of Rambler Media (a Russian company that works on online advertising); $140 million—deal blocked by the Russian government. 2009 Recaptcha (started in Carnegie Mellon University; web fraud prevention for book scanning for internal distribution) On2 Technology (video compression software); $105 million 2010 AdMob (for developers and advertisers) Mechanicalzoo (question-and-answer web service; similar to like Yahoo! Answers); $50 million ITA software for online travel; $700 million 2011 Motorola Mobility; $12.5 billion Zagat (restaurant reviews in print and online); $151 million Admeld (interactive and graphical ads); $400 million 2012 Wildfire Interactive (social media marketing); $450 million BufferBox (e-commerce); $17 million 2013 Waze (face recognition software; map start-up); $966 million Vevo; bought 7% stake in providing contents on YouTube 2014 Skybox (satellite firm); $500 million Source: Micky Lee, Free Information? The Case against Google (Champaign, IL: Common Ground, 2010)

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• • • • •

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Consumer software: Android is an open source mobile platform that can be “forked” by developers for mobile apps and can be installed by any handset manufacturer. Consumers can download the code for free. Consumer hardware: laptops, tablets, smartphones, and devices that stream online TV content. Social networking: Google+. Online store: consumers can buy apps, music, books, and movies. Cloud computing: consumers can use Google Drive to collaborate and share documents with other users. Online payment: consumers can use Google Wallet to pay bills online.

Google competes with Apple in the consumer content and platform segment. Apple dominates the hardware market with iPad, iPhone, and Mac laptops, as well as the online retail market with Apple Store. Google also competes with PayPal for online payment services.

Enterprise Accounting for a small percentage of Google’s revenues, the Enterprise division provides business solutions to companies by offering tailored packaged software and premium services. For example, Google Earth Enterprise provides data visualization for architecture and oil refinery firms. This service is not offered for free.

New Developments Google constantly releases new products and terminates old ones, largely because it has an abundant amount of surplus capital to invest in R&D and third-party products. Google’s physical assets are small for a corporation of its size. Other than its headquarters in Mountain View, California, it only owns office space in New York, Paris, and Dublin, as well as data storage facilities in America, Europe, and Asia. Because Google produces surplus value, not through the production of physical goods such as automobiles or natural resources but through the production of intangible goods such as algorithms, information, and intellectual property, its surplus capital is not primarily invested in physical plants and manual labor. In 1964, AT&T’s market worth was $267 billion and employed close to 760,000 people. Today, Google’s market worth is $370 billion but only employs 55,000 people.16 Because Google is an information organizer, it does not invest its surplus capital in the labor of information production. It exploits information from the public domain (such as books with expired copyright protections as well as maps produced by governments) and from Internet users. To harness the “wealth of the web,” it offers beta versions online for users to test and comment. More often than not, Google beta testers are honored to be the pioneers to use a Google product, a case in point being the now folded Google Eyeglasses project: money could not buy users a pair to test, only the insiders could test them.17 Lastly, the company prides itself on inventing cutting-edge technology and on being “democratic.” Therefore, some of the projects in which Google invests have no “market” per se. For example, its social networking Okrut (renamed as Google+) had never been a threat to Facebook—it was only popular in India. Google may have the capital to heavily advertise and market its social networking site, but it decided not to do so. In another example, Google discontinued its Google Health service because WebMD and Mayo Clinic were more popular sites. The failure of these projects may not signal a lack of strategies, but reflect an embarrassment of riches: that it has too many resources to spare, so minor setbacks do not dent the company.

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Political Profile According to NASDAQ.com as of December 2014, close to 65% of Google stocks are owned by institutional investors. The top five stockholders are: Fidelity (retirement, funds, and online trading firm based in Boston), Vanguard (investment management firm based in Valley Forge, Pennsylvania), State Street (financial services firm based in Boston), Price T Rowe (investment management firm based in Baltimore, Maryland), and Barclays (banking and financial services firm based in London). These five institutional shareholders also own a significant amount of stocks of Google’s rivals such as Apple, Facebook, Microsoft, Amazon, and Baidu. Institutional ownership accelerates the concentration of monopoly capital because the investors probably do not want these corporations to compete with each other to the extent that it drives down stock prices. About one-third of Google stock is owned by individuals, and the top three individual shareholders are Larry Page, Sergey Brin, and Omid Kordestani (Google’s Chief Business Officer).18

Ties to the State and Lobbying Efforts Google is not a contractor to the U.S. government, but it has direct ties to Washington. Executive Chairman and former CEO Eric Schmidt and Director Michael Mortiz were vocal supporters of Obama’s candidacy for the U.S. Presidency in 2008. Obama visited Google Headquarters to answer employees’ questions during his first campaign. At the time of writing, Eric Schmidt is a member of the President’s Council of Advisors on Science and Technology. According to OpenSecrets.org, Google employees and their immediate families donated approximately $800,000 to the 2008 presidential campaign of Obama, making it the fourth most generous donor.19 Google’s ties to Washington are also represented through lobbying. According to the Wall Street Journal,20 Google’s spending on lobbying has increased by 100% in a decade since it went public in 2004. As of 2014, Google is the third largest corporation lobbyist after medical insurer Blue Cross/Blue Shield and manufacturer Dow Chemical. That year, it topped the big spender list among all technology and telecommunications companies—it spent $16 million on lobbying while Microsoft only spent half of that.21 It has also set up an office in Capitol Hill in 2013. Google lobbies policies in areas that benefit its products and services, such as laws and regulations regarding copyrights, patent, and trademark; net neutrality; immigration; and driverless cars. The U.S. Federal Trade Commission had investigated Google’s unfair practices, such as favoring their own services in search results and planting cookies in a competitor’s browser.22 It also lobbies the EU Government to relax its regulations on Internet privacy.23 If technology can’t fix the issues, money certainly can.

Corporate Board Members and Interlocks with Other Organizations Google’s board of directors consists of 11 members who are drawn from Silicon Valley-based venture capital firms, hi-tech companies (such as Intel and Amazon), and elite higher education institutions that are strong in computing sciences (such as Stanford University and the MIT). The board is supposed to safeguard the shareholders’ interests, to make sure that the company is doing the right things to offer handsome dividends to both institutional and individual investors. However, the board members cannot be simply drawn from any industries and institutions—they are those with whom Google has a close working relationship. An angel investor would have insider knowledge of Google’s direction, and hence would fund start-ups that may eventually be acquired by Google. Similarly, Google would like angel investors to share knowledge of what

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TABLE 24.4 Google’s Board of Directors

Director

Present and Past Titles

Larry Page

CEO of Google

Eric E. Schmidt

Executive Chairman of Google Chairman and CEO of Novell (1997–2001) Various positions at Sun Microsystems (1983–1997) Board of director of Apple (2006–2009) (resigned because of increased competition between Google and Apple)

Sergey Brin

Director of Google

L. John Doerr

General Partner of Kleiner Perkins Caufield and Byers, a venture capitalist firm based in Silicon Valley Board member of Amyris, Inc., a synthetic biology company Board member of Zynga, a social game services President of Amazon (1996–2010)

Diane B. Greene

Former CEO and President of Vmware, a software company based in Silicon Valley Board member of Inuit, a business and management solutions company Board member of the MIT Corporation

John L. Hennessy

President of Stanford University Former board member of Cisco Former board member of Atheors Communications

Ann Mather

Former Chief Financial Officer of Pixar, an animation company now owned by Disney Board member of Glu Mobile, a publisher of mobile games Board member of Netflix Board member of Shutterfly, a digital image retailer Board member of Solazyme, a renewable oil and bioproducts company

Alan R. Mulally

Former President, CEO and board director of Ford Motors Former Executive VP of Boeing Advisory board member of NASA Board member of the University of Washington Board member of the University of Kansas Board member of the MIT Corporation Advisory board member of the U.S. Air Force Scientific

Paul S. Otellini

Former CEO and President of Intel

K. Ram Shriram

Managing Partner of Sherpalo Ventures, an angel venture investment company based in Silicon Valley Former Vice President of Amazon Member of the Board of Trustees of Stanford University

Shirley M. Tilghman

Former President of Princeton University Trustee of the Advantage Testing Foundation Trustee of Amherst College Trustee of the Carnegie Endowment for International Peace Trustee of the King Abdullah University of Science and Technology Trustee of the Leadership for a Diverse America

Vint Cerf

Chief Internet Evangelist of Google Widely known as the father of the Internet because of his invention of TCP/IP protocols

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kinds of start-ups are in the industry. An elite institution would like its graduates to be employed by Google, hence it can enhance its marketing value to prospective students. Similarly, Google would like a higher education institution to train students to be value-producing, prospective employees of Google. The power of Google not only comes from its revenue, but also its ability to provide mutual benefits with other corporations and organizations.

Social Marketing Google funds initiatives that make the world better through the use of information. It also donates money to relieve natural disasters and encourages employees to do voluntary work. Google.org is the philanthropic wing of the corporation. Google.org gives out global impact awards to entrepreneurs in the areas of education and computer science, environment, development, and women and girls. For example, Google funded a project that develops software to analyze gender portrayals in the media. It also funds a project to eliminate images of sexually exploited children online. Google.org also awards Google Impact Challenge to non-profits in Japan, India, Brazil, Australia, the U.K., and the Bay Area. It asks the public to vote on non-profit proposals that use innovation to make the world better. The projects may or may not be related to information. In addition to the awards and challenges, Google also donates money to causes that may or may not deal with information, such as disaster reliefs. The company has three other public policy initiatives: • • •

Google Ideas: A think tank that connects users, experts, and engineers to use innovation to confront threats resulted from conflicts and repressions. Google for Education: A resource site for educators to connect with each other and to offer discounted Google products for the classroom. Google Green: Policies to reduce carbon footprint and to increase energy efficiency.

Cultural Profile Symbolic Universe and Ideology The previous two sections laid out the economic and political power of Google. Google may appear to be an unconventional corporation, or an antagonist to traditional media companies. For a company of its size, Google does not own many physical assets, it does not produce tangible goods, and it is a company that reliably generates revenue almost exclusively from advertising. Because Google is so flush with surplus capital, it is able to exert power on the political domain by lavishing money on political campaigns and civil society projects. Its stance on merging business with innovation also attracts notable leaders to join its board from academia and industry. While popular books such as The Google Story and Googled: The End of the World as We Know 24 It like to suggest Google’s success has roots in its revolutionary technology and life-changing services, they do not explain how Google’s slogans of “organizing the world’s information” and “don’t do evil” create and maintain the ideology of “more information is preferred to less” and “access to the world’s information is attainable.” Without this well-maintained ideology, Google would not be able to capitalize on information. Google’s Annual Reports usually start with a letter from the founders that reiterates Google’s ideology of information, business model, and talent. The following lists the main themes and illustrative quotes under three categories:

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Information •

•

•

•

Online search can change users’ lives and the world: “Sergey and I founded Google because we believed that building a great search experience would improve people’s lives and, hopefully, the world”25; “I have always believed that technology should do the hard work—discovery, organization, communication—so users can do what makes them happiest: living and loving, not messing with annoying computers!”;26 “millions of people living under totalitarian regimes are able to glimpse freedom every day of their lives, albeit virtually”;27 “technology has also democratized communication and creation of information. Capabilities that were once available only to the largest corporations are now available to businesses, political movements, governments, and individuals alike.”28 Technology only advances, not regresses: “Getting actions lightning fast is especially important on smaller devices like mobile phones”;29 “finding important technological areas where progress is currently slow, but could be made fast, is what Google is all about”;30 “the technology revolution also has an economic impact: it is enabling more and more people globally to make a living for themselves entirely online.”31 Information is a form of artificial intelligence: “before you’ve even finished typing ‘weather’ into the search box we give you the weather because we’ve learned that’s most likely what you’re looking for”;32 “creating the perfect search engine remains our ultimate goal, but we’re still a long way from doing that, which is why we are not resting on our laurels”33; “we founded Google to help connect people to the information they need, and we have been obsessively focused on that goal ever since”;34 “what were once considered the far-flung corners of artificial intelligence research have now reached the mainstream.”35 More information is better than less information: “There is a huge amount of data in the world that isn’t publicly available today”;36 “at the basic level, there is tremendous knowledge available in books and libraries that hasn’t made it onto the Internet”;37 “as devices multiply and usage changes (many users coming online today may never use a desktop machine), it becomes more and more important to ensure that people can access all of their stuff anywhere.”38

Business Model •

• •

Please love Google (because we are different): “We have always wanted Google to be a company that is deserving of great love. But we recognize this is an ambitious goal because most large companies are not well-loved, or even seemingly set up with that in mind.”39 Don’t do evil (to make money): “We have always believed that it’s possible to make money without being evil.”40 Ambitious and risk-taking: “I’ve found that it’s easier to make progress on mega-ambitious goals than on less risky projects.”41

Talents •

Invest in employees: “Our goal is to hire the best at every level and keep them. In our experience your working environment is enormously important because people want to feel part of a family in the office, just as they do at home.”42

The Google ideology has been critiqued by scholars, but the focus tends to be on Google’s view on information, rather than on the business model and workers.43 For the last two areas, a political economy of communication provides a vantage point from which Google can be seen as a business and as capitalist social relations.

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The Googlization of Everything, Search Engine Society, and Deep Search are three scholarly books that critique Google’s views of information from a sociocultural perspective.44 Siva Vaidhyanathan uses the term “googlization” to describe how Google has permeated culture and has affected how users view themselves, the world, and human knowledge. These three books point out that Google’s search results are claimed to be objective, but they privilege results that are already popular. Consequently, Google provides good answers, but not the best answers, because the popular pages do not necessarily mean the best sources of information. At a macro level, Google “fractures a sense of common knowledge or common priorities.”45 The film Google and the World Brain46 further pointed out the problem of seeing artificial intelligence as the ultimate goal of information gathering. It suggests that Google’s unspoken aim is to collect as much information as possible so as to create a digital world of knowledge that would replace human-centered and oriented knowledge. While critiques on Google’s view of information hint that Google is after all a business entity, they rarely theorize Google’s business model, especially its reliance on advertising revenue. I argue in “Google Ads and the Blindspot Debate”47 that Google is able to rely on advertising revenue because it has a vertically integrated system in which the company controls every step of the process by providing search results to users, by selling “keywords” to advertisers and by providing statistics to advertisers. In short, Google puts a value on a non-exhaustive, non-exclusive commodity (i.e., keywords) and internally validates its value. It is impossible to bid for keywords outside Google AdWords, and it is impossible to obtain search results statistics outside Google. Christian Fuchs and Dwayne Winseck holistically look at the capital accumulation process.48 Grounded in Marx’s M–C–M' (money–commodity–more money) model, Fuchs argues that because Google provides free services, the company’s commodity is not service, but users who are double objects of commodification.49 At the first level, they are Internet prosumers who provide data for Google at no cost. At the second level, they are subjected to advertisements and are sold as an audience commodity. The subject of the audience commodity in a user-generated-content era has renewed scholarly interest in what the media sell and what advertisers buy.50 Google’s ideology of being a great workplace for the smartest people obscures the social relations between capitalists and workers. The tale of the first handfuls of Google employees becoming millionaires has obscured the working conditions of the lowest-paid workers in the company. The fact that two of its former female executives—Marissa Mayer and Sheryl Sandberg—have become prominent executives in other hi-tech companies has also hidden gender disparities in the workplace. Christian Fuchs calls Google’s engineers a “labor aristocracy,”51 akin to skilled workers during the Industrial Revolution. Their enjoyment of higher wages made their lives more upper-middle-class than working-class laborers. However, the culture of “playbor” (play labor) instilled in the company extracts more value from the workers: the competitiveness of the work environment, the outstanding amenities, and the work culture all ask Google workers to endure long hours on campus. Little has been written on how the prolonged workday has disadvantaged women. The working mother image of Mayer and Sandberg does not apply to all working women at Google, because both are wealthy and privileged individuals. They were able to “make it” and “lean in” because of the paid productive and reproductive female labor that sustains themselves and their family. An example is Mayer eliminating the telecommuting option at Yahoo, which may hurt the work–life balance of working mothers. At the same time, after she returned from giving birth, she was privileged enough to have a nursery in her corner office and hire a full-time nurse to take care of the infant.52 There is an absence of data and discussion of how cheap labor creates surplus value for the company. For example, the secrecy of Google Books obscures who take up the tedious task of scanning the books, how much those workers are paid, where they work, and whether they are Google employees or not.53 Similarly, the work life of administrative and support staff at Google

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is also hardly written about. If attention were paid to the creation of surplus value by the manual labor at Google, then Google may not be such an unconventional company at all.

Example(s) of Popular Products/Services and Place in Culture The number of Google users is staggering and is the envy of traditional media companies. However, Google’s motto is that users should spend as little time on its page as possible because the less time they spend on their page, the better the results are. The same cannot be said for Gmail and YouTube. The following figures indicate the usage of Google54 as of December 2014: •

Number of monthly Google searches: 11.944 billion (on average, more than one search per person on earth). Number of unique Google users: 1.17 billion (on average, one in seven persons on earth). Number of YouTube users: 1 billion. Number of Gmail users: 425 million.

• • •

In 2006, the Oxford Dictionary included “google” as part of the contemporary English vocabulary. Google is defined as a verb with the definition: “search for information about (someone or something) on the Internet using the search engine Google.” When a company name comes to represent its products or services (such as Xerox or Kleenex), it can be deemed as part of the daily life.

Cultural Exports Google has localized sites in over 200 domains; most are grounded in a country, but some are linguistic territories (such as google.cat for Catalan countries) or occupied territories (such as google.ps for Palestine). There are more than 130 languages for the Google interface. Google is currently the most used search engine in every country except five: Russia, China, and South Korea, where their respective home-grown search engines are the most popular (Yandex, Baidu, and Naver); and Yahoo is the most popular search engine in Japan and Taiwan. In addition to Google being an exporter of technology and innovation, Google users are also exporters of culture. According to the Oxford Internet Institute,55 U.S. Internet users generate the most content on Google, followed by Germany and Japan. Because the two most populated countries, India and China, are “laggards” in producing user-generated content, Google does appear to be the platform that allows for a googol of webpages. The question is whether capital accumulation of this company can be as indefinite as the number of webpages; if not, then it illustrates the limits of capital.

Conclusion It is worthwhile to review the The Ten Commandments of Google as stated on the page “Ten things we know to be true”:56 1. 2. 3. 4. 5. 6. 7.

Focus on the user and all else will follow. It’s best to do one thing really, really well. Fast is better than slow. Democracy on the web works. You don’t need to be at your desk to need an answer. You can make money without doing evil. There’s always more information out there.

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8. The need for information crosses all borders. 9. You can be serious without a suit. 10. Great just isn’t good enough. The mottos of Google do not talk about bottom line, profit margins, or market value. An analysis of Google’s business does show that it has used strategies such as diversification and globalization that most corporations do. We may reason that Google’s non-business-oriented mottos are a façade that the company builds to hide its economic motives. However, what may be more likely is that the founders, board members, executives, and workers do truly believe that Google is here for the greater good rather than greater profits, that Google is interested in making the world better rather than making money, and it just accidentally becomes rich. This ideology is perhaps the most dangerous of all of capitalist ideology because it refuses to acknowledge the political economic system to which Google belongs and in which Google thrives.

Notes 1 Global 500, http://fortune.com/global500/ 2 The world’s billionaire, www.forbes.com/billionaire/ 3 Top companies in innovation, responsibility, and more, www.fortune.com/2014/02/27/worlds-mostadmired-companies-top-companies-in-innovation-responsibility-and-more/; wwwfortune.com/2014/02/ 27/worlds-most-admired-companies-top-companies-in-innovation-responsibility-and-more/ 4 Google Inc. Announces First Quarter 2015 Results, https://investor.google.com/earnings/2015/ Q1_google_earnings.html 5 Fortune 500, http://fortune.com/fortune500/ 6 Google, Investor Relations, http://investor.google.com/earnings/2013/Q4_google_earnings.html 7 Google, Annual Report 2013 (Mountain View, CA: Google, 2013, 6). 8 Netmarketshare, http://Netmarketshare.com 9 See note 8. 10 Press release “Google to Acquire Motorola Mobility”, August 15, 2011, http://investor.google.com/ releases/2011/0815.html 11 See note 7, 2. 12 Murdoch accuses Google of News “Theft,” http://articles.latimes.com/2009/dec/02/business/la-fi-newsgoogle2–2009dec02 13 Google, Annual Report 2012 (Mountain View, CA: Google, 2012, 14). 14 See notes 7, 15. 15 For updates, interested readers can consult www.google.com/intl/en/options/ for the latest. 16 Derek Thompson, “A World without Work,” Atlantic Monthly (July/August 2015), 53. 17 Google glasses are $1,500—-and you can’t have them, http://money.cnn.com/2012/06/27/ technology/google-glasses/ 18 Nasdaq, www.nasdaq.com/symbol/goog/ownership-summary 19 Barack Obama (D), www.opensecrets.org/pres08/contrib.php?cid=N00009638 20 A decade in Google lobbying, http://blogs.wsj.com/numbers/a-decade-in-google-lobbying-1713/ 21 Google spent record cash lobbying Congress in 2014—rep, www.theregister.co.uk/2015/01/22/ tech_firms_lobbying_washington_2014/ 22 Google’s New Digs in DC Opens to Senators, Dogs, www.bloomberg.com/news/articles/2014-07-16/ google-s-new-digs-in-dc-opens-to-senators-dogs 23 Issues 2014, http://blogs.wsj.com/numbers/a-decade-in-google-lobbying-1713/; also, consult Open Secrets.org for full details. 24 Ken Auletta, Googled: The End of the World as We Know It (New York: Penguin, 2009); David Vise and Mark Malseed, The Google Story (New York: Delta, 2006). 25 See note 13, i. 26 See note 13, ii. 27 Google, Annual Report 2010 (Mountain View, CA: Google, 2010, ii). 28 See note 27, vi. 29 See note 13, vi. 30 Google, Annual Report 2009 (Mountain View, CA: Google, 2009, ii). 31 See note 27, vi.

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32 33 34 35 36 37 38 39 40 41 42 43

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See note 13, v. See note 30, iv. See note 27. See note 27, v. Google, Annual Report 2011 (Mountain View, CA: Google, 2011, v). See note 30 viii. See note 13, vii. See note 13, x. See note 13, xi. See note 13, xiii. See note 13, xii. See Alexander Halavais, Search Engine Society (Cambridge: Polity, 2009); Siva Vaidhyanathan, The Googlization of Everything (And Why We Should Worry) (Berkeley, CA: University of California Press, 2011). 44 Konrad Becker and Felix Stalder, eds., Deep Search: The Politics of Search Beyond Google (Innsbruck, Austria: StudienVerlag, 2009); Halavais, Vaidhyanathan. 145Vaidhyanathan, 139. 46 Google and the World Brain, Directed by Ben Lewis (Barcelona: Polar Stars Films, 2013), DVD. 47 Micky Lee, “Google Ads and the Blindspot Debate,” Media, Culture, and Society 33, no. 3 (2011): 433–448. 48 Christian Fuchs, “A Contribution to the Critique of the Political Economy of Google,” Fast Capitalism 8, no. 1 (2011), www.uta.edu/huma/agger/fastcapitalism/8_1/fuchs8_1.html, accessed December 10, 2014; Christian Fuchs, “Google Capitalism,” Triple C: Cognition, Communication, Co-operation 10, no. 1 (2012): 42–48, www.triple-c.at/index.php/tripleC/article/view/304, accessed December 10, 2014; Christian Fuchs and Dwayne Winseck, “Critical Media and Communication Studies Today: A Conversation,” Triple C: Cognition, Communication, Co-operation 9, no. 2 (2011): 247–271, www.triple-c.at/index.php/tripleC/ article/view/270, accessed December 10, 2014. 49 Fuchs 2012. 50 Due to the nature of this book chapter, we will not delve deep in the question of prosumers and affective/subjective labor; interested readers may consult Micky Lee, “From Googol to Guge: The Political Economy of a Search Engine,” in The Audience Commodity in a Digital Era: Revisiting a Critical Theory of Commercial Media, eds. Lee J. McGuigan and Vincent Manzerolle (New York: Peter Lang, 175–191). 51 Christian Fuchs, “Theorising and Analysing Digital Labour: From Global Value Chains to Modes of Production,” The Political Economy of Communication 2, no. 1 (2013): 3–27, www.polecom.org/index.php/ polecom/article/view/19, accessed December 10, 2014. 52 Marissa Mayer, who just banned working from home, paid to have a nursery built at her office. Business Insider, www.businessinsider.com/marissa-mayer-who-just-banned-working-from-home-paid-to-havea-nursery-built-at-her-office-2013-2#ixzz3en4xgip;153; see note 24. 54 According to the site Digital Marketing Ramblings, http://expandedramblings.com/ 55 Information graphics at the Oxford Internet Institute, http://geography.oii.ox.ac.uk/?page=home 56 The things we know to be true, Google Company, www.google.com/about/company/philosophy/

25 AMAZON.COM Andrew Calabrese and Tyler Rollins

In 1942, Austrian economist Joseph Schumpeter sought to explain how capitalist enterprises emerge and thrive, and how such developments tend to come at the expense of previously existing economic structures. “The fundamental impulse that sets and keeps the capitalist engine in motion comes from new consumers’ goods, the new methods of production and transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates,” he wrote. Schumpeter termed the process that follows this impulse “creative destruction,” and he characterized it aptly as “the essential fact about capitalism.”1 Schumpeter’s thought has gained traction in recent decades as Keynesian welfare economics have been displaced by neoliberal theory and practice.2 The central role of technological innovation to streamline industrial change is not a new preoccupation in economics and business studies. Theodore Levitt’s influential 1960 article in the Harvard Business Review criticized industry leaders who wed themselves to particular technological models for their production systems and who, according to his analysis, myopically fail to recognize what business they are in, and are therefore unprepared when technological innovation makes competing business and service models possible that eventually render a previously dominant model obsolete. The classic example used by Levitt was the way in which die-hard investors in the U.S. railroad industry lost out to the more flexible means of moving freight provided by the postwar interstate highway system and the trucking industry. As Levitt puts it, the railroad owners and managers had failed to recognize that the business they were in was freight transportation, not railroads.3 Twelve years later, in 1972, Levitt published another highly influential article in the same journal, titled “Production-Line Approach to Service,” in which he argues for streamlining labor-intensive service provision by modeling it after the Fordist production-line principles of goods manufacturing.4 Levitt makes a compelling case for creating greater efficiencies in service provision through the strategy of breaking down the tasks involved into smaller and simpler ones, reflecting the principles of “scientific management” that F.W. Taylor advocated.5 One of the cases that Levitt highlights as a success story to be modeled by other labor-intensive service providers is the McDonald’s fast-food chain, wherein tasks for food production are broken down in factorylike steps, and less skill is required of individual workers by standardizing and simplifying narrowly defined sets of tasks (deskilling), which also simplifies the management role of training workers, along with work-pace acceleration and related incentives for increased worker output.6 Levitt’s case illustrates how the analysis of the steps involved in making a hamburger can yield valuable information for streamlining and routinizing the service labor process. McDonald’s was not the

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first labor-intensive service company to apply principles of scientific management to the labor process, but it has been one of the most successful. Today, a new round of reflection and theorization within business studies gives sharper focus to contemporary anxieties about threats to and collapsing of old business models and the rise of new ones. Leading this wave has been economist Clayton Christensen, who is well known for his series of articles and books on the subject of “disruptive innovation,” most notably the bestseller, The Innovator’s Dilemma.7 Christensen’s essential argument is that firms who define the dominant mode of production for an industry have an interest in continuing with the model that served them well in reaching and sustaining their market positions, whereas new entrants that rely on innovative technologies are not bound by the same market logic as the incumbents. Instead, the innovators Christensen highlights look to derive smaller profit margins from larger customer bases at the fringes of the narrower but higher margin markets that the incumbents dominate. Eventually, these new entrants undermine the old industry models and come to define new business models in which their products and services are more attractive to a greater portion of the mainstream markets, ultimately redefining the industry and its terms. Among the many corporations and corporate CEOs who are cited as disrupters of contemporary business as usual is Amazon, led by its founder, Jeff Bezos, who Fortune magazine has called “the ultimate disrupter.”8 In 1994, Bezos, a former communications engineer,9 incorporated Amazon.com, Inc. Initially, the company focused on selling printed books online, but soon expanded its offerings to everything from electronics to kitchenware. To many, Amazon.com is known for being one of the premier online retailers and an economic powerhouse, bringing in over $70 billion from product sales in 2014. Not surprisingly, Bezos was not the first to envision the vast market potential of online retailing. For example, Alton Doody and William Davidson constructed in 1967 a seemingly science-fiction vision of a housewife who does her grocery shopping from the comfort of a desktop terminal in her kitchen, where she communicates with “the Customer Communications Department of City Wide Distribution Center, Incorporated.”10 One of the earliest market tests of online retailing was conducted in 1980 in Columbus, Ohio,11 and since then many major telecommunications firms, banks, retailers, and news and entertainment organizations have partnered in pursuit of the business opportunities in online retailing, but no previous effort foreshadowed the success and dominance established by Amazon. Amazon offers more than physical products to consumers, including AmazonSupply, a business-to-business service that began in 2012 and is expected to be replaced by the newer Amazon Business Marketplace,12 as well as digital services such as Amazon Elastic Compute Cloud (EC2), a cloud computing service boasting nearly 500,000 servers.13 Amazon is ranked number 13 on Forbes list of World’s Most Valuable Brands, just above Louis Vuitton (#14) and below AT&T (#12), Disney (#11), and Facebook (#10).14 Amazon’s economic impact is impressive. Though the company is centered in Seattle, Washington, it employs over 154,000 workers in 32 countries, adding over 38,000 new employees in 2014.15 Many workers in the United States are hired seasonally to help fulfill increased orders placed during holidays. Amazon also has a political action committee known as the Amazon PAC, which is less politically active than one might expect, receiving just over $500,000 in receipts and spending just over $200,000 in 2014.16 Lobbying by Amazon, on the other hand, has seen far greater expenditures at nearly $5 million in the same year.17 Amazon has securely positioned itself in popular culture. The sheer number of users would likely be enough to ensure the company’s impact, however the unique business philosophy of Bezos has also altered the business world’s understanding about how to successfully run a company: get big fast. Bezos advocates for low profits on many items rather than high profits on a few, is extremely customer-focused in order to encourage repeat customers, and creates a “frugal” work environment where employees get uncharacteristically low wages, must pay for their own lunch,

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and have strict performance standards from which they cannot deviate, unlike other major technology companies like Google. Bezos says, “the three big ideas at Amazon are long-term thinking, customer obsession, and a willingness to invent.”18 However, these three ideas prove inadequate for understanding how Amazon has ascended the ranks to become the largest online retailer in the U.S., which had more net sales in 2014 than the company’s ten closest online competitors, including Apple and WalMart, combined.19 Following a brief history of Amazon, this chapter will discuss the economic, political, and cultural impacts of Amazon as well as some of the strategies that have been used to achieve such success and the conditions to which Amazon’s many warehouse and fulfillment center workers are subjected.

History Before graduating from Princeton University in 198620 with Bachelor’s degrees in both electrical and computer engineering, Jeff Bezos had already worked as a computer programmer for Exxon, developing a computer model on an IBM 4341 mainframe that calculated oil royalties, as well as at IBM’s Santa Teresa Research Center in California.21 After graduation, Bezos worked a number of jobs on Wall Street, eventually becoming the youngest vice-president of investment firm D.E. Shaw. In 1994 he left his finance career after learning that Internet usage was growing at a rate of approximately 2,300% each year. Believing the Internet to be a unique and lucrative opportunity for a new type of commerce, Bezos started Amazon as an online book retail company. The company operated out of his garage in Bellevue, Washington, a suburb of Seattle, after raising “several million dollars from private investors.”22 Following the launch of Amazon.com in July 1995, the company quickly outgrew his garage, moving into a 2,000 square-foot warehouse after six weeks and into a 17,000 square-foot building after six months. Amazon’s revenues doubled every 2.4 months and sales totaled over $5 million in the first year.23 By the end of 1996, Amazon had rented a 93,000 square-foot warehouse, and sold over $16 million worth of books to nearly 200,000 customers in over 100 countries. The company went public in May 1997 at $18 per share, valuing the company at $429 million. In 1997, the company’s six-month sales (January to June) rose to $43 million.24 One year after the Initial Public Offering, stock in Amazon was selling at $105 per share, valuing the company at $5 billion.25 In 1997 the company began offering music CDs as well as movie videos to customers, and added five more product categories (toys, electronics, software, video games, and home improvement)26 before Christmas. Amazon also opened its first warehouse outside of Washington State, in New Castle, Delaware. The former vice-president of distribution for Wal-Mart, Jimmy Wright, was hired by Amazon in the summer of 1998 as the company’s Chief Logistics Officer and was put in charge of a company initiative that sought to negotiate contracts directly with publishers and build new warehouses in an effort to “eliminate the middle man in the supply chain.”27 Further, Bezos wanted to develop efficient warehouses with the highest technology. To achieve this, he began hiring so many executives away from Wal-Mart that Wal-Mart sued Amazon, claiming the hiring practice was “an attempt to steal [trade] secrets,” which “was causing [WalMart] economic damage.”28 The two companies would eventually settle out of court, restricting some of the projects to which the former Wal-Mart employees would be assigned. The first international Amazon domains, Amazon.co.uk and Amazon.de, went online in 1998, with fourth-quarter sales quadrupling over those of the third quarter. The two domains also became the leading online booksellers in their respective markets, according to a 1998 letter to shareholders.29 In that same letter, Bezos summarized the benefits of Amazon’s business model:

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We’re fortunate to benefit from a business model that is cash-favored and capital efficient. As we do not need to build physical stores or stock those stores with inventory, our centralized distribution model has allowed us to build our business to a billion-dollar sales rate with just $30 million in inventory and $30 million in net plant and equipment.30 The high value of Amazon provided the ability to begin purchasing other companies. In April 1998, the Internet Movie Database (IMDb) became the first company purchased by Amazon, and set up as a subsidiary.31 Amazon would use IMDb to help push the sale of videos and DVDs. Sales continued to increase and, by the end of the 1999 calendar year, had reached $1.6 billion.32 That year, in September, Amazon introduced zShops, which allowed third parties to sell products through the website but required they pay a 5–25% fee to Amazon.33 zShops would later become Amazon Marketplace. In December, Bezos was named Time magazine’s “Person of the Year,” meanwhile Barron’s magazine named Amazon and Microsoft “the two most overvalued stocks on the market.”34 In 2001, the company laid off 1,300 employees after reporting a $1.4 billion fiscal loss. From its creation until this point, Amazon had lost a total of $2.8 billion.35 However, a combination of ridding the company of many full-time employees, using 3,200 fewer temporary workers to fulfill holiday orders, and offering various discounts and promotions such as free shipping on orders over $99, the company was able lower its costs by 24% while increasing the number of orders shipped by 23%. This, in turn, lead to Amazon’s first profitable quarter in 2001, earning 9 cents per share or $35 million.36 The early 2000s brought many changes and opportunities for Amazon. In 2000, Amazon teamed up with Toys “R” Us to launch a co-branded site that would allow each company to leverage the other’s strengths—Amazon was charged with warehousing and distribution while Toys “R” Us was charged with selecting and purchasing the inventory for the new site.37 The 10-year contract would eventually end up in court with both companies claiming they were deceived.38 Similarly, in 2001 Amazon teamed up with bricks-and-mortar book retailer Borders Group, Inc. to launch a co-branded website.39 The relationship lasted until 2008. The seven-year deal—in which Borders effectively outsourced sales to Amazon, thereby allowing Amazon to increase its own customer base—is often cited as one of the key decisions that led to Borders’ bankruptcy in 2011.40 Amazon and Target formed an alliance in 2001 with similar stipulations to those of zShops, whereby Target would pay a per-unit fee as well as an annual fee to have a branded store on Amazon.com, and Amazon was put in charge of Target’s e-commerce, including order fulfillment and customer service.41 In 2003, Amazon took over e-commerce for the NBA and WNBA through a co-branded pipeline, which integrated basketball merchandise into Amazon’s product catalog.42 In an attempt to “persuade more shoppers to consider buying more different kinds of products from Amazon—stuff they might have only bought in physical stores,”43 Amazon unveiled its Prime membership in 2005. The service allows for unlimited two-day delivery and heavily discounted overnight delivery on many items for an annual fee of $79. Prime memberships currently (February 2015) number in the tens of millions, increasing 53% in the last year.44 Amazon Grocery Store launched in 2006 allows customers to purchase many pantry and grocery items for home delivery, such as “146 varieties of ground or whole-bean coffee.”45 The company’s cloud computing service, EC2, moved out of beta testing46 and into full production in 2008.47 Internet giants such as Reddit, Dropbox, Netflix, and Newsweek have used the service.48 Currently, approximately one-third of Internet users connect to at least one Amazon-powered website every day.49 Amazon’s e-reader, Kindle, was launched in 2009 and has allowed the company to continue to dominate the e-book market. In 2013, nearly 40% of e-book readers over the age of 13 owned a Kindle, while only 27% of e-book readers owned an iPad.50 The second-generation Kindle was

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released in 2010 and Kindle Fire, a full color tablet, became available in 2011. In an effort to further capitalize on the $600 billion grocery market,51 the launch of Amazon Fresh, the newest iteration of the company’s grocery service, expanded beyond Seattle and San Francisco to New York City in late 2014. The service allows for groceries to be delivered directly to customers’ homes and, if ordered before 10:00 AM, the delivery can be made before dinner.52 From its inception through today, founder Jeff Bezos has held Amazon close as the Chairman and CEO. Bezos receives a comparatively modest salary of just over $80,000 per year, but his stock holdings and investments are valued at over $36 billion, placing him at #15 on Forbes worldwide ranking of billionaires. Though Amazon had some major financial losses early on, these growing pains allowed the company to “get big fast” and provided the opportunity to become the leader in online commerce and one of the largest retailers in the world. Offering everything from A to Z, as designated by the arrow seen in the logo connecting the first A to the Z in the word Amazon, the company has successfully branched out beyond media retail, such as books and music, into everything from table saws to canned corn. Given that Amazon is only just beginning to leverage its servers and web services, the company will almost surely remain the leader of cloud computing for the foreseeable future.

Economic Profile Since turning its first profit in 2001, Amazon has established itself as both innovative and disruptive, being credited with upending entire markets as it did with book retail. The company has always appeared promising, which is perhaps why Bezos was able to raise millions of dollars while operating out of a garage. Amazon currently enjoys the title of leading online retailer. Part of the secret to this success is expressed in the mantra “get big fast.” Early on, Amazon devoted much of its money to expanding its offerings and capacity while cutting prices in an effort to gain market share advantage. Indeed, Amazon has even inspired such books as Robert Spector’s Amazon.com: Get Big Fast. Sales have seen steady increases over recent years and Amazon has gone from selling $5 million worth of books in 1995 to nearly $89 billion in product and service sales in 2014, an increase of 16,000%. This growth is illustrated in Table 25.1 below. Though Amazon leads online retail, there are a number of competitors that outsell the company by a large margin. For example, Amazon saw its highest total sales numbers ($88.9 billion) in 2014 but the same year Wal-Mart saw over $470 billion in sales. However, from 2012 to 2013, Amazon saw a 27% increase in sales while Wal-Mart’s increase was only 1.7%. The National Retail Federation ranked Amazon.com at #9 of the top 100 retailers of 2014 based on 2013 sales, just below Lowe’s (#8) and above Safeway (#10) and McDonald’s (#11).53 TABLE 25.1 Amazon.com Company Revenues, 2005–2014 (in $ millions)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Revenue

Net Income

Total Assets

8,490 10,711 14,835 19,166 24,509 34,204 48,077 61,093 74,452 88,988

359 190 476 645 902 1,152 631 –39 274 –241

3,696 4,363 6,485 8,314 13,813 18,797 25,278 32,555 40,159 54,505

Sources: Amazon.com, Inc., Form 10-K, 2006, 2008, 2010, 2012, 2014

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To compare Amazon to Wal-Mart is perhaps unfair—the latter seeming somewhat an outlier with 2013 worldwide retail sales at $473 billion and the closest competitor, Costco, selling $105 billion, or less than a quarter of the sales of Wal-Mart. On the other hand, Amazon does enjoy a 23% market share of all online retail, doing more e-commerce than its 12 closest competitors, combined—a figure that includes the online sales of Wal-Mart. However, this figure can be misleading if one fails to recognize that e-commerce accounts for less than 7% of all retail sales.54

Corporate Structure Amazon’s sales can be divided into two core categories: products and services. In 2014, net product sales totaled over $70 billion while services brought in nearly $19 billion. To distinguish between the two categories, Amazon includes in its product sales all retail between customers and Amazon, exclusively. Product sales figures include the sales of Amazon Prime accounts, as well as all purchases made in the Amazon Marketplace from Amazon, but not from a third party. Service sales are the total amount earned from fees charged to third parties by Amazon for using and selling in the Marketplace, as well as all earnings generated by Amazon Web Services, including EC2. Recently, Amazon revealed that its Web Services business is by far the most profitable of Amazon’s businesses, by operating margin,55 generating approximately $5 billion in 2014. This differentiation between products and services is the distinction Amazon makes when filing 10-K forms with the Securities and Exchange Commission. However, it is useful to imagine the company as operating four separate branches: retail, services, devices, and web.56 These branches are generally jumbled, with amorphous borders and boundaries, preventing a much more concrete financial analysis. For example, Amazon includes in retail the sales of devices. Though sales data per branch are not accessible, it is important to disclose Amazon’s varying pursuits in each of the four branches.

Retail Retail sales for Amazon are generally understood as all sales of Amazon’s retail products directly to consumers. This does not include products sold by third parties. It also excludes the sales of web services such as cloud computing. Officially, per SEC filings, retail sales include sales of devices but a more nuanced understanding is beneficial, i.e., examining devices, such as the Kindle, separately. Amazon, like many major retailers, has the ability to negotiate lower prices with producers. One advantage Amazon has over many large retail chains, however, is that it does not have a sales floor. Operating exclusively online allows Amazon to save money on rents, given that the store front on Main Street in a major metropolitan city with an attached warehouse is much more expensive per square foot than a warehouse in Coffeyville, Kansas. Saving money on rents in this way allows Amazon to operate with a smaller markup on products and still maintain profitability. Still, physical stores have appeal to consumers who want to try out products or examine them in person before making a purchase. To capitalize on this, Amazon introduced its Price Check application for mobile phones in 2011. The application allows a user to scan a barcode, take a picture, or search for a particular product they see in a physical store and compare that price to the price of the same product offered by Amazon. Some retailers denounced the application as “evil”57 because it encouraged showrooming. That is, Price Check encouraged consumers to use the showrooms of bricks-and-mortar stores as a stand-in for an Amazon showroom, investigate products, test them, and decide which to buy. Then, instead of purchasing from the store that pays for the property, insurance, salespeople, and showroom, the consumers often leave and buy the item from Amazon. In this way, Amazon receives most of the benefits of a showroom without

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having to pay for it. To combat the showrooming phenomenon, some major retailers, such as Best Buy, have implemented a policy whereby the store matches the prices of online retailers.58 Amazon’s domination of online retail is not going unchallenged. Though the company does more e-commerce than its closest 12 competitors, it has been suggested that Amazon’s dominance is a consequence of online sales making up only a small percentage of nationwide retail. With online retail accounting for only 6.6% of all retail sales, it should be no wonder that traditional retailers are putting the majority of their efforts into selling products through their physical stores rather than online. However, that is not to say they are neglecting the world of online retail. In the first quarter of 2014, Home Depot, Costco, Macy’s, and Wal-Mart saw an increase in online sales of 54, 48, 31, and 30%, respectively; Amazon saw an increase of 20%.59 Further, physical stores often have an option for in-store pickup to save on shipping. In 2014, Amazon spent $6.6 billion on shipping while collecting only $3.1 billion in shipping charges.60

Services In 2014, two million third-party retailers sold over two billion items through Amazon, accounting for nearly 40% of all items sold through the website.61 During the fourth quarter of 2012, thirdparty sales accounted for 39% of all items sold, up from 36% in 2012.62 On each of those items, Amazon charges a number of fees on top of taking a percentage of the sale. The fees are charged for such things as storage and logistics.63 These fees vary from seller to seller; one third-party retailer disclosed that the fee they were being charged had increased from 8% per item in 2012 to 15% in 2013, when Amazon opted to take a larger cut of sales.64 While the marketplace does offer increased traffic to third parties, these sellers have difficulty securing repeat customers because so many view Amazon sellers as homogeneous. That is, there is no reason to be loyal to a particular seller on Amazon because the service is relatively similar, as are prices, across sellers. Further, Amazon often offers the same products as third parties for a lower price or with preferred webpage placement. This has led some sellers to see a decline in sales as they are put into competition directly with Amazon.65 In the event that Amazon is not able to capture those that may choose to purchase from a third party, the company still makes money through the fees levied against the seller. Another important service that Amazon provides is Amazon Payments. This wholly owned subsidiary allows a customer to make purchases on a non-Amazon website, using their Amazon credentials. The service helps customers feel secure in their purchase and eliminates the need to enter a credit card number and shipping address, cutting down on the time it takes to complete the purchase and removing burdens that might lead a customer to decide against making the purchase altogether. Amazon Payments faces competition from services such as Apple Pay, Square, and PayPal, forcing it to keep fees competitive.

Devices Amazon occupies a strange place as a retailer, service provider, and technology company. Perhaps the most famous of Amazon’s physical creations is the highly successful Kindle e-reader, introduced in 2007. The company keeps the numbers on Kindle sales a secret, but it has been estimated that roughly 20 million Kindles were sold in 2013, generating nearly $4 billion in revenue. In addition to selling the physical device, Amazon also earns $265–530 million per year from e-book sales.66 In 2009, just 3 million Kindles were sold. Amazon has seen its e-reader market share drop from 90% in 201067 to approximately 40% in 2014. In 2010, Amazon made headlines by, for the first time, selling more e-books than hardcover

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books.68 Many of these e-books are sold at a loss in an attempt build customer loyalty, as Kindles read proprietary file types accessible only through Amazon. Amazon also sells the Kindle Fire tablet, which competes with the iPad and various Androidpowered tablets. The Fire Phone was Amazon’s failed attempt to create a smartphone. In the fourth quarter of 2014, Amazon took a $170 million loss on the phone.69 The Fire Stick, a competitor to Chromecast and Roku, enjoyed widespread success. In the U.K. it was touted as Amazon’s “fastest-selling device ever.”70

Web As Amazon grew to be the major online retailer, it developed web technologies that allowed for easy navigation, well-functioning databases, and more. It has capitalized on those developments by allowing other companies to access to them through Amazon Web Services (AWS). Amazon officially launched AWS in 2006 to offer “IT infrastructure services to businesses in the form of web services—now commonly known as cloud computing.”71 The benefit of this type of computing is that businesses are able to rely on Amazon’s global network of servers to store and deliver data, rather than having to purchase and maintain servers in-house. The demand for AWS is widespread and companies such as TicketMaster, Etsy, Netflix, and The Guardian utilize the services, in addition to Yelp, Reddit, and numerous government agencies. In 2014, “a $600 million computing cloud developed by AWS for the Central Intelligence Agency began servicing all 17 agencies that make up the intelligence community.”72 In the first quarter of 2015, Amazon reported AWS revenue at $1.57 billion. It is expected that $6 billion will be total AWS revenue for 2015. Of the $1.57 billion in the first quarter, $265 million was profit, a $20 million increase over the previous year. The profit generated by AWS could exceed $1 billion by the end of 2015.73

Corporate Strategies and New Developments Amazon is unlike many businesses in that it allows for third parties to sell their wares in its store. An analog would be Best Buy allowing Wal-Mart to set up a kiosk in its showroom. This unusual business tactic is indicative of what Bezos claims are the three big ideas at Amazon: long-term thinking, customer obsession, and willingness to invent. Long-term thinking is what has afforded Amazon the market position it enjoys today. Rather than seeking high profits in its infancy, the company opted to reinvest all money earned, and take on debt and losses, in order to build a huge customer base and product inventory. Now the company is incredibly diverse, selling products and services, creating devices, and developing web technologies that are used by some of the largest companies in the world. The sheer size of Amazon allows the company to enjoy economies of scale and volume discounts. The fact that Amazon has no physical store allows for the stockpiling and bulk purchasing needed to achieve those price breaks, and the large customer base allows for the distribution of fixed costs over many consumers. Indeed, this customer base is so important that Amazon bought Zappos.com, a company with $1 billion of gross sales in 2008, for just under $1 billion in 2009. One of the most attractive features of the company was the “fiercely loyal customer base at Zappos.”74 This customer base was large at 24 million customers, and nearly 70% of those customers were female. For Amazon, more customers means more distribution, sellers, convenience, selection, and lower prices, which leads to more customers. Having repeat customers is key to Amazon’s success and longevity, and this is achieved through selection, low prices, and customer service. Interestingly, Amazon has been able to vertically integrate retail so well that it is difficult to recognize where Amazon ends and third parties begin. This benefits the company greatly because

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the risks and opportunity costs associated with a fully stocked warehouse are mitigated by third parties that are able to supply any product that Amazon does not have immediately available. Those third parties, however, do not get their due recognition as customers still understand their purchase to have been made with Amazon.com, a situation that displaces risk from Amazon to third parties and rewards Amazon as well with repeat customers, though those customers are not likely to repeatedly buy from any particular third party. The customer obsession is simultaneously an obsession with experience and an obsession with convenience. Amazon aims to make the purchasing of products as easy as possible. This has driven the site since the company was founded. This is also apparent in some of Amazon’s more recent offerings such as Prime Instant Video, an on-demand video service accessible for no additional charge with Prime membership, and Amazon Fresh, which offers same-day grocery delivery in several cities around the country. This convenience is also what drives Amazon Payments as well as Kindle sales. At its heart, however, Amazon is still a no-holds-barred company in search of revenue and profit. The company proposed that it should get a 30% cut of all e-book sales in 2014.75 When publishers choose not to cede to these demands Amazon has, in the past, tried to inhibit the sale of those publishers’ books. For example, in 2012 when the Kindle contract with the Independent Publishers Group (IPG), one of the largest book distributors in the United States, came up for renewal, Amazon attempted to squeeze more profit out by paying less for each title. However, IPG was unwilling to bend as far as Amazon wanted. As a result, Amazon opted to remove nearly 5,000 e-books that were associated with IPG76 in an apparent act of retaliation. Similarly, in 2010, Amazon removed from its website books published by Macmillan due to a dispute over e-book pricing.77 These tactics have often been met uncritically and occasionally praised.

Political Profile Since the company went public, Jeff Bezos has remained the CEO and chairman of Amazon. He holds the largest block of stock in Amazon as well, boasting over 87 million shares (19% of total shares).78 In 2013 he sold exactly 1 million of those, bringing in $270 million after taxes, to offset his personal purchase of The Washington Post for $250 million in October of that year. Although Bezos holds more Amazon stocks than any other individual, and is both the CEO and chairman of the company, he earns a modest executive salary around $80,000. His political contributions tend to be given to state-level candidates rather than to federal politicians, with Bezos and his wife Mackenzie giving just $162,000 to federal political candidates and committees since 1998.79 Nearly $130,000 of those donations were given to Amazon’s corporate PAC. In the same time, the couple has given $28,000 to Democratic candidates and only $4,000 to Republican candidates. In contrast, Bezos has been significantly more active in state-level politics, giving, with his wife, $2.5 million to a Washington state referendum to legalize gay marriage.80 The Amazon PAC has donated almost equally to Democrats and Republicans, giving $93,000 and $86,500 respectively. Where Amazon spends the most political money is on lobbying efforts. In 2013, Amazon spent $3.5 million on lobbying “with seven outside firms lobbying on its behalf.”81 That figure increased to $4.7 million in 2014.82 The first quarter of 2015 saw lobbying spending increase by 14% over the previous year, up to $1.9 million, outspending Apple’s $1.24 million lobbying efforts in the same 2015 quarter.

Board of Directors Many of Amazon’s highest-ranking employees have held executive positions within the company for nearly a decade. The executives, however, make relatively low salaries compared to similar

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companies. The highest paid, Diego Piacentini, is Amazon’s senior vice-president for international retail who earns $175,000 annually, and Jeff Wilke, the senior vice-president of consumer business, earns the second largest salary at $165,000.83 However, Wilke does hold approximately $20 million in Amazon stock. It seems the high retention of executives at Amazon is not due to salaries, but instead because Amazon works “on big ideas, and big projects.”84 Former executive Dave Cotter suggests, “You go to Amazon because there’s something big going on. Other companies pay more.”85 Bezos has remained the sole chairman of Amazon’s board of directors since the company started. Other individuals on the Board have ties to publications such as Reader’s Digest, charitable organizations such as the Bill and Melinda Gates Foundation, media companies such as Viacom, Inc., and tech companies such as webOS. Of the 10 members of the board only 3 are women—a higher percentage than women holding senior management positions in the company. Of the 119 senior managers employed by Amazon, only 18 are women and none have a direct line to Bezos.86 An all-male team of 12, known as the Senior Team or S Team, has such direct lines and the Team seems “reluctant to employ women, according to a leak from an internal directory.”87

Labor Force/Workers Amazon employs over 150,000 workers around the world. This workforce is predominantly white and male, with 60% of all employees identifying male, a number that increases to 75% when examining only managers. Similarly, 60% of all workers identify white, with 71% of managers identifying white,88 and Amazon’s board of directors is exclusively white. For its part, it appears that Amazon does employ a more diverse workforce than many other tech giants such as Facebook, Twitter, and Google.89 Much of Amazon’s workforce is composed of warehouse and order-fulfillment workers. Amazon’s size and the nature of online retail require the company to hire many seasonal or temporary workers. These workers tend to be employed during the holiday season and are sometimes called “workampers” because they travel to the fulfillment centers in vans, motorhomes, and RVs during the busy season, staying in one of the free RV parking spots provided by Amazon.90 Workampers and other seasonal workers receive bonuses for staying with the company through the entire holiday rush and usually earn $10 to $13 per hour. However, there have been many reports about the harsh working conditions, expectations, and neglect experienced by Amazon’s employees. During the peak season the company implements a “blackout” period, during which time any absence is inexcusable. This policy disproportionately impacts single mothers at the company.91 Medical coverage is not provided for these temporary workers, but full-time employees receive stock shares, 401(k), and health insurance after two years of employment. Amazon has come under scrutiny for pressuring warehouse workers to refrain from disclosing injuries received while working, resulting in a federal lawsuit filed in Pennsylvania.92 An average warehouse employee walks 7 to 15 miles each day, and this “high stress, high pressure”93 walking has led to injuries such as those experienced by one warehouse worker whose doctor found that the walking induced stress fractures in both of her feet; Amazon disputed that the injuries were work-related.94 Workers have complained to federal regulators about the unbearably hot warehouses, where temperatures reach in excess of 110 degrees. The heat has attributed to heatrelated illnesses with such frequency that Amazon has stationed ambulances and paramedics outside of some warehouses during the summer in anticipation,95 rather than invest in air conditioning. Managers have repeatedly refused to open the bay doors of the warehouse for fear of theft, preventing fresh air from entering the warehouse, and contributing to heat related illnesses, which, on June 2, 2011, resulted in 15 workers collapsing in a warehouse in Lehigh Valley, Pennsylvania.

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Workers are closely watched to ensure they meet productivity goals. In March 2011, an employee was fired for having “been found unproductive during several minutes of her shift.”96 Machines measure the efficiency of each worker and those who do not meet the quota are reprimanded. In Germany, Amazon was revealed to have hired a security firm with neo-Nazi ties, called HESS security, to “keep order at hostels and budget hotels” where Amazon housed a largely immigrant temporary workforce.97 The security guards not only harassed the workers, but also “intimidated them by searching their bedrooms and kitchens.”98 In the United States the Supreme Court rejected a lawsuit by Amazon workers that sought wages for time the employees spent waiting in line to be screened for stolen merchandise, in Integrity Staffing Solutions, Inc. v. Busk (2014). The Court found that requiring employees to wait in lines to be screened did not impair their ability to perform their primary duty at work and was therefore not compensable. In addition to poor working conditions, heavy employee surveillance and intimidation, and the requirement to stand in long lines without pay, the non-union workforce at Amazon is also subjected to lower-than-average wages, receives no incentive pay, and is offered no lunch compensation.99 Bezos claims that incentive pay is “detrimental to teamwork” and recognizes that the company pays “very low cash compensation relative to most companies.”100 However, Fortune still named Bezos “Businessperson of the Year” in 2012.101

Cultural Profile The political ideology of creative destruction fits well in making virtue of perceived necessity in discourses about information-age economics, politics, and culture. And the idea of disrupting an established industry or broader set of economic arrangements, including those among publishers and distributors, and between capital and labor, through digital innovation has drawn critical and celebratory attention from many writers in business studies, economics, and film and media studies.102 The notion that digital innovation can and sometimes does dramatically undermine established business models and industry incumbents, leading to the redefining of markets and to new sources of revenue and profit, is now generally accepted as commonplace, if not inevitable and even necessary. In one of the most seductive visions of the economic potential of digital innovation in the modern life of consumers, Microsoft founder Bill Gates wrote about his vision of a time when digital networks would enhance the performance of firms by enabling them to respond optimally to near-perfect information about market demand, fulfilling the classical liberal vision of “frictionfree” capitalism, in what Gates calls a “shopper’s heaven.”103 Like most visionaries of how information technology will deliver on capitalism’s utopian promise, Gates and others do not turn sustained attention to how the introduction of new forces of production have produced new and oppressive social relations.104 Amazon is not primarily a content producer, but instead functions more as a pipeline to the content of other providers. In that sense, Amazon more closely resembles a telecommunications common carrier than, for example, a Hollywood studio, a publishing company, or a media conglomerate. As such, Amazon’s cultural profile is best understood from the perspective of the political ideology that characterizes its business practices, particularly in how it approaches its customers and its employees. As discussed above, Amazon CEO Jeff Bezos, and the company as a whole, places a high priority on listening to the customer and on maximizing customer satisfaction. The immense popularity of Amazon as a source for all sorts of media content—video, music, books, ebooks, audiobooks, and more—and on the retail sale of such a wide range of goods that are not available in even the largest shopping malls in the United States, demonstrates that the company is effective in offering high value to consumers. Amazon does in many senses appear to enact the vision of the “shopper’s heaven” and “friction-free capitalism,” presented by Bill Gates.105 However, reports on both blue- and white-collar labor practices of Amazon portray

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a company that has been far from friction-free.106 Despite the company’s public relations efforts to respond to widespread criticism of the cost to Amazon employees in terms of health, safety, compensation, and humane treatment in delivering high value and customer satisfaction, a significant range of independent sources indicate that there are serious company-wide problems. To the extent that such reports corroborate and are valid, they are indicative of the dark side of what passes for “friction-free” in the era of digital capitalism.

Conclusion In his 1986 book, Misunderstanding Media, media historian Brian Winston traces the introductions of several media innovations into the marketplace, and he demonstrates how in each of those cases the radically futuristic visions for how those innovations would transform communication and society were suppressed. Typically, this “suppression of radical potential,” as Winston terms it, is at the hand of established institutional forces—industry incumbents, government policies, market preferences—that mitigate against the fulfillment of visions of unbridled innovation.107 If Winston’s analysis and challenge to technological determinism were applied to the emergence and enormous success of Amazon, however, we would have to find exception to his generalization, because Amazon’s disruptive market emergence hardly seems to be suppressed by competition, government, or any other organized institutional forces. If there is any source of power that has compelling motivations to place limits on the business practices of Amazon, one might expect it to be labor power. But the radical potential of disruptive innovation that plays itself out under neoliberal capitalism is hardly inhibited by organized labor. Rather, as the case above illustrates, the true radicalism that drives the success of firms that have built their success on digital disruption derives from the intensifying alignment of governments (laws, regulations, politicians, judiciaries) with the interests of large corporations to repress the interests and solidarity of workers. It is in this context that the power of Amazon seems unbridled.

Notes 1 Joseph A. Schumpeter, Capitalism, Socialism, and Democracy (New York: Harper and Brothers, 1950). Originally published in 1942. 2 Andrew Calabrese, Creative destruction? From the welfare state to the global information society, Javnost/The Public, 4(4), (1997), 7–24; Tyler Cowen, Creative Destruction: How Globalization is Changing the World’s Cultures (Princeton, NJ: Princeton University Press, 2002). 3 Theodore Levitt, Marketing Myopia, Harvard Business Review, July–August 1960, 45–57. 4 Theodore Levitt, Production-Line Approach to Service, Harvard Business Review, September–October 1972, 41–52. 5 Frederick Winslow Taylor, The Principles of Scientific Management (New York: Harper & Brothers, 1911). 6 Of course, workers who are forced to perform such routinized tasks under constant time pressure are apt to object. Richard Eskow, The Fast-Food Strikers Are Fighting for All of Us, Huffington Post, October 8, 2013, www.huffingtonpost.com/rj-eskow/the-fast-food-strikers-ar_b_3728990.html; Scott M. Stringer, Human Capital in the Twenty-First Century, Huffington Post, May 21, 2014, www.huffington post.com/scott-m-stringer/human-capital-in-the-twen_b_5367296.html; Jack Temple, Going Nowhere Fast at McDonald’s, Huffington Post, July 23, 2014, www.huffingtonpost.com/jack-temple/mcdonaldsstriking-workers_b_5381586.html 7 Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Reprint edition (Cambridge, MA: Harvard Business Review Press, 2013). Originally published in 2011. 8 Adam Leshinsky, “Amazon’s Jeff Bozo: The Ultimate Disputer,” Fortune, November 16, 2012, ttp://fortune.com/2012/11/16/amazons-jeff-bezos-the-ultimate-disrupter/ 9 Richard Brandt, One Click: Jeff Bezos and the Rise of Amazon.com (New York: Portfolio, 2011), 35. 10 Alton F. Doody and William R. Davidson, Next Revolution in Retailing, Harvard Business Review, May–June 1967, 4. 11 Thomas D. Harnish, Channel 2000, Description and Findings of a Viewdata Test Conducted by OCLC in Columbus, Ohio, October–December 1980, http://library.oclc.org/cdm/ref/collection/p267701coll 27/id/4526

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12 www.forbes.com/sites/clareoconnor/2015/04/28/amazon-launches-amazon-business-marketplacewill-close-amazonsupply/ 13 www.wired.com/2012/03/amazon-ec2/ 14 www.forbes.com/powerful-brands/list/#tab:rank 15 www.bizjournals.com/seattle/blog/techflash/2015/01/amazons-headcount-tops-150–000-afteradding.html 16 www.opensecrets.org/pacs/lookup2.php?cycle=2014&strID=C00360354 17 www.opensecrets.org/lobby/clientsum.php?id=D000023883&year=2014 18 http://fortune.com/2012/11/16/amazons-jeff-bezos-the-ultimate-disrupter/ 19 http://blogs.wsj.com/corporate-intelligence/2014/05/06/apple-jumps-in-rankings-now-second-largestonline-seller/ 20 www.biography.com/people/jeff-bezos-9542209 21 Brandt, One Click, 32. 22 Suresh Kotha, Competing on the Internet, 1998, 247. 23 Ibid. 24 Ibid. 25 Brandt, One Click, 97. 26 Christine Frey and John Cook, “How Amazon Survived, Thrived, and Turned a Profit,” Seattle Post, January 28, 2004. 27 Stephanie Lang, Logan Tinder, Jarett Zimmerman, and Jeffrey S. Harrison, Amazon.com: Offering everything from A to Z (University of Richmond: Robins School of Business, 2012), 2. 28 Brandt, One Click, 107. 29 http://media.corporate-ir.net/media_files/irol/97/97664/reports/Shareholderletter98.pdf 30 Ibid. 31 Brandt, One Click, 113. 32 Christine Frey, How Amazon Survived, 3. 33 Brandt, One Click, 115. 34 Ibid., 121. 35 www.nytimes.com/2002/01/23/business/technology-a-surprise-from-amazon-its-first-profit.html 36 Ibid. 37 http://money.cnn.com/2000/08/10/technology/amazon/ 38 www.wsj.com/articles/SB113798030922653260 39 http://news.cnet.com/2100–1017–255644.html 40 http://business.time.com/2011/07/19/5-reasons-borders-went-out-of-business-and-what-will-takeits-place/ 41 www.wsj.com/articles/SB100017752821017751 42 www.businesswire.com/news/home/20030417005530/en/Amazon.com-Power-NBA-Store-NBA. com-WNBA-Store#.VXH9d89Viko 43 www.businessweek.com/the_thread/techbeat/archives/2005/02/amazons_prime_c.html 44 www.washingtonpost.com/blogs/the-switch/wp/2015/02/03/what-amazons-learned-from-a-decadeof-prime/ 45 http://arstechnica.com/uncategorized/2006/06/7068–2/ 46 www.businessinsider.com/2008/10/amazon-we-promise-our-ec2-cloud-will-only-crash-once-a-weekamzn47 https://aws.amazon.com/blogs/aws/big-day-for-ec2/ 48 https://sg.news.yahoo.com/video/cia-freezer-big-amazon-143129467.html 49 Ibid. 50 www.forbes.com/sites/jeremygreenfield/2013/10/30/kindle-most-popular-device-for-ebooks-beatingout-ipad-tablets-on-the-rise/ 51 www.businessinsider.com/e-commerce-disrupting-600-billion-grocery-industry-2014–8 52 www.cnbc.com/id/102103709 53 https://nrf.com/2014/top100-table 54 http://time.com/money/3671937/amazon-staples-walmart-ecommerce/ 55 www.cnet.com/news/amazon-says-amazon-web-services-a-5-billion-business/ 56 www.bloomberg.com/bw/articles/2014-12-04/amazon-expanded-far-beyond-retail-as-bezos-tookon-more-rivals 57 http://business.time.com/2011/12/13/is-amazon-due-for-a-backlash-because-of-its-evil-price-checkapp/ 58 http://bits.blogs.nytimes.com/2013/02/27/more-retailers-at-risk-of-amazon-showrooming/ 59 http://time.com/money/3671937/amazon-staples-walmart-ecommerce/ 60 Ibid.

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61 http://techcrunch.com/2015/01/05/amazon-third-party-sellers-2014/ 62 www.forbes.com/sites/greatspeculations/2013/01/30/amazons-third-party-sellers-drive-margins-andstock-higher/ 63 Ibid. 64 www.reuters.com/article/2013/03/18/us-amazon-sellers-idUSBRE92H0CR20130318 65 www.wsj.com/articles/SB10001424052702304441404577482902055882264 66 www.forbes.com/sites/greatspeculations/2014/04/02/estimating-kindle-e-book-sales-for-amazon/; see also www.trefis.com/stock/amzn/model/trefis?easyAccessToken=PROVIDER_c0f663352356827f8709 1d2164ed90f2cc253a52 67 www.thenation.com/article/168125/amazon-effect 68 www.wired.com/2010/07/amazon-e-books-outsell-hardcovers/ 69 www.wired.com/2015/01/amazon-fire-phone-always-going-fail/ 70 www.telegraph.co.uk/technology/amazon/11537336/Fire-TV-Stick-becomes-Amazons-fastest-sellingUK-device-ever.html 71 http://aws.amazon.com/about-aws/ 72 www.theatlantic.com/technology/archive/2014/07/the-details-about-the-cias-deal-with-amazon/ 374632/ 73 www.businessinsider.com/amazon-earnings-q1-2015-2015-4 74 www.reuters.com/article/2009/07/23/us-amazon-zappos-idUSTRE56L6TQ20090723 75 www.amazon.com/forum/kindle/ref=cm_cd_tfp_ef_tft_tp?_encoding=UTF8&cdForum=Fx1D7S Y3BVSESG&cdThread=Tx3J0JKSSUIRCMT 76 http://business.time.com/2012/02/24/amazon-pulls-5000-books-from-kindle-store/ 77 www.nytimes.com/2010/01/30/technology/30amazon.html 78 www.bloomberg.com/news/articles/2013-04-12/amazon-s-bezos-among-lowest-paid-tech-ceos-with81–840-salary 79 www.opensecrets.org/news/2013/08/bezos-leaves-few-money-in-politics/ 80 www.washingtonpost.com/blogs/the-fix/wp/2013/08/07/the-politics-of-jeff-bezos/ 81 www.politico.com/story/2014/06/amazon-drones-lobbyist-k-street-107996.html 82 www.consumerwatchdog.org/newsrelease/google-spends-record-1683-million-2014-lobbying-topping15-tech-and-communications-compa 83 www.businessinsider.com/diego-piacentini-amazon-executive-pay-2012-11 84 www.businessinsider.com/working-at-amazon-no-free-food-and-a-low-salary-2012-11 85 Quoted in http://fortune.com/2012/11/16/amazons-jeff-bezos-the-ultimate-disrupter/ 86 www.theguardian.com/technology/2014/apr/25/amazon-employs-18-women-among-120-seniormanagers 87 Ibid. 88 www.techtimes.com/articles/19250/20141101/amazon-workforce-diversity-report-reveals-gendergap-no-surprises-here.htm 89 www.bloomberg.com/news/articles/2014-10-31/amazon-discloses-more-diverse-workforce-thansilicon-valley 90 www.vice.com/read/in-the-prime-of-their-lives-0000544-v2n1 91 Nichole Gracely, “Surviving in the Amazon,” New Labor Forum 21.3 (2012): 80–83. Project MUSE. Web, June 8, 2015, https://muse.jhu.edu/ 92 www.seattletimes.com/business/amazon-warehouse-jobs-push-workers-to-physical-limit/ 93 www.businessinsider.com/working-conditions-at-an-amazon-warehouse-2013–2 94 www.seattletimes.com/business/amazon-warehouse-jobs-push-workers-to-physical-limit/ 95 www.mcall.com/business/mc-amazon-temporary-workers-unemployment-20121215-story.html #page=2 96 www.salon.com/2014/02/23/worse_than_wal_mart_amazons_sick_brutality_and_secret_history_of_ ruthlessly_intimidating_workers/ 97 www.independent.co.uk/news/world/europe/amazon-used-neonazi-guards-to-keep-immigrantworkforce-under-control-in-germany-8495843.html 98 www.businessinsider.com/amazon-to-investigate-german-factories-2013-2 99 www.businessinsider.com/working-at-amazon-no-free-food-and-a-low-salary-2012-11 100 http://fortune.com/2012/11/16/amazons-jeff-bezos-the-ultimate-disrupter/ 101 Ibid. 102 See, for example, Dina Iordanova and Stuart Cunningham, Digital Disruption: Cinema Moves On-Line (Edgecliffe, UK: St. Andrews Film Studies Publishing, 2012); James McQuivey, Digital Disruption: Unleashing the Next Wave of Innovation (Amazon Publishing, 2013). 103 Bill Gates, Nathan Myhvold, and Peter Rinearson, The Road Ahead, Rev. ed. (Penguin, 1996), 181.

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104 For an excellent analysis and critique of Gates’ vision of the future of capitalism, see Jens Schröter, “The Internet and ‘Frictionless Capitalism,’” Triple C, 10(2) (2012), 302–312. 105 Gates, et al., The Road Ahead, 181. 106 Spencer Soper, “Inside Amazon’s Warehouse,” The Morning Call, September 18, 11, http://articles.mcall. com/2011-09-18/news/mc-allentown-amazon-complaints-20110917_1_warehouse-workers-heatstress-brutal-heat; Jodi Kantor and David Streitfeld, Inside Amazon: Wrestling Big Ideas in a Bruising Workplace, New York Times, August 15, 2015, www.nytimes.com/2015/08/16/technology/insideamazon-wrestling-big-ideas-in-a-bruising-workplace.html 107 Brian Winston, Misunderstanding Media (Cambridge, MA: Harvard University Press, 1986).

26 FACEBOOK Christian Fuchs

Social media and web 2.0 are terms that have become popular since 2005 when Tim O’Reilly, founder and CEO of the computer technology and business press O’Reilly Media, introduced the concept of web 2.0.1 On the one hand, these notions are capitalist ideologies that have tried to convince investors and advertisers that the Internet has been completely renewed after the 2000 dot-com crisis and that it poses great new investment opportunities.2 The ultimate goal underlying the notions of web 2.0 and social media is to attract venture capital investments to the capitalist Internet economy. On the other hand, there is an element of rationality to this marketing ideology: platforms such as Facebook, YouTube, Twitter, Weibo, Wikipedia, Pinterest, etc. do not constitute a completely new Internet, but they have integrated various forms of sociality into their services (i.e., creating and sharing information, communication, and cooperation) that were previously only supported by Internet technologies.3 Facebook is in many of the world’s countries one of the most used WWW platforms. At the end of 2014 it had 1.39 billion monthly active users,4 which makes it—with around 20% of the world population—one of the media with the largest audience and user group in the world. Facebook is a media giant. In 2013, 88.7% of Facebook’s revenues stemmed from advertising and 11.3% from payments and fees.5 In 2014, the advertising share was 92.2%.6 With almost $7 billion in advertising revenue in 2013 and $11.5 billion in 2014, Facebook is not a communication company but one of the world’s largest advertising agencies. Facebook achieves profits by selling targeted advertising space. The access to the platform is not a commodity. The commodity that is sold is rather users’ registration data, profile data, browsing behavior on Facebook and other parts of the World Wide Web, communication content, and social relation data. This chapter analyzes the political economy of one of the most widely used social media platforms. It discusses Facebook’s history followed by a discussions of its economic, political, and cultural profiles.

History Mark Zuckerberg, Eduardo Saverin, Andrew McCollum, Dustin Moskovitz, and Chris Hughes founded Facebook as a college social network in 2004 at Harvard University. The initial site was www.thefacebook.com. The platform quickly became popular at Harvard University and was extended to other Ivy League universities.

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The movie The Social Network (Columbia Pictures, 2010) describes the history of Facebook as a bunch of talented Harvard students, who because of a good idea became billionaires and realized the American Dream of becoming rich and famous. The movie frames the story in individualistic terms, neglecting that Facebook, like most large Silicon Valley tech companies, received millions in venture capital, from Peter Thiel, Accel Partners, Jim Breyer, and others, which allowed its expansion as a company. In 2006, Facebook was turned from a college network into a general social network open to everyone. From then on the users of Facebook increased rapidly, reaching 500 million in 2010 and one billion in 2012. In 2012, Facebook made an IPO on the NASDAQ and became a publicly traded company. Facebook subsequently developed into the social networking site with the largest number of users and the highest profits and one of the world’s largest advertising agencies.

Economic Profile Facebook is a media giant both in terms of the number of its users and its capital. This section outlines Facebook’s financial data/market share, properties (corporate structure, holdings, joint ventures), typical corporate strategies, and new developments.

Financial Data/Market Share According to the Forbes 2000 list in 2014, Facebook was the world’s 510th largest transnational company (TNC) as measured by a composite index of sales, profits, capital assets, and market value.7 In the category of computer services, it was the world’s fifth largest TNC, ranked after IBM, Google, Accenture, and Tencent. The following figures illustrate Facebook’s profits and revenues. In 2015, Forbes listed Facebook as the world’s 280th largest company, now ranked third in the computer services industry behind Google and IBM. Figure 26.1 shows the development of Facebook’s profits in the years 2007–2013 and Figure 26.2 visualizes the development of Facebook’s revenues during the same time period. As indicated by Figure 26.2, Facebook’s revenues have been continuously growing since 2007. During the analysed time period, the company had losses in 2007 and 2008 but was profitable in the years 2009–2013. The reason why profits decreased in 2012 is that Facebook had to record expenses made by compensating employees in the form of restricted stock options (RSU) in preparation for its initial public offering on the NASDAQ stock exchange. It wrote down RSU compensation of $986 million in 2012, which reduced its profits.8 In 2013, its profits reached a new high of $1.5 billion. In 2014, the profits further increased to nearly $3 billion.

Properties (Corporate Structure, Holdings, Joint Ventures) Facebook’s acquisition strategy is to buy other online technology providers that could either compete with Facebook directly or that allow the company to enhance its own platform and services in other technological realms. The most important acquisitions have been the mobile phone instant messaging app provider WhatsApp (2014, $19 billion), the online video advertising company LiveRail (2014, $500 million), Oculus Virtual Reality that produces head-mounted displays (2014, $2 billion), the photo-sharing platform Instagram (2012, $1 billion), the face recognition software company Face.com (2012, $100 million), the advertising technology company Atlas (2013, $100 million), and the mobile app developer Snaptu (2011, $70 million). WhatsApp and Instagram are examples of social media that competed with Facebook, which meant that Facebook became horizontally integrated in social media after acquiring the companies. The acquisitions of Atlas, Snaptu, and Face.com are examples of vertical integration, whereby

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FIGURE 26.1

Facebook’s Profits, 2007–2013

Source: SEC Filings, Form-S1 Registration Statement: Facebook, Inc., Form 10-K: Annual Reports

FIGURE 26.2

The Development of Facebook’s Revenues

Source: SEC Filings, Form-S1 Registration Statement: Facebook, Inc., Form 10-K: Annual Reports

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Facebook extended its services into other realms, such as advertising, mobile phones, and photo tagging. The acquisition Oculus is another example, whereby Facebook extended its business into the virtual reality market. Taken together, these purchases constitute a case of conglomeration within the media technology sector. The purchase of WhatsApp in 2014 gave Facebook a strong presence in the mobile online communication market. Instagram has become an increasingly popular social network that is focused on image sharing. Its acquisition allowed Facebook to strengthen its presence in the realm of content-sharing networks. Atlas strengthens Facebook’s provision and use of targeted advertising. Snaptu developed the Facebook app for use on all mobile phones, which increased Facebook’s presence on mobile phones. Face.com’s photo tagging applications are direct enhancements for Facebook that take into account the fact that people use their mobile phones as digital cameras and want to share the images they take with others. Facebook’s purchase of Oculus may have been driven by Google’s development of Google Glass, which may have raised Facebook’s fears about missing out on profits in the augmented reality market. Whereas Instagram uses a targeted advertising-based capital accumulation model just like Facebook, WhatsApp and Oculus have different strategies: the first charges subscription/access fees, the second sells hardware. Although Facebook uses predominantly targeted advertising (i.e., the commodification of user data as capital accumulation model), it has also created a presence in the commodification of hardware and of the access to online services.

Typical Strategies Understanding Facebook’s political economy needs to be connected to an analysis of the political economy of advertising. Facebook’s typical capital accumulation strategy is the exploitation of users’ digital labor. Capitalists’ source of profits is the exploitation of workers’ labor. Capitalism’s essence is that workers work more hours than they are paid for, are only compensated for part of their working day, and do not own the products and value they create. Marx points out that capital has a “werewolf-like hunger for surplus labor.”9 He also characterizes capital as “vampire-like,” claiming it “lives only by sucking living labor, and lives the more, the more labor it sucks.”10 Capital has a “vampire thirst for the living blood of labor.”11 Marx uses the metaphor of the vampire and the werewolf in order to point out that capitalism as system of exploitation is morally detestable, a scandal that confronts the working class and that should be abolished. How does the exploitation of labor work in the case of Facebook? Dallas Smythe12 established the notions of audience commodity and audience labor for understanding the political economy of commercial media using advertising as their capital accumulation model. “The work which audience members perform for the advertiser to whom they have been sold is to learn to buy particular ‘brands’ of consumer goods, and to spend their income accordingly. In short, they work to create the demand for advertised goods, which is the purpose of the monopoly capitalist advertisers. While doing this, audience members are simultaneously reproducing their own labor power.”13 Smythe’s notion of audience labor challenged the idea that one can only be exploited if one earns a wage in a factory. He opened up the notion of exploitation for the age of consumer culture. His concepts of the audience commodity and audience labor also challenge the idea that the home and the private sphere are insulated against exploitation, an insight that he shares with Marxist feminism that since the 1970s has stressed the importance of considering reproductive labor as value-generating and therefore exploited by capital. The two notions also share insights with Autonomous Marxism, which stresses that the factory and labor have diffused beyond factory walls and have created a social factory and the social worker.

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In the age of capitalist social media, Smythe’s notions of audience labor and the audience commodity have gained new attention and relevance.14 Facebook’s commodity is not its platform that can be used without charges. It rather sells advertising space in combination with access to users. An algorithm selects users and allows individually targeting ads based on keywords and search criteria that Facebook’s clients identify. Facebook’s commodity is space on a user’s screen or profile that is filled with ad clients’ commodity ideologies. The commodity is presented to users and sold to ad clients either when the ad is presented (pay-per-view) or when the ad is clicked (pay-perclick). The user gives attention to his or her profile, wall, and other users’ profiles and walls. For specific time periods, parts of his or her screen are filled with advertising ideologies that are targeted to his or her interests with the help of algorithms. The prosumer commodity is an ad space that is highly targeted to user activities and interests. The user’s constant online activity is necessary for running the targeting algorithms and for generating viewing possibilities and attention for ads. The ad space can therefore only exist based on user activities, which provide the labor that creates the social media prosumer commodity. Constant real-time surveillance of users’ personal data is an inherent feature of Facebook’s capital accumulation model. For Marx,15 work is the creation of use-values that satisfy human social needs. In class societies, work is at the same time labor that creates a surplus product and surplus value that not the working class, but the dominant class owns. Given that communication serves the human need of social reproduction (i.e., the establishment and maintenance of social relations), it is a form of work. Communication on Facebook and other social media platforms is therefore also a form of work. On commercial, advertising-based platforms, such as Facebook, communication is also a kind of digital labor that creates commodities (user data) that are sold and generate economic value and monetary profit. For understanding exploitation on social media and its connection to labor in the ICT industries in general, the concept of digital labor has been coined and developed.16 Figure 26.3 shows the process of capital accumulation on corporate social media platforms such as Facebook that are funded by targeted advertising.

FIGURE 26.3

Advertising

Capital Accumulation Process for Corporate Social Media Platforms Based on Targeted

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Social media corporations invest money (M) for buying capital: technologies (server space, computers, organizational infrastructure, etc.) and labor power (paid employees). These are the constant capital (c) and the variable capital (v1) outlays. The outcome of the production process P1 is not a commodity that is directly sold, but rather a social media service (the specific platforms) that is made available without payment to users. The waged employees’ paid digital labor that creates social media online environments that are accessed by users produces part of the surplusvalue. The users employ the platform for obtaining information, communicating, and generating content that they upload (user-generated data). The constant and variable capital invested by social media companies (c, v1) that is objectified in the online environment is the prerequisite for users’ activities in the production process P2. The products of digital labor are user-generated data, personal data, social networks and transaction data about browsing behavior and communication behavior on corporate social media. Users invest a certain labor time, v2 in this process. Corporate social media sell the users’ data commodity to advertising clients at a price that is larger than the invested portion of constant and variable capital. Partly the users and partly the corporations’ employees create the surplus value contained in this commodity. Once the Internet prosumer commodity that contains the user-generated content, transaction data, and the right to access virtual advertising space and time are sold to advertising clients, the commodity and the surplus-value contained are transformed into monetary capital and profit. Facebook’s clients run ads based on specific targeting criteria. For example, the company can target an ad to 25–35-year-old men who are interested in literature and reading. What exactly is the commodity in this example? It is the ad space that is created on a specific 25–35-year-old man’s screen while he browses Facebook pages about books or other pages about literature. The ad is potentially presented to all Facebook users who fall into this category, which amounted to 25,593,175 on October 4, 2014. What is the value of the single ad presented to a user? It is the average labor or usage time needed for the production of the ad presentation. Let’s assume these 25,593,175 million users are on Facebook an average of 60 minutes per day and that 60 ads are presented to them during these 60 minutes on average. All the time they spend online is used for generating targeted ads. It is labor time that generates targeted ad presentations. We can therefore say that the value of a single ad presented to a user in this example is one minute of labor, usage, or prosumption time. In 2012, Facebook had 4,619 employees and 1.06 billion active users.17 In August 2012, users spent on average 7 hours and 46 minutes on the site.18 We can therefore calculate that an average user spent 93.2 hours per year on Facebook. In total this means 93.2 × 1.06 billion = 98.792 billion hours of annual Facebook usage time. Furthermore, from Facebook’s financial reports,19 we have data for 2012, shown in Table 26.1. According to other data, the average working day of Facebook’s employees is 9–10 hours, so we can set it at 9.5 hours.20 This means that in total, Facebook employees worked in 2012 around 10 million hours: 4,619 employes × 9.5 hours × 5 days × 45 weeks = 4,619 × 2,137.5 hours = 9,873,112.5 hours. What do Facebook employees earn on average? Statistics from glassdoor.com allow an approximation. Glassdoor is a platform where employees report average salaries and review working conditions. The data in Table 26.2 are based on reports from N = 1,499 persons. Based on these data, we can estimate that the salary of an average Facebook employee is $120,675. We can approximate Facebook’s total 2012 wage costs: If there are 4,619 employees with an average salary of $120,675, then the average 2012 wage costs are: 4,619 employees × $120,675 = $557,397,825.

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TABLE 26.1 Financial Data for Facebook, 2012 ($)

Revenue Profit before taxes Costs (constant and variable capital, share-based compensations)

5.089 billion 538 million 1.57 billion

Source: SEC filings, form 10-K, 2012

TABLE 26.2 Estimation of Facebook Employees’

Average Wages, N = 1,499 ($) Software engineer Research scientist Production engineer Product designer Operations engineer Product manager Software engineer Technical program manager Data scientist Engineering manager Senior software engineer User operations analyst Software engineer User interface engineer Software engineering new grad Database engineer Applications operation engineer Average

117,652 128,996 126,565 123,460 98,789 136,561 100,100 146,063 124,051 155,724 147,144 43,518 145,194 115,299 106,000 131,500 104,852 120,675

Source: glassdoor.com, accessed December 1, 2013

The data allow calculating the following shares: • • • • • •

•

• •

wage share (variable capital) in revenues: 11.0%; capital share in revenues (profit + constant capital + share-based compensation): 89.0%; profit share in revenues: 10.6%; shareholder compensation share in revenues: 34.5%; constant capital share in revenues: 43.9%; total working hours: – employees: 9,873,112.5 hours; – users: 98.792 billion hours; – total: 9,873,112.5 + 98,792,000,000 = 98,801,873,112.5 hours; number of unpaid working hours: – 89% of employees’ working hours were unpaid = 8,787,070.1 hours; – 100% of users’ working hours were unpaid = 98.792 billion hours; – total unpaid working hours = 98,792,000,000 + 8,787,070.1 = 98,800,787,070.1; total paid working hours: 9,873,112.5 × 0.11 = 1,086,042.4; rate of exploitation (Facebook, 2012): unpaid labor time / paid labor time = 98,800,787,070.1 hours ÷ 1,086,042.4 = 90,973.

The macro-economic wage share is the share of an economy’s wage sum in the GDP. The macro-economic profit share is the share of the sum of an economy’s profits in the GDP. We can approximate these shares the following way: Wage Share (ws) = net operating surplus (NOS) GDP Profit Share (ps) = compensation of employees (COE) GDP. The U.S. economy-wide profit share was 24.8% in 2012 and the wage share 53.1%.21 As shown, I estimated the company-level equivalents of the profit share and the wage share for Facebook:

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Facebook’s wage share was 11.0% in 2012 and its profit share 45.1% (when profits are calculated as the sum of actual profits and paid-out shareholder compensation). Facebook achieves such a high profit share by keeping its wage costs low. Calculating exploitation at the level of prices only allows taking wage labor into account, not unpaid labor that also creates value. Therefore, we need to calculate also at the level of labor time in order to analyze non-wage workers’ unpaid labor time of non-wage as a source of value. By performing such a calculation, we can see that unpaid labor is a huge source of value for social media.

New Developments Facebook made an initial public offering on the NASDAQ stock market in 2012 with an opening price of $38 per stock.22 Its market capitalization (the amount of issued shares multiplied by the stock price) increased from $81.7 billion at the start of its stock market presence on May 18, 2012, to around $200 billion in autumn 2014.23 Facebook’s capital assets grew from $14.9 billion in June 201224 to $20.8 billion25 in June 2014. Whereas the market value increased during the same time period by almost 250%, Facebook’s capital increased by 40%. As a consequence, the difference between Facebook’s market value and its capital assets increased from a factor of 5 in 2012 to a factor of 10 in 2014. This increasing differential between market value and capital is an indication of Facebook’s overvaluation. Whereas the growth of Facebook’s capital is based on the exploitation of users’ digital labor, the growth of its market capitalization is based on investors’ assumptions that Facebook’s profitability will forever grow rapidly. The 2000 dot-com crisis of the Internet economy was an example of financial bubbles that result from the difference between expectations and reality of profitability. Since the mid-1970s, profitability in the world economy has remained unstable and fluctuating, which has increased the growth in speculative financial markets that promise high short-term returns but are high-risk and highly volatile. Twitter started trading stocks on the New York Stock Exchange in November 2013, Weibo on the NASDAQ stock market in April 2014. Twitter’s annual loss amounted to $647 million in 2013;26 Weibo’s annual loss was $38 million in 2013.27 These two examples, just like Facebook’s growing difference between capital and market capitalization, are indications that financial capital underlies the social media industry. The monetary profits are driven by the exploitation of users’ digital labor. The financial investments enable social media companies to operate but at the same time decouple their financial economy from their capital/labor economy. This simultaneous coupling and decoupling of the financial and the capital/labor economy in the social media industry can only work as long as a significant amount and share of profits can be derived from targeted advertising and investors maintain large-scale confidence that such ads are a viable form of capital accumulation. How often do you click on an ad that is presented to you on Facebook or another corporate social media platform? And if you click, how often do you buy something on the website to which you are transferred? Online advertisements’ click-through rate is on average just 0.1%,28 which means that users tend to click on 1 out of 1,000 ads presented to them. And if a user clicks on a targeted ad, we do not know whether such single clicks make them buy commodities on the websites they are referred to or not. In addition, more and more users find any form of online advertising annoying and use ad-block software and do-not-track cookies. If the belief that targeted ads work suddenly dwindles when one larger social media platform is in decline, for example, the social media bubble may burst. Bursting financial bubbles always have devastating social, political, and economic effects. There are many reasons not to wait until the social media bubble explodes, but to start establishing and supporting alternatives to corporate social media.

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Political Profile This section discusses Facebook’s ownership structures, ties to the state and lobbying efforts, corporate board members and interlocking directorates, and social marketing.

Ownership Table 26.3 shows Facebook’s largest shareowners. The difference between class A and B stock is that holders of class A stock have one vote per share while holders of class B stock have 10 votes per share at the Annual Facebook Meeting.29 Mark Zuckerberg is not only Facebook’s co-founder, chairman, and CEO, he also holds the majority of all stock and absolute majority of the voting power, which means that he is the company’s main financial profiteer and decision-maker. Facebook co-founders Dustin Moskovitz and Eduardo Saverin also hold significant shares of stock and voting power. The U.S. financial investment company Fidelity controls a significant share of class A stock, which shows the importance of financial investors for corporate social media. Large investors in Facebook that funded the company’s early development were the U.S. venture capital firm Accel Partners, which owned around 15% by investing $12.7 million in 2005, and Mail.ru that invested $200 million in 2009. In 2010, Accel Partners sold its Facebook ownership share for $35 billion.30 Mail.ru sold its Facebook shares in 2013 for $525 million.31 These examples show a typical strategy of financial capital: investing in start-up companies and selling their ownership shares after these firms have increased their capital or market value in order to make a profit. Facebook’s successful exploitation of digital labor translates into a growing wealth for its owners. In 2014, Mark Zuckerberg was the world’s 13th richest person,32 his net worth being $34.1 billion. In the computer industry, only Bill Gates (Microsoft, #2) and Larry Elison (Oracle, #5) were richer than Zuckerberg.

Ties to the State and Lobbying Efforts An important link between the capitalist economy and the state is taxation. In the U.K., Facebook paid £238,000 corporate tax on a U.K. revenue of £175 million (0.1%) in 2011.33 In 2012, it paid no corporate tax on U.K. revenues of £223 million.34 In order to avoid paying taxes, Facebook makes use of what is called the “Double Irish Strategy” in the economic world: its European headquarters are based in Dublin, Ireland. Existing tax regulation allows Facebook and other transnational companies to shift revenue from a country with higher tax rates to ones with lower tax rates. In the “Double Irish Strategy,” two companies work together: one is an Irish company resident in a tax haven (the Cayman Islands in Facebook’s case), while the other one resides in Ireland. The company based in Ireland receives revenues

TABLE 26.3 Facebook’s Largest Shareowners (%)

Mark Zuckerberg, chairman and CEO All other directors and executive officers together Dustin Moskovitz Eduardo Saverin Entities affiliated with Fidelity

Class A Stock

Class B Stock

% of Voting Power

0.00001 0.9 2.3 0.0002 7.1

74.3 9.0 8.5 9.3 –

55.2 6.0 6.9 6.9 1.8

Source: Facebook SEC filings, form DEF 14A, Definitive Proxy Statement 2014, March 31, 2014

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that Facebook makes outside of the U.S. that it offshores to the company in the Cayman Islands by paying licensing fees to it that are tax deducible in Ireland. For the remaining profits, it pays corporate tax at the level of 12.5% in Ireland. Using this strategy, Facebook in 2011 paid only £2.9 million in taxes on non-U.S. profits of £840 million (0.3%).35 Facebook’s tax avoidance strategy is indicative of how states operate under neoliberal capitalism. The state is not passive or unregulated, but rather regulates the economy with the help of laws in such a way that capitalist companies derive profits at the expense of the public. The bourgeois state’s law protects capitalism. Legislation tends to be predominantly national, whereas the capitalist economy is global, which creates a contradiction between national legislation and global capitalism. Also the Internet is a global system. Internet companies such as Facebook therefore bring together global capitalism and a global communication system, which makes it difficult for nation states to effectively regulate and tax such corporations. Being driven by the fear of losing investments in their countries, many states choose not to tax global corporations at all, which undermines public finances and is an even more severe problem in times of austerity. Facebook has again and again faced massive public criticism because of privacy violations. For example, the Europe v. Facebook initiative36 filed 22 complaints against Facebook to the Irish Data Protection Commissioner. It argued that Facebook had breached European and Irish data protection laws. The issues in question concerned users’ consent to the privacy policy; excessive data storage; liberal standard privacy settings; the deletion of postings, images, and messages; consent to the storage of data about pokes; shadow profiles; tagging; mobile data use; postings on other users’ walls; facial recognition; and third-party applications and likes.37 The legal results of this conflict were negligible and did not in any way decrease Facebook’s capacity to commodify personal data. Ireland’s Data Protection Commissioner, Billy Hawkes tends to be soft on companies and concluded that it is a fair deal that Facebook provides free platform access and in return commodifies personal data.38 The privacy critique of Facebook is a rather liberal discourse grounded in the ideology of possessive individualism whereby data are seen as an individually owned private good that is in the wrong hands because it is owned by Facebook and not by the users. The logical implication is that it is evil if Facebook makes profits out of data, but legitimate if a user makes profit out of his or her own data. An individualistic privacy discourse cannot adequately challenge the profit and commodity logic. A socialist privacy strategy that argues for privacy of consumers, workers, and citizens, while simultaneously advocating for greater surveillance of the state and companies reverses the existing power relations. Such a strategy can challenge the power of corporations and the capitalist state while strengthening citizens’ interests. In a classless society devoid of any domination, more personal data can be shared in public because humans would be less prone to suffer disadvantages when doing so than in class-based societies. In the years 2011–2014, Facebook spent annually between $1 million and $6 million on political lobbying.39 It hired lobbying firms such as Elmendorf Ryan, Peck Madigan Jones, Squire Patton Boggs, Steptoe & Johnson, and Stewart Strategies & Solutions for this purpose. Facebook paid for lobbying on political issues and laws concerning visas and permanent residency for high-tech workers, online privacy, children’s online privacy and safety, corporate taxes, intellectual property, advertising, free trade, and education about the Internet. These examples show that laws in capitalist societies are not just issues of rational parliamentary discourse and decision making, but rather have their own political economy in which corporations purchase lobbying efforts that represent their interests as commodity. Three examples of Facebook’s lobbying spending—corporate tax, data protection policies and legislation, and lobbying—show how bourgeois state power40 works in favor of Facebook. State power supports, protects, and legitimizes Facebook’s exploitation of digital labor and its monitoring of users for economic purposes.

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The bourgeois state supports Facebook, but the reverse is also true. Facebook has supported the state’s power of control over citizens: In June 2013 and with the help of the Guardian, Edward Snowden revealed the existence of large-scale Internet and communications surveillance systems such as Prism, XKeyscore, and Tempora. According to the leaked documents, the National Security Agency (NSA) in the U.S. obtained direct access to user data from seven online/ICT companies via the Prism program, including Facebook.41 Mark Zuckerberg denied that his company is part of Prism in a posting on Facebook from June 7, 2013. The question is, however, why the NSA should make such claims in its internal documents if they are not true and why Edward Snowden should lie. Driven by the ideology that surveillance and violence (warfare, law, and order politics) are fixes to terrorism after 9/11, Western nation states have intensified and extended surveillance, including Internet surveillance. In the surveillance-industrial complex, user data are first externalized and made public or semi-public on the Internet in order to enable users’ communication processes, then privatized as private property by Internet platforms in order to accumulate capital, and finally particularized by secret services who bring massive amounts of data under their control that are then made accessible and analyzed worldwide with the help of profit-making security companies. As such, the relationship between Facebook and the nation state is a very good example of how state power and corporate power scratch one another’s back.

Corporate Board Members and Interlocking Directorates Facebook received its first venture capital injection of $500,000 from Peter Thiel in 2004. Thiel is a co-founder of PayPal and a venture capitalist. Thiel is also on Facebook’s board of directors, which is an example of financial investors not just acquiring economic shares of a company, but thereby also gaining an important role in its governance structure. Table 26.4 gives an overview of Facebook’s board of directors and indicates of which other company boards the directors are members. Table 26.4 shows that Facebook’s board is interlocking with other corporations, especially with companies in the realms of finance and venture capital, media and entertainment, and retail. The link to the financial industry shows that Internet companies such as Facebook tend to be started and based on venture capital and financial investments that allow financial companies to gain

TABLE 26.4 Facebook’s Interlocking Board

Name

Role at Facebook

Mark Zuckerberg

Chairman, CEO

Other board involvements

Sheryl Sandberg

Chief Operating Officer Walt Disney Company (entertainment)

Marc Andressen

Director

Andreessen Horowitz (venture capital), eBay Inc. (online retail), Hewlett-Packard Company (ICTs)

Erskine B. Bowles

Director

Morgan Stanley (finance), Belk Inc. (retail), Norfolk Southern Corporation (railway)

Susan DesmondHellmann

Director

The Gates Foundation (private foundation), The Procter & Gamble Company (consumer goods)

Donald E. Graham

Director

The Washington Post Company (news media)

Reed Hastings

Director

Netflix Inc. (online entertainment)

Peter A. Thiel

Director

Thiel Capital (venture capital), Founders Fund (venture capital), Clarium Capital Management (hedge fund)

Source: http://investor.fb.com/directors.cfm, accessed October 4, 2014

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governance and ownership stakes. Facebook also interlocks with other media companies with which it does not compete.

Social Marketing Corporate social responsibility (CSR) is an ideology that capitalist companies use for trying to present themselves in a positive light to the public. Media and communications companies have discovered the importance of CSR as a way to distract attention from how their capitalist operations harm humans, society, and nature.42 The critical cultural theorist Marisol Sandoval has theorized and analyzed CSR in the media and cultural industry, and she claims: CSR matches the logic of contemporary capitalism: in the context of globalization and neoliberal deregulation, which created regulatory gaps, the idea of socially responsible corporations [. . .] is used as an argument to legitimize deregulation and voluntary corporate self-regulation. [. . .] CSR furthermore becomes a necessary component of corporate image and reputation management.43 CSR is a contradictio in adjecto: capitalist corporations necessarily exploit workers and are therefore always irresponsible. “CSR cannot fulfil its promises, it cannot wipe off the monstrous features of capital, it cannot make corporate media social.”44 Unlike many other transnational media companies, Facebook did not have a CSR strategy as of 2014 and also did not publish CSR reports. This may be an indication that Facebook’s management thinks it is inherently doing good by allowing people to communicate and providing a platform for charities, that this circumstance is self-explanatory, and that it therefore does not have to write ideological reports explaining what is good about it. Communication as such is, however, neither good nor evil. Facebook is a platform for the Clean Clothes Campaign, War on Want, and Oxfam, among many others. Indeed, Facebook provides publicity for fascist and far-right groups such as the German NPD, the French Front National, the English Defence League, and the British National Party. Therefore, there is nothing inherently benevolent or morally good about Facebook as such. In 2013, Mark Zuckerberg helped found the advocacy group FWD.us that works for immigration reform. The main funders are Silicon Valley capitalists such as Zuckerberg, Reid Hoffman (LinkedIn), Drew Houston (Dropbox), Steve Chen (YouTube), Brian Chesky (Airbnb), Reed Hastings (Netflix), Marissa Mayer (Yahoo!), and Eric Schmidt (Google). Others include, for example, Bill Gates and Steve Ballmer (Microsoft), or Tim Armstrong (AOL). Zuckerberg explained that to “lead the world in this new [knowledge] economy, we need the most talented and hardest-working people,” which is why FWD.us lobbies for immigration reforms that “attract the most talented and hardest-working people, no matter where they were born.”45 Zuckerberg makes clear his instrumental and particularistic understanding of political causes. He does not mention what should happen with poor migrants that flee from poverty and warfare caused by global imperialism and who therefore want to get into Western countries. FWD.us rather supports providing “law enforcement the tools necessary to secure the borders.”46 The focus here aligns FWD.us with the right-wing goal of closing the borders for poor migrants and also other Silicon Valley firms that develop surveillance technologies funded by the state. Zuckerberg focuses political attention on lobbying for easier immigration for the lucky few who are highly skilled. The goal of FWD is to provide a legal framework that makes it easier for tech companies to employ workers whose skills produce a lot of surplus value and therefore help these corporations to further increase their profits. As such, Facebook’s understanding of social causes is imperialist and capitalist. It seeks only its own monetary advantages, not advantages for

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all and for society as a whole. Zuckerberg and other Silicon Valley capitalists are surely convinced that egoistic profit seeking creates a better society, but the reality of neoliberalism—the massive increase of inequalities—has falsified such assumptions.

Cultural Profile This section discusses Facebook’s ideology and aspects of popular culture.

Symbolic Universe/Ideology Facebook’s self-understanding is that it is an online platform that wants “to give you the power to share and to make the world more open and connected.”47 Zuckerberg continuously foregrounds Facebook’s use-value for sharing, communication and sociality: •

•

“At Facebook, we build tools to help people connect with the people they want and share what they want, and by doing this we are extending people’s capacity to build and maintain relationships. People sharing more—even if just with their close friends or families—creates a more open culture and leads to a better understanding of the lives and perspectives of others. We believe that this creates a greater number of stronger relationships between people, and that it helps people get exposed to a greater number of diverse perspectives.”48 “Our mission is to make the world more open and connected. We do this by giving people the power to share whatever they want and be connected to whoever they want, no matter where they are.”49

Social media ideologies use language that constantly stresses sharing, empowerment, connecting, opening, access, inspiring others, creating, informing, fun, collecting, and loving something. This engaging/connecting/sharing ideology is grounded in an individualistic and consumerist notion of freedom that stresses social media’s enablement of single users to communicate, create, consume, and share more. Corporate social media have hijacked the concept of free access and turned it into an ideology that tries to conceal the existence of a mode of capital accumulation based on the commodification of personal data and targeted advertising. Corporate social media present themselves as free, open, and social, but are in reality unfree, closed, and particularistic machines for the commodification of personal data that produce and sell targeted ads. The problem is that Internet companies, consultants, managers, and those who believe in their ideology do not see that freedom is, as Karl Marx stressed, a “realm of freedom”50 that is not based on the logic of profitability and accumulation but the principle “from each according to his ability, to each according to his needs!”51 The implication is that the “first freedom” of the media “consists in not being a trade.”52 The engaging/connecting/sharing discourse is an ideology because it only views social media positively and is inherently technological-deterministic. It assumes that social media technologies have positive effects, and it disregards the power structures and asymmetries into which it is embedded. Social media ideology is an expression of what Herbert Marcuse terms one-dimensional language, by which he means “ideas, aspirations, and objectives that, by their content, transcend the established universe of discourse and action are either repelled or reduced to terms of this universe.”53 The engaging/connecting/sharing ideology stresses only the use-value and advantages of social media in order to ideologically forestall discussion and critique of its negative, exploitative, dominative dimensions of exchange value and surveillance. Such an undialectical one-dimensional ideology is not just a discourse from and about Facebook, but it is also embedded in Facebook’s design as well. Facebook is all about “liking”

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what others post, which fosters a culture of agreement without disagreement, of cheering and celebrating that suppresses critique. Facebook’s one-dimensional culture of positivity that represses critique turns, however, into a repressive negativity, namely into an individualism that makes users compete for likes, attention, and recognition. Facebook is not just a capital accumulation machine that exploits digital labor but also a machine for the production and reproduction of the neoliberal self. Ideologies are strategies of dominant classes and groups for legitimatizing their power. It is not determined how dominated groups and individuals react to ideologies. It is, however, rather difficult for users to think of corporate social media use as labor or exploitation because the inverted commodity fetishism present on corporate social media creates a social experience and social usevalue for users that tries to ideologically hide the role of the commodity and class relations.54 There are empirical indications that social media users on the one hand cherish the social usevalue such platforms offer, but at the same time have concerns about privacy and surveillance.55 Users tend to have relatively little knowledge about how the surveillance and commodification of data actually works and, at the same time, are highly critical of targeted advertising.56 The more users know about how targeted advertising works, the more skeptical they tend to be of it.57

Popular Culture Facebook has become one of the main platforms for popular culture that shapes human practices, communication, and meaning-making in everyday life. Facebook is a public relations platform for all sorts of commercial and non-commercial popular culture. It has also been the subject of popular forms of culture, such as The Simpsons (Season 23 [2013], Episode 11: The D’oh-cial Network). The most well-known example is the 2010 movie The Social Network (distributed by Columbia Pictures, a division of Sony Pictures, which is a subsidiary of Sony) that tells the story of Facebook’s creation as a college network. The film achieved worldwide box-office revenues of more than $220 million.58 The movie advances the ideological view that in the American Dream a good idea such as Facebook can make you famous and popular. It completely ignores Facebook’s political economy and the fact that Facebook’s popularity would have been unlikely if financial companies, such as Accel Partners, Greylock Partners, or Meritech Capital, had not provided millions of U.S. dollars in venture capital. The capitalist culture and finance industry has a huge influence on what becomes popular. The movie, however, focuses on the individual activities of entrepreneurs and completely ignores the role of users’ digital labor in Facebook’s economic growth.

Concluding Remarks This chapter has shown that Facebook is a capitalist social media giant that exploits users’ digital labor, commodifies personal data, fosters financialization, undermines capital taxation and the public interest, is part of a surveillance-industrial complex, fosters an uncritical and one-dimensional engaging/connecting/sharing-ideology, and is a machine for the production and reproduction of the neoliberal self. The critique of the political economy of global media giants is useful not just for its critique of media capital, however, but also as a way to understand various expressions of underlying capital/labor contradictions and also as a way to reflect upon and support the potential for class struggle and alternatives to a capitalist media world. As such, there have been attempts to establish alternative, non-commercial, non-profit, and user-controlled social media platforms such as N-1, Lorea, Diaspora, identi.ca, StatusNet, Quitter, Vinilox, Load Average, Thimbl, or Crabgrass. The problem they face is Facebook’s monopolistic status that tends to lock in users, as well as the lack of resources (money, employees, users, server space, bandwidth, etc.) necessary for operating

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an anti-capitalist social media platform. Such anti-capitalist social media are critical but, at the same time, they are marginalized and largely invisible to most people. In 2014, the social network Ello presented itself as alternative to Facebook and to targeted advertising (“simple, beautiful & ad-free”), which attracted users and made it the 6,112th most accessed website in the world on October 4, 2014.59 Its capital accumulation model was to sell special features. Venture capital firm Fresh Tracks invested around $435,000 into Ello in 2014. Ello is not fundamentally different from Facebook because both are capitalist social media. Being ad-free is not enough—the point is that you have to be non-capitalist in order to be an alternative to Facebook. In late 2014, Ello received another venture capital injection of $5.5 million. Facebook is an expression of the contradictions of communication in capitalism. It shows how social life under capitalist relations serves particular profit interests that monetarily benefit single individuals. As an alternative, digital class struggle is a political strategy that aims at creating a noncapitalist, commons-based Internet. Such a strategy needs to consider the relationship between social movements and state power, alternative social media projects and public service social media, civil society and state institutions. In addition, digital labor unions could support these struggles. We need a participatory media fee that taxes the rich companies and distributes this income to all citizens with the help of participatory budgeting. In turn, these citizens would be obliged to donate it to non-commercial alternative media projects. We need an alternative Internet and an alternative to Facebook. A truly social media is a good idea that has not yet been realized, and it can only become reality within and through class struggle against capitalism. This requires the “responsibility to socialize corporations” (RSC),60 which entails “replacing the privately owned and controlled commercial media system with a commonly owned and controlled commons based media system.”61

Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

See Tim O’Reilly, “What Is Web 2.0: Design Patterns and Business Models for the Next Generation of Software,” September 30, 2005. http://oreilly.com/web2/archive/what-is-web-20.html Christian Fuchs, Culture and Economy in the Age of Social Media (New York: Routledge, 2015); Christian Fuchs, Digital Labor and Karl Marx (New York: Routledge, 2014); Christian Fuchs, Social Media: A Critical Introduction (London: Sage, 2014). Fuchs, Digital Labor . . . , 2014; Fuchs, Culture and Economy . . ., 2015. Facebook, SEC Filings, Form 10-K, 2014. Facebook, SEC Filings, Form 10-K and Annual Report 2013. Facebook, SEC Filings, Form 10-K and Annual Report 2014. http:/www.forbes.com/global2000/list/ Facebook, SEC-Filings, Form 10-K, 2012. Karl Marx, Capital. Volume I (London: Penguin, 1867), 353. Marx, Capital, 342. Marx, Capital, 367. Dallas W. Smythe, “Communications: Blindspot of Western Marxism,” Canadian Journal of Political and Social Theory 1(3) (1977). Smythe, “Communications . . .,” 6. Fuchs, Culture and Economy . . .; Fuchs, Digital Labor . . .; Fuchs, Social Media . . . ; Lee McGuigan and Vincent Manzerole, eds, The Audience Commodity in a Digital Age: Revisiting a Critical Theory of Commercial Media (New York: Peter Lang, 2014). Marx, Capital, Chapter 1. Trebor Scholz, ed. Digital Labor: The Internet as Playground and Factory (New York, Routledge, 2013). Facebook, SEC filings, Form 10-K, 2012. Ben Parr, “You Spend 8 Hours Per Month on Facebook,” http://mashable.com/2011/09/30/wastingtime-on-facebook/, accessed on January 7, 2014. SEC filings, Form 10-K, 2012. Steven Grimm, “What are the Average Working Hours per Day for a Facebook Engineer?,” Quora, Oct. 31, 2010, www.quora.com/Facebook-company/What-are-the-average-working-hours-per-dayfor-a-Facebook-engineer, accessed on January 7, 2014.

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20 Steven Grimm, “What are the Average Working Hours per Day for a Facebook Engineer?,” Quora, Oct. 31, 2010, www.quora.com/Facebook-company/What-are-the-average-working-hours-per-day-for-aFacebook-engineer, accessed on January 7, 2014. 21 Annual Macro-Economic Database of the European Commission’s Directorate General for Economic and Financial Affairs (AMECO), http://ec.europa.eu/economy_finance/db_indicators/ameco/index_en. htm. 22 Yahoo! Finance, http://finance.yahoo.com/ 23 Yahoo! Finance, https://ycharts.com/ 24 Facebook, SEC filings, Form 10-Q, June 30, 2012. 25 Facebook, SEC filings, Form 10-Q, June 30, July 2014. 26 Facebook, SEC filings, Form 10-K, 2013. 27 Facebook, SEC filings, Form F-1 – Registration Statement. 28 Comscore, The Power of Like2: How Social Marketing Works. White Paper. June 2012. www.comscore. com/Insights/Presentations-and-Whitepapers/2012/The-Power-of-Like-2-How-Social-MarketingWorks 29 Facebook, Definitive Proxy Statement, 2014. 30 http://techcrunch.com/2010/11/19/accel-facebook-chunks-of-stock/ 31 Megan Davies, “Russia’s Mail.Ru sells remaining Facebook stock,” Reuters Online, September 5, 2013 www.reuters.com/article/2013/09/05/us-mailru-results-idUSBRE98409720130905. 32 Abram Brown, “Forbes List of the World’s Billionaires 20.4,” Forbes, March 3, 2014, www.forbes. com/sites/abrambrown/2014/03/03/forbes-billionaires-full-list-of-the-worlds-500-richest-people/ #7e56ecae6c87. 33 Stephen Moss, “Should We Boycott the Tax-avoiding Companies?” The Guardian Online. Shortcuts Blog. October 17, 2012. www.guardian.co.uk/business/shortcuts/2012/oct/17/boycotting-taxavoiding-companies 34 Juliette Garside, “Facebook’s UK corporation tax bill: £0,” The Guardian Online. October 8, 2013. www.theguardian.com/business/2013/oct/08/facebook-uk-corporation-tax-zero-income 35 Rupert Neate, “Facebook Paid £2.9m Tax on £840m Profits Made Outside US, Figures Show,” The Guardian Online. December 23, 2012. www.theguardian.com/technology/2012/dec/23/facebook-taxprofits-outside-us 36 Europe versus Facebook, http://europe-v-facebook.org/EN/en.html 37 For a detailed discussion, see: PACT 2012, Annex 2.D, June 29, 2012, www.consilium.europa.eu/ uedocs/cms_Data/docs/pressdata/en/ec/131388.pdf. 38 Mark Tighe, “Data commissioner: I Was Not Too Soft on Facebook,” The Sunday Times. January 8, 2012, www.thesundaytimes.co.uk/sto/news/ireland/News/Irish_News/article853298.ece. 39 Data source for all information provided in this paragraph: OpenSecrets.org, “Facebook Inc,” www.opensecrets.org/lobby/clientsum.php?id=D000033563 40 I here use the term “bourgeois state power” in order to indicate that under socialist governments, limits could be put on corporate power. 41 Glenn Greenwald and Ewen MacAskill, “NSA Prism Program Taps in to User Data of Apple, Google and Others,” The Guardian Online. June 7, 2013. www.theguardian.com/world/2013/jun/06/us-techgiants-nsa-data 42 Marisol Sandoval, From Corporate to Social Media: Critical Perspectives on Corporate Social Responsibility in Media and Communication Industries (New York: Routledge, 2014). 43 Sandoval, 2014, 251. 44 Sandoval, 2014, 253. 45 Mark Zukerberg, “Mark Zuckerberg: Immigrants are the Key to a Knowledge Economy,” The Washington Post. April 10, 2013. www.washingtonpost.com/opinions/mark-zuckerberg-immigrantsare-the-key-to-a-knowledge-economy/2013/04/10/aba05554-a20b-11e2-82bc-511538ae90a4 _story.html 46 FWD/us, www.fwd.us/about_reform, accessed on October 5, 2014. 47 “About Facebook,” , accessed on October 4, 2014. 48 “Mark Zuckerberg’s Letter to Investors: “The Hacker Way,” Wired Online. February 1, 2012. www.wired.com/2012/02/zuck-letter 49 Mark Zuckerberg, “Mark Zuckerberg’s Full Statement on Facebook Buying WhatsApp,” The Guardian. February 20, 2014. www.theguardian.com/technology/2014/feb/20/mark-zuckerberg-statementfacebook-buying-whatsapp 50 Karl Marx, Capital Vol III: A Critique of Political Economy: Vol. 3 (London: Penguin, 1894), 958. 51 Karl Marx, Selected Writings, 2nd ed., ed. David McLellan (Oxford: Oxford University Press, 2000), 615. 52 Karl Marx, On Freedom of the Press & Censorship (New York: McGraw-Hill, 1974), 41.

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53 Herbert Marcuse, One Dimensional Man (Boston, MA: Beacon Press, 1964), 12. 54 Christian Fuchs, Digital Labor and Karl Marx (New York: Routledge, 2014). 55 Thomas Allmer, Christian Fuchs, Verena Kreilinger, and Sebastian Sevignani, “Social Networking Sites in the Surveillance Society: Critical Perspectives and Empirical Findings,” in André Jansson and Miyase Christensen (Eds.), Media, Surveillance and Identity: Social Perspectives (New York: Peter Lang, 2014), 49–70. 56 Ibid. 57 Ibid. 58 Box Office Mojo, “The Social Network.” Accessed October 4, 2014 from www.boxofficemojo.com/ movies/?id=socialnetwork.htm 59 Data source: www.alexa.com 60 Marisol Sandoval, From Corporate to Social Media: Critical Perspectives on Corporate Social Responsibility in Media and Communications Industries (New York: Routledge, 2014), 256. 61 Ibid., 257.

PART V

Global Ratings and Advertising Giants

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27 NIELSEN HOLDINGS Daniel Biltereyst and Lennart Soberon

The A.C. Nielsen Company (ACN) is a global market research company that provides market and media data. Nielsen is present in over 100 countries and has based its chief offices in New York and Diemen, The Netherlands. The original company dates back to the 1920s and has since then expanded its services, clients, and influence on a massive scale. Not only does Nielsen have insight into (media) consumers, their behavior and demographics, but ACN also offers strategic advice and specified analysis to advertising agencies, television broadcasters, program syndicators, and system operators. The company used to be divided into research giant ACNielsen and media research company Nielsen Media Research, yet it also included the Internet statistics service Nielsen//NetRatings, marketing service provider Claritas, and a series of small companies specialized in collecting and analyzing socio-demographic data. Since 2006, The Nielsen Company is owned by a consortium of private investors, called Valcon Acquisition Holding. Since this acquisition and until 2014, David L. Calhoun, a former vice-chairman of General Electric, was at the helm and responsible for the company’s surge in success over those years. The current CEO is company veteran Mitch Barns. Nielsen employs approximately 40,000 people worldwide and provides its services to clients from various industries, including NBCUniversal, The Coca-Cola Company, Twenty-First Century Fox Inc., and The Procter & Gamble Company. Throughout its history, the company has been the subject of intense debates and controversy within the industry. Nielsen has succeeded in maintaining its monopoly position over 90 years by a number of economic strategies, well-timed consolidation, and innovations, but the company has also acquired a reputation for handling competitors with hostility and hindering innovative progress for corporate gain. In that sense, for a long time there has been a climate of controversy and debate surrounding the company’s business strategies and services (for instance, in 2002 a customer satisfaction survey affirmed Nielsen as the least popular among 13 world rating services).1 Yet Nielsen remains one of the leading marketing research companies on a global scale and its influence in the fields of consumer measurement, broadcasting, advertising, and many other activities cannot be underestimated. Because of the company’s unique position, this chapter will shed some more light on the global media giant and its activities. Although this chapter aims at discussing Nielsen from a data-driven, political-economic perspective, it is important to recognize the company’s exceptional position in terms of audience surveillance and knowledge.2 The relevance of Nielsen greatly depends on the demand for knowledge on audiences, and for this reason, a political economy of audience measurement as a knowledge-producing power is an appropriate form of analysis for deciphering the institutional need to know how it is connected with the control of audiences’ behaviors, thoughts, and feelings.3

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History In 1923 Arthur C. Nielsen founded A.C. Nielsen. The company was one of the first to specialize in marketing research and started by surveying the performance of industrial equipment. A.C. Nielsen soon expanded its services by building up purchase and sales indexes for retail stores and subsequently keeping track of their share in the market (Nielsen would be the first to coin the term Market Share). With the Nielsen Drug Index and Nielsen Food Index, the company would periodically visit stores and measure their stock and invoice by using a system developed by the company in which they could deliver detailed information concerning the unit sale of the store’s products. This was only be the start of the expansion of the company’s registering services, as in the 1930s they became involved in audience studies. In 1936 Nielsen launched the Audimeter, a black box-like device attached to a radio and capable of registering the stations to which the radio had been tuned. Several years after its commercial introduction, Nielsen used its Audimeter to launch a national radio rating service in 1942; this would signify the start of audience measurement, and with it the first step in the transformation of the advertising industry. Despite only starting with over a thousand homes, it would only take the company a few years to increase its reach exponentially. By 1946 Nielsen’s rating service claimed to represent 97% of American households.4 After the Second World War, Nielsen started offering its services to Western Europe, Australia, and Japan, which marked the start of the company’s global expansion. In 1950, Nielsen acquired rivaling radio and television auditor Hooper, from then on holding a quasi-monopoly position in the field of national radio rating services. One side effect was that the company was able to increase rates, a feat that would be a defining characteristic in the company’s history. Nielsen’s attention turned more and more to the field of television. Using a selection of American households, Nielsen kept audience-viewing diaries of what these families were watching. From the 1960s to the 1980s, Nielsen was the quasi-monopoly provider for national television ratings. In 1973, Nielsen switched to the Storage Instantaneous Audimeter, also known as the Nielsen Black Box. This system measures viewing, as opposed to measuring tuning-in like the initial Audiometer. American families, dubbed “Nielsen families,” would be recruited to keep audience viewing diaries or “electronic diaries” in order to keep track of their viewing habits. In 1987, Nielsen perfected the technology with their Peoplemeter system (based on the model of AGB Television Research), a still-controversial measuring device capable of registering television receivers tuning out and in. Since the device’s initial rollout, Nielsen’s Peoplemeter methodology has been critiqued by scholars, industry professionals, and advertisers alike for its questionable accuracy and representativeness.5 Yet despite these ongoing objections and concerns, the Nielsen Peoplemeter immediately signified a force to be reckoned with and variations of aforementioned technology dominate the American television rating industry to this day. Arthur C. Nielsen retired in 1976, leaving his son, Arthur C. Nielsen Jr., in control of the company. Nielsen Jr. subsequently sold the company eight years later to Wall Street firm Dun & Bradstreet.6 Due to organizational restructuring, the Nielsen Media Research division responsible for media research became an independent company in 1996 and thus separated from AC Nielsen, the branch responsible for consumer shopping data. This triggered a series of changes and consolidations, most notably the sale of the media division to another company. Nielsen Media Research would change hands a number of times in the next year, finally ending up in the hands of Dutch publishing company VNU NV, which later acquired AC Nielsen and rejoined the two departments in 2001. VNU started building out its industry by combining Nielsen properties with other research and data collection companies such as BASES, Claritas, HCI, and Spectra. VNU was in the process of buying up companies that added to its measurement capabilities, or that would give them measurement insight into new fields, all the while getting rid of their past print-related acquisitions.

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As mentioned by Meehan and Torre,7 the history of the company’s ownership resembles the political and economic changes in the domestic ratings industry of the last 50 years. The Nielsen Company, as we know it today, finds its inception in 2007 after a buy-out of VNU NV by the financial consortium of six private equity firms, Valcon Acquisition Holdings. In 2007, VNU NV changed its name to the Nielsen Company in order to profit from the name’s brand reputation.

Economic Profile Nielsen’s strong market position is to be accredited to the company’s repeatedly tested ability to expand, diversify, and innovate. In preserving its power over the U.S. rating market, the company employs a series of strategies that have proven effectively in keeping its competitors at bay. In this section we will point out how the company has been able to hold a strong grasp on the U.S. market and will go into greater detail as to why it will, to all probability, continue to do so.

Financial Data Under the leadership of CEO David L. Calhoun, the company has expanded greatly and gone through a solid rise in revenues. From 2009 to 2014 Nielsen’s total revenue boasted a 5% raise, consistent in every single one of the company’s registering segments. According to a report by Hoover’s, this total revenue increase in recent years can be explained by clients’ demands for increasingly more data and analytics to orientate their business strategy in an ever-changing media landscape (see Table 27.1). It’s important to note that despite the fact that television audience ratings are the company’s most well-known business activity, they only represent 10% of the company’s business and revenues.8 Television ratings are but one small part of Nielsen’s Watch segment, consisting also of Internet and mobile measurement services. A possible reason for Nielsen’s sole association with television ratings is because they are the global leader in the field. The other major segment is Nielsen’s Buy, which is primarily concerned with all services related to retail measurement and consumer panels. Contrary to common knowledge, the company’s retail division is actually its largest business segment, responsible for close to two-thirds of global revenues by providing insights on such activities as the distribution, pricing, and promotion of retail goods. These two segments provide the large majority of Nielsen’s revenues (see Table 27.2). In 2011, for example, they together generated approximately 97% of the company’s annual revenue.

TABLE 27.1 Nielsen Company Revenues, 2007–2014 (in $ millions)

2007 2008 2009 2010 2011 2012 2013 2014

Total Revenue

Net Income

Total Assets

4,458 4,806 4,808 5,126 5,328 5,407 5,703 6,288

–354 –589 –491 13 84 273 736 381

16,135 15,091 14,600 14,429 14,504 14,585 15,530 15,360

Sources: Hoover’s, “Nielsen N.V. Profile” (2014), http://ir.nielsen.com/investor-relations/investor-news-and-media/pressreleases/Press-Release-Details/2015/Nielsen-Reports-Fourth-Quarter-and-Full-Year-2014-Results-34TH-ConsecutiveQuarter-of-Revenue-Growth/default.aspx

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TABLE 27.2 Nielsen Company’s Watch and Buy Segments’ Revenues, 2009–2013 (in $ millions)

2009 2010 2011 2012 2013 2014

Total

Watch

Buy

4,808 5,126 5,328 5,407 5,703 6,288

1,640 1,698 1,989 2,066 2,297 2,765

2,990 3,260 3,339 3,341 3,406 3,523

Source: The Nielsen Company: Press Release Details, accessed January 5, 2015, http://ir.nielsen.com/investorrelations/investor-news-and-media/press-releases/Press-Release-Details/2014/Nielsen-Reports-Fourth-Quarter-and-FullYear-2013-Results/default.aspx

Corporate Properties Since the December 31, 2009, the Nielsen company was restructured into two separate business segments.9 Nielsen’s corporate structure formerly consisted of media analysis division Nielsen Media Research and retail measurement division Nielsen Corp, but the company’s reorganization has considerably simplified its structure. Consumer Watch and Buy are both built on an extensive collection of proprietary data assets to which clients have access. As a full service provider, Nielsen offers both syndicate data and customized services.10 The company collects syndicate data in a large variety of forms and since advertisers are interested in the activities of their competitors, Nielsen helps to deliver these insights through syndicated services. The company’s business activities can be divided into two principal reporting segments: What Consumers Watch (containing registering services for television, radio, online, mobile) and What Consumers Buy (containing information and insights).

What Consumers Watch This division offers audience research and analysis for a wide range of media. Media clients use these data to price the inventory of their advertising, and advertising clients use them to organize their advertising spending and to make sure their ads reach the intended audiences.11 TV In the U.S., Nielsen ratings provide the primary source on which the value of specific airtime is based. Using these data, advertisers can plan their advertising campaigns and subsequently measure the effectiveness of these commercial messages, thus playing a big part in the negotiation of advertising rates. The television division of Nielsen Watch has a focus on both the national and the local level of television audiences. Using a variety of rating techniques, including electronic meters and written diaries, Nielsen collects both television viewing data and the demographics of the audience. Using such samples, Nielsen attempts estimations of the total television viewership (network and local) in the U.S. Nielsen’s data collection is being carried out in over 28 countries outside of the U.S., including Australia and India, and measures approximately 35% of all TV ratings on a global scale. Online Nielsen is also active in the measurement of Internet surfing, online purchases, video viewing, and social media use of online audiences. Nielsen’s online monitoring has a presence in 46 countries,

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including the U.S., France, and South Korea. According to Nielsen, this accounts for approximately 80% of global Internet users. Apart from common data metrics such as audience demographics, Nielsen offers a wide range of online behavioral observations. These observations not only estimate the effectiveness of online advertisements through page and ad views, clicks, and time spent on a specific page, but also analyze consumer-generated media. Nielsen scans opinions, polls, conversations, and shared content on more than 100 million blogs, chat rooms, message boards, and social networks. When and how product names appear online, and the usage of user-generated content in particular, is figured out by Nielsen’s BuzzMetrics. The Nielsen//Netrating service is the world’s most consulted Internet audience measurement and analysis services and tracks more than 70% of the Internet advertising service. Mobile Nielsen provides several performance indicators for telecom companies, device manufacturers, and advertisers. Apart from the standard share of data analysis parameters, Nielsen also offers insight into end-to-end consumer experience. This mobile segment proves to be an essential part in Nielsen’s cross-platform media consumption data collection. Their mobile services are carried out in 10 countries worldwide. In the U.S., the Nielsen mobile metrics are a leading indicator for market share, customer satisfaction, and many other key performance indicators within the industry.12

What Consumers Buy This segment specializes in retail transactional measurement data, consumer behavior information, and analytics related to the consumer packaged goods industry. It can be further organized into the areas of information and insights. Information Nielsen offers a steady amount of information concerning measurement data and consumer behavior in the retail industry. This and other data on the purchase of consumer packed goods are provided through retail scanner and consumer panel-based measurements. By tracking the transactions of sales in retail outlets on a global scale, Nielsen calculates sales and market shares for all products these stores sell. In order to gain insight into shopping behavior, Nielsen also employs Consumer Panel Measurement. Over 250,000 panelists from over 25 countries (the U.S. alone accounts for 100,000) have been outfitted with in-home scanners to carefully register every purchase made.13 All these data are validated, processed, and stored in client-specific databases. Nielsen also expands these existing data by conducting mass surveys (20 million a year, worldwide) to follow up on certain topics. Insights On top of the distribution of these packaged data, Nielsen offers a degree of analytical insight to its clients on how they can improve their marketing and more efficiently influence sales decisions. What aids Nielsen in this is the massive amount of demographic data they possess. In the U.S. alone, Nielsen supports a demographically balanced sample of 100,000 households for Consumer Panel Measurement.

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Corporate Strategies Nielsen was one of the first to survey the likes of retail goods, radio, television, and global Internet usage. This pioneering attitude enabled the company to quickly attain prominent positions in each market. Since then Nielsen has diversified in a large variety of rating sectors and engaged in synergetic activities with numerous companies of different industries. According to Balnaves, O’Regan, and Goldsmith, the American rating market can be summarized as various private companies trying to destabilize Nielsen from its company position.14 As Buzzard has put it, “Nielsen has been effective in maintaining its monopoly as a result of a series of strategies that effectively ward off competitors and their attempts to enter the ratings market.”15 Nielsen had a long history of blocking the growth of its opponents while fortifying its own monopoly position. Through a series of mergers, acquisitions, and well-timed expansions, Nielsen survived countless skirmishes with competitors and has, despite clashing with powerful rivals such as Arbitron, AGB, and Percy, succeeded in remaining the top player within the industry. Throughout the years, Nielsen’s business activities mostly concern buying up competing companies and promising new industry players to improve their position in the market. One such example is Nielsen’s purchase of long-time radio-rating competitor Arbitron (originally called the American Research Bureau). This company, founded in 1949, was acquired in 2013 for $1.26 billion and renamed Nielsen Audio. Aside from these acquisitions, the company has also been investing in other businesses that don’t necessarily fit with their strategic goal as a way to build alliances across its clients’ vested interests.16 One such example is Nielsen’s expansion into the area of copyright infringement through a joint partnership with Digimarc, a provider of digital watermarking software.17 Despite the long history of strategic takeovers, the company is famous for employing several other strategies. One is that of patent legislation to prevent potential competitors from entering the market. Nielsen made effective use of this strategy to block ARB from the American television ratings market in the 1950s.18 Another way in which Nielsen warded off competitors was by driving smaller firms out of the market with its superior economic strength and predatory pricing. As a pioneer and vested power in the rating industry, Nielsen had a lot more financial muscle, which enabled it to handle risky research and development projects much more easily than smaller firms. Nielsen has been accused many times in the past of misusing its monopoly position to the discomfort of clients.19 Having a monopoly position in television monitoring, Nielsen can, for example, easily raise and drop rates as it sees fit. After launching the LPM (Local People Meter), for example, the market rates increased 10% in only the first year. Since the 1990s Nielsen has also been known for its strategy of locking clients into multi-year contract deals. These contracts generally work with eight-year terms and expire at different times for different clients; in this way the company easily maintains a solid grasp on the market and ensures a difficult entry for new industry players. These long-term contracts are an important strategy for Nielsen, since approximately 90% of the Watch segment’s revenue base comes from already committed clients.20

New Developments To discuss the recent developments present in the Nielsen Company, it is important to first take a look at the general changes that have swept across the ratings industry. Today’s ratings industry is defined by a climate of new media technologies and increased fragmentation in audience viewing patterns.21 These changes have forced advertisers, broadcasters, and rating companies alike to adapt their strategies. More than ever, the viewing pattern is diffuse and hard to grasp. On the other hand, new digital technologies have made it possible for rating companies to better reach their target audiences and more accurately measure the effectiveness of their advertising.

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Providing an answer to these changes, the Nielsen Company has somewhat reorientated itself, both in terms of targeted industries and methodologies. The primary strategy for Nielsen in facing these challenges has been to purchase innovation. In the last decade Nielsen has made a series of acquisitions of both promising start-ups and established rating companies. For example, the company has been expanding in its online and mobile branches. In 2006, VNU NV acquired a majority stake in BuzzMetrics, a company that measures consumer-generated media online by scanning blogs for specific words and phrases related to popular products or media content. This was only the beginning of Nielsen’s industry adjustment, as in 2007 the company finally took over NetRatings, a company known for its online audience research and with whom they had been cooperating since 1998. That same year, the acquisition of Telephia followed to strengthen market research in the company’s telecommunication and mobile division. In 2002 Nielsen attempted to merge with its main competitor in the online rating market, Jupiter Media Metrix. This $71.2 million consolidation was canceled because of the concern expressed by federal trade officials due to the monopoly position this would grant Nielsen NetRating in online audience measurement.22 The Internet analytics company, comScore, would eventually take over Media Metrix, causing the company to turn into a major competitor for Nielsen. This consolidation trend was carried on with the purchase of IAG Research, a company that measures the effectiveness of advertising on television, in movie theaters, and online for marketers and networks. The purchase of these companies is part of Nielsen’s strategy of expansion, as they moved to new, promising media areas and measuring techniques. Nielsen is now the global leader in both television and digital measurement and is continuously exploring new industries and areas for innovation. For one, the company seems to be increasingly occupied with measuring social media (i.e., social intelligence research). This shift is to be noted from its strategic ventures in recent years, such as the partnership with advisor McKinsey for Social Media Consulting in 2010. Other such examples are the company’s strategic alliance with Adobe to bring Digital Content Rating to the market more efficiently, and the purchase of Vizu to measure online ad effectiveness. The Nielsen Company has accordingly undergone a repositioning of its measurement strategies to keep up with these heavily fragmented viewing patterns. In a climate of increasing media convergence, advertisers have demanded a more comprehensive picture of individual usage across media. Wireless technologies blurred the lines between media, making consumption less limited to specific times and places. In turn, this created a radical shift in traditional user models. Understanding these changes in consumer behavior demanded a new method of data collection, one offering a more complete media profile of consumers. Now a key element in the industry is that of a multi-platform measurement strategy—with digital content rating and online campaign rating becoming more prominent; single-screen measuring methods are all but outdated. In 2006 Nielsen started to capture data from all three screens (television, Internet, and mobile devices) as part of their Anytime Anywhere Media Measurement (A2/M2) initiative. They equipped existing and new Nielsen families with Internet-tracking technology in order to generate data from Internetbased computer use, the second screen. The leap to Three-Screen Media Measurement has been one of Nielsen’s most successful initiatives. Through use of a single-source TV and PC panel, Nielsen offers cross-screen measurements. Consumer activity—both separate and simultaneously on television, online, and mobile devices—is being captured, including program viewing behavior, cause-and-effect analysis, and advertising effectiveness which, in turn, can be provided to clients. As Biagi23 has noted, the biggest shift in Nielsen’s rating methodology over 50 years is the inclusion of demographic data. Nielsen has met the criticism and complaints of the last decade by including a greater focus on demography. Variables such as age, occupation, and annual income are all included in auditing activities and contribute to the population profiles Nielsen delivers in

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service of advertisers. The growing need for demographic data is yet another consequence of the rapidly changing market environment of the advertising industry. With the rise of cross-advertising and e-commerce, agencies demand more expansive insight into the effectiveness of advertising. By linking patterns of media consumption with consumer purchasing data, Nielsen tries to provide clients with a more solid understanding of how media exposure drives purchase behavior. This change also relates to the television rating industry, as the company promises a greater emphasis on audiences from specific communities and ethnic backgrounds. So far Nielsen has been successful in strategically repositioning itself as a corporation active on a global scale. McPhail has pointed out that it’s essential for media giants such as Nielsen to keep growing if they want to remain competitive.24 Opportunities for growth are often greater offshore, which is exactly why Nielsen has started expanding in growing markets such as Brazil, China, India, and Russia.25 By achieving such extensive geographic reach, Nielsen hopes to become more attractive to customers with multinational operations. Nielsen’s expansion is arguably mostly focused on South-East Asia. A case-in-point is the partnership with Indian service provider company, Tata Consultancy Services, one of the most expansive outsourcing contracts in U.S. history, whereby Nielsen has agreed to pay $1.2 billion to the multinational for tech-support, accounting, and data processing. Part of Nielsen’s globalization strategy is to focus on the local.26 Often when entering a foreign market, Nielsen starts by installing local subsidiaries through which they can study the market.

Political Overview Whereas the governmental ties of the Nielsen Company aren’t immediately apparent, it’s important to consider Nielsen’s power from a political-economic perspective. Being both responsible for, and dependent on, changes in the rating industry, Nielsen invests heavily in its relation with policy makers, industry players, and the general public. This section will take a closer look at the ownership structures of Nielsen and focus further on the interlock with companies and associates from different lines of business.

Ownership In contrast to other global media giants, Nielsen is almost entirely owned by different investment companies. Approximately 89% of Nielsen shares are divided among 372 institutional holders, and private equity firms from the finance consortium (Valcon) in whose shares VNU NV (in 2006) owns the majority. The largest amount of shares by an individual institutional owner belongs to the investment management organization Capital Research Global Investors Company, which owns more 10% of the company. Smaller, yet still substantial, shareholders are The Vanguard Group, The Blackstone Group, Waddell & Reed, The Wellington Management Company, and Kohlberg Kravis Roberts, which all own around 5% of company shares. In total, the collected firms belonging to the Valcon subsidiary currently own the large majority of these shares (75% of the company’s common stock).27

Ties to the State and Lobbying Efforts Nielsen has a department of Government Affairs, which specializes in analyzing how the company, its clients, and collaborators could be affected by proposed changes in legislation or regulation.28 This department functions as an intermediary between the company and government by carefully monitoring the activities of state and local governments, as well as various regulatory agencies, to keep track of potential changes in government policy on the topics of advertisement, broadcasting,

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and the company’s own activities. When Nielsen makes adjustments to its policies and practices in a way that can have an effect on the company’s stakeholders, the Government Affairs department makes sure to inform governmental legislators and regulators. Part of Nielsen’s political contribution policy states that Nielsen doesn’t make direct contributions to political candidates, parties, or committees with corporate funds. Nielsen maintains a federal Political Action Committee, which allows eligible Nielsen employees to pool their resources and support candidates whose positions are consistent with Nielsen’s. Nielsen PAC contributions are never made in return for, or in anticipation of, an official act. Contributions from this Political Action Committee to federal candidates totaled $43,900 in 2014, which went to support almost equally the Democratic and Republican parties.29 The PAC also made total contributions that year to individual donors for more than $28,000. Whether the Nielsen PAC will contribute to a candidate depends on various factors: whether he/she is in a state or district where Nielsen has significant numbers of employees or major operations; whether he/she is in a congressional leadership position; whether he/she serves on a committee that works on legislation that is important to Nielsen; or whether he/she is on a congressional caucus that represents multicultural constituencies. However, it is important to keep in mind that as a regulator, the state is also a consumer of statistical information.30 In order to regulate concentration, the state needs access to audience ratings to accurately help assess the market. Whether audience ratings, market shares, or various other consumer statistics, these figures can be of service to help shape market policy. Apart from this, policy makers also use these ratings to measure the presence of certain minority groups in the public sphere.

Board of Directors The Nielsen board of directors consists of various individuals from different industries and organizations (see Table 27.3). These board members often occupy managerial function in multiple corporations and committees, enabling them to form interlocks between Nielsen and other companies. Nielsen’s board of directors consists of 12 chairmen. The current Executive Chairman of the Board, David L. Calhoun, serves on the boards of The Boeing Company, Medtronic, Inc., and NeuroFocus, Inc. Mitch Barns is the present CEO of the company. Apart from Nielsen, he serves on the Board of Trustees for The Paley Center for Media and is a member of the American Heart Association CEO Roundtable. In 2014 Steve Hasker, originally from McKinsey & Company, was appointed global president of Nielsen. He remains a board member of the International Radio and Television Society and the Center for Communications, as well as a member of the Australian Institute of Chartered Accountants. The corporate interlocks between Nielsen and other companies follow a similar pattern to that of most media giants. There are the expected ties to investing groups, financial trusts, and insurance companies such as Metlife and The Chubb Corp. There are the expected industry ties along the lines of Nielsen’s business interests, foremost within the advertising and broadcasting industry. It should be noted that apart from these relations, Nielsen holds interlocks with the industries of which it is looking to expand. Board of Directors member James Attwood, for example, is tied heavily to the American telecommunications industry, belonging to the board of directors of Syniverse, a business that provides technology and business services to telecommunications companies, and Hawaiian Telcom Communications. More surprisingly, there seems to be a large number of connections with the health sector. Multiple Nielsen board members provide links with health industry authorities such as pharmaceutical giant Pfizer, Genus Oncology LLC, and several American hospitals. Executive Chairman David Calhoun is even on the board of directors of Medtronic, an important provider of medical technology. Nielsen’s interest in the health industry

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TABLE 27.3 Nielsen Company’s Board of Directors, 2014

Name/title

Board Memberships

David L. Calhoun, Executive Chairman

Nielsen Co. (US) LLC, National Underground Railroad Freedom Center, Nielsen Finance LLC, NeuroFocus, Inc., Nielsen Holdings NV, The Nielsen Co., The Nielsen Co. BV, Caterpillar, Inc., The Boeing Co.

Dwight Mitchell Barns, Chief Executive Officer & Director

Nielsen Holdings NV

Harish Manwani, Director

Nielsen Holdings NV

James A. Attwood, Non-Executive Director

Hawaiian Telcom Communications, Inc., Nielsen Holdings NV, Syniverse Holdings, Inc., CoreSite Realty Corp., The Nielsen Co. BV, Syniverse Technologies, Inc., Getty Images, Inc.

Alexander Navab, Non-Executive Director

The Nielsen Co. BV, Nielsen Holdings NV, Ipreo Holdings LLC, NewYork-Presbyterian Hospital

Bob C. Pozen, Independent NonExecutive Director

The Nielsen Co. BV, MFS Multimarket Income Trust, MFS Intermediate Income Trust, The Commonwealth Fund, The Nielsen Co., Medtronic, Inc., MFS Intermediate High Income Fund, MFS California Municipal Fund, MFS Municipal Income Trust, MFS Investment Grade Municipal Trust, Nielsen Holdings NV

Jim M. Kilts, NonExecutive Director

Big Heart Pet Brands Corp., Pfizer Inc., Nielsen Holdings NV, MetLife, Inc., Knox College, The University of Chicago, Cato Institute, Inc., American Institute for Contemporary German Studies, Metropolitan Life Insurance Co.

Karen M. Hoguet, Independent NonExecutive Director

The Chubb Corp., Nielsen Holdings NV, The Nielsen Co. BV

Javier G. Teruel, Independent NonExecutive Director

Starbucks Corp., The Nielsen Co. BV, Nielsen Holdings NV, J. C. Penney Co., Inc., Alta Growth Capital Management Mexico (GP) LLC

Rick Arwin Kash, Vice-Chairman

Genus Oncology LLC, Nielsen Holdings NV, Nielsen Co. (US) LLC, Northwestern Memorial Hospital

Vivek Y. Ranadivé, Non-Executive Director

Nielsen Holdings NV, The Nielsen Co. BV

Kathryn V. Marinello, Director

Volvo AB, General Motors Co., The Nielsen Co. BV, Nielsen Holdings NV

Source: Wall Street Journal, “Nielsen N.V.”, accessed January 21, 2015, http://quotes.wsj.com/NLSN/company-people

isn’t completely new: roughly a decade ago, VNU NV was in the process of buying up companies that added to its measurement capabilities, or that would give them measurement insight into new fields such as the medicine and health sector. The company even attempted to take over IMS Health. Nielsen launched its own specialized service for the healthcare industry with NielsenHealth, collecting data for clients in the medicine and health industry seeking to adjust their product development and marketing strategies.

Labor Nielsen globally employs approximately 40,000 people in a wide range of positions. In the U.S. alone, the company has over 11,800 employees.31 Employees can roughly be divided in several

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categories, namely: Analytics, Business Process Improvement, Corporate, Engineering, Field Operations, Information Technology, Measurement Science Operations/Call Centers, and Sales and Client Services. It is important to note that while employees make $70,000 annually on average, the salary can largely vary depending on the particular position and location of the employee.32 On average the highest salaries are paid to market research managers, who earn close to $90,000. The largest part of the Nielsen workforce (38%) has been working for one to four years and annually earns $59,000. Nielsen prides itself on having a diverse workforce, boasting a score of 100% on the Human Rights Campaign Corporate Equality Index.

Social Responsibility Nielsen has a corporate social responsibility program called Nielsen Cares, where Nielsen associates worldwide are involved in projects with significant social impact.33 These projects are built around specific areas: technology access, education, diversity, and environmental sustainability. Here Nielsen employees, clients, and non-profit collaborators engage in skill-based volunteering. In every one of these categories, Nielsen supports a wide range of organizations, such as Oxfam and The Special Olympics, in their projects. On average, the company provides more than $10 million a year in pro bono aid and industry insight to their beneficiaries. These services relate to the company’s core activity of market research; through supplying these companies with data collecting and audience analysis, Nielsen helps their partners by analyzing how they can more easily reach and connect with their audiences. For example, Nielsen collaborated with national non-profit organization Feeding America in a project called Mapping the Meal Gap, in which the company helped to establish a methodology for food CPI (consumer price index) on a local level to help map food insecurity rates for families and children in America. Apart from this, Nielsen Care also works around certain topics by organizing special aid events such as Hunger Action Month and International Women’s Day.

Cultural Profile This section adopts a critical perspective on ratings as part of an industry-adopted discourse that enables measurement companies such as Nielsen to cluster, package, and auction viewers (e.g., “control” the audience). This commodification of television audiences is evidently linked with new technologies, but Nielsen has also proved to be a prime catalyst in imposing these standards upon the audience rating industry. Here we will approach Nielsen’s symbolic dimension, identifying how the media giant and its influence are to be situated within the cultural landscape, as well as grasp the ideological connotations embedded in its practices.

Symbolic Universe/Ideology In the 1990s, Ien Ang noted that audience measurement technologies enabled companies “to put television viewers under constant scrutiny by securing their permanent visibility.”34 All of Nielsen’s technological improvements have tightened its grip on audiences: measuring audience activity through paper diaries in the 1960s, collecting demographic data with the Nielsen Local People Meter in the early 2000s, and now measuring all kinds of activities and information over multiple platforms with their Three-Screen Media Measurement. Over the years, Nielsen has even experimented with a passive people meter, a meter that registers passive viewing by electronically scanning and recognizing the household members present in the room. For unknown reasons, this application was never launched, but it does illustrate the lengths to which Nielsen is willing to take audience measurement. Nielsen’s long history in dealing with, and commodifying,

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audience ratings can easily be linked to surveillance theories and to the practice of social sorting.35 In fact, technological developments have intensively increased the ability to collect and categorize personal data for all sorts of purposes. Accordingly, in the last two decades a huge industry has developed around this social clustering. Arguing that the demand for ratings comes from the impression that, through this, companies can control the audience, Ang made the distinction between “television audience as discursive construct and the social world of actual audiences.”36 She argued that, as a discursive construct, the concept of the audience is mostly a resource in the organization of the cultural industry.37 Through this discourse, empirical data on consumer audiences are of value because they imply a vision that meets the basic needs of the industry. The audience exists, it can be understood, and it can be controlled. Advertisers and broadcasters prefer the packaged reality of rating companies because they provide certainty in the shape of neatly organized and manageable information. Of course, the nature of the audience is something entirely different since it’s nowhere near as unified and controllable as defined by the industry. In this sense, the value of ratings comes from its power to exert influence on how television broadcasters define the television audience. In this context, Ang postulated that “what ratings primarily seem to achieve is a sense of control over the audience, a control however that is not ‘real’, but symbolic.”38 Audience measurement produces a discursive framework or a rating discourse that enables the industry to accurately express its relationship to the audience in numbers. This discourse enables us to interpret the audience as streamlined: each audience member is prone to objective classification, and any problematic subjectivity or individual viewership is ironed out into reporting generalized patterns. By matching demographic data (sex, age, race, income, etc.) in accordance with viewing behavior (program choice, duration of viewing, etc.), they can determine the sense of stable viewing habits. These stable viewing habits, which are dependent on different audience segments, help sustain the illusion of the streamlined audience. The importance of this discourse lies within the notion that a streamlined audience essentially is a disciplined one, i.e., one that can be controlled and predicted. Or, as Ang argued, the streamlined audience is “an objectified category in which the stable is foreground over the erratic, the likely over the extraordinary, the consistent over the non-consistent.”39 While it is important to realize that the profiles and viewing habits conceived by audience measurements are not necessarily a false representation of audience behavior, they do reduce the multifaceted, diffuse nature of these audiences and their activities to a number of crude categorizations, excluding a large number of identities and nuance in the process. The thing about this streamlining is that its practice is consistent; audience behavior gets reestablished on a daily basis, yet in measuring this, rating companies like Nielsen do not deviate from their prefabricated formal structure. The consequence of such streamlining is that any variation will be overlooked or reduced to “trends” within the stable core of viewing behavior. The climate here described was primarily that of the pre-1980 rating industry. Since then, rating company clients have become more open to differentiations of the established understanding of the audience; advertisers started realizing that certain demographics were being neglected, especially those demographics that could be tailored to and marketed to. A certain amount of pressure also arrived from initiatives such as Don’t Count Us Out (DCUO)40 and the corporate coalition of CIMM—a group of 14 broadcasters, advertisers, and other industry players joining forces to investigate new methods of audience measurement—all heckling the lack of diversity the Nielsen ratings represented.41 Taking these demands into consideration, Nielsen has tried to reorient itself by delivering more detailed information on audience demographics and constructing fragmented niche markets of consumers that advertisers can efficiently target.42 Meehan refers to these commercially defined

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viewers as “commodity audiences,”43 arguing that who these audiences are, or perceived to be, is wholly dependent on the power changes within the market. Not only do rating firms influence market dynamics, but they also heavily contribute to the active construction of a desirable audience for advertisers, broadcasters, and program makers. For this reason, Meehan does not see Nielsen’s structuring of viewers based on demographic data and ratings as a neutral practice, but, as Mosco summarizes her position, “audience ratings are a commodity produced by another commodity.”44 Nielsen does not only measure audiences, but it commodifies them corresponding to market demands. In handling their ratings, Nielsen caters to the specific demands of the industry. Bourdon and Méadel have pointed out that “audience ratings are taken seriously because they are at the heart of the system: they are the device that makes it possible to transform viewers into financial transactions.”45 All the included variables, mapped audience segments, and rated media find their organization in that of the clients to which Nielsen provides. The variables themselves, employed by Nielsen, do convey a certain attitude of the industry toward audiences. Gauging programs in terms of success is now taken for granted by the entire media landscape, but it is easily overlooked that the concept of program popularity is an unstable construct. If Nielsen rates a show as a hit, an initial response might be that these figures deliver an insight into what audiences desire. However, these ratings alone say nothing of why and how this program has achieved such success among the viewing audiences. Ratings give the impression of offering understanding into the mind of the consumers, evidently organized into segments by way of demographic data, but who this seemingly unambiguous audience is, and what it wants, remains beyond the institutionalized understanding of the industry.

Services and Place in Culture Ratings are the primary metrics used to determine the value of programming and advertising in the U.S. total television advertising marketplace. At the start of measuring television audiences, different companies used different measurements methods. Unfortunately, these different measuring methods provided different ratings negotiations between rating companies and clients and quickly became complicated since reports between competing companies proved to be incompatible.46 Therefore, a system of currency was needed: a standard of sorts for how audience rating should be organized from then on. Nielsen has defined currency in the rating industry for many years.47 Currency refers to the method of choice by the dominant rating services, as well as to the fixed currency by which the invisible product of advertising time and space is defined. Nielsen’s national PeopleMeter, for instance, can be considered the currency method for rating network television. In that sense, Nielsen has helped define the concepts, methods, and standards taken for granted in the rating industry to this day. The concept of prime time, for example, has its origins in a measured fluctuation of audience numbers at certain times of the day.48 The notion that the majority of television sets were tuned in between 8 p.m. and 11 p.m. led to an institutionalized recognition of the concept, entirely reshaping the existing pattern of television programming and the decided prices for advertising time. The logic behind this standardized rating system is that advertisers want a certain amount of guaranteed viewers for their money. Based on Nielsen rating data, advertisers decide where to advertise and how much money they find wise to spend. Media programmers on the other hand, set their prices on these ratings, and decide upon them which program is to be considered a hit or a miss. The Nielsen Company thus plays an important part in influencing advertisers on whether or not they want to buy advertising time in a specific slot, and broadcasters in how much they should charge for that slot. Apart from this, the demographics of a program’s supposed audience

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also comes into play. Advertisers will often neglect a certain program’s low Nielsen rating when that program matches their target group of consumers. Andersen and Gray have made the case that, in their own manner, broadcasters and advertisers almost religiously follow these ratings in their decision making.49 Broadcasters base their decisions on ratings and demographic data supplied by the Nielsen Company. In Australia, for example, Nielsen was entirely responsible for collecting audience measurement data on behalf of Commercial Radio Australia, the national radio broadcasting body. Apart from this, the data Nielsen provide are also open to policy makers and can have considerable influence on how the market is regulated and organized. Because the ratings delivered by Nielsen can have dramatic implications for the shape of the industry, one common concern is that of the data’s legitimacy. According to Andersen and Gray,50 one of the core questions is whether these ratings truly are accurate reflections. For example, in the 1970s and 1980s ratings were prone to underrepresentation and, in some cases, even willful distortion of measurement data. Companies did calculations on the data even if the sampling wouldn’t allow it, and there have been cases of companies charging extra to clients for tinkering with results in their favor.51 Ratings are based upon a sample, but they claim to represent the total audience. Nielsen television ratings are based on only 10,000 Nielsen families of the 100 million television households in the U.S., which rating companies try to make up for through sampling. Plainly put, the systems defined the industry’s perception of who the audience is and what it wants.52 As Ang53 has pointed out, these ratings are often misunderstood as an entirely accurate reflection of people’s preferences. In this sense, ratings could be considered the “guardians of the public interest” and broadcasters are merely faced with the task of providing the public what it wants. There are, however, multiple problems with this logic. One such problem is that these ratings carry certain ideological connotations. In that sense there are some issues with the representativeness of their samples, as some more marginal groups aren’t actually represented by way of the Nielsen households. Minorities in terms of race, gender, sexual orientation, income, and age have been often neglected in Nielsen’s data, leaving these groups with little impact on the American media landscape.54 The implications of this type of distorted data are that they can lead to the cancellation of programs aimed at the minority populations that Nielsen fails to account for in its ratings. A community organization initiative named Don’t Count Us Out (DCUO) was established in 2004 to battle unrepresentativeness of Nielsen’s Local People Meter. Congress also held a hearing that explored allegations of racial misrepresentation in Nielsen’s LPM measurements. Now Nielsen’s traditional measuring methods have been reformed to meet these requirements as Nielsen now uses specific people meter samples for some minority groups among television audiences. The National Hispanic People Meter, for example, uses a sample of 1,000 Hispanic households to represent the Hispanic population in the U.S.55

Conclusion Nielsen’s position in the global consumer rating industry is one to be reckoned with. The company has had a long and eventful history in which it repeatedly found ways to adapt to the changing market environment and maintain its monopoly position. Throughout its history, the company has had many roles: at times playing the pioneering innovator and at others misusing its power position to take advantage of the innovation of others. Nielsen has been a herald of the industry, yet also blocked progress when it was deemed threatening. The company survived countless competitors, buying those that couldn’t be beaten and building a strategic business network where it saw fit. As Balnaves, O’Regan, and Goldsmith summarize: “the U.S. audience research history is a story of entrepreneurial action and successes by Nielsen in the face of powerful competitors and defense against continuous attacks on credibility against a range of players.”56

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Today’s market seems dominated by quasi-monopolies and multinational companies. Where there were once several rating providers within the market, they eventually made way for a market environment with only a single rating provider. There is no reason to assume Nielsen won’t keep expanding in new industries and strengthen its position. As Nielsen has put it: “For the past 90 years, Nielsen has worked to deliver the most complete understanding of consumers across the globe. For the next 90 years, the mission doesn’t change.”57 Nielsen is a company bent on maintaining its market dominance and it will arguably maintain its dominance over the market through its well-established strategies. After all, a lot has changed in the current audience measurement environment. It should be noted that in today’s media landscape the audience has become increasingly difficult to define, resulting in the fact that the all-powerful authority Nielsen once enjoyed over the rating market is somewhat diminished. The new rating climate is defined by a fragmented audience that is much harder to define. More than ever, there is recognition of the enormous complexity and ambiguity in the construction of the audience. In equal measure, Nielsen and other rating companies have attempted to meet these challenges by adapting their measurement methodology and exploring new markets. This and other factors have caused a higher degree of nuance to be acknowledged when it comes to rating audiences. The diffuse nature of specific audience segments, socio-economic communities, and alternative media consuming patterns has become all the more the subject of Nielsen study. Despite this enforced sense of change, it’s necessary to realize that the rating industry, and with it Nielsen’s aspirations, at heart remains the same. Meehan and Torre have stated that, despite the changes in the rating market over the last 50 years, “the ratings monopolist still serves at the pleasure of their buyers.”58 Ever more intense, broadcasters and advertisers want to define and categorize the viewing audience and Nielsen will keep meeting this, perhaps increasingly difficult, demand. Asserting a sense of control over the audience remains the primary force driving the industry.

Notes 1 Karen Buzzard, Tracking the Audience: The Ratings Industry From Analog to Digital (New York, NY: Routledge, 2012, 6). 2 In this context, see the work by Michel Foucault on the construction of power and knowledge, as in Michel Foucault, Power/Knowledge (New York: Pantheon Books, 1980). On surveillance see, among others, David Lyon, Surveillance as Social Sorting: Privacy, Risk, and Digital Discrimination (New York: Routledge, 2003). 3 Daniel Biltereyst and Philippe Meers, “The Political Economy of Audiences,” in The Handbook of Political Economy of Communications, eds. Janet Wasko, Graham Murdock, and Helena Sousa (Walden, MA: WileyBlackwell, 2011), 415–435. 4 John McDonough and Karen Egolf, The Advertising Age Encyclopedia of Advertising (Chicago, IL: Fitzroy Dearborn Publishers), 2002, 9. 5 James Roman, Love, Light, and a Dream: Television’s Past, Present, and Future (Westport, CT: Greenwood Publishing Group, 1996), 152. 6 Christopher Sterling and Cary O’Dell, The Concise Encyclopedia of American Radio (New York, NY: Routledge, 2011), 2. 7 Eileen R. Meehan and Paul J. Torre, “Markets in Theory and Markets in Television,” in The Political Economy of Communication, eds. Janet Wasko, Graham Murdock, and Helena Sousa (Walden, MA: WileyBlackwell, 2011), 74. 8 Horace Newcomb, Encyclopedia of Television (New York, NY: Routledge, 2014), 10. 9 Michael Prescott, “Big data and competitive advantage at Nielsen”, Management Decision, 52(3), (2014): 573–601. 10 Erik Mooi and Marko Sarstedt, A Concise Guide to Market Research: The Process, Data, and Methods Using IBM SPSS Statistics (New York: Springer, 2011), 6. 11 Nielsen, “Watch,” accessed December 22, 2014, http://ir.nielsen.com/files/online/annual/report/ 2013yir/business_watch.html

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12 Nielsen, “2011 Year in Business,” accessed January 14, 2014, www.nielsen.com/sitelets/yir/ 10k_i_1_business.htm 13 Nielsen, “Retail Measurement,” accessed December 22, 2014, www.nielsen.com/us/en/solutions/ measurement/retail-measurement.html 14 Mark Balnaves, Tom O’Regan, and Ben Goldsmith, Rating the Audience: The Business of Media (London: Bloomsbury, 2011), 61. 15 Buzzard, Tracking the Audience, 1. 16 Vincent Mosco, The Political Economy of Communication (Thousand Oaks, CA: SAGE, 2009), 74. 17 Buzzard, Tracking the Audience, 84. 18 Buzzard, Tracking the Audience, 44. 19 Buzzard, Tracking the Audience, 83. 20 Nielsen, “2011 Year in Business,” accessed January 14, 2015, www.nielsen.com/sitelets/yir/10k_i_1_ business.htm 21 Philip M. Napoli, Audience Economics: Media Institutions and the Audience Marketplace (New York: Columbia University Press, 2013), 137. 22 Buzzard, Tracking the Audience, 115. 23 Louise Story, “Nielsen to Follow TV Audience out of the House and into the Street,” in Media/Impact: An Introduction to Mass Media, Enhanced, ed. Shirley Biagi (Boston, MA: Cengage Learning, 2012, 169). 24 Thomas L. McPhail, Global Communication: Theories, Stakeholders and Trends (Walden, MA: Wiley-Blackwell, 2013, 183). 25 Hoovers, “Nielsen N.V. Profile” (2014), 4. 26 Jérôme Bourdon and Cécile Méadel, Television Audiences across the World: Deconstructing the Ratings Machine (London: Palgrave Macmillan, 2014), 28. 27 Nasdaq, “Nielsen N.V. Stock Quote & Summary Data,” accessed January 28, 2015, www.nasdaq.com/ symbol/nlsn 28 Nielsen, “Government Affairs,” accessed January 8, 2015, www.nielsen.com/us/en/about-us/publicaffairs/nielsen-government-affairs.html 29 OpenSecrets, “Nielsen Co,” accessed January 23, 2015, www.opensecrets.org/pacs/lookup2.php? strID=C00521328 30 Bourdon and Méadel, Television Audiences across the World, 28. 31 Statista, “Nielsen Employees,” accessed January 26, 2015, www.statista.com/statistics/252007/numberof-full-time-employees-of-nielsen-in-the-united-states 32 PayScale, “The Nielsen Company Salary,” accessed January 26, 2015, www.payscale.com/research/ US/Employer=The_Nielsen_Company/Salary 33 Nielsen, “Social and Environmental Responsibility,” accessed January 28, 2015, www.nielsen.com/us/ en/about-us/social-responsibility.html 34 Ien Ang, Living Room War: Rethinking Media Audiences for a Postmodern World (New York: Routledge, 1996), 50. 35 David Lyon, Surveillance as Social Sorting: Privacy, Risk, and Digital Discrimination (New York: Routledge, 2003), 13–14. 36 Ien Ang, Desperately Seeking the Audience (New York: Routledge), 1991), 13. 37 Celia Lury, Consumer Culture (New Brunswick, NJ: Rutgers University Press, 1996), 218. 38 Ang, Desperately Seeking the Audience, 42. 39 Ang, Desperately Seeking the Audience, 63. 40 James Webster, Patricia Phalen, and Lawrence Lichty, Ratings Analysis: Audience Measurement and Analytics, 4th Ed (New York: Routledge, 2014), 42. 41 Buzzard, Tracking the Audience, 127. 42 Tamara Shepherd, “Gendering the Commodity Audience in Social Media,” in The Routledge Companion to Media and Gender, eds. Cynthia Carter, Linda Steiner, and Lisa McLaughlin (New York: Routledge, 2013),159. 43 Eileen R. Meehan, “Why We Don’t Count: Commodity Audiences,” in Logics of Television: Essays in Cultural Criticism, ed. Patricia Mellencamp (Bloomington, IN: Indiana University Press, 1990), 119. 44 Mosco, The Political Economy of Communication, 141. 45 Bourdon and Méadel, Television Audiences across the World, 9. 46 Horace Newcomb, Encyclopedia of Television, 12. 47 Buzzard, Tracking the Audience, 1–2. 48 Ang, Desperately Seeking the Audience, 66. 49 Story, “Nielsen to Follow TV Audience out of the House and into the Street,” 169. 50 Robin Andersen and Jonathan Gray, Battleground: The Media (Westport, CT: Greenwood Publishing Group, 2008), 419.

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Balnaves et al., Rating the Audience, 140. Andersen and Gray, Battleground: The Media, 422. Ang, Desperately Seeking the Audience, 41–42. Balnaves et al., Rating the Audience, 85. America Rodriguez, Making Latino News: Race, Language, Class (Thousand Oaks, CA: SAGE Publications, 1999), 36. 56 Ang, Desperately Seeking the Audience, 138. 57 Nielsen, “Nielsen Celebrates 90 Years of Innovation,” accessed September 8, 2015, www.nielsen.com/ us/en/insights/news/2013/nielsen-celebrates-90-years-of-innovation.html 58 Meehan and Torre, “Markets in Theory and Markets in Television,” 74.

28 INTERPUBLIC GROUP OF COMPANIES Christopher Chávez

The motto of the H.K. McCann Company is TRUTH WELL TOLD. When truth is well told it is energetic, convincing. Truth and the telling of it will single out your story from the crowded advertising pages, endow it with a gift of vitality, create from it the buying impulse. Advertising Service, 19151 A century after Harrison King McCann counseled other advertisers on how to best create the “buying impulse,” Truth Well Told continues to be the official slogan of McCann-Erickson, a global advertising agency that serves as the centerpiece of the Interpublic Group of Companies (IPG), one of the largest advertising holding companies in the world. When it was originally written, McCann was describing a profession that was in its relative infancy, but at the turn of the 20th century, significant economic, technological, and cultural shifts transformed the consumption of goods from a local to a national phenomenon. At the same time, innovations in production, packaging, distribution, and personal salesmanship prompted the need for experts to promote the sale of branded, standardized products intended for national markets.2 The growth of the advertising industry, however, also coincided with the onset of mass media. In 1915, McCann was primarily writing about advertising in newspapers and general interest magazines, but the emergence of a national media system gave rise to a formal advertising industry that could actively circulate shared symbols, narratives, and traditions that enable consumers to see themselves as members of imagined communities of consumers.3 Over time, advertising has become increasingly more sophisticated and today marketers are connecting with consumers in ways inconceivable a century ago. The advent of broadcast media and, later, digital media has led to a proliferation of channels, giving marketers more vehicles by which to reach prospective consumers. During the past several decades, the advertising industry has undergone a process of concentration and global expansion as large holding companies have expanded their reach by acquiring both established agencies and specialized smaller agencies in an effort to strengthen their capacity to offer transnational clients a wider range of services.4 Given the growth of the industry, the social and cultural impact of advertising practices has been profound and thus worthy of attention. As one of the “fixers of capitalism,”5 advertising drives the consumption of particular kinds of products, but advertising also subsidizes much of the global media discussed throughout this book. As Smythe argues, commercially sponsored media develop content primarily as vehicles

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for advertising that are embedded within those vehicles. In turn, the advertisers who promote their goods on those commercials pay significant amounts of money to various media companies to deliver specific audiences to those marketers.6 Today, much of the world’s advertising revenue is generated by just four large, global holding companies—WPP, the Omnicom Group, the Publicis Groupe, and the Interpublic Group of Companies (IPG). In this chapter, I focus on IPG because the company exemplifies the consolidation that has defined the advertising industry in the modern era, but also because IPG was one of the early pioneers of global expansion. Working on behalf of clients such as Standard Oil, Coca-Cola, General Motors, and Nestlé, IPG agencies from very early on helped to define global consumption practices.

History The history of IPG begins appropriately with a merger between two companies. In October of 1930, the H.K. McCann Company merged with The Erickson Company to create McCannErickson, one of the largest advertising agencies of its day. Each agency was founded by a former advertising manager working on the client side, who then converted that opportunity to establish their own agency. Alfred Erickson was advertising manager at the department store James McCutcheon & Co., and in 1902 he founded The Erickson Company with McCutcheon’s as his first client. Later he acquired additional clients including Fiat, Crawford Shoes, and The Barrett Company.7 Similarly, Harrison King McCann was the advertising manager for Standard Oil Company when the U.S. Supreme Court dismantled the Rockefeller Standard Oil Trust in 1911 and divided it into 37 different companies. As part of the process, Standard Oil’s advertising department was also disbanded, but in an effort to keep the records, staffing, and contracts of the ad department intact, McCann convinced Standard Oil that it was in their best interest to allow McCann to start an independent agency. McCann’s relationship with Standard Oil would set the preconditions for establishing McCann-Erickson as a global advertising agency. Beginning in 1927, the McCann Company began providing advertising services for Standard Oil Company’s subsidiary companies operating in Europe, including those operating in France, Belgium, Holland, Germany, Denmark, Norway, Sweden, Switzerland, and Poland. Prior to the merger, McCann had offices in Paris, Berlin, and London, but, in 1934, McCannErickson reached an agreement with the Standard Oil Company to assume advertising responsibilities for its subsidiary, the West India Oil Company and its associated companies throughout Latin America. In an effort to accommodate the regional business, McCann-Erickson opened offices in Buenos Aires and in Rio de Janeiro in 1935. An office in São Paulo was opened in 1937.8 McCann-Erickson’s original approach to global expansion was to grow in conjunction with Standard Oil. By having a presence in the regions where Standard Oil operated, the agency was in the optimal position to win more business from other clients who were also operating in those regions. During the 1950s, however, McCann-Erickson’s CEO Marion Harper began to take a more systematic approach to global expansion. In 1954, Harper arranged for McCannErickson to buy Marschalk, Pratt & Co, later renamed McCann-Marschalk. In 1960, Interpublic Inc. was established as a holding company with McCann-Erickson and McCann-Marschalk as its two subsidiaries and, in January 1964, the company was renamed the Interpublic Group of Companies.9 Harper’s vision of operating both agencies as competing companies was modeled after General Motors, another conglomerate consisting of thriving but largely autonomous divisions. Harper’s strategy was to operate Marshalk and McCann as separate organizations, putting IPG in the position to handle accounts from competing clients.10 Consequently, a client looking to hire McCann

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would not see Marshalk’s work for a competitor as a conflict of interest. This strategy proved successful as both agencies continued to grow while often servicing rival clients. Harper later built upon this vision by purchasing majority interests in a variety of advertising agencies all over the world. While these moves were intended to establish IPG as a truly global company, Harper’s aggressive growth strategy appeared to be capricious and initially unprofitable. In 1967 IPG was billing at over $700 million, yet still unable to pay its debts. The agency was saved only through a major restructuring, resulting in Harper’s dismissal from the company.11 For much of the company’s history, IPG’s largest and most important clients have been Exxon and Coca-Cola, but during the 1970s IPG acquired additional, significant clients primarily through its acquisition efforts. In 1972, IPG acquired Campbell-Ewald, which brought with it the Chevrolet account, which had been with the agency since 1919. On September 1979, IPG formally acquired the advertising agency SSC&B, whose most valuable asset by then was its 49% share of SSC&B-Lintas International. In 1982 IPG finally acquired the remaining 51% Lintas stake from Unilever.12 During the 1990s, IPG registered one of its most prolific growth periods. In December 1993, McCann-Erickson was given responsibility for Johnson & Johnson’s national television advertising, worth $200 million. Shortly after, McCann-Erickson acquired General Motors’ $300 million national print advertising account while IPG’s Lintas landed its $500 million national television advertising account. However, the company also ran into some financial difficulties following a long-running investigation into alleged breaches of securities legislation arising from its inter-company accounting practices. In 2012, IPG and its subsidiary McCann-Erickson agreed on a settlement with the U.S. Securities and Exchange Commission (“SEC”) by agreeing to pay a fine of $12 million.13 In May of 1996 IPG acquired DraftDirect Worldwide, the largest independent direct marketing firm in the world, and in 2001 IPG acquired True North Communications, making IPG the number one ranked marketing communications holding company.14 IPG reorganized and announced the formation of the FCB Group. As part of the deal, IPG also acquired the advertising agencies Bozell and R/GA. Today, IPG continues to serve as one of the world’s largest global advertising and marketing services companies. The company has a presence in all major world markets with agencies that specialize in consumer advertising, digital marketing, communications planning and media buying, public relations, and specialized communications disciplines. Currently, IPG’s roster includes a range of global brands across a variety of product categories including CocaCola, Sony, General Motors, Unilever, General Mills, Microsoft, and Johnson & Johnson.

Economic Profile Financial Data and Market Share According to IPG’s annual report to investors, revenues for IPG are generated primarily through the creation, planning, and placement of advertising.15 Consequently, the success of each agency within the IPG portfolio is not only linked to the financial success of their clients, but also to each agency’s ability to acquire new clients. Revenues for services rendered are determined primarily on a negotiated fee basis and, to a lesser extent, on a commission basis. In most cases, IPG’s agencies pay production and media costs on behalf of clients and in order to mitigate risks to the extent possible, those agencies will pay production and media charges after they have received funds from their clients.16 As the parent company of multiple, independently run agencies, IPG’s overall growth strategy is based on expansion, centralization, and diversification. Over the years 2002–2014, the company’s revenues steadily increased. According to their annual reports (Table 28.1), IPG reported over $7 billion in total revenues in 2014.

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TABLE 28.1 IPG Total Revenues,

2002–2014 (in $ millions) 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

7537.1 7122.3 6956.2 7014.6 6507.3 6007.4 6962.7 6554.2 6190.8 6274.3 6387.0 6161.7 6059.1

Source: Interpublic Group of Companies, Annual Reports to Investors, 2002–2014

TABLE 28.2 Percentage of IPG Revenues by Territory, 2008–2014 (%)

Domestic United Kingdom Continental Europe Asia Pacific Latin America Other

2014

2013

2012

2011

2010

2009

2008

55.5 9.1 10.7 12.2 6.2 6.3

55.8 8 11.2 12.2 6.5 6.3

54.7 8.2 11.8 12 6.5 6.8

55.4 7.7 13 10.6 6.3 7

56.8 7.2 13.2 9.8 5.9 7.1

55.9 7.6 15.3 9.5 5.1 6.6

54.4 8.8 16.5 9.4 5.1 5.8

Source: Interpublic Group of Companies Annual Report to Investors, 2008–2014

U.S. revenues have typically accounted for a majority share of IPG’s revenues, representing just over half of total revenues over the past 10 years. Continental Europe (minus the U.K.) and Asia Pacific are also major contributors. Table 28.2 breaks details revenue by region for the years 2008–2014.

Corporate Structure IPG organizes its holdings into six distinct segments: Advertising, Digital Services, Marketing, Media Services, Public Relations, and Strategy. The following is a detailed description of each segment.

Advertising IPG has three large, global, advertising networks—McCann Worldgroup, Draftfcb, and Lowe & Partners. In addition, the company owns and operates a number of mid-size agencies including Deutsch and Hill Holliday, which conduct primarily national and regional campaigns. All agencies provide traditional advertising services for their clients including creative development, account management, and production. Healthcare communications has become an important specialization for IPG, and all three of the large global networks have divisions that focus specifically on the bourgeoning pharmaceutical and insurance industries. For example, Area 23 is a Foote Cone and Belding property designed

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to service pharmaceutical clients including Pfizer, Merck, and GlaxoSmithKline. McCann Health creates advertising not only for the pharmaceutical industry but also on issues of health and wellness. Similarly, ICC Lowe is the healthcare arm of Lowe & Partners.

Digital Services In response to the fragmentation of mass audiences across the media landscape, IPG has developed its digital capabilities through mergers and strategic alliances, as well as by developing its internal programs.17 IPG has invested in developing its digital expertise by acquiring or investing in specialty digital agencies including Genuine (digital events), Lowe Profero (a global digital network), Promoqube (social media), Traffic4U (search engine marketing), and Vowel (digital content development).18 IPG has also invested in its existing brands such as IPG Media Lab, Huge, MRM//McCann, as well as R/GA, companies that have unique capabilities and service their own client rosters while partnering with other agencies within the IPG family.

Marketing In addition to its traditional advertising services, IPG owns a number of properties that specialize in other forms of marketing communications, including product placement, retail and trade marketing, as well as services intended to create demand among niche audiences such as multicultural, youth, and women’s marketing. For example, Film Fashion is a division of Rogers & Cowen that works with celebrities to publicly wear particular products. In the field of sports and entertainment, Advantage International is a sponsorship and brand experience agency that focuses in specialized marketing services. Diversity marketing has become another area of specialization for IPG. In an effort to capitalize on the growing U.S. Latino market, IPG acquired Cassanova Pendrill in 2000. The company also owns The Axis Agency, which describes itself as a “Culture Movement Marketing Agency.”19 Like Cassanova Pendrill, Axis focuses on the Latino market but also defines itself more broadly as a diversity agency.

Media Services In addition to developing advertising and marketing communications, IPG has found an important source of income by buying and placing media on behalf of its clients. Perhaps the most important asset in its media services division is IPG Mediabrands, which is the company’s global media holding company. By concentrating its collective buying power, IPG can negotiate better rates for its clients, which according to IPG, accounts for $36 billion in global media. In addition to Mediabrands, IPG owns several other media buying and planning properties, including Orion Trading and Orion Capital that both offer its clients the capacity to use its media assets as forms of exchange in the media marketplace. At the same time, IPG Media Lab serves as a think tank in which clients can test the effectiveness of emerging media.

Public Relations (PR) IPG’s portfolio of brands includes public relations firms that vary in their specialties. For example, McCann, Mullen and Rogers & Cowan offer traditional PR services. As part of their PR portfolio, IPG also owns Cassidy & Associates, one of the most visible and effective lobbying firms. Additionally, IPG also owns a number of niche-oriented firms including Frank About Women,

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a PR agency that directs its services toward female consumers because—as the agency states, “women today have plenty on their minds and even more in their bank accounts.”20

Strategy Most of IPG’s agencies will deliver some form of strategic thinking as part of its clients’ services, but IPG’s division strategy also includes agencies that are specifically geared to communications strategy, branding, and design. For example, Future brand is a consultancy firm that focuses on consumer insights. Furthermore, Ensemble is a communications agency that helps its clients to generate exposure through non-traditional advertising channels. Finally, UM generates research on current technologies and trends and has generated WAVE, a longitudinal study which measures the scale and impact of social media across the globe.

Typical Strategies Today IPG continues to advance Harper’s strategy of establishing strong global networks and then operating them as direct competitors. This strategy has proven to be successful, as each agency has continued to grow while often servicing rival clients. For example, each of IPG’s global advertising networks services an automobile maker: FBC has BMW’s MINI account, McCann has General Motors Chevrolet account, while Lowe produces advertising on behalf of the Spanish auto maker, Seat. This strategy also enables IPG to retain its clients who have become dissatisfied with one of the agencies in their network as they seek out a relationship with another. A second strategy employed by IPG is centralization. The collective power of IPG enables the company to achieve economies of scale not available to smaller agency networks. This is particularly evident in IPG Mediabrands, which was established specifically to leverage IPG’s buying power in order to negotiate better rates and media placement for its clients. In recent years, IPG has sought to supplement revenue generated by its creative and production services by acquiring a commission on media placed for that advertising. IPG has also sought to find ways to centralize its institutional knowledge. For example, McCann’s subsidiary, Truth Central, generates original research that each of its agencies across the globe can access in an effort to grow their clients’ businesses. According to the agency’s website, Truth Central is a global project that covers more than 20 markets worldwide and promises to deliver a fresh report every three months that is designed to reveal some “unique truth” about cultural life, including reports titled The Truth about Global Brands, The Truth about Affluence, and The Truth about Moms.21 A third strategy employed by IPG is diversification. As a large, interconnected company, IPG and its subsidiaries McCann, Lowe, and FCB are most conducive to large global clients, but they are at the same time susceptible to smaller, nimbler agencies that can offer specialized or more personalized service. In an effort to confront this challenge, IPG has advanced beyond traditional advertising into all forms of communication, including public relations, direct mail, architecture, in-store design, etc. But its foray into digital media seems to have particular urgency. Focus on digital marketing is certainly in response to innovations in communications technologies that have disrupted the media landscape.

Political Overview In her discussion of global advertising, Leslie22 describes advertising professionals as members of a “transnational business community” that can move easily between various nation states but is ultimately beholden to none. As a company that is in the business of persuasion, IPG has moved

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beyond the benign practice of marketing communications and into overt political influence. In addition to its work in promoting goods and services to consumers, IPG has also has been involved, to varying degrees, in promoting the interests of varying nation states.

Ties to the State and Lobbying Efforts As early as 1962, McCann-Erickson collaborated with the Franco regime in Spain to develop the Spanish Newsletter, a public relations effort meant to inform American policymakers about progressive developments in the country as well as to “correct the ‘black legend’ that clings to Spain.”23 McCann’s role in the effort was to assess the newsletter’s suitability for American recipients, to translate it into English, and to distribute 6,000 copies to key figures as determined by the agency in partnership with Spanish embassy in Washington and the Office of Diplomatic Information. Today, the company continues to represent foreign governments to U.S. legislators, a task that is primarily accomplished through IPG’s subsidiary Cassidy & Associates, a lobbying firm that was acquired in 1988. Originally founded in 1975, Cassidy & Associates is one of the largest government relations firms. In 2013, The Hill newspaper included Gerald Cassidy and Gregg Hartley, principals in the firm, in its annual exclusive list of Washington’s top lobbyists.24 Cassidy & Associates has gained a reputation for representing corrupt and oppressive regimes, and some of the most controversial practices have involved the firm’s relationship with various African governments. In 2004, Cassidy & Associates agreed to represent the government of Equatorial Guinea,25 despite its ranking as one of the most corrupt countries in the world.26 That said, Equatorial Guinea was highly profitable for the agency, paying the firm $120,000 per month to overhaul the country’s image. The relationship ended in 2010 not because of an ethical reconsideration on the part of Cassidy & Associates, but because Equatorial Guinea reassessed the services it was receiving from the firm relative to its retainer.27 Two years later, the government of Guinea-Bissau retained the services of Cassidy & Associates after the regime came into power following a military coup. The contract was lucrative, reported at the time to be worth $1.2 million per year. The task of the firm was to help build up the new government’s legitimacy and advise it on badly needed economic development efforts and to facilitate meetings with U.S. policymakers at senior levels of the Executive Branch, the White House, and Congress. The relationship with Guinea-Bissau, however, was short lived after it came to light that senior Bissau’s officials were involved in drug trafficking. The former head of the navy, Rear Admiral José Américo Bubo Na Tchuto, was apprehended during a drug-trafficking sting.28 In response to the scandal, Cassidy & Associates filed notice with the U.S. Department of Justice, which tracks lobbying on behalf of foreign governments, that it was ending its representation of Guinea-Bissau.29 In 2013, Cassidy worked with the government of Nigeria, despite reports of the country’s human rights abuses. To counter this perception, Cassidy hosted a panel meant to promote the government’s concern for poverty, illiteracy, and training among women, youth, and the physically challenged in Nigeria. As part of the discussion, Cassidy & Associates hosted Hajiya Amina Namadi Sambo, who is the wife of the Vice-President of Nigeria and Professor Adebowale Ibidapo Adefuye, who is the Ambassador of Nigeria.30 Their inclusion was meant to garner favorable press for delegates of the government.

Ownership IPG has been a publicly held company since 1971. While shares in the company are distributed among a number of owners, Elliot Management became a major shareholder in 2014 acquiring

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6.7% of IPG’s common shares. Elliot Management, which is a profitable hedge fund company, has been aggressive in pushing the direction of IPG. Believing that the shares in IPG are undervalued, Elliot has pushed IPG for better representation on the company’s board of directors and has pressured IPG leadership to seek out potential acquirers.

Corporate Board Members and Interlocks with Other Organizations There are nine members of the board of directors, the majority of which have significant ties to the finance and banking industry. Several others have direct connections with the marketing and media industries, including the National Football League and Arbitron. Table 28.3 shows the roster of IPG’s Board of Directors as of 2014, as well as information regarding their connections to other commercial and non-profit organizations that have value to the corporation’s well-being.31 TABLE 28.3 IPG Board of Directors

Dircetor

Business Relationships

Michael Roth

Chairman and CEO of IPG Former Chairman and CEO of the MONY Group, Inc. Member of board of directors for the Ad Council, Pitney Bowes, Inc., and Ryman Hospitality Properties

Jocelyn Carter-Miller

Vice-President of TechEdVentures Former EVP and CMO of Office Depot, Inc. Member of board of directors for Principle Financial Group, Smart School Charter Middle and High Schools, and the Coral Springs Museum of Art

Jill M. Considine

Director at Atlantic Mutual Insurance Companies Member of the Council on Foreign Relations and Economics Club of New York Former Chairman of the Audit and Operational Risk Committee at the Federal Reserve Bank of New York

Richard Goldstein

Director of Fortune Brands, Fiduciary Trust Co. International, and Continuum Health Partners Former President and CEO of Unilever United States, Inc.

H. John Greeniaus

President of G-Force, LLC Former president and CEO of Nabisco, Inc.

Mary J. Steele Guilfoile

Chairman of MG Advisors Board of Trustees of Boston College Board of Directors of Valley National Bancorp.

Dawn Hudson

CMO of the National Football League Board of directors of LPGA, Lowe’s, and PF Chang’s China Bistro

William T. Kerr

Former president and CEO of Arbitron, Inc. Board member of Penton Media, Inc. Trustee of Oxford University Press Advisory board member, Magazine Publishers of America

David M. Thomas

Former Chairman and CEO of IMS Health Former SVP at IBM Board of directors, Fortune Brands and board of trustees at Fidelity Investments

Source: IPG Annual Report, 2014

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Labor With 47,400 employees worldwide,32 IPG is one of the most prolific cultural producers, employing one of the largest bodies of writers and artists as well as practitioners trained in marketing, anthropology, psychology, and rhetoric. Typically, a full-service advertising agency is organized around four key departments: account management, creative, media and account planning, and research.33 Account managers work closely with clients to develop new projects and to generate effective advertising at a profitable return for the agency. The creative department is responsible for developing the ideas, images, and words that constitute advertisements, while the media department is responsible for placing advertising where it will reach the targeted audience in a cost-effective way. Finally, the account planner draws on research to articulate the consumer’s point of view in the advertising process.34 In addition to these roles, there are numerous support and administrative professionals needed to develop and distribute advertising, including traffic managers, print buyers, broadcast producers, as well as accountants, human resource managers, and administrators. For their properties that specialize in public relations, media buying, and strategic development, IPG has hired a large body of communications experts. Given IPG’s focus on digital media in recent years, there has been an urgency to recruit digital producers. The physical production of the advertisements produced by IPG agencies is generally outsourced to vendors, which means IPG does not necessarily employ the crafts-people typically associated with organized labor. Furthermore, IPG’s employees are typically not working class, but rather highly educated and mobile. In this sense, IPG’s employees are members of Bourdieu’s “petit bourgeoisie,” who have a definitive role in producing the relational set of taste choices of particular groups.35 Durrer and Miles36 argue that the unique background of marketers enables them to mediate between the elite and the mass. These scholars argue that practitioners are not quite high class, yet they have more social and cultural capital than average middle-class consumers and are thus uniquely positioned to develop new audiences for symbolic goods.

Corporate Social Responsibility While each of IPG’s properties is involved with a variety of initiatives at the local level, IPG has made a concerted effort to concentrate its social marketing activity. In its annual report to investors the company details three primary areas of focus, which include sustainability, community impact, and diversity. These efforts are reported through IPG’s corporate citizenship report, titled STRONGER.

Sustainability According to IPG, the company is taking steps to manage the environmental impact of their business operations. In 2010 IPG launched its Sustainability Policy, which encourages employees to reduce impacts through four key behaviors: using energy more efficiently, instituting recycling programs, managing travel efficiently, and employing green building practices in real estate holdings. To reduce unnecessary usage of energy, water, and natural resources, IPG focuses on increasing efficiency of key employee processes: building operations, transportation, technology use, and supplier/vendor purchasing.

Community Impact Some of the programs with which IPG’s companies have been involved include variety of community- and health-based communications programs at a local level. Many of these programs

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serve as a form of entertainment education in which communications efforts are designed primarily to promote social change among at-risk populations. For example, in partnership with the nonprofit Champions against Bullying, Deutsch NY created a public service announcement designed to shed light on the impact of bullying. In Colombia, Lowe SSP3 worked with the Colombian government to promote the demobilization of the FARC (Fuerzas Armadas Revolucionarias de Colombia) guerillas and their integration into mainstream society.37 In London, IPG—in partnership with OpenCo—has created programs designed to promote STEM (Science Technology Engineering and Math) to children. In regards to health, R/GA, an agency specializing in digital, created a Bluetooth game controller that helps asthmatic children exercise their lungs and track their asthma symptoms.

Diversity According to IPG, the company is actively working toward greater inclusivity. To achieve this, IPG has linked CEO compensation at its major U.S. companies with performance against diversity initiatives. Furthermore, the company has established a CEO Diversity Council, which includes CEOs of the major IPG agencies. The company has established its own Diversity & Inclusion department, which works across the organization to develop and manage programs for IPG that focus on the recruitment, retention, and development of employees both at the corporate level and at IPG’s business units. The investment in employee diversity, however, may be seen as a response to external pressures. Along with the other large advertising holding companies, IPG has run into trouble with the New York Human Rights Commission. In September 2006, the Commission reached agreements with the CEOs of 16 of New York City’s largest advertising agencies that had been under investigation for their lack of diversity in managerial, professional, and creative positions. These agreements provide the framework for the hiring, retention, and promotion of minorities by requiring the agencies to establish recruitment goals and report those goals at the beginning of each year to the Commission. The agencies also agreed to report their overall demographics, providing the Commission with information regarding promotions and separations each year. Should the agencies fail to achieve their goals in any year, they will hire consultants to assist them in meeting and/or surpassing the goals in the following year.38

Cultural Profile IPG’s impact on culture is two-fold. First, advertising may be considered to be a symbolic system that synthesizes a culture’s values and worldview.39 As one of the most prolific producers of transnational advertising, IPG has the unique capacity to project the ethos of global capitalism on a massive scale. At the same time, what distinguishes advertising from other forms of cultural production is its unique capacity to translate symbolic representation into material consumption. That is to say that advertising is designed to connect audiences with particular types of goods and services. Over the past years, IPG has been responsible for developing some of the industry’s most notable and creative advertising campaigns, but like other forms of cultural production, whether they be television programs, films, or music, advertising may be considered what Bourdieu calls a “twofaced reality,”40 meaning that they are both and economic and symbolic products. Furthermore, in an effort to facilitate the movement of goods across borders, advertising agencies develop and produce campaigns that are consistent with their transnational, organizational structures.41 Consider Coca-Cola’s infamous “Hilltop” commercial which was produced by IPG’s McCannErickson. The commercial features a diverse group of 200 young people from across the globe,

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each dressed in their own national dress and singing the anthem “I’d like to buy the world a Coke.” Since first airing in 1971, the commercial has since been seen as a celebration of diversity and global solidarity,42 but despite its gestures of inclusiveness the advertisement also makes manifest Coca-Cola’s global audience, one that is based less on country of origin and more on uniform patterns of consumption. As Renato Ortiz43 argues, it behooves global media companies to reflect and promote an international popular culture, which is not tied to any specific national memory, but instead includes elements that cut across various cultures. Ultimately, the advertisement is designed to increase the consumption of Coca-Cola, a company operating in various markets across the globe. Almost 20 years before they acquired the U.S. Coca Cola account from D’Arcy Advertising Company in 1955, McCann began developing advertising for Coca-Cola on a project basis, which began in Europe and Latin America. In this capacity, the company was responsible for marketing an American beverage abroad and, in doing so, altering local preferences. While McCann-Erickson is no longer the agency of record for CocaCola in the United States, the agency continues to work with the company on a project basis. In recent years, McCann has assumed responsibilities for the lucrative Chinese market while other IPG companies continue to produce on behalf of Coca-Cola including the IW Group, which promotes the Coke brand along with other beverages such as Minute Maid, Simply Orange, and Dasani. In short, IPG’s fortunes are inextricably linked to the global corporations whom they service. As Castells44 has argued, a limited number of cities have become nodal centers within the global economy and, in turn, have become magnets of attraction for millions of human beings from all over the world. Thus, the everyday work of running globalized networks is often conducted in regionally centralized locations, whereby inordinate concentrations of a nation-state’s population and economic wealth are bound within a single city, typically the capital. Sassen45 further argues that these “global cities” are often more organically linked with other global cities than their own nations, or even their own peripheries. IPG’s organizational structure coincides with nodal points in the global economy and their own expansion reflects the larger industry’s concentration away from regional centers to huge metropolitan centers. Like other global media organizations, large metropolitan cities including New York, Tokyo, Buenos Aires, Mexico City, and London are important nodal points in IPGs global system, largely due to their proximity to financial centers as well as nodes of information, knowledge, and culture. But IPG also has smaller satellite offices in other countries ranging through Algeria, Burkina Faso, Cambodia, the Dominican Republic, Oman, Sri Lanka, Thailand, Turkey, Uganda, Ukraine, United Arab Emirates, and Vietnam. The scope of its international network has enabled IPG to effectively develop transnational campaigns for its other global clients across a variety of product categories including American Airlines, GM, GlaxoSmithKline, L’Oreal, Microsoft, and Nestlé. In their service, there has been a concerted effort to abandon the traditional strategy of marketing the same product under different names in different countries and move increasingly toward standardizing names, logos, packaging, style, and advertising across borders.46 In an effort to promote these standardized brands across the global landscape, IPG agencies create advertising campaigns that range from complete homogeneity to more localized approaches. By promoting standardized products and consumer practices, IPG agencies play an important role in reshaping local tastes and encouraging the patronage of global businesses over local ones. For example, through their Lowe affiliate in Accra, Ghana, IPG has actively promoted Kentucky Fried Chicken (KFC) by using such persuasive techniques as highlighting KFC’s “secret recipe” and highlighting “Ghana’s only drive-through.” While seemingly benign, such advertising messages urge Ghanaians to abandon local tastes and to revisit the tradition of dining at home or patronizing

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independently owned restaurants. Instead, Ghanaians are encouraged to adapt eating practices that have become homogenized across the globe. In the same way, IPG’s work for MasterCard has also changed local practices. The company’s approach has been to adapt the “Priceless” campaign, to varying degrees, for use in different markets. But in the process of promoting its global campaign, the agency and client have become complicit in shifting, albeit in subtle ways, the way material objects are paid for. By promoting the use of MasterCard, the agency is facilitating the transition from a cash economy to a credit economy. In many cases, this transition is abrupt, and while purchasing on credit helps expedite the purchase of consumer goods, it simultaneously results in greater debt incurred by consumers across the globe. Such efforts reflect an overall eagerness to create consumer segments that fit seamlessly within their organizational structures. But despite IPG’s global reach, their attention is generally centered on those consumers who are most likely to actively participate in a consumer society. In its own communications to investors, IPG is explicit about its desire to cultivate a global middle class: First, we are seeing the development of a burgeoning global middle class. By 2030 twothirds of the world’s population will be middle class, with a daily expenditure of $10 to $100. This new middle class will appear primarily in Asia, as well as Latin America. This is evident not only in India, China and Brazil, but in other emerging markets such as Indonesia, Thailand, Turkey and Mexico, countries in which our agencies are experts in helping clients connect with and tap into the spending power of this developing economic force.47 The conception of a global middle class is a relatively modern conception. Today, marketers have become influential in creating communities based less on their connections to physical space and more on shared patterns of consumption. Because of the standardization of markets, transnational advertising agencies cultivate the segments, which are repeated over and over again throughout the world. This is not to say that everyone gets to participate equally in advertising discourses. As Yudice48 argues, membership in and access to the institutions of “civil society” via consumerism are largely determined on a class basis. Thus, the citizens of global advertising’s Latin America are not poor. Rather, they are solidly middle class or professional-managerial. Advertising practitioners focus disproportionately on those who have the means to participate in a capitalist economy. Thus, as advertising agencies advance strategies, concepts and campaigns congruent with their organizational structures, they are mediating the increased globalization of the world economy and culture.

Notes 1

Stewart Alter, S. Truth Well Told: McCann Erickson and the Pioneering of Global Advertising. (New York: McCann Erickson Worldwide Publishers, 1994). 2 Daniel Pope, The Making of Modern Advertising. (New York: Basic Books, Inc., 1983) 3 Benedict Anderson, Imagined Communities: Reflections on the Origin and Spread of Nationalism, Revised Ed. (London: Verso, 2006) 4 Mark Dueze, M. 2007. Media Work. Cambridge, UK: Polity Press. 5 Nigel Thrift, “The Urban Geography of International Commercial Capital,” in Global Restructuring and Territorial Development, ed. Jeffrey Henderson and Manuel Castells, 203–233. (London: Sage, 2007). 6 Dallas Smythe, “On the Audience Commodity and Its Work,” in Dependency Road: Communications, Capitalism, Consciousness, and Canada, 22–51. (Norwood, NJ: Ablex, 1981). 7 Alter, Truth Well Told . . . 8 Ibid. 9 IPG Corporate profile, http://adage.com/article/adage-encyclopedia/interpublic-group-cos/98723/ 10 International Directory of Company Histories, Vol. 22 (Detroit: St. James Press, 1998). 11 Ibid.

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12 Lintas: Worldwide (Lowe Lintas & Partners). Agency profile, Advertising Age. 2003, http://adage.com/ article/adage-encyclopedia/lintas-worldwide-lowe-lintas-partners-worldwide/98751/ 13 Stephanie Clifford, “Agency Pays $12 Million to Settle Accounting Case,” New York Times, May 2, 2008, www.nytimes.com/2008/05/02/business/media/02adco.html?_r=1& 14 “Interpublic and True North Combine to Create World’s Largest Marketing Communications and Services Group,” IPG, March 19, 2001, http://investors.interpublic.com/phoenix.zhtml?c=87867&p= irol-newsArticle&ID=159586 15 Interpublic Group of Companies, Annual Report to Investors, 2014. 16 Ibid. 17 Interpublic Group of Companies, Annual Report to Investors, 2013. 18 Interpublic Group of Companies, Annual Report, 2014 19 The Axis Agency, Corporate website, www.theaxisagency.com/ 20 N.d. Frank About Women. Corporate website, www.frankaboutwomen.com/ 21 N.d. McCann Truth Central, http://mccann.com.au/truth/ 22 D. Leslie, “Global Scan: The Globalization of Advertising Agencies, Concepts and Campaigns,” Economic Geography 71(4) (1995): 402–426. 23 As quoted in Neal Rosenderof, Franco Sells Spain to America (New York: Palgrave Macmillan, 2014). 24 “Top Lobbyists,” 2013. The Hill, http://thehill.com/business-lobbying/business-lobbying/188607-toplobbyists-2013 25 Joshua Kurlantzick, “Putting Lipstick on a Dictator,” Mother Jones, May 7, 2007, www.motherjones.com/ politics/2007/05/putting-lipstick-dictator 26 As identified by Transparency International, www.transparency.org/country 27 Sara Jerome, “Lobbying Firm Cassidy & Associates Loses Highest Paying Client,” The Hill, August 6, 2010, http://thehill.com/business-a-lobbying/113117-lobbying-firm-cassidy-a-associates-loses-highestpaying-client 28 Adam Nossiter, “U.S. Sting that Snared African Ex-Admiral Shines Light on Drug Trade,” New York Times, April 15, 2013, www.nytimes.com/2013/04/16/world/africa/us-sting-that-snared-guinea-bissauex-admiral-shines-light-on-drug-trade.html?pagewanted=all 29 Alec MacGillis, “Too Hot for K Street? Africa’s First “Narco State” Loses its DC Lobbying Firm – But Not for the Obvious Reason,” New Republic, April 25, 2013, www.newrepublic.com/article/ 113030/cassidy-associates-drops-guinea-bissau-government-client 30 Cassidy & Associates website, www.cassidy.com/blog/437/ 31 Interpublic Group of Companies, Annual Report . . ., 2013. 32 Interpublic Group of Companies, Annual Report . . ., 2014. 33 William Leiss, Stephen Kline, Sut Jhally, and Jacqueline Botterill, Social Communication in Advertising: Consumption in the Mediated Marketplace, 3rd edition (New York: Routledge, 2004). 34 William Arens, Michael Weigold and Christian Arens. Contemporary Advertising, 13th edition (New York: McGraw, Hill, 2010). 35 Mike Featherstone, Consumer Culture and Postmodernism. (London: Sage, 1991). 36 Victoria Durer and Steven Miles, “New Perspectives on the Role of Cultural Intermediaries in Social Inclusion in the UK,” Consumption, Markets and Culture 12, no. 3 (2009): 225–241. 37 “Stronger: Citizenship Citizenship at Interpublic,” IPG, 2014, www.interpublic.com/dyn/file_dl.php/ 173157/0/0/0/0/FINAL_Stronger_5+1+2014_Magazine_Spreads.pdf 38 New York City Commission on Human Rights, 2006 Annual Report. www.nyc.gov/html/cchr/ downloads/pdf/annual06.pdf 39 John Sherry, “Advertising as a Cultural System,” in Marketing and Semiotics, ed. Jean Umiker-Sibeok (New York: Mouton de Gruyter, 1987). 40 Pierre Bourdieu, The Field of Cultural Production: Essays on Art and Literature (New York, NY: Columbia University Press, 1993). 41 D. Leslie, “Global Scan: . . .” 42 Greg Myers, Ad Worlds: Brands, Media Audiences (New York: Arnold Publishers, 1999). 43 Renato Ortiz, Mundialização e cultura (São Paulo, Brasiliense, 1994). Manuel Castells, “European Cities, the Informational Society and the Global Economy,” Journal of Economic and Social Geography 84, no. 4 (1993): 247–257. 45 Saskia Sassen, Cities in a World Economy, 2nd Edition. (Thousand Oaks, CA: Pine Forge Press, 2000). 46 D. Leslie, “Global Scan: . . .” 47 Interpublic Group of Companies, Annual Report . . . , 2013. 48 George Yudice, “Civil Society, Consumption, and Governmentality in an Age of Global Restructuring,” Social Text 14, no.4 (1995): 1–25.

CONCLUSION Reflections on Media Power Benjamin J. Birkinbine, Rodrigo Gómez, and Janet Wasko

In Internationalizing Media Theory, John D. H. Downing remarks, “without constant attention to [power relations], media studies might as well shut up shop.”1 We wholeheartedly agree, and most critical media scholars will find Downing’s claim familiar, as it constitutes one of the seemingly commonplace assumptions of critical media studies. Indeed, the call for constant attention to the changing nature of power relations is one that is consistently made by critical researchers during times of inter-paradigm dialogue on the nature of media studies.2 While the sentiment may be familiar, critical scholars devote comparatively less attention to establishing explicit definitions of “power,” generally, or “media power,” more specifically. Rather, critical scholars may operate with either an implicit understanding of power or they may adhere to a definition that is inspired by the work of one or another social theorist. However, given the importance of power to the entire enterprise of critical media studies, the contours of power relations are in constant need of rethinking, renewal, or outright disposal. To that end, one of the major intentions of this volume was to specifically interrogate the notion of media power, particularly the ways that specific media corporations both hold power and how they exercise it. Indeed, as discussed in the Introduction, contributing authors to this volume were asked to comment on how particular corporations exercise power within their respective domains. Recognizing that media corporations and their products always act in relationship to other institutions and forces, authors were requested to provide economic, political, and cultural profiles of their respective corporations or regions. This concluding chapter, then, provides a summary of what was learned through the process. We reflect on how media corporations are both shaped by and exercise economic, political, and cultural power. And although the comments and analysis are separated into these three spheres, the main argument presented here is that power itself is always relational, expressed at times in somewhat predictable patterns, while at other times in contradictory ways. However, we find the radical view of power to be the most useful because it explicitly critiques the unequal distribution of resources and the ways in which this inequality is reproduced over time. In this sense, we are following Des Freedman’s work in The Contradictions of Media Power, wherein media power is described as both a consequence and an increasingly significant component of continuing, and stratified, processes of social reproduction. It is not simply about either gently persuading or forcibly coercing individuals to do things they would otherwise choose not to do but about the

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material coordination of flows of information, communication and culture such that persuasion and coercion—as well as expression and interpretation—are most effectively able to take place.3 This volume can be seen as an extension of Freedman’s work on media power insofar as authors have specifically interrogated how companies facilitate the “material coordination of flows of information, communication, and culture” through economic, political, and cultural relations. In what follows, then, we explore specific iterations of media power within these three spheres.

Economic Power The economic profiles of the companies in this volume reveal at least two distinct levels of economic power exhibited by media corporations: those factors that are internal to the corporation and those that are external. On the one hand, media corporations exercise economic power by those things that are internal to the corporation, including subsidiary companies, other properties (whether tangible or intellectual), and its workforce (from laborers to executives). All of these are internal to the corporate structure, and they collectively represent the corporation’s ownership or control of those factors that are necessary for the material coordination of flows of information, communication, and culture. The sheer scale of any particular corporation’s holdings provides one of the clearest expressions of its power to control the production, distribution, and exhibition of communicative resources. However, the availability of information about these factors varies across national boundaries. In the United States, the Securities Act of 1933 requires publicly traded companies to provide annual disclosures of their business activities, including assets and liabilities, financial performance data, and information about the board of directors. Indeed, many of the authors in this volume relied on these annual reports to determine the holdings and business activities of the corporations covered in their chapters. This is particularly true of large, U.S.-based companies like Disney, Time Warner, News Corporation, Comcast, and, to some degree, National Amusements, which owns both Viacom and CBS. National Amusements, however, illustrates one limitation of the disclosure requirements of the Securities Act in that privately owned corporations are exempt from filing annual reports. Nonetheless, the disclosure requirements of the Securities Act provide researchers with a mechanism for obtaining regularly published reports on the activities of media corporations. The same cannot be said for other global media giants. As noted by Pradip Ninan Thomas in his chapter on South Asia, information about companies in that region is not readily available. Moreover, the information that is available may not be reliable. Sandra Bašić Hrvatin and Brankica Petković raised a related issue in their chapter on Eastern Europe. The media “giants” in that region (or, as proposed by the authors, “media dwarfs”) are often controlled by local media oligarchs, and their non-transparent ownership is often used to facilitate the non-transparent flow of money. These insights illuminate a central concern with the economic power of media corporations. Insofar as one can determine the extent of a particular media corporation’s operations, such information can reveal its potential to control the production, circulation, and consumption of media messages. However, when such information is not available, then the public loses its ability to scrutinize the activities of the corporation. Such concerns are not unique to media corporations, but the implications are much more profound when one considers a corporation’s ties to other institutions and actors outside of its corporate structure. This consideration leads to the second level of a media corporation’s economic power, which is related to those forces that are to some degree external to the corporation itself. These include a corporation’s involvement in the circulation of financial capital, including corporate investments

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that can dramatically influence operations as well as the strategies that a corporation is able to pursue. Other external factors include a corporation’s strategic partnerships, alliances, joint ventures, or temporary agreements that extend the reach of the corporation beyond the boundaries of its corporate structure. What is important to consider about these external factors is that they can shape the contours of the possible strategies available to a corporation at any given time. One example is provided in Luis Albornoz’s chapter on Prisa. In that case, Prisa experienced a period of aggressive growth from 1984–2007, but the rapid expansion that was marked by substantial acquisitions and cheap loans after going public in 2000 created a situation in which the Great Financial Crisis of 2007–2008 left the company with massive debts. Consequently, the company has been restructuring its debt and selling off key assets since approximately 2008. In this case, the corporation’s transformation has been dramatic, as it has been abandoning assets that were previously considered to be the heart of the company. Moreover, even though the corporation is based in Spain, more than 73% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) come from Latin America. Indeed, all of the companies and regions described in this volume have experienced different financial fortunes resulting from their unique histories. These financial histories are tied to ownership structures and the investment capital available to each corporation. Those companies with large capital reserves have a greater ability to acquire additional properties, especially those that may constitute a competitive threat to the corporation. This was highlighted in many of the chapters on the Internet giants (i.e., Google, Facebook, Apple, etc.), as well as Yu Hong’s discussion of Tencent Holdings. The practice of acquiring start-up companies or established companies within particular national or regional markets becomes a key strategy for both expanding growth as well as stifling competition, which represents another key dimension of a media corporation’s economic power. Perhaps the most important external factors contributing to a media corporation’s economic power, however, are its ties to the state and the political or regulatory environment in which it operates. As noted by many of our authors, neoliberalism has been a defining feature of how economic power has been exercised around the world. While the term neoliberalism can be used to describe a range of practices, it is marked by an ideology that tends to separate market relations from social relations, as if they were two distinct spheres of activity. When the market is elevated above social relations and is no longer viewed as embedded within social relations, it serves the normative function of providing an ethic to which all social relations should ascribe. This was the basis of Karl Polanyi’s critique of the then-emergent neoliberal thought in the 1940s.4 But neoliberal thought has provided the backdrop for many significant domestic and international regulatory changes since at least the 1970s. One of the more concrete expressions of this ideology has been the increasing privatization of those institutions or resources that were once publicly owned. In effect, the interests of capital and corporations have usurped the power of the state. As it applies to media corporations, we can examine the changes in the regulatory environment as well as particular corporations’ ties to the state as a way of assessing the extent of their political power.

Political Power The relationships of media corporations with political power involve different approaches and practices depending on specific interactions with different institutional powers of states around the globe. As discussed in this volume, corporations sometimes can be allied with governments and at other times vehemently antagonistic. Rarely, however, do media corporations serve as watchdogs of the state, but instead become ideological counterparts that participate as partisans or political agents in supporting one leader or party that holds political power.

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It is important that we understand pluralism as “a condition of cultural and ethnic diversity, a dispersal of power, and greater freedom and diversity of expression and belief.”5 Media power can be concentrated if a media system is not sufficiently pluralistic to present a broad range of views from the political spectrum of a society. Thus, when media monopolies or duopolies exist, media power becomes concentrated and has negative consequences for the democratic health of a country. Clear examples of this are discussed in the regional chapters, most specifically in the Mediaset (Italy) and Televisa (Mexico) chapters. For certain periods in some settings, there have been various kinds of collusion between media corporations and governments. Bertelsmann’s role during the Nazi period is a paradigmatic example, but this condition has also existed even in democratic countries, such as Britain under Thatcherism. The case of News Corporation is significant in this respect, as the company has developed different practices and strategies around the world according to the particularities of each political system where it operates. In fact, it may be possible to argue that News Corporation is the global media giant with the most visible international political activity at local levels. Another example at the regional level was the behavior of Grupo Prisa in relation to the Chávez regime, as it provides an example of how a foreign and influential regional-Spanish multimedia group tried to wield political influence in Venezuela, specifically, and in Latin America, more generally. Media power is a key element to understanding the quality of democracies and the vitality of civil societies. After the eruption of social media platforms (Facebook, Twitter, Google+, etc.), which, to a certain degree, have enhanced the capacity of audiences as citizens to communicate horizontally through digital platforms and social networks, we are experiencing new relations, counterbalances, and interactions in our media systems. It is clear that the roles and the centrality of mainstream media corporations are being reshaped in this new era. However, it is also possible to argue that mainstream media still exercise power and often maintain some kind of centrality in media systems. At the same time, the new corporations that control social media and provide information and Internet-based services (Google, Facebook, Microsoft, Comcast, Telmex, Tencent, etc.) have developed new forms of control and surveillance through databases of information that can be obtained from social media platforms, email accounts, or from manipulation of Internet infrastructures. Thus, the efforts to regulate digital and informational rights (for instance, privacy and net neutrality) have become increasingly significant. Indeed, these situations present many new challenges for the regulation of communication systems. Because these companies control public information and are using it for commercial and private interests, new regulations and policies may be vital in preserving the democratic potential of these new technologies. However, the media/communications corporations tend to support deregulation by any means possible, in an attempt to clear the way for private imperatives and profit maximization. Many of the chapters in this volume discuss the details of corporate lobbying for sympathetic legislation and local and national political campaigns. Specific examples of these activities are found in the chapters on Comcast, Disney, Microsoft, Apple, Time Warner, News Corp, Globo, Televisa, and Mediaset. Overall, then, the study of the media corporations and how they build power is fundamental to understanding the constraints, challenges, and contradictions of our contemporary societies in relation to social change.

Cultural Power Global media corporations are significant not only because of their economic and political role, but because of a wide range of potential cultural influences. Certainly, the issue of media influence or “effects” is a highly contentious topic among media researchers, as well as with policy makers

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and the public. Meanwhile, many media corporations often claim that their business is merely entertainment, without political implications or strong effects. Nevertheless, it is difficult to deny that media corporations have significant cultural effects/influences, both at societal and individual levels. Generally, the media giants contribute to the commodification of culture, as the manufacture and marketing of cultural commodities increasingly replaces other ways that culture has been created and shared. Thus, media companies, at least potentially, shape dominant cultures and may contribute to the inhibition or demise of traditional or alternative cultures. It might be argued, as well, that the proliferation of media giants may tend to limit choices and contribute to a homogenization of culture, especially through the recent development of franchises, synergistic practices, and more formulaic programming. In terms of content, it is clear that media products/messages communicate social norms, and thus, ultimately influence people’s lives. For instance, as Meehan argues, “mere” entertainment can persuade people to buy advertised goods, adopt consumerist lifestyles, and buy only brandnamed products. Of course, different companies use different strategies, which may lead to a variety of cultural consequences. For instance, Disney maintains a unified corporate meta-brand, with Disney products and services available and/or recognized all over the world, while Time Warner (as Fitzgerald observes in his chapter) represents a “house of brands” and focuses on trans-industrial practices. Fitzgerald also points out another relevant dynamic in his discussion of Time Warner’s recent emphasis on a strategy of quality programming: Cultural-symbolic and economic power here are inextricably linked: in what one Time Warner executive refers to as “the arms race in original programming,” the wider cultural significance of such products reinforces both the potential for commercial intertextuality and the position of Time Warner within shifting commodity chains. Meanwhile, other corporations combine a wide variety of businesses and thus have different kinds of cultural influence. As Pickard and McGuigan observe in their chapter on Comcast, the company’s “vast holdings offer it many opportunities to exert subtle forms of influence, a kind of soft power that extends its reach into symbolic and ideological spheres . . . Its extensive holdings of cable networks, spanning various genres, enjoy national distribution and furnish many symbolic resources through which Americans construct their realities and public cultures.” The quality of content is also an issue identified by some of the contributors to this volume. Becker describes how Bertelsmann produces as many items as possible, and that “The economics of high circulations mean that they must appeal to mediocre tastes.” He traces the evolution of Bertelmann’s low-quality entertainment television activities and the effect on public broadcasting in Germany: “RTL started presenting an apolitical, low-quality entertainment television channel and the two public service broadcasting authorities ARD and ZDF allowed themselves to sink to the same low-quality standards in the battle for market share.” The issue of globalization strategies and cultural consequences is a component of the discussions of many authors in this collection. Though much has been written critiquing the concept of cultural imperialism, from both critical and administrative positions, the influence of powerful transnational media conglomerates on local and national cultures is still a relevant question around the world even if the specific contours of this dynamic may vary within different national contexts. For example, in his chapter on O Globo as well as in his other work on cultural imperialism, Joseph D. Straubhaar demonstrates how the forces of cultural imperialism and dependency on Time-Life blended with specific actions of Brazilian managers who were responsive to popular tastes within the country.

482

Benjamin J. Birkinbine, Rodrigo Gómez, and Janet Wasko

Not only do global media giants provide specific cultural products that include Western trends, fashions, and ideas, but the ideas of cultural commodities or cultural market values are exported and reinforced by these gigantic companies through their examples, as well as their links to political agendas, public relations campaigns, and international policy organizations. Political economists continue to be criticized for avoiding cultural concerns, despite a good deal of work that integrates political, economic, and cultural analysis.6 The data and analysis offered by Global Media Giants’ contributors provide entry points for further cultural analysis and foundations for a wide range of multi- and cross-disciplinary analysis.

Concluding Remarks on Media Power We began this concluding chapter by arguing that power is always relational and that it is expressed in both predictable and contradictory ways. By ascribing to a relational definition of power, we argued that economic, political, and cultural power are all woven into the fabric of media power precisely because media corporations are situated within these spheres, but they also have the ability to influence these spheres in different ways. Having established a relational and interwoven definition of power, we separated three strands for commentary and analysis. In this concluding section, we would like to re-emphasize the need for weaving these three strands back together to arrive at a more comprehensive, although historically contingent, picture of media power. To put it simply, the global media giants covered in this volume continue to hold power over the material coordination of the flows of information, communication, and culture. However, the various case studies illustrate how each of the companies exercise power in different ways, and the way that they exercise power is contingent upon their unique histories. These histories include the effectiveness of the specific strategies pursued at any given time, but the range of strategies available to the corporation is shaped by multiple factors, including the properties available within its corporate structure (and the opportunities for synergy), the financial performance of its investments, the regulatory environment within which it operates, its ties to the state (especially those individuals or parties that hold significant influence), and the degree to which its power is legitimized or accepted by those living within reach of its symbolic universe. Then again, it would be fallacious to see only diversity in the way that these corporations exercise power. Although the specific strategies may be unique and contingent, all corporations have the pursuit of profit and, by extension, survival as their central motives. This generally means that the range of strategies available to the media giants is further limited by those options that have the greatest potential for profit maximization. Those options are generally marked by the creation of cultural commodities that appeal to the largest number of viewers as least-objectionable choices among programming choices. In other words, the global media giants generally tend to create “mere entertainment” as opposed to fulfilling their watchdog function in a democracy as a critic of the government. This can also limit the extent of true innovation within programming, as successful programs or formats are likely to be adapted to national audiences or the creation of copycat shows that follow predictable patterns.7 In this sense, studying media corporations and media power has important implications for social inequality, diversity, democracy, as well as basic media literacy. By focusing on media corporations, this collection has presented information and analysis that should provide a better understanding of global media power. This should be particularly important to those studying the media in various contexts. It can provide a foundation for studies that explore media texts, audiences, and effects, as well as the role of media in other social institutions (education, religion, etc.). Certainly, however, more research is needed to round out the picture in various ways. Although we have covered various types of global media giants as well as provided overviews of specific regions, there are still other media companies that exercise significant power that were

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not covered in this volume. For example, a more comprehensive picture of information and telecommunications companies needs to be provided. Governmental bodies and their relationships to media/communications companies should be more fully explored. Public media/communication institutions need to be considered, and civil society groups as well as alternative media activities should continue to receive attention, particularly the ways in which the activities of these groups relate to the media giants and other institutions. One final qualification might be made about the timeliness of the analysis in this book. As we have continuously noted, specific financial information, ownership arrangements, technological developments, and other details will undoubtedly change after this book’s publication. But while there will be change, there also will be continuity. We trust that this collection will be a model for understanding such change, as well as identifying ongoing tendencies in the evolution of corporate media power. In closing, then, we would like to re-emphasize our view that power is always shaped by and defined by social relationships. Over time, these relationships are reproduced in certain ways, while at other times these relationships can be broken or may diverge from seemingly predictable patterns. And since communication is fundamentally a social process, understanding the contours of power as it is perpetuated throughout social, economic, political, and cultural relationships lies at the heart of critical media studies. In this volume, the authors interrogated these relationships to expose the ways that media corporations exercise power as well as reproduce their power over time. What emerged from the study was a complex and dynamic view of power. In other words, just as the specific strategies and practices of media corporations can change at any time, so too can the contours of media power. They are not mutually exclusive. And, just as we stressed that the contours of media power are constantly in need of rethinking, renewal, or outright disposal, perhaps the same could be said of those media corporations who exercise such power.

Notes 1 2 3 4 5 6 7

John D. H. Downing, Internationalizing Media Theory (London: Sage, 1996). See the special edition of Journal of Communication from 1983: “Ferment in the Field,” Journal of Communication, 33(3), 1983. Des Freedman, The Contradictions of Media Power (London: Bloomsbury, 2014). See Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (Boston, MA: Beacon Press, 1957). Clifford G Christians, Theodore L. Glasser, Denis McQuail, Kaarle Nordenstreng and Robert A. White, Normative Theories of the Media: Journalism in Democratic Societies (Champaign, IL: University of Illinois Press, 2009) 34. See Janet Wasko & Eileen R. Meehan, “Critical Crossroads or Parallel Route?: Political Economy and New Approaches to Studying Media Industries and Cultural Products,” Cinema Journal 52 (3), Spring 2013. One can easily think of a number of platform shows that have been adapted to different national contexts. Examples include talent shows (like the . . . Idol, . . . Got Talent, or even The Voice series), daytime women’s talk shows like The View, or the Big Brother reality series.

INDEX

ABC takeover 12, 14–15 Abrams, George S. 37–39 Abril 260–261, 264, 295 A.C. Nielsen Holdings (ACN) 447–463; corporate responsibility 457; corporate structure 450–454; cultural considerations 457–460; economic profiles 447–454, 461; history 448–449; ownership 454–456; politics 447–449, 454–457 acquisitions and mergers: América Móvil 128, 131, 134, 137; Apple 375; Australia 353, 357; Bertelsmann SE & Co. 144–145, 160; China Mobile 344; Comcast 73, 77–78, 83; Facebook 429, 431; Google 400, 402–403; Grupo Prisa 207–209, 213, 230; Latin America 261, 263; Mediaset 182, 184; Microsoft Corporation 383, 386–388, 390, 393; Middle East 276; MTN Group Ltd. 290–292; Naspers 295; National Amusements Incorporated 27, 45; News Corporation 92, 94, 97, 104–105, 357; New Zealand 354–356; Sony Corporation 239, 241, 246; Telefónica 193; Televisa 117; Tencent Holdings 347; Time Warner 51–52, 56–58; TV18 334, 336; Vivendi 163–166, 169, 174, 177–179 advertising: Agora 319; América Móvil 136–137; APN News and Media 358, 361; Apple 377–378; Bertelsmann SE & Co. 147, 154, 158–159; Cisneros 263–264; Comcast 75–80, 86; Eastern Europe 313–322; Facebook 428–444; Fairfax 354, 357, 360; Google 399–404, 407–409; Grupo Globo 226–234; Grupo Prisa 209–213; Hungary 320; Interpublic Group of Companies 464–475; Korea 340; Latin America 263–264, 266, 269; Mediaset 181–188; Microsoft Corporation 387–389, 394; Middle East 277–278, 281; MTVA 321–322; Naspers 295, 298; National Amusements Incorporated 29–31, 33, 35, 44; Nation Media Group 299, 303; News Corporation 95–100, 104; New

Zealand 354, 356–357, 362; Nielsen Holdings 447-461; Pink Group 317; Sony Corporation 258; Telefónica 193, 198; Televisa 111–114, 119, 121; Tencent Holdings 346; Time Warner 64, 66; TV18 331, 336; Vivendi 164, 171–174 AdWords/AdSense 402 affiliates, América Móvil 129, 131–134, 140 Africa see sub-Saharan Africa Afrikaans for the National Press see Naspers Group Ltd AGI see Arab Group International Agora Group 316, 318–320, 323 AIR see All India Radio Albornoz, Luis A. 206–225 al-Ibrahim, Walid 275–278, 281, 283–284 Alierta, César 193 All India Radio (AIR) 326 Allen, Paul 384 Amazon.com 413–427; corporate structure 418–421; cultural considerations 423–424; economics 413–424; history 415–417; ownership 421–422; politics 414–415, 421–424 Ambani, Mukesh 330–331, 334–335, 337 América Móvil 125–143; Claro 126, 134, 136–137, 142, 195, 259; corporate responsibility 140–141; corporate structure 131–137; cultural considerations 141; economic profiles 128–137; government relations 126, 138–141; history 126–128; Latin America 115, 117, 125–143, 195, 228, 259, 294; ownership 131–137; politics 126, 138–141; Telefónica 195; Televisa 136–139 American Cable Systems see Comcast America Online (AOL) 52–53, 57, 59–60, 62–64, 84, 149, 401, 439 Andelman, David R. 37–39 animation 11–12, 16–20, 35, 45 AOL see America Online APN News and Media 351, 353–354, 356–362

Index 485

Apple: corporate board members 372–373; corporate responsibility 376; corporate structure 372–373, 375–376; cultural considerations 377–378; economics 371–376; history 370; Internet 369–382; ownership 372; politics 371–375 Arab Group International (AGI) Holding Company 276 Arab Radio and Television (ART) 275–276, 278–283 Arab World see Middle East Argentina, Clarín 125, 223, 259–265, 270 ART see Arab Radio and Television arvato 146, 148–150, 153–154, 160–161, 301 Atari 52, 59 audience surveillance and knowledge 447–448 audiovisual: América Móvil 125, 136; Bertelsmann SE & Co. 145; Grupo Prisa 206–213; Latin America 112–115, 118, 122, 258–265, 269–272; News Corporation 92, 97–98, 100–101; Telefónica 197; Televisa 112–115, 118, 122; Vivendi 163–178; see also individual formats Australia 351–354, 357–359, 362–365; economy 351–352, 357–359, 362; Fairfax 351–354, 356–358, 360–362; history 351–354; News Corporation 92–93, 97–98, 101–102, 105–107, 351, 353, 355–359, 362; politics 351–352, 358–359, 362 Austria 160 Ballmer, Steve 390–391, 439 Bangladesh 326, 328–329, 333–334 Barns, Mitch 447, 455–456 Becerra, Martín 257–272 Becker, Jörg 144–162 Be Printers Group 146, 148, 157 Berlusconi, Silvio 181–182, 185–190 Bertelsmann SE & Co. 144–162, 480; corporate structure 146–150; cultural considerations 158–160, 481; economic profiles 145–150; history 144–145; politics 150–158, 480 Bertelsmann Music Group (BMG) 148–150, 153, 156, 160 BET Networks 33–34 Bezos, Jeff, Amazon.com 414–417, 420–424 Biltereyst, Daniel 447–463 bin Talal, Al-Waleed 100, 102–103, 278, 280–281 Birkinbine, Benjamin J. 1–7, 383–397, 477–483 BMG see Bertelsmann Music Group Board of Directors: Amazon.com 421–422; América Móvil 133; Bertelsmann SE & Co. 152–156; Columbia Broadcasting System 38–40; Comcast 83–85; Google 405–407; Grupo Prisa 216–218; Interpublic Group of Companies 471; National Amusements Incorporated 38–41; Nielsen Holdings 455–456; Sony Corporation 247–248; Telefónica 198–200; Time Warner 59–62; TV18 336; Viacom 38–41; Vivendi 175–176; Walt Disney Company 18–19

board members: Bertelsmann SE & Co. 154, 156; News Corp 104–105; Televisa 119–120; Twenty-First Century Fox 104–105; see also corporate board members Bolloré, Vincent 166–167, 171, 173–176 Book Publishing, News Corporation 92, 94, 96–97 Bouquillion, Philippe 163–180 Brazil 191, 193–200, 206–207, 209, 212, 220, 226–236 Brevini, Benedetta 181–191 Brin, Sergey 398–399, 401, 405–406 Britain see United Kingdom broadcasting: América Móvil 137–139; Apple 376; Australia 352, 355; Bertelsmann SE & Co. 147, 159, 481; Caracol 264; Cisneros 260, 263–264; Clarín 262–263; Columbia Broadcasting System 31–33; Comcast 75–79, 86–87; East Asia and China 340–341, 345–346; Eastern Europe 313–321; Grupo Globo 226–235; Grupo Prisa 206–209, 220; Interpublic Group of Companies 464, 472; Latin America 260, 262–264, 266, 270–271; Mediaset 181–188; Middle East 275–282; National Amusements Incorporated 26–33, 39–41; Nation Media Group 288, 299–300; News Corporation 92–96, 106; New Zealand 355–357; Nielsen Holdings 447, 452–455, 458–461; Sony Corporation 245–247; South Asia 326–338; sub-Saharan Africa 288, 293–300, 306; Televisa 111–122; Time Warner 52–56, 63–64; Vivendi 165, 171, 175, 179; see also individual media types “browser wars” 385 Bujak, Zbigniew 318 Bulgaria 56, 314–315 Burma 326 bus companies 295 cable systems: China 341–342, 345; Columbia Broadcasting System 29–31; Comcast 72–87; East Asia 341–342, 345; Eastern Europe 315, 317; Grupo Globo 227–228, 233, 235; Latin America 257–264, 270; Mediaset 181; Middle East 276, 282; National Amusements Incorporated 27–28, 41, 45; News Corporation 96, 98–103, 107; Televisa 115–117, 119; Time Warner 54–55, 57, 63–65, 67; Viacom 28, 33–35; Walt Disney Company 14–15 Calabrese, Andrew 413–427 Calhoun, David L. 447, 449, 455–456 Canal 13 260–261, 263, 265 Capital Cities takeover 12, 14 Caracol 208, 260–261, 264–266, 270 Caribbean 128, 134, 137 Carlos, Juan José de 206 cartoons 11–12, 34–35, 52, 54, 57 Cascade Investments, LLC 391 CBS see Columbia Broadcasting System Cebrián, Juan Luis 207

486

Index

Central European Media Enterprises (CME) 315 Ceylon 326–329 CGE see Compagnie Générale des Eaux charitable giving/philanthropy: Amazon.com 422; América Móvil 126, 140–141; Apple 370, 376; Bertelsmann SE & Co. 157–158; Columbia Broadcasting System 43; Facebook 439; Google 407; Mediaset 187; Microsoft Corporation 394–395; National Amusements Incorporated 42–44; Nielsen Holdings 457; sub-Saharan Africa 303; Telefónica 201–202; Televisa 120–121; Telmex 140; Viacom 43–44; Walt Disney Company 18, 21–22 Chávez, Christopher 464–476 Chile 54, 56, 131–135, 194, 196, 207–208, 212–213, 261–266, 271 China 340–350; Apple 371–376; cable systems 341–342, 345; communications 340–348; cultural considerations 346; economics 340–344, 348; history 341–342; Internet 340–348; mobile phones 341–348; News Corporation 92, 94–96, 107; politics 340–341, 346; rise of 341–342; satellite presence 343, 345; sub-Saharan Africa 304–305; telecommunications 341–348; Telefónica 198; television 341–346; transnational corporate networks 342 China Mobile 343–344 China United Network Communications Group 198 Cisneros 137, 258, 260–265, 270 Clarín 125, 223, 259–265, 270 Claro 126, 134, 136–137, 142, 195, 259 CME see Central European Media Enterprises Cohen, David 81–82 Colombia 77, 208, 260–261, 264–266, 270 Columbia Broadcasting System (CBS) 26–50; corporate responsibility 42–44; corporate structure 29–33; cultural considerations 44–46; economic profiles 28–31; history 27–28; politics 36–41; Sony Corporation 239, 241–242, 244–246 Columbia Pictures 239, 241–242, 244–245 Comcast 72–91; corporate structure 75–80; cultural considerations 86–87; economic profiles 73–80; history 72–73; monopoly power 77–80; ownership 81; politics 80–86, 480; Time Warner 72–80, 83–84, 87 Comcast Cable 74–75, 78, 85 Comcast Spectacor 77 Commercial Licensing/Commercial Other, Microsoft 388 communications: China 340–348; East Asia 340–348; Microsoft 383, 386–388, 390, 393, 395; see also fixed-line services; mobile services; telecommunications community impacts, IPG corporate responsibility 472–473 Compagnie Générale des Eaux (CGE) 163–165, 179

Compañia Telefónica Nacional de España (CTNE) 192 Consorcio Periodístico de Chile (COPESA) 264–265 consumer products see popular products/services Cook, Tim 369, 372–374 COPESA see Consorcio Periodístico de Chile copyrights 20, 64–65, 159, 175, 271, 321, 342, 389, 393, 398, 404–405, 452; see also intellectual property corporate board members: Apple 372–373; Comcast 81, 83–85; Facebook 438–439; Google 405–407; Grupo Globo 232–233; Interpublic Group of Companies 471; Microsoft 392–393; Nielsen Holdings 455–456 Corporate Investments/Corporate Center 146, 148–149 corporate ownership: América Móvil 131–137; Apple 372; Facebook 436, 438–439; Google 405–407; Interpublic Group of Companies 470–471; Microsoft 392–393; Telefónica 198–199; Televisa 119–120; Time Warner 58–59; Vivendi 174; Walt Disney Company 18 corporate responsibility: América Móvil 140–141; Apple 376; Bertelsmann SE & Co. 157–158; China Mobile 344; Columbia Broadcasting System 42–44; Facebook 439–440; Google 407; Grupo Globo 233; Grupo Prisa 221; Interpublic Group of Companies 472–473; Mediaset 185; Microsoft Corporation 394; MTN Group Ltd. 292–293; Naspers 298; National Amusements Incorporated 42–44; Nation Media Group 300; Nielsen Holdings 457; Telefónica 198, 201–202; Televisa 120–121; Time Warner 65–67; TV18 337; Viacom 42–44; Walt Disney Company 21–23 corporate strategies: Amazon.com 420–421; América Móvil 134–135; Apple 375–376; Bertelsmann SE & Co. 149; Columbia Broadcasting System 36; Comcast 77–80; Facebook 431–435; Google 402–404; Grupo Globo 229–230; Grupo Prisa 214; Interpublic Group of Companies 469; Microsoft 389–390; National Amusements Incorporated 36; Nielsen Holdings 452; Time Warner 56–58; Viacom 36; Vivendi 168–170; Walt Disney Company 17 corporate structure: Amazon.com 418–421; América Móvil 131–137; Apple 372–373, 375–376; Bertelsmann SE & Co. 146–150; China Mobile 343–344; Columbia Broadcasting System 29–33; Comcast 75–80; Facebook 429–435, 438–439; Google 400–404; Grupo Globo 228–230; Grupo Prisa 211–214; Interpublic Group of Companies 467–469; Mediaset 185; Microsoft Corporation 386–391; MTN Group Ltd. 292; Naspers 297–298; National Amusements Incorporated 28–36; Nation Media Group 300; News Corp 97–98; News Corporation 97–104; Nielsen Holdings

Index 487

450–454; Sony Corporation 244–248; Telefónica 195–198; Televisa 115–117; Time Warner 54–58; TV18 336; Twenty-First Century Fox 98–99; Viacom 33–36; Vivendi 167–173; Walt Disney Company 13–17 Croatia 56, 147, 314–316 CTNE see Compañia Telefónica Nacional de España cultural considerations: Agora Group 319–320; Amazon.com 423–424; América Móvil 141; Apple 377–378; Bertelsmann SE & Co. 158–160, 481; China 346; Columbia Broadcasting System 44–46; Comcast 86–87; East Asia 341, 346; Eastern Europe 312, 314–316, 318–320; Facebook 440–441; Google 407–410; Grupo Globo 233–235, 481; Grupo Prisa 221–223; Interpublic Group of Companies 473–475; Latin America 257, 263–264, 266, 269–272; Mediaset 187–188; Microsoft Corporation 394–395; Middle East 273–275, 279–280, 283; National Amusements Incorporated 44–46; News Corporation 106; New Zealand 355, 361; Nielsen Holdings 457–460; Pink Group 318; reflections on 480–482; RTL Group 481; Shanghai Media Group Limited 346; Sony Corporation 250–251; South Asia 336–337; sub-Saharan Africa 292; Telefónica 202–203; Televisa 121–122; Time Warner 67–68, 481; TV18 336–337; Viacom 44–46; Vivendi 164, 177–179; Walt Disney Company 23, 481 Czech Republic 35, 56, 314–315 D&C see Devices and Consumer Dallah Al Baraka Group 275–276, 278–283 Dauman, Philippe 36–39 developments: Amazon.com 420–421; América Móvil 135–137; Apple 376; Bertelsmann SE & Co. 149–150; Facebook 435; Google 404; Grupo Prisa 214; Microsoft Corporation 390–391; Nielsen Holdings 452; Televisa 118; Time Warner 56–58; Vivendi 172–173; Walt Disney Company 17 Devices and Consumer (D&C) 387–388 Die Nasionale Pers see Naspers Group Ltd digital ventures/services: América Móvil 135–136; China 343, 345; Interpublic Group of Companies 468; News Corporation 96–97; see also Internet DirecTV 51, 57, 74, 79, 94, 103, 115, 117, 160, 259–260, 264 Disney see Walt Disney Company Disney Citizenship 22 diversity, IPG corporate responsibility 473 DStv 294, 301–302, 306 East Africa 288, 299–301 East Asia 340–350; Apple 371–376; cable systems 341–342, 345; communications 340–348;

cultural considerations 341, 346; economics 340–344, 348; history 341–342; Internet 340–348; politics 340–341, 346; satellite presence 343, 345; telecommunications 341–348; television 341–346; see also China Eastern Europe 312–326; Agora Group 316, 318–320, 323; cable systems 315, 317; cultural considerations 312, 314–316, 318–320; economics 312–319, 322–323, 478; history 312–313, 316–318, 322; Pink Group 316–318; politics 312–323; radio 314–321; satellite presence 315, 317; state ties 313–314; television 313–322; see also individual Eastern European countries economics: Agora Group 319; Amazon.com 413–424; América Móvil 128–137; Apple 371–376; Australia 351–352, 357–359, 362; Bertelsmann SE & Co. 145–150; China 340–344, 348; Columbia Broadcasting System 28–31; Comcast 73–80; East Asia 340–344, 348; Eastern Europe 312–319, 322–323, 478; Facebook 428–441; Google 398–404; Grupo Globo 228–230; Grupo Prisa 210–214, 479; Hungary 322; Interpublic Group of Companies 466–475; Latin America 259–269, 479; Mediaset 182–185; Microsoft Corporation 383, 386–391, 395; Middle East 273–277, 281, 284; MTN Group Ltd. 288–292; Naspers 293–298; National Amusements Incorporated 28–36; Nation Media Group 299–301; News Corporation 97–104; New Zealand 351, 354–356, 359–362; Nielsen Holdings 447–454, 461; Pink Group 317; reflection on 478–479; Shanghai Media Group Limited 345–346; Sony Corporation 241–247; South Asia 328–329, 334, 337, 478; sub-Saharan Africa 287–306; Telefónica 193–198; Televisa 113–118; Tencent Holdings 346–348; Time Warner 53–58; TV18 331–334; Viacom 28–31, 33–36; Vivendi 167–173; Walt Disney Company 13–17 educational publishing 211–212 Edwards group 264–265 Egypt 274, 278–279 Eisner, Michael 12 El Mercurio 264–265 El País, Grupo Prisa 206–223 electronics business, Sony Corporation 239–242, 244, 250–251 Electronics Manufacturing Services (EMS) 371, 374–375 employment/employees see labor force/ workers EMS see Electronics Manufacturing Services Enterprise division, Google 404 Entertainment segments: Columbia Broadcasting System 29–30; Viacom 33–35 e-readers, Amazon.com 416–421 Erickson Company 465

488

Index

Europe: Telefónica 191–198, 201–204; see also Eastern Europe; individual European countries exports: Apple 371–373; Bertelsmann SE & Co. 159–160; China 342, 346; Comcast 86; East Asia 341–342, 346; Google 410; Grupo Globo 235–236; Latin America 260, 262, 269–270; New Zealand 355; Sony Corporation 240, 251; sub-Saharan Africa 287, 305; Vivendi 178–179; Walt Disney Company 21 Facebook 303, 390, 428–444; corporate responsibility 439–440; corporate structure 429–435, 438–439; cultural considerations 440–441; economic profiles 428–441; history 428–429; ownership 436, 438–439; politics 428, 431, 435–441, 480 Fairfax 351–354, 356–358, 360–362 films: Amazon.com 415–416; América Móvil 136; Australia 352–353; Comcast 75–76, 86; East Asia & China 340–342, 345–346; Eastern Europe 317–319; Facebook 429, 441; Globo Group 229–230, 233, 235; Grupo Globo 229; Latin America 258, 263–264, 269; Mediaset 181, 183, 185–187; Middle East 277–279, 282–283; National Amusements Incorporated 26–36, 39–42, 44–46; News Corporation 92–101, 105, 107; Sony Corporation 239–242, 244–246, 250–251; South Asia 327–328, 331, 333; sub-Saharan Africa 301–302, 306; Televisa 116, 121–122; Time Warner 51–56, 63–64, 67–68; Viacom 35–36; Vivendi 166, 170–175, 177–179; Walt Disney Company 12–21 financial data: Amazon.com 417–418; América Móvil 129–131; Apple 375; Bertelsmann SE & Co. 146–148; Columbia Broadcasting System 28–29; Comcast 73–75; Facebook 429–430, 434; Google 399–400; Grupo Prisa 210–211; Interpublic Group of Companies 466–467; MTN Group Ltd. 291; National Amusements Incorporated 28–29; News Corporation 100–102; Nielsen Holdings 449–450; Sony Corporation 242–245; Telefónica 193–195; Televisa 113–115; Time Warner 53–54; TV18 331–334; Viacom 28–29; Vivendi 167–168; Walt Disney Company 13–14 Fininvest 181–182, 185–186 Fitzgerald, Scott 51–71 fixed-line services: América Móvil 125–126, 129, 133, 138, 142; News Corporation 99; Telefónica 194–195; Televisa 115 former Yugoslavia, Pink Group 316–318 Fourtou, Jean-René 166–167 Foxconn 371, 374, 377, 393 France: América Móvil 141; Bertelsmann SE & Co. 147–148, 159; LBC-Rotana 280; Middle East 280–281, 302; Vivendi 163–180, 246 Fuchs, Christian 428–444

games/gaming: Amazon.com 415; América Móvil 136–137; China Mobile 343; Microsoft Corporation 383, 387–388, 390–391, 393–395; National Amusements Incorporated 27, 31, 34–35, 43; News Corporation 95, 100; Sony Corporation 239–246, 251; Televisa 115–117; Tencent Holdings 346–347; Time Warner 52, 55, 67–68; Vivendi 163–166, 169–170, 178; Walt Disney Company 17, 20 Gates, Bill 135, 140, 383–384, 389, 391–394 GC+ see Groupe Canal+ Germany 144–162, 314, 480 Global Village Telecom (GVT) 166–168, 175, 177, 198 Globo Group see Grupo Globo Gómez, Rodrigo Garcia 1–7, 111–124, 477–483 Google 398–412; corporate responsibility 407; corporate structure 400–404; cultural considerations 407–410; economy 398–404; history 398–399; ownership 405–407; politics 398–399, 405–408, 411, 480; Project Loon 303 government relations: Amazon.com 421; América Móvil 126, 138–141; Apple 371–372; Bertelsmann SE & Co. 151–152; Columbia Broadcasting System 37–38, 41; Comcast 81–83; Facebook 436–438; Google 405; Grupo Globo 231–232; Grupo Prisa 206–207, 218–220; Hungary 322; Interpublic Group of Companies 470; Mediaset 181–182, 185–190; Microsoft Corporation 393; National Amusements Incorporated 37–39, 41; Nielsen Holdings 454–455; Pink Group 316–318; Sony Corporation 249–250; Televisa 111–113, 119; Time Warner 64–65; TV18 334–336; Viacom 37–38, 41; Walt Disney Company 20–21 Group Bolloré 166–167, 171, 173–176 Groupe Canal+ (GC+) 163, 165–168, 171–175, 177–179 Gruner + Jahr 146–148, 159–160 Grupo Carso 126–127, 133, 138 Grupo Globo 226–238; corporate responsibility 233; corporate structure 228–230; cultural considerations 233–235, 481; economic profiles 228–230; history 226–227; Latin America 125, 151, 193, 226–236, 259–266, 270, 480–481; ownership 230–231; politics 230–233; TimeLife 226–227, 230–232 Grupo Prisa 117, 137, 142, 196–197, 206–225, 259, 264, 266, 479–480; corporate responsibility 221; corporate structure 211–214; cultural considerations 221–223; economic profiles 210–214, 479; financial data 210–211; history 206–210, 214; Latin America 117, 137, 142, 206–216, 220–223, 259, 264, 266, 479–480; ownership 215–216; politics 206–207, 215–221, 480 Grupo Santillana 211–212 Grupo Sogecable 207–208

Index 489

Grupo Televisa 114–120, 125, 223, 262 Gruppo Mediaset see Mediaset GVT see Global Village Telecom Halloween Documents 389–390 hardware, Microsoft Corporation 387–388 Harper, Marion 465–466, 469 Hirst, Martin 351–365 history: Agora Group 318–319; Amazon.com 415–417; América Móvil 126–128; Apple 370; Australia 351–354; Bertelsmann SE & Co. 144–145; China 341–342; Columbia Broadcasting System 27–28; Comcast 72–73; East Asia & China 341–342; Eastern Europe 312–313, 316–318, 322; Facebook 428–429; Fairfax 353–354; Google 398–399; Grupo Globo 226–227; Grupo Prisa 206–210, 214; Interpublic Group of Companies 465–466; Latin America 269–270; Mediaset 181–182; Microsoft Corporation 383–386; Middle East 273–274, 283; MTN Group Ltd. 288; Naspers 293; National Amusements Incorporated 26–28; New Zealand 354–357; News Corporation 92–97, 353; Nielsen Holdings 448–449; Northeast Theatre Corporation 26–27; Pink Group 316–317; Sony Corporation 239–241; South Asia 326–328; sub-Saharan Africa 301–303; Telefónica 191–193; Televisa 111–113; Time Warner 51–53; Viacom 27–28; Vivendi 163–167; Walt Disney Company 11–13, 21–22 H.K. McCann Company 464–465 Home Box Office 52, 54–55, 57, 60, 63, 65, 67–68 Homebrew Computer Club 371 Hong Kong 16, 92, 95–96, 198, 341–343, 345, 348, 371, 377 Hong, Yu 340–350 Hope, Wayne 351–365 Hrvatin, Sandra Basˇic´ 312–326 Huawei Technologies 304–305 Hughes, Chris 428 Hungary 147, 314–316, 320–323 IBM, Microsoft Corporation 383–384, 389 Ibrahim, Walid al 275–278, 281, 283–284 Ibuka, Masaru 240 ideology see symbolic universes/ideology Iger, Bob/Robert 13, 17–19, 21 imports: China 342; Dallah Al Baraka Group 278; Grupo Globo 232; sub-Saharan Africa 301–305; Televisa 121–122; Vivendi 178–179 India 92, 94–96, 99–100, 106–107, 326–337 Instagram 429, 431 Integrated Telecom Company 283 intellectual property: China 304; Facebook 437; Google 404; Latin America 271; Microsoft Corporation 386, 389–390; National Amusements Incorporated 27, 36; Sub-Saharan

Africa 304; Telefónica 202; Tencent Holdings 347; Time Warner 55–56, 65, 68; Vivendi 175, 177, 179; Walt Disney Company 16, 21 interlocking boards/directors: Apple 372–373; Bertelsmann SE & Co. 152–155; Comcast 83–85; Facebook 438–439; Google 405–407; Grupo Globo 232–233; Interpublic Group of Companies 471; Microsoft Corporation 392–393; NAI, CBS & Viacom 38; News Corporation 103–104; Nielsen Holdings 455–456; Vivendi 175–176 international Amazon domains 415–416 International Telephone & Telegraph Corporation (ITT) 192 Internet 367–444; Amazon.com 413–427; América Móvil 125, 128–130, 135–142; Apple 369–382; China 340–348; Columbia Broadcasting System 30; Comcast 72–87; East Asia 340–348; Eastern Europe 315, 320–321; Facebook 428–444; Google 398–412; Grupo Prisa 207, 212, 214, 218; Latin America 259–260, 270; Microsoft Corporation 95, 383–397; Middle East 277; MTN Group Ltd. 289–290; Naspers 288, 293–297; New Zealand 356–357, 359–362; News Corporation 92, 96–101; Nielsen Holdings 447, 449–453; Sony Corporation 239, 244; sub-Saharan Africa 288, 290, 293–298; Telefónica 193–198, 202–203; Televisa 113, 115, 117; Tencent Holdings 346–348; Time Warner 52–53, 57, 65–66; TV18 329–331, 333; Viacom 35; Vivendi 164–165, 172; Walt Disney Company 14–15, 17, 21 Interpublic Group of Companies (IPG) 464–476; corporate responsibility 472–473; corporate structure 467–469; cultural considerations 473–475; economic profiles 466–475; history 465–466; ownership 470–471; politics 469–473 investments: Amazon.com 413, 415, 417, 420; América Móvil 126–127, 135–137, 140; Apple 370–373, 376; Australia 351, 353, 358; Bertelsmann SE & Co. 146, 148–151, 153, 155, 160; China 342–348; Cisneros 263–264; Comcast 73, 77, 79–80, 82, 86; East Asia & China 342–348; Eastern Europe 314–316, 319–321; Facebook 428, 433, 435–438, 442; Google 398, 400–401, 404–406, 408; Grupo Globo 226–231, 235, 262; Grupo Prisa 206–209, 215, 217–218, 220; Interpublic Group of Companies 466–468, 471–473, 475; Latin America 260–266, 269, 272; Mediaset 182–187; Microsoft Corporation 383–384, 386, 391; Middle East 275–283; National Amusements Incorporated 28–30, 32–33, 39; New Zealand 355–356, 359–360; News Corporation 93, 95, 99–105; Nielsen Holdings 447, 449–450, 452, 454–456; RCN 264; Sony Corporation 239, 246; South Asia 328, 330–331, 335, 337; subSaharan Africa 290, 292–295, 297–298, 301, 303–305; Telefónica 191–195, 197–202, 261,

490

Index

263; Televisa 111–112, 115–118; Time Warner 52–53, 57–64, 66–67; Vivendi 164, 167, 170–171, 173–176, 179; Walt Disney Company 12, 17, 19, 21 IPG see Interpublic Group of Companies Iraq 106, 219, 274, 276–278 Italy 95, 101–102, 105, 181–191, 480 ITT see International Telephone & Telegraph Corporation James Bond 245, 251 Japan 16–17, 76–77, 171, 229, 239–251, 340–341, 371, 375, 448 Jobs, Laurene Powell 18 Jobs, Steve 370–372, 374, 376–377 joint ventures: América Móvil 127; Bertelsmann SE & Co. 147, 149; Facebook 429–435; Google 400; Grupo Globo 226, 231; Microsoft Corporation 386–391; Middle East 275–277, 282; MTN Group Ltd. 290; National Amusements Incorporated 31, 35, 39; News Corporation 93, 96, 103; Sony Corporation 240, 246–247; Telefónica 196, 198; Televisa 117; Time Warner 56; TV18 330–333, 336; Vivendi 166; Walt Disney Company 15 Kamel, Saleh Abdullah 277–281 Khiabany, Gholam 273–286 Kindle, Amazon.com 416–421 Kingdom Holding Group 275–283 Kinney Services Corporation 52 Korea 340–342, 347 Kunz, William 239–253 Kuwait 274–275, 277, 279, 282 labor force/workers: Amazon.com 422–423; América Móvil 139–140; Apple 371–375; Bertelsmann SE & Co. 155, 157; Columbia Broadcasting System 39; Comcast 85; Facebook 431–437, 441; Google 408–410; Grupo Prisa 216; Interpublic Group of Companies 472; Microsoft Corporation 393; National Amusements Incorporated 39; News Corporation 106; Nielsen Holdings 456–457; Sony Corporation 248–249; Telefónica 199–201; Televisa 117–118; Time Warner 59, 63; Viacom 39; Vivendi 175, 177; Walt Disney Company 18, 20 Latin America 257–272; Abril 260–261, 264, 295; América Móvil 115, 117, 125–143, 195, 228, 259, 294; Canal 13 260–261, 263, 265; Cisneros 137, 258, 260–265, 270; Clarín 125, 223, 259–265, 270; cultural considerations 257, 263–264, 266, 269–272; DirecTV 51, 57, 74, 79, 94, 103, 115, 117, 160, 259–260, 264; economic profiles 259–269, 479; Edwards group 264–265; Grupo Globo 125, 151, 193, 226–236, 259–266, 270, 480–481; Grupo Prisa 117, 137, 142, 206–216, 220–223, 259, 264,

266, 479–480; history 269–270; politics 257–258, 263, 268–271; radio 258–266, 271; RCN 77, 260–261, 264–265, 270; Telefónica 131, 191–198, 203, 258–259, 261, 263, 270; Televisa 111–124, 259–264, 270, 391, 480; television 111–125, 151, 193, 226–236, 257–272, 480–481; Telmex 115, 126–128, 130, 133–134, 139–141, 258, 261, 270, 480 Lauder, Ronald 315 LBC-Rotana 275–283 Lebanon 274, 278, 281 Lee, Micky 398–412 legislation: Australia 352, 354, 359; Comcast 82–83; Eastern Europe 313–314, 320–321; Facebook 437; Hungary 320–321; Interpublic Group of Companies 466, 470; Latin America 271; Mediaset 182, 186; Microsoft Corporation 385–386, 393; New Zealand 354; Nielsen 452, 454–455; Telmex 138, 140; Time Warner 65; Vivendi 173, 175 Lévy, Jean-Bernard 167 lobbying efforts: Amazon.com 421; Apple 372; Bertelsmann SE & Co. 151–152; Comcast 81–83; Facebook 436–440; Google 405; Grupo Globo 231–232; Grupo Prisa 218–220; Interpublic Group of Companies 470; Mediaset 186–187; Microsoft Corporation 393; National Amusements Incorporated 37, 39, 41; Nielsen Holdings 454–455; Sony Corporation 249–250; Televisa 119; Time Warner 64–66; Vivendi 173–175; Walt Disney Company 20–21 Local Broadcasting, Columbia Broadcasting System 31–33 Loon project 303 Lucas, George 18 Lucasfilm 16–18, 20 McCann, Harrison King 464–465 McCann-Erickson 464–466, 470, 473–474 McCollum, Andrew 428 McGuigan, Lee 72–91 Marinho, Roberto 228, 230 marketing activity: América Móvil 140–141; Apple 376; Bertelsmann SE & Co. 157–158; Facebook 439–440; Google 407; Grupo Globo 233; Interpublic Group of Companies 468; market research 447–463; Mediaset 187; Microsoft Corporation 394; News Corporation 98; Nielsen Holdings 447–463; Televisa 120–121 market share see shares Martinez, Gabriela 191–205 Mastrini, Guilllermo 257–272 Maxwell, Richard 369–382 MBC see Middle East Broadcasting Corporation Media Networks 13–15, 33–35 Mediaset 181–191, 480; corporate responsibility 185; corporate structure 185; cultural considerations 187–188; economic profiles

Index 491

182–185; history 181–182; politics 181–182, 185–190, 480 Meehan, Eileen R. 26–50 Mendo, Carlos 206 mergers see acquisitions and mergers Metromedia television stations 92, 94 Mexico 111–143, 195, 228, 258–264, 270, 294, 391, 480; América Móvil 115, 117, 125–143, 195, 228, 259, 294; Televisa 111–124, 259–264, 270, 391, 480; Telmex 115, 126–128, 130, 133–134, 139–141, 258, 261, 270, 480 Microsoft Corporation 383–397; corporate ownership 392–393; corporate responsibility 394; corporate structure 386–391; cultural considerations 394–395; economic profiles 383, 386–391, 395; history 383–386; politics 383, 391–394, 480; sub-Saharan Africa 303; United States 384–386, 391–394 Middle East 273–286; Arab Radio and Television 275–276, 278–283; cultural considerations 273–275, 279–280, 283; economics 273–277, 281, 284; history 273–274, 283; LBC-Rotana 275–283; politics 273–275, 282–284; television 273–284 Middle East Broadcasting Corporation (MBC) 275–278, 281, 283–284 Miller, Toby 369–382 Mitrovic´, Željko 316–318 mobile services: Amazon.com 418; América Móvil 125–138, 142; Apple 369–370, 374–375, 377; Bertelsmann SE & Co. 148; China 304–305, 341–348; East Asia 341–348; Facebook 429–431, 437; Google 400–408; Latin America 258–261, 267–268; Mediaset 182; Microsoft Corporation 383, 386–390, 393, 395; New Zealand 360; News Corporation 92, 99; Nielsen Holdings 449–451, 453; Sony Corporation 242–244; South Asia 328–333; sub-Saharan Africa 289–295, 304–305; Telefónica 191, 193–198, 202–204; Televisa 117; TV18 329–333; Viacom 34–35; Vivendi 164, 166, 173; Walt Disney Company 14–17 Mohn, Liz 150–156 Mohn, Reinhard 150, 153–154, 157 monopoly power: América Móvil 126, 128, 131, 138, 140, 142; Australia 352, 357; Comcast 72, 77–80, 86–87; East Asia 342, 346; Facebook 431, 441; Google 398, 405; Latin America 261–262, 267; Mediaset 181–182, 188; Microsoft Corporation 385; New Zealand 357, 359, 361; News Corporation 94–95; Nielsen Holdings 447–448, 452–453, 460–461; South Asia 326, 328, 336; Televisa 111–112, 121 Morita, Akio 240 Moskovitz, Dustin 428, 436 Motion Picture Association of America (MPAA) 20–21, 65 MoviStar 191, 194, 196–197 MPAA see Motion Picture Association of America

MTN Group Ltd. 288–293, 304–306; corporate responsibility 292–293; corporate structure 292; economics 288–292; history 288; joint ventures 290; ownership 292; telecommunications 288–293, 304–306 MTV 34–37, 43–45 MTVA 321 Murdoch, Keith 93, 352, 359 Murdoch, Rupert 52, 92–97, 100–107, 352–353, 355–357, 359, 362, 402 Murdock, Graham 92–108 music: Amazon.com 415, 417, 423; América Móvil 127, 136–137; Apple 369–372, 378; Bertelsmann SE & Co. 148–150, 153, 156, 160; China Mobile 343; Grupo Prisa 212–213; Middle East 279–283; National Amusements Incorporated 32–34, 42–45; Pink Group 316; Sony Corporation 239, 241–244, 246–247, 249–252; Televisa 112, 116; Tencent 347; Time Warner 52–53, 63–64; TV18 331, 333; Viacom 33–34; Vivendi 163–180; Walt Disney Company 16–17 Myanmar 326 MySpace 92, 96–97 NAI see National Amusements Incorporated Naspers Group Ltd 288, 293–298, 301, 305–306, 348; corporate responsibility 298; corporate structure 297–298; economics 293–298; history 293; Internet 288, 293–297; ownership 297–298; politics 293; publishing 288, 293–294; television 288, 293–298 Nation Media Group (NMG) 288, 299–301 National Amusements Incorporated (NAI) 26–50; charitable giving 42; corporate responsibility 42–44; corporate structure 28–36; cultural considerations 44–46; economic profiles 28–36; history 26–28; politics 36–41; see also Columbia Broadcasting System; Viacom Nazi era, Bertelsmann SE & Co. 144, 153, 155, 157–158, 480 NBCUniversal (NBCU) 73, 75–78, 80, 82–87 Nepal 326, 328–329 NET, Grupo Globo 228 Netherlands 56, 77, 147, 153, 155–156, 160, 447 Network 18 329–337 networks: News Corporation 103–104; see also individual networks New International Division of Labor (NIDL) 371–375 News Corp 51, 92–94, 97–98, 100–105, 301, 355–362, 402 News Corporation 92–108; Australia 92–93, 97–98, 101–102, 105–107, 351, 353, 355–359, 362; company reconstructions 97; corporate structure 97–104; cultural considerations 106; economic profiles 97–104; financial data 100–102; history 92–97, 353; New Zealand 351,

492

Index

353, 359–362; ownership 102–103; politics 104–106, 480; Twenty-First Century Fox 92–93, 97–103, 105, 357 newspapers: Australia 351–354, 357–359, 362; Bertelsmann SE & Co. 144, 151; Eastern Europe 316, 318–320; Globo Group 228–229, 232; Google 400, 402; Grupo Globo 229; Grupo Prisa 197, 206–223; Latin America 261–269; Mediaset 184, 186–188; Middle East 281–282; New Zealand 354–357, 360–362; News Corporation 92–106; South Asia 327–328; sub-Saharan Africa 293–294, 299–300; Time Warner 63 News of the World, The, News Corporation 92–93, 97, 104 New Zealand 351, 354–357, 359–365; APN News and Media 351, 359–362; cultural considerations 355, 361; economy 351, 354–356, 359–362; Fairfax 351; history 354–357; News Corporation 351, 353, 359–362; politics 351, 354–355, 361–362 Nickelodeon Networks 33–35 NIDL see New International Division of Labor Nielsen Holdings see A.C. Nielsen Holdings NMG see Nation Media Group Nokia 386, 388, 390, 393 non-interlocking boards/directors 39–41; see also interlocking boards/directors Northeast Theatre Corporation (NTC) 26–27 O2 191, 194, 196–197 Oman online services see Internet Orbit Showtime Network 275–276, 282 ownership: Amazon.com 421–422; América Móvil 131–137; Apple 372; Australia 353; Comcast 81; Facebook 436; Google 405–407; Grupo Globo 230–231; Grupo Prisa 215–216; Interpublic Group of Companies 470–471; Microsoft 392–393; MTN Group Ltd. 292; Naspers 297–298; Nation Media Group 300; News Corporation 102–103; Nielsen Holdings 454–456; Sony Corporation 247–248; Telefónica 198–199; Televisa 115–116, 119–120; Vivendi 174; see also corporate ownership Page, Larry 398–399, 405–406 Pakistan 326–329, 344 parks see theme parks partnerships: Bertelsmann SE & Co. 150, 157; China 342, 344–348; Comcast 80, 83; Google 401–402; Grupo Prisa 220; Interpublic Group of Companies 470, 473; Latin America 263–264; Microsoft Corporation 383–384, 393–395; Middle East 276, 282; News Corporation 93, 95, 99; Nielsen Holdings 452–454; Shanghai Media Group Limited 345–346; Telefónica 191, 193–198, 202; Tencent Holdings 347; Time

Warner 56–57, 65; Vivendi 173; Walt Disney Company 12, 14, 21–22 Paszynski, Aleksander 318 patents 86, 304, 387, 389, 393, 405, 452; see also intellectual property Penguin Random House 146–147, 153–154, 159–160, 211–212 Petkovic´, Brankica 312–326 philanthropy see charitable giving/philanthropy Phoenix 96, 343 Pickard, Victor 72–91 Pink Group 316–318 Plata, Gabriel Sosa 125–143 PlayStation systems 239–240, 244, 251 Polanco, Jesús de 207 Poland 168, 171, 314–316, 318–320, 323, 347, 465 politics: Agora Group 319; Amazon.com 414–415, 421–424; América Móvil 126, 138–141; APN News and Media 358–359, 361–362; Apple 371–375; Australia 351–352, 358–359, 362; Bertelsmann SE & Co. 150–158, 480; China 340–341, 346; Columbia Broadcasting System 36–41; Comcast 80–86, 480; East Asia 340–341, 346; Eastern Europe 312–323; Facebook 428, 431, 435–441, 480; Google 398–399, 405–408, 411, 480; Grupo Globo 230–233; Grupo Prisa 206–207, 215–221, 480; Hungary 320–322; Interpublic Group of Companies 469–473; Latin America 257–258, 263, 268–271; Mediaset 181–182, 185–190, 480; Microsoft Corporation 383, 391–394, 480; Middle East 273–275, 282–284; Naspers 293; National Amusements Incorporated 36–41; Nation Media Group 299; New Zealand 351, 354–355, 361–362; News Corporation 104–106, 480; Nielsen Holdings 447–449, 454–457; Pink Group 316–318; reflections on 479–480; Shanghai Media Group Limited 346; Sony Corporation 247–250; South Asia 327–329, 334–337; sub-Saharan Africa 287–288, 293, 299, 304–306; Telefónica 198–202; Televisa 111–113, 118–119, 480; Telmex 480; Tencent Holdings 480; Time Warner 58–67; TV18 334–336; Viacom 36–41; Vivendi 173–177; Walt Disney Company 18–23 popular products/services: Amazon.com 418–420; Columbia Broadcasting System 44–46; Facebook 441; Google 402, 404, 410; Grupo Globo 234–235; National Amusements Incorporated 44–46; Nielsen Holdings 459–460; Sony Corporation 251; Televisa 121–122; Time Warner 67–68; Viacom 44–46; Vivendi 177–178; Walt Disney Company 13, 16–17, 23–24 Portugal 191, 193–194, 206, 208–209, 211–213, 229, 235–236 post-independent India 327–328 PR see public relations press interests see newspapers

Index 493

Prisa see Grupo Prisa privacy violations 398, 405, 437–438, 441 products see individual products; popular products/services Promotora de Informaciones S.A. see Grupo Prisa property rights see intellectual property public relations (PR) 21, 58, 200–201, 468–469 Public Trusts, Columbia Broadcasting System 42–43 publishing: Abril 260–261, 264, 295; Agora Group 316, 318–320, 323; Amazon.com 415, 421, 423; Australia 351–353, 357–359, 362; Bertelsmann SE & Co. 144–162, 480; Columbia Broadcasting System 29, 31, 36; Grupo Globo 229; Grupo Prisa 206–223; Mediaset 182, 185–188; Naspers 288, 293–294; Nation Media Group 288, 299–300; New Zealand 351, 354–357, 359–362; News Corporation 92–106; Nielsen Holdings 448; South Asia 328, 333, 336; Telefónica 193, 196; Televisa 115–116; Time Warner 51–53, 63; Vivendi 164, 166, 170–171; VNU NV 448–449, 453–454, 456; Walt Disney Company 13–14, 16, 20 Qatar 216, 274, 281–282 QQ 346 QVC 73, 86 radio: Australia 351–354, 358–359, 362; Bertelsmann SE & Co. 146; East Asia 340, 342, 344–345; Eastern Europe 313–321; Grupo Globo 228–230, 232; Grupo Prisa 206–223; Hungary 320–321; Latin America 258–266, 271; Middle East 275–280, 282; National Amusements Incorporated 27–28, 31–33, 39, 41; New Zealand 351, 355–356, 361–362; Nielsen Holdings 448, 450, 452, 455, 460; Sony Corporation 240, 246, 249–250; South Asia 326–329; sub-Saharan Africa 299–300; Telefónica 193, 196; Televisa 111, 115–120; Walt Disney Company 14–15 Radio Pink 316–318 RAI 181–184, 186–188 Random House 144, 146–147, 153–154, 159–160; see also Penguin Random House rating services 447–461 RCN 77, 260–261, 264–265, 270 Redstone, Shari 26, 28, 36–39, 42, 46 Redstone, Sumner 26–31, 36–46 Reliance Industries Ltd. (RIL) 329–337 revenue see economics; financial data RIL see Reliance Industries Ltd. Roberts family 72–73, 81–83, 85 Rollins, Tyler 413–427 Romania 35, 56, 314–315 RTL Group 146–147, 150, 153, 159–161, 481 Saleh Kamel, Abdullah 277–281 Salerno, Frederic V. 38–39

satellite presence: América Móvil 125, 134; China 343, 345; Comcast 75–79; East Asia 343, 345; Eastern Europe 315, 317; Grupo Globo 228, 235; Grupo Prisa 207–213; Latin America 259–264, 270–271; Mediaset 183, 188; Middle East 273–283; National Amusements Incorporated 31–33, 38; News Corporation 92–97, 99–102, 104, 106–107; Sony Corporation 246; South Asia 327; sub-Saharan Africa 293, 295, 303; Telefónica 191, 193, 195, 197, 202, 204; Televisa 111–124; Time Warner 54, 57; Vivendi 164–166, 171–172 Saudi Arabia 274–284, 374, 391 Saverin, Eduardo 428, 436 Schmidt, Eric 398, 405–406, 439 Serbia 316–318 services see individual services; popular products/services Shanghai Media Group Limited (SMG) 341, 344–346 shares: América Móvil 127–129, 131–139, 142; Apple 370, 372, 374–376; Bertelsmann SE & Co. 146–159; Comcast 73, 76, 81–82; Facebook 429–430, 434–436, 438; Grupo Globo 228, 231–232; Grupo Prisa 206–218; Interpublic Group of Companies 466–467, 470–471; Mediaset 182–184; Microsoft Corporation 391; National Amusements Incorporated 30; News Corporation 92, 94–95, 97–98, 102–104, 106–107; Sony Corporation 242, 247–248; Telefónica 192–200; Televisa 112–119; Time Warner 52–54, 57–59, 66; Vivendi 164–174, 179; Walt Disney Company 13–14, 16, 18, 21 Showtime Network 30–31, 275–276, 282 Singapore 340–341, 356, 371 Sino-African relations 303 Sky satellite television 92, 95, 97, 99–101, 104, 106–107, 359–360 Slim, Carlos 125–127, 131–143 Slovakia 314–315 Slovenia 314–315, 317 Soberon, Lennart 447–463 social marketing: América Móvil 140–141; Apple 376; Bertelsmann SE & Co. 157–158; Facebook 439–440; Google 407; Grupo Globo 233; Mediaset 187; Microsoft Corporation 394; Televisa 120–121 social media 480; Facebook 428–429; Interpublic Group of Companies 468–469; News Corporation 97; Nielsen 450, 453; Tencent 346 software: Apple 369–370, 375–377; Columbia Broadcasting System 241; Google 403–407; Microsoft Corporation 383–390, 394–395; MTN 290; Sony Corporation 241, 244, 252; Vivendi 164; ZTE 304 Sony Corporation 239–253; corporate structure 244–248; cultural considerations 250–251; economic profiles 241–247; history 239–241; ownership 247–248; politics 247–250

494

Index

Sony Pictures Entertainment 239, 241–242, 244–245 Soumaya Museum 141 South Africa 288–298, 301, 304–306, 348 South America see Latin America South Asia 326–339; cultural considerations 336–337; deregulation 328–329; economic profiles 478; economics 328–329, 334, 337; history 326–328; politics 327–329, 334–337 South Korea 340–342, 347 Spain: Bertelsmann SE & Co. 160; Grupo Prisa 117, 137, 142, 196–197, 206–225, 259, 264, 266, 479–480; Mediaset 181, 183–185; Telefónica 191–201 Spider-Man franchise 245, 251 sports: América Móvil 128, 136–137, 140; Arab Radio and Television 279–280; Australia 353, 357; Columbia Broadcasting System 29–32; Comcast 76–77, 86–87; Dallah Al Baraka Group 278; Grupo Globo 236, 262; Grupo Prisa 207–208; Mediaset 181, 183, 185; MTN 290; Naspers 293–296, 298; Nation Media 299; New Zealand 356–357, 360–361; News Corporation 95–101; Orbit Showtime Network 282–283; South Asia 333, 337; Televisa 115–116, 120–122; Time Warner 51–52, 54, 63; Viacom 33–34, 43; Vivendi 165, 175, 178–179; Walt Disney Company 13–15, 17 Spottorno, José Ortega 206 Sri Lanka 326–329 Star platform 92, 95–96, 99, 106–107 Star Trek franchise 28, 31, 36, 44–45 state ties: Amazon.com 421; Apple 372; Bertelsmann SE & Co. 151–152; Comcast 81–83; Eastern Europe 313–314; Facebook 436–438; Google 405; Grupo Globo 231–232; Grupo Prisa 218–220; Interpublic Group of Companies 470; Mediaset 186–187; Microsoft Corporation 393; National Amusements Incorporated 37; Nielsen Holdings 454–455; Sony Corporation 249–250; Vivendi 174–175 Straubhaar, Joseph D. 226–238 Studio Entertainment 13, 16 sub-Saharan Africa 287–311; cultural considerations 292; DStv 294, 301–302, 306; economics 287–306; history 301–303; imports 301–305; MTN Group Ltd. 288–293, 304–306; Naspers Group Ltd 288, 293–298, 301, 305–306, 348; Nation Media Group 288, 299–301; politics 287–288, 293, 299, 304–306; telecommunications 288–293, 304–306 subscription services: América Móvil 125, 129–139, 142; Comcast 74, 76–77, 79; Grupo Globo 262; Microsoft Corporation 387–388, 395; National Amusements Incorporated 35; News Corporation 357, 359, 361; Time Warner 55, 57; Vivendi 172–173; Walt Disney Company 28–30 sustainability, IPG corporate responsibility 472

Swiatek, Lukasz 181–191 symbolic universes/ideology: Facebook 440–441; Google 407–410; Grupo Globo 233–234; Grupo Prisa 221–223; NAI, CBS & Viacom 44; News Corporation 106; Nielsen Holdings 457–459; Sony Corporation 250–251; Telefónica 202–203; Televisa 121; Time Warner 67–68; Vivendi 177; Walt Disney Company 23 tabloids see newspapers Taiwan 340–342, 371, 410 taxes 81–86, 149–151, 436–437 Telcel 126, 134, 141 telecommunications: Amazon.com 414, 423; América Móvil 125–143; Apple 369–371, 374–377; Arab Radio and Television 283; Australia 352; Bertelsmann SE & Co. 148; China 341–348; Comcast 74, 78–82, 85; Dallah Al Baraka Group 278; Google 400–402, 404, 408; Integrated Telecom Company 283; Kingdom Holding Group 281; Latin America 228, 258–272; Microsoft 383, 386–388, 390, 393, 395; MTN Group Ltd. 288–293, 304–306; New Zealand 355–356, 361; News Corporation 95, 98–99; NIA 33, 39, 41; Sony Corporation 242–244; South Asia 328–331, 334, 337; subSaharan Africa 288–293, 301–306; Telefónica 191–205; Televisa 113–119, 122; Time Warner 64–65; Vivendi 163–170, 177, 179; see also communications; fixed-line services; mobile services Telefónica 131, 191–205, 258–259, 261, 263, 270, 304, 401; corporate responsibility 198, 201–202; corporate structure 195–198; cultural considerations 202–203; economic profiles 193–198; history 191–193; Latin America 131, 191–198, 203, 258–259, 261, 263, 270; ownership 198–199; politics 198–202 Teléfonos de México (Telmex) 115, 126–128, 130, 133–134, 139–141, 258, 261, 270, 480 “Televimex” 111 Televisa see Televisión Vía Satélite television: América Móvil 125–126, 128–131, 133–142; Australia 351–353, 357; Bertelsmann SE & Co. 145–147, 154, 157, 159–161; China 341–346; Comcast 72–87; East Asia 341–346; Eastern Europe 313–322; Grupo Globo 125, 151, 193, 226–236, 259–266, 270, 480–481; Grupo Prisa 207–213, 217–218, 220, 223; Hungary 320–322; Interpublic Group of Companies 466, 473; Latin America 111–125, 151, 193, 226–236, 257–272, 480–481; Mediaset 181–188; Middle East 273–284; Naspers 288, 293–298; National Amusements Incorporated 27–37, 39–45; New Zealand 351, 356–357, 359–362; News Corporation 92–96, 98–101, 103, 105–107; Nielsen Holdings 447–460; Sony Corporation 239–240, 242–247, 251–252; South Asia 326–337; sub-Saharan

Index 495

Africa 288, 290, 293–302, 306; Telefónica 193–198, 202–203; Televisa 111–124, 259–264, 270, 391, 480; Time Warner 51–52, 54–57, 63–65, 67–68; Vivendi 163–175, 177–179; Walt Disney Company 12–20 Televisión Vía Satélite (Televisa) 111–124; América Móvil 136–139; corporate responsibility 120–121; corporate structure 115–117; cultural considerations 121–122; economics 113–118; Grupo Televisa 114–120, 125, 223, 262; history 111–113; Latin America 111–124, 259–264, 270, 391, 480; ownership 115–116, 119–120; politics 111–113, 118–119, 480 Televizija Pink 317–318 Telmex see Teléfonos de México Tencent Holdings 293–295, 342, 346–348, 429, 479–480 Terra, Telefónica 196 theme parks 12–14, 16–18, 35, 75–76 Thomas, Pradip Ninan 326–339 Thompson, Peter 351–365 THTI see Tsinghua Holdings Technology and Innovation Time Inc. 51–53, 57–59, 63, 66 Time-Life 52, 226–227, 230–232, 481 Time Warner 51–71; Comcast 72–80, 83–84, 87; corporate responsibility 65–67; corporate structure 54–58; cultural considerations 67–68, 481; Eastern Europe 315; economic profiles 53–58; history 51–53; politics 58–67 Tokyo Tsushin Kogyo Corporation (Totsuko) 240 TPP see Trans-Pacific Partnership Trade Related Aspects of Intellectual Property Rights (TRIPS) 21 Transatlantic Trade and Investment Partnership (TTIP) Agreement 21, 161 transnational corporate networks, China 342 Trans-Pacific Partnership (TPP) 21, 65 TRIPS see Trade Related Aspects of Intellectual Property Rights Truth Central 469 Tsinghua Holdings Technology and Innovation (THTI) 198 TTIP see Transatlantic Trade and Investment Partnership Agreement Turner Broadcasting Systems 52, 54, 57, 63 TV18 329–337 Twenty-First Century Fox 92–93, 97–103, 105, 357; corporate structure 98–99; financial data 101–102 UAE see United Arab Emirates U.K. see United Kingdom union relations, América Móvil 139–140 United Arab Emirates (UAE) 274–275, 279, 282–283, 474 United Kingdom (U.K.): Bertelsmann SE & Co. 147–150; National Amusements Incorporated

31, 35; News Corporation 92–107; Telefónica 193–194, 199; Time Warner 56, 58; Vivendi 168, 171–173, 176 United Press International (UPI) 276 United States (U.S.): Amazon.com 413–427; América Móvil 125–129, 131–132, 134–136, 140–141; APN News and Media 358–359; Apple 369, 371–378; Bertelsmann SE & Co. 144–145, 147–148, 151, 154, 160–161; China 340–342, 347; Comcast 72–91; East Asia & China 340–342, 347; Facebook 434–438, 441; Google 398–400, 405–406, 410; Grupo Globo 227, 229–231, 235; Grupo Prisa 207, 213–214, 219; Interpublic Group of Companies 465–468, 470, 473–474; Latin America 260, 263–266, 269–270; Microsoft Corporation 384–386, 389, 391–394; Middle East 277, 280–283; National Amusements Incorporated 26–50; News Corporation 92–102, 105–107; Nielsen Holdings 447–461; Sony Corporation 239–240, 244–251; Televisa 112–117, 119–122; Time Warner 51–71; Vivendi 163, 165–169, 177; Walt Disney Company 11–25 Universal Music Group (UMG) 163, 166–171, 173–179, 246–247 Uno TV portal 128, 136–137 UPI see United Press International U.S. see United States Valcárcel, Darío 206 Valcon Acquisition Holding 447, 449 Venezuela, Cisneros 137, 258, 260–265, 270 Viacom 26–50, 333; corporate responsibility 42–44; corporate structure 33–36; cultural considerations 44–46; economic profiles 28–31, 33–36; history 27–28; politics 36–41; TV18 333 Viacommunity projects 42–44 video: Amazon.com 415–416, 421, 423; América Móvil 126, 136–137, 142; Apple 377; Comcast 72, 74–76, 78–80; East Asia & China 341, 343, 345, 347; Grupo Globo 235; Grupo Prisa 222; Mediaset 181–188; Microsoft Corporation 383, 386–390, 394; Middle East 279, 281; National Amusements Incorporated 27–28, 30, 33–35, 45; New Zealand 359, 361; News Corporation 99–100; Nielsen Holdings 450; Sony Corporation 240–244; South Asia 333; subSaharan Africa 301; Televisa 116, 118, 120; Time Warner 51–53, 55–57, 67–68; Vivendi 164, 166, 172, 175; Walt Disney Company 15–17 Villalonga, Juan 193 Vivendi 163–180, 246; corporate structure 167–173; cultural considerations 164, 177–179; economic profiles 167–173; history 163–167; ownership 174; politics 173–177; Universal Music Group 163, 166–171, 173–179, 246 Vivendi Universal 164–166, 177–178

496

Index

Vivendi Village 167–169, 172, 177 Vivo 191, 194, 196, 198 VNU NV 448–449, 453–454, 456 Wal-Mart 415, 417–418 Walt Disney Company 11–25; corporate responsibility 21–23; corporate structure 13–17; cultural considerations 23, 481; economic profiles 13–17; history 11–13, 21–22; politics 18–23 Warner Bros. 51–57, 63, 67 Warner Bros. Entertainment Inc 54–56 Warner Communications Inc (WCI) 45, 51–52, 57–58 Wasko, Janet 1–7, 11–25, 477–483 Wayda, Andrzej 318 Wayne, Ronald 370

WAZ Media Group 314 WCI see Warner Communications Inc WeChat 346 What Consumers Buy 451 What Consumers Watch 450 WhatsApp 429, 431 Workneh, Téwodros W. 287–311 World Intellectual Property Organization (WIPO) 21, 304 Wozniak, Stephen 370–371 Wright, Jimmy 415 Xbox video game console 387–388, 390–391, 393–395 ZTE 304–305 Zuckerberg, Mark 428, 436, 438–440