Patrick Moreton
The FCC and Media Ownership
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| Moreton Photo by Jennifer Silverberg |
An expert on competition in telecommunications and new technologies, Patrick S. Moreton (MBA ’91) takes the long view. Despite congressional efforts to tighten controls over media ownership and the current public outcry against media consolidation, Moreton says, “In the end, I believe deregulation will carry the day.”
An assistant professor of organization and strategy at Olin School of Business at Washington University in St. Louis, Moreton has focused his research on economic and organizational models of business strategy, competition in telecommunications and new technologies, and price discrimination and product bundling.
After graduating from HBS as a Baker Scholar, he worked as a Charles M. Williams Research Fellow at the School from 1991 to 1993, writing more than a dozen cases on finance, business ethics, and business-government regulation. He was the founder and managing partner of Moreton & Moreton Associates in Cambridge, Massachusetts, from 1987 to 1989 and a management consultant at Edgar, Dunn & Conover in San Francisco from 1983 to 1987.
Moreton earned his Ph.D. in business policy and strategy at the University of California, Berkeley in 2002. A self-described “erstwhile Californian,” he is a graduate of the University of California, San Diego. An avid long-distance runner and a voracious reader, Moreton also enjoys sailing, hiking, skiing, and other outdoor activities.
The Federal Communications Commission relaxed media ownership rules in June, and a bipartisan furor ensued. The House has voted to overturn some of the agency’s decision.
What’s going on?
Until June 2, FCC rules decreed that no television network could own local stations that, in aggregate, reached more than 35 percent of the national audience market. The federal courts, responding to legal challenges by the media companies, have repeatedly ruled that the FCC’s constraints were, in effect, “arbitrary” and “capricious.” So the FCC was forced to either ease the rules or offer a stronger justification for them. On June 2, the agency chose to relax the ownership cap, to 45 percent.
What was its reasoning?
It argued that the marketplace has changed because new technologies — such as cable, the Internet, and satellite TV — facilitate new and diverse sources of information and content. The competition they provide, the FCC asserted, makes ownership caps outdated. Not everyone agrees with this perspective, of course, and Congress, which makes the laws within which the FCC operates, is trying to overturn the new rules.
Congress established the FCC in 1934. Why?
Radio was the big broadcast medium of the time, and Congress feared there might be chaos among the users of the airwaves. It decided that there had to be a regulatory body to bring coherence to the allocation of spectrum so there wouldn’t be interference from over-lapping users.
Was serving the public interest — by ensuring a diversity of voices — also a concern?
Because the spectrum is a public resource, the FCC’s mandate requires that the spectrum’s users satisfy the communication needs of the public. In recent decades, the FCC has interpreted this mandate, in the context of the radio and television industries, as requiring a degree of “localism and diversity” in their content. That means offering programming that addresses local issues with a range of opinions.
Were there other aspects to “the public interest”?
In the early years of radio, one of the FCC’s interests was to develop that industry by encouraging people to use the spectrum. It saw that as being in the public interest — making sure that the nascent industry became established so that Americans had an opportunity to use the spectrum and enjoy its benefits. When television came along, the largest radio networks were given a privileged opportunity to enter the fledgling industry because they were thought to be in the best position to actually develop the new technology. The downside to this strategy is that it gives up some of the benefits of competition. The upside is that there’s a better chance a technology (radio, TV, the telephone) will be established as a viable, inexpensive service that’s widely available to the public.
So it’s a balancing act?
Yes, and it continues to this day. In the media industry, I think we’re seeing something like the Wal-Mart effect on small rural communities. Consumers love Wal-Mart’s low prices and its one-stop shopping. At the same time, they know those things have hurt local businesses and small towns. But Wal-Mart’s success suggests that the benefits of this type of consolidation — efficiencies related to being big — outweigh its costs, at least in the eyes of individual consumers, who apparently see it as a net gain. Should we worry about consolidation in the media if we tolerate it in many other areas? If you go down your supermarket’s cereal aisle, you’ll see there are three companies that basically dictate what types of cereal you can have for breakfast. You’ll also see that there’s still a huge range of products, even though there’s only a handful of companies making them. So it’s not clear that consolidation necessarily limits consumer choice.
But if news or opinion is sold like supermarket cereal, there’s only room on the shelves for what most pleases most people.
Ideally, the public interest would probably be best served if relevant, objective, and deeply thought news programs were also the most “popular.” But that kind of program will only be popular if consumers place enough value on those attributes relative to others. The “flavors” of news offered at any point in time have always been those that are the most “popular.” That’s the nature of commercial broadcasting. As for “shelf space,” it might actually increase under relaxed ownership rules. Under consolidated ownership, more TV stations might be viable in some markets because their programming costs would be lower. Presumably, that would create more opportunities for diversity in programming.
What do you see happening in Washington?
Broad political opposition to the new rules has gotten Congress’s attention and, with an election year coming up, probably the President’s, too. That increases the chances for a return to something closer to the old rules. Meanwhile, consumers continue to vote with their eyeballs in the television industry. They’re moving from local, independent content to nationally produced content, presumably because it’s a better viewing experience. That ultimately will decide this matter. And as the benefits of bigness in program distribution continue to grow, the pressure increases to again relax the ownership caps. It’s really just a matter of time.
