Chapter 4: The Transnational Media Corporation and the Economics of Global Competition

Introduction:

- It is important to make a distinction between the Transnational Media Corporations (TNMCs) and other Transnational Corporations (TNCs); indeed, the principal commodity sold by TNMCs, the “most powerful economic force for global media today”, are information and entertainment

- TNMCs are the perfect frameworks for international free market (and, consequently for a free flow of information)

I. The Transnational Media Corporations – The Myths around TNMCs

1. Contrary to some common beliefs, TNMC don’t operate in all the world’s markets, but in preferred ones, and especially in home markets

2. TNMCs are not monolithic, in the sense that they are rigid and inflexible organizations with a predefined and unchangeable corporate culture; on the contrary most of them are the reflection of the individuals that developed and organized them

II. The Purpose of Global Media Strategy

1. Most of the major transnational companies didn’t have a pre-established strategy to grow internationally

2. As companies get involved in complex and in international operations, there is a need for a global strategy

3. As a result, if companies become major transnational corporations, it is more due to the fact that they went to a gradual process of evolution that because they established some sort of predefined strategy

III. The Globalization of Markets

1. The rules of free market trade

a. The free market capitalism is the only economic system operating in the world today, and it pushes companies to create “new and innovative products and services”

b. In the context of the free market capitalism, the private sector is viewed as the “primary engine of growth”

c. The rules of the free market trade extend internationally (even if some countries stay reluctant to this idea and try to protect their economies or cultural identity), and respond to the principles of deregulation and privatization

2. Foreign direct investment (FDI)

a. FDI refers to the ownership of a company in a foreign country. The main reasons behind the decision of engaging in a FDI concern profitability and potential for future growth

b. Proprietary and physical assets: TNCs may invest abroad to obtain proprietary assets, natural resources, or even workers with specialized expertise

c. Foreign market penetration: FDI enables TNCs to enter easily existing or developing foreign markets and serve them their products and services directly

d. Production and distribution efficiencies: FDI becomes interesting for TNCs in countries where low labor cost, tax relief, and technology infrastructure represent a significant advantage (few cost but greater efficiency or productivity)

e. Overcoming regulatory barriers to entry: by using FDI, TNCs can enter markets that respond to protectionist policies and circumvent their regulatory barriers (tariffs and import quotas usually)

f. Empire building: TNMCs owners and CEOs engaged in a competition where each has to prove that he/she can engage in huge risks and ventures and makes his/her company grow bigger everyday

3. The risks associated with FDI

a. TNCs may be subjected to: the laws and regulations of the host country (labor conditions and wages requirements), the host country’s politics and political stability, the countries business plan (taxes, currencies convertibility…)

b. As a result, according to Dymsza, “FDI can occur only if the host country is perceived to be politically stable, provides sufficient economic investment opportunities, and has business regulations that are considered reasonable”

IV. Transnational Media Ownership

- TNMCs take advantage of today’s deregulatory and privatization trends to make large combinations (through mergers, acquisitions and strategic alliances) to “achieve increased market share, to diversify product line, and to create greater efficiency of operation”

1. Mergers, acquisitions, and strategic alliances

a. Mergers: two companies are combined into one company (without exchange of cash)

b. Acquisitions: one company purchases another company to add or enhance the productive capacity (with exchange of cash)

c. Strategic alliance: is a business relationship in which two or more companies work to achieve a collective advantage (strategic alliances may take different forms depending on the needs and goals of the concerned companies)

2. When mergers and acquisitions fail: the four main reasons

a. The lack of compelling strategic rationale: the companies have unrealistic expectations and no real strategic plan to follow after the merging

b. Failure to perform due diligence: the objectives of the merging won’t be achieved because the companies failed to perform due diligence

c. Post-merger planning and integration failures: no effective plan for combining similar divisions of both companies, creates friction and impedes synergy

d. Financing and the problem of excessive debt: companies tend to make loans that they may not be able to pay, which destabilizes the new merged company

V. Media and Global Finance

(The industry of business media and telecommunications is characterized by high startup costs and high risk)

1. The role of global capital markets

a. Definition: “a global capital market brings together those companies and individuals who want to invest money and those who want to borrow it”

b. Give advantages to borrowers and to investors (there is a wider range of investing opportunities in the global capital markets), and is not restricted to one country as it for domestic capital markets

c. The intermediaries between borrowers and investors are financial service groups such as banks, or investment companies

2. Capital market loans: might be either equity loans (shares of stock) or debt loans (bonds)

3. Debt financing

a. To invest in new product development, TNMCs usually finance their project ventures by borrowing money

b. These can either be short term loans (that meet immediate cash requirements), or long term loans

c. However, too much debt can destabilize and jeopardize the organization

d. Example: Rupert Mudoch’s borrow-and-buy formula for grow

VI. Business and Planning Strategies

1. The importance of strategic planning

a. As the media industry grows, staying competitive in the market is increasingly difficult

b. Strategic planning involves managerial decisions and actions that determine the long-term performance of the companies

2. Understanding core competency

a. When a company has core competency, it means that it is able to do something especially well compared to other companies

b. Highly successful companies are supposed to have specialized production processes, and brand recognition among other characteristics

c. Example of companies with core competency: Cisco systems

3. Vertical integration (and cross media ownership)

a. Vertical integration enables a company to control most of all operational phases and allows large-sized companies to be more efficient and creative; it is a common growth strategy

b. Most TNMCs engage in cross-media ownership and own a combination of news, entertainment and enhanced information services

c. Example: Time Warner Inc.

4. Broadband communication

a. The digitalization of the media and information technologies erased the traditional boundaries that existed between the media and the telecommunications

b. Broadband communication refers therefore to “the ability to distribute multichannel information and entertainment services to the home”

c. An important strategy for TNMCs that implies broadband communication is to own both software content and means of distribution to the home

d. As a result companies are believed to increasingly rely on VOIP (voice-over internet protocol) and internet telephony

VII. Transnational Media and the Marketplace of Ideas

1. Transnational media and economic consolidation

a. Economic concentration refers to the number of firms that dominate a market

b. Media concentration can either be viewed as a “single industry concentration” (Microsoft), or as a market dominated by “cross-media ownerships” (Viacom Inc.)

2. The deregulation paradox

a. The main objective of deregulation is encourage competition among firms, and therefore their efficiency

b. But in reality there is little competition because of consolidations among TNMCs

c. This lack of competition is due more to the simple fact that some TNMCs are market leaders than to an anticompetitive behavior

3. The marketplace of ideas

a. Many writers argue that “a small set of dominant media corporations exercises a disproportionate effect over the marketplace of ideas” creating as a major issue the one of influence (ideas, information, culture…)

b. Even some think that TNMCs should be treated differently than other TNCs because of their power in influencing the public sphere

c. Others argue that “media diversity doesn’t necessarily translate into higher quality of content” (gossip journalism, sensationalism, trash journalism developed instead)

4. Global competition and the diffusion of authority

a. TNMCs face today an increasingly deregulated and privatized world of business

b. Neither the company nor a person takes full responsibility for the actions of the senior management

c. Some TNMCs tend to get more and more profits and cross the line between journalism and entertainment

d. The ability of TNMCs to influence people’s mind through media is the major reason why many want TNMCs to have strong business ethics

5. TNMCs and the nation-states

a. All the critiques made to TNMCs become even more crucial at the international level

b. Many host nations are confronted to a dilemma: jobs, investments, technology resources versus cultural trespass, privacy invasion, or challenges to political sovereignty for example

c. Mutual cooperation and respect is therefore required between TNMCs and host nations since they have a shared responsibility to “create a system of globalization that is both desirable and sustainable”