Rupert Murdoch’s announced $80 billion pursuit of Time Warner this morning seemed like a bolt out of the blue to many. But the strong winds of consolidation make this kind of foray — and the others likely to follow — absolutely logical. Consider all the kinds of consolidation we’re seeing done, or attempted, in the entertainment/news businesses.
Last year was among the biggest in recent years for local broadcast consolidation, as Tribune, Gannett, and Sinclair, among others, bulking up and Local TV, Belo, and Allbritton taking the money and running.
RELATED ARTICLEThe newsonomics of Time Inc.’s anxious spinoffJune 9, 2014In February, Comcast made its bid for Time Warner Cable — itself spun out of Time Warner five years ago — and that agreement is in deep regulatory review. (Ironically, if the Fox/Time Warner and Comcast/Time Warner Cable deals were both to happen, the just-spun-out Time Inc. (“The newsonomics of Time Inc.’s anxious spinoff”) would be the only remaining “Time” — maybe a cosmically befitting result.)
In May, AT&T consummated a deal with DirectTV, one that is now before Congress.
Big is back, in a huge way. Of course, it never really went away. But post-Great Recession confidence and deep coffers — 21st First Century Fox has at least $5.5 billion in cash, and access to lots more; Goldman Sachs would finance the Time Warner deal if it were to happen — are now juicing it. But larger forces are shaping the quest for size.
The digital disruption of the TV/film/video businesses is a prime driver. Consumers are moving madly from constrained, through-the-old-pipes broadcast to over-the-top products. The astounding American conversion to global fútbol is in significant part attributable to ESPN mastering its WatchESPN mobile/web experience. Early reports show that such non-”TV” watching produced major new audience; about 3.2 million viewers tuned into WatchESPN’s app to watch the USA-Germany game, for example. (Poor Time Inc. even had to tell its staff not to stream matches at their desks — not because they should be doing real work, but because all the bandwidth was bringing the company’s network to its knees.)
So for this World Cup, masses of Americans learned what it means to “authenticate” through their cable suppliers to follow games on their iPhones and Androids. Now consider ESPN, owned by Disney, and its plans into the future. It commands the highest rates for cable and satellite coverage, about $5.54 per subscriber, by far the highest in the land. Still, though, the rat-a-tat-tat of cord cutting stories and advice, including yesterday’s from the Journal’s Geoff Fowler, will just get louder and louder — and more acted upon.
Think about where this is going. ESPN, like Time Warner’s HBO, wants to have it both ways: keep up its rich stream of cable fees and offer an increasing array of direct-to-consumer products. The pipes companies, however consolidated or not, want to keep the lid on à la carte offerings as long as they can — and partake in some à la carte revenue themselves. (Witness Comcast’s current one-off, pay-per-view selling of movies as just one example.) It’s murky how this will all turn out. You could argue that the digital revolution puts consumers in the driver’s seat, forcing an unbundling. But the bigger the pipes companies get — consider a merged Comcast/Time Warner and AT&T/DirecTV world — the more raw power they have to maintain the legacy business models as long as possible, and then to negotiate the most favorable deals in a cord-cut world.
Today’s attempted deal is, in large part, about that getting a negotiating edge on the other guy. Improve your deal by a few dimes on a cable customer or a revenue share and, over time, billions of dollars hang in the balance.
Then add in the widening blur in emerging screens world. The Supreme Court’s Aereo decision has bought the local broadcast chains some time. It laid to rest immediate doubts about the lucrative and growing retransmission fees the broadcasters get. They are now able to forecast the $7.6 billion in cable and satellite retrans fees by 2019. Of course, to maximize that revenue, big is the operative word. The broadcast consolidation has provided its own clout — an escalating battle of big vs. big vs. big.
Big is completely logical from a corporate point of view. With Netflix, Amazon, Google (and then Apple, Yahoo, and hosts of smaller players) busting down the doors among TV, movies, and digital video, one question is how to manage the digital blur. We know where this is going, with digital video eating up the categories of “broadcast” and maybe even “movies” over time. The question is what the new ecosystem looks like. There, there’s at least a three-part dance. There will be the pipes (cable/satellite) companies, still with huge power in the United States. There will be the studios, producing the bigger, mass video entertainments, like the 21st Century Foxes and Time Warners. Then there’ll be the digital-native companies, stoked by the confidence that years of astounding digital business disruption builds.
All the legacy companies — 21st Century Fox, Time Warner, AT&T, DirecTV, the big broadcast groups, among others — feel the hot uncertain breath of Netflix, Amazon, Apple, and Google on their necks. All of the digital giants are beginning to blast away at the traditional bundles, habits, and pricing. All are eating away at legacy companies’ customers and cash flows. We see uncertain legacy responses like Hulu, which is clearly insufficient in staunching the tide.
So the efforts at consolidation are as much defensive as offensive. A combined 21st Century Fox/Time Warner would produce about $65 billion in revenues. That’s the size of…Google. Google’s net income this year should be in the neighborhood of $14 billion. Figure a combined 21st Century Fox/Time Warner would come just below that number. The argument: In a Google-dominated world, you have to bulk up to compete.
One other argument is the usually over-hyped “synergies.” Acquiring CEOs like to put big numbers on the likely “synergies” in such consolidation. Murdoch’s first number, subject to the due diligence that Time Warner CEO Jeff Bewkes has so far rejected, is $1 billion, a nice round one. In Amol Sharma’s good take on the Fox pitch today in The Wall Street Journal, he quotes Janney Capital Markets analyst Tony Wible, who said last month about such a deal: “However improbable it may seem, one cannot overlook this megadeal given its immense financial benefits that dovetail with a number of strategic benefits,” noting their combination of cable channels, studios, and rights to major sporting events.
Translation: Synergy as clout. Yes, headcount can inevitably be cut, especially expensive corporate staffs, but redundancy isn’t the major driver here. Market clout — if not quite market domination — is.
Of course, there are a couple of other noteworthy players here: consumers and creatives.
For creatives, this new golden age (quick, to-the-point Derek Thompson explanation here) of boundary-busting, digitally driven, high-quality TV has been an unexpected boon. They’ve got a number of big studios to pitch to and negotiate with, including Fox, TW, Scripps, and AMC, and now the Netflixes, Amazons, and Yahoos. Consolidation of studios could again rearrange the relative bargaining power of the creatives and the network execs. Maybe, digital disruption would open new doors, even if some older ones get boarded up, or maybe not.
For consumers, it’s a blur of big names and unclear implications. All the consolidators, in cable, satellite, broadcast, and studio, make a similar case: We need efficiencies so we can invest in the digital products and technologies of tomorrow, which will produce consumer gain. Usually included is a feint that pricing will go down, given all these efficiencies, though there’s scant evidence of that. Americans already pay about twice as much for TV/internet packages as do our European cousins — and their broadband is usually both faster and regulated.
RELATED ARTICLEKen Doctor: Mind your own business, Facebook and GoogleJuly 10, 2014So where do the regulators fit in here? As I noted last week (“Mind your own business, Facebook and Google”), regulations and laws, regulators and politicians are a couple of decades late and many dollars short in confronting the nature of digital business domination. While the Europeans fight a rear-guard anti-monopoly battle against Google (which is even more dominant there than in the U.S.), the great business boundary-disrupting of digital media has perplexed and flummoxed those trying to figure out The Public Interest here. In many ways, “antitrust,” “the public interest,” and “local station diversity” all seem like artifacts of another age, waiting to be redefined.
RELATED ARTICLEThe newsonomics of Comcast’s deal and our digital walletsFebruary 14, 2014That interest is two-fold. We’re all consumers, so the dollars and cents matter. Anti-competitive market domination is an issue. In a world where it’s true that Netflix and Amazon compete with Comcast and Time Warner Cable, it’s tough to sort out the where the frontiers of a given “market” start and stop. If you can’t do that, you can’t define “domination” (“The newsonomics of Comcast’s deal and our digital wallets”).
Secondly, there’s the question of where all this business changes affects us as citizens. To be sure, most of this is about “entertainment,” but that broad category also includes the kind of hard-hitting documentary and storytelling work that HBO, for example, excels in. Then there’s the news component. 21st Century Fox preemptively said in its narrative on today’s offer that it would split off the Time Warner-owned CNN — making the point that it wouldn’t be forced into a shotgun marriage with archrival Fox News. That’s pure Murdochian strategizing. Although it’s hard to see who would have the regulatory authority to review a Fox News/CNN merger (yikes!), Murdoch is paying attention to the court of public opinion and getting ahead of what could be/could have been a major stumbling block. Rupert — and son James — scoped out this one well, and don’t think we’ve heard the last of it, despite Jeff Bewkes’ immediate stonewalling. Time Warner — and much of the entertainment/broadcast landscape — is solidly in play.
Meanwhile, let’s remember that Rupert likes playing more than one game at a time. With persistent word that he wants the L.A. Times and may buy all eight Tribune newspapers if he needs to in order to get to it, we see the next stage of the Tribune modern day soap opera unfolding. Come Aug. 4, Tribune Publishing will finally be split off from Tribune Corp. If Rupert’s people haven’t yet had conversations on the acquisition, expect them to commence over the next several months. Let’s remember he also salted away $2 billion in split-off News Corp, and Tribune papers may well be bought for a quarter to a third of that sum.
Photo by cncphotos used under a Creative Commons license.
It took almost a year and a half for nonprofit news site Eye on Ohio to get its tax-exempt status approved by the IRS this spring. Launched in the fall of 2012 by former business reporter Lori Ashyk, the site aims to follow the model of many smaller nonprofit news startups: reporting some of the investigative stories and statewide news that have fallen by the wayside as daily newspapers have shrank.
Ashyk knows the stories of other news nonprofits who’ve had difficulty navigating the tax-exemption process at the IRS and seen their applications disappear into a kind limbo. “Compared to some of the other news organizations, it’s not that bad,” she said.
But there might be new relief for at least some journalists looking to get into the world of nonprofit news. This month, the IRS introduced a new application that makes getting tax-exempt status not much more complicated than ordering a pizza online. What was once a 26-page form has been cut down to three, and groups will now only have to pay a $400 fee rather than $850 to apply. Not all would-be nonprofits will be eligible for the streamlined process: The new form is only open to groups with annual income of less than $50,000 and assets of less than $250,000.
While that might seem like a low threshold, the IRS estimates around 70 percent of the organizations applying for 501(c)(3) status will qualify. And with the greater ease of use will come less government oversight: Some groups, such as the National Council of Nonprofits and the National Association of State Charity Officers, say the streamlined process is an invitation for groups to abuse tax-exempt status.
RELATED ARTICLEWhat does sustainability look like in nonprofit journalism?November 1, 2013RELATED ARTICLEReport: The IRS’s “antiquated and counterproductive” rules are hurting nonprofit news orgsMarch 4, 2013RELATED ARTICLEBusting some myths about getting nonprofit status for a news organizationMarch 17, 2014The universe of nonprofit news outlets has expanded in recent years as traditional media have shrank and some reporters have moved into more entrepreneurial roles. But one element of that growth has moved at a pace that fluctuates between erratic and glacial thanks to that 501(c)(3) approval process. In one of the more notable cases, it took the San Francisco Public Press 32 months to get approval from the IRS. Last year, a coalition of organizations including Knight Foundation and the Council on Foundations issued a report calling for the IRS to change its “antiquated and counterproductive” rules for granting tax-exempt status to journalism nonprofits.
The IRS says it has a backlog of 60,000 applications, with most pending for at least nine months. The new 501(c)(3) process was one result of the scrutiny the IRS received for the way it reviewed political groups seeking tax-exempt status. The idea behind the new application is to help small nonprofits avoid that tax-exempt purgatory and to help an IRS with less resources. According to IRS Commissioner John Koshinen in an interview with Time, the change will mean the division that reviews tax-exemption requests will see 40,000 to 50,000 fewer applications.
“If I was someone starting from scratch right now, I would certainly be looking at this. It’s a lot easier than it has been,” said Brant Houston, board chair at the Investigative News Network, which includes about 100 nonprofit newsrooms. The existing IRS review process for 501(c)(3) status is rigorous, but largely opaque, as organizations often received little information about the status of their application, Houston said.
For many, that meant finding a fiscal sponsor to help manage the financial tasks in the early days of the startup, Houston said. “People spent years waiting to go through the process, and it was not entirely clear why some are waiting two years and others go through in four months,” he said.
While the new 501(c)(3) process is simpler than the past, it comes with a test. Any group wanting tax-exempt status through the new 1023-EZ form has to pass a 7-page, 26-question eligibility worksheet where just one “yes” answer disqualifies an organization.
The other requirements are the annual revenue and assets ceiling. Big-name journalism nonprofits like ProPublica, the Center for Investigative Reporting, or The Texas Tribune crossed the $50,000 income hurdle a long time ago. But there’s still a long list of small and growing organizations whose budgets fit that requirement, said Andy Sellars, a clinical fellow at the Cyberlaw Clinic at the Berkman Center for Internet and Society. “That $50,000 mark is well within the operating budget of a lot of these new organizations,” Sellars said.
RELATED ARTICLEPassing the nonprofit test: A guide for nonprofit news outlets on how to get 501(c)(3) statusMarch 19, 2012The Cyberlaw Clinic provides pro-bono legal aid to a number of nonprofit news sites, many of whom have a relatively small staff and limited budget, Sellars said. While efforts like the newly launched Marshall Project come with substantial financial backing from the outset, others are scraping together donations and using their own money. “This is a tremendous change for a lot of organizations, and I hope it means organizations can increasingly do this on their own as well,” Sellars said. “It’s one less obstacle going forward.
But just because the application for becoming a 501(c)(3) is simpler doesn’t mean news nonprofits can overlook the process. Journalism itself still isn’t recognized as an activity eligible for nonprofit status. Most nonprofit news organizations instead put themselves in the category of education. It’s not a perfect fit, but it’s close enough. Here’s the key line on “specific activities” on the 1023-EZ form:
Example 2. An organization whose activities consist of presenting public discussion groups, forums, panels, lectures, or other similar programs. Such programs may be on radio or television.
Example 3. An organization which presents a course of instruction by means of correspondence or through the utilization of television or radio.
Though the new 1023-EZ application offers an easier path to gaining 501(c)(3) status, the original form can be very instructional to would-be nonprofits, said Eric Gorovitz, a lawyer at Adler & Colvin who specializes in nonprofit legal issues. The new form is short on details and explanations, instead asking applicants to supply basic information under the “penalty of perjury.” Earlier this month, Gorovitz wrote about the new form:
Unlike its much more detailed sibling, the Form 1023-EZ asks the applicant to attest to a series of conclusory statements about its governing documents, purposes, and activities, but does not require elaboration or attachments. Applicants using the new form do not have to provide any details about, for example, their relationships with insiders or their finances.
In the longer form, applicants have to explain in detail what their organization does, how it will be structured, and how those things fit within the boundaries of what the IRS allows. That has the benefit of sharpening an organization’s focus and better understanding what they are allowed to do, he said. For journalism nonprofits, that might mean addressing the issue of revenue sources (the ratio of advertising revenue and subscriptions to other sources), and being explicit about any political activity (editorial-style candidate endorsements, for example). “It probably makes it easier for small journalism enterprises to get started,” Gorovitz said of the new form. “The question is, when they get bigger, doing things they think are fine, but have not learned they aren’t fine.” (Interestingly, Gorovitz also points out another side effect of the new 1023-EZ might be a loss of detailed background information for journalists investigating nonprofits.)
At places like Eye on Ohio, it’s likely the new 501(c)(3) application would have helped things get up and running faster. Though the process of getting tax-exempt status was long, Ashyk says it was useful because it helped shape her strategy for the site. Because of a question she received from the IRS on community involvement, Ashyk is planning to set up a community advisory board to help guide the site.
Getting the seal of approval from the IRS makes a big difference in the livelihood of nonprofits like Eye on Ohio, but of course it’s just the beginning of the work. “We’re very much in a startup stage, even though we’ve been around for over a year,” Ashyk said. “Things haven’t really changed that much. We’ll be in charge of our own funding now — but since we don’t have any it hasn’t made a whole lot of difference yet.”
Photo of tax forms from the Brookline Library used under a Creative Commons license.
This week the Knight Foundation announced funding for three new public media projects. The projects, each receiving $250,000, are aimed at finding new revenue streams and ways to engage audiences with new types of content. The projects include:
WGBH/FRONTLINE: will pull from PBS’ documentary series and create YouTube videos to engage Millennial audiences.
WBUR: “to create a new business unit, the “BizLab”, that will explore fresh opportunities to generate new memberships and revenue sources,” with the idea of sharing their innovations with the public media system.
Public Media Company: will expand their Channel X by hiring a news director to build and diversify their library of content and outreach to journalism schools and newsrooms.
All of the projects aim to not only innovate but make public media young again. Michael Maness, Knight Foundation vice president for journalism and media innovation, says that: ”In order to succeed, public media organizations must respond to new audience demands and discover ways to engage a diverse group of supporters, beyond their traditional following.”
What do you think of the projects? Any good ideas for them? Let us know @10,000Words.
New Career Opportunities Daily: The best jobs in media.
We’ve received about 647k #netneutrality comments so far. Keep your input coming — 1st round of comments wraps up July 15.
— Tom Wheeler (@TomWheelerFCC) July 11, 2014
I just filed my comments on net neutrality with the FCC, adding to the 647,000 already there. You should, too. It’s quick. It’s easy. It’s important. It’s democracy. Do it here. And do it by July 15, the deadline. [Note: The deadline was extended to July 18.] Here’s mine:
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I am Jeff Jarvis, professor and director of the Tow-Knight Center for Entrepreneurial Journalism at the City University of New York and author of the books “Public Parts” and “What Would Google Do?” and the ebook “Gutenberg the Geek.”
I ask you to govern your decisions regarding net neutrality and broadband policy according to the principles of equality that have made the internet the powerful engine of freedom, speech, innovation, and economic development that it has already become.
As Sen. Al Franken said at the South by Southwest conference in 2011, we proponents of net neutrality are not asking you to change the internet; we are asking you to protect the net from change imposed by the companies trying to exploit their positions of control. “We have net neutrality right now,” Sen. Franken said. “And we don’t want to lose it. That’s all. The fight for net neutrality isn’t about improving the Internet. It’s not about changing the Internet at all. It’s about ensuring that it stays just the way it is.”
I put it this way in a question to then-President Nicolas Sarkozy at the eG-8 meeting he convened in Paris that same year: “First, do no harm.” I urge you to take that Hippocratic Oath for the net. Do not allow it to change. Preserve its equality.
The first principle upon which the net must be maintained is that all bits are created equal. If any bit is stopped on its way by a censor in China or Iran … if a bit is slowed by an ISP because it did not carry a premium toll … if a bit is detoured and substituted by that ISP to promote its service over a competitor’s … or indeed if a bit is spied upon by the government of China or Iran or the United States … then no bit can be presumed to be free. The net is built edge-to-edge so that anyone can speak with anyone without discrimination.
Another principle upon which the net must be maintained is that it is open and distributed and if any institution — government or corporate oligopoly — claims sovereignty over it, then it is no longer the net. Of course, I recognize the irony of asking a government agency for help but that is necessary when a few parties hold undue control over choke points in this architecture. The real answer is to ensure open and broad competition, for any provider in a competitive marketplace that offers throttled, incomplete, inferior service will lose; in an oligopoly, such providers use their control for profitability over service. Corporations by their nature exploit control. Government protects consumers from undue exercise of such control. That is your job.
Google Executive Chairman Eric Schmidt has offered another principle: the permissionless nature of the net. “Let’s give credit to the people who foresaw the internet, opened it up, designed it so it would not have significant choke points, and made it possible for random people including twenty-four-year-olds in a dorm to enter and create,” he said.
My entrepreneurial journalism students can barely afford to start the companies they are creating, the companies that I believe will be the salvation of journalism, scaling up from the bottom, not from the top. Innovation, we already know, will come from the entrepreneurs over the corporate incumbents. These entrepreneurs cannot afford to pay premiums to ISPs for access to their customers.
We know that corporate incumbents in this industry will abuse the control they have to disadvantage competitors. I filed a complaint with the Commission last year when Verizon refused to connect my Google Nexus 7 LTE tablet to its network as required by the Commission’s own rules governing that spectrum as “open.” The incumbent ISPs have demonstrated well that they choose not to understand the definition of “open.”
“Changes in the information age will be as dramatic as those in the Middle Ages,” James Dewar wrote in a 1998 Rand Corporation paper. “The printing press has been implicated in the Reformation, the Renaissance, and the Scientific Revolution, all of which had profound impacts on their eras; similarly profound changes may already be underway in the information age.” The internet is our Gutenberg press. Note well that it took 50 years after the invention of Gutenberg’s press for the book to take on the form we know today. It took 100 years, says Gutenberg scholar Elizabeth Eisenstein, for the impact of the book on society to be fully recognized. It took 150 years and the development of postal services before anyone thought of using the press to create a newspaper and 400 years — with the advent of steam technology and mass production — before newspapers were in the hands of the common man and woman.
We do not know what the internet is yet and what it will foster. It is too soon to limit it and to grant control over it to a few, powerful companies. I urge you to protect its freedoms by enforcing a principle of net neutrality and to nurture its growth and development with a broadband policy that fosters competition over control and — here is my best hope — I urge you to establish the principle of a human right to connect to the network with equality for all.
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Read the latest comments here. (Mine is not posted yet. I assume it will be after the weekend.)
- Trushar Barot, Assistant editor of the UGC and Social Media Hub, BBC News, ‘The changing face of newsgathering in the social and digital age’
- RISJ seminar, Wednesday 11 June