Private Equity and Media Consolidation
The business practices of private equity firms have been forced into the spotlight as attacks on Mitt Romney’s past leadership of Bain Capital become a central theme in the Republican primary race. I hope that as journalists focus more attention on private equity firms, they also turn around and look at their own industry. Over the last ten years private equity firms have become major players in the media, introducing new questions and considerations in the debate over media ownership.
It just so happens, that this new focus on private equity also comes as the Federal Communications Commission launches its next review of media ownership rules. In January of 2008 I wrote about the role of private equity firms in the debate around media consolidation. At the time, the FCC had just voted through troubling changes in its media ownership rules (which were later overturned in the courts) and they had just approved the sale of Clear Channel to two private equity firms. One of those firms was Romney’s Bain Capital, which has a stake in a number of media properties.
At the time, the Broadcast Law Blog wrote “Private equity should be aware that, in a future FCC, an investigation of the economics of their operations should be expected.” That has yet to happen.
A year later, Matt Crain conducted an in-depth study of the regulatory challenges raised by a media system so intertwined with private equity. He wrote:
“Private equity’s entrance into media ownership compounds the already convoluted networks of attribution that characterize the U.S. media landscape. Clear Channel’s takeover by Bain Capital and Thomas H. Lee Partners illustrates this dynamic. Both private equity firms own stakes in Cumulus Media, one of Clear Channel’s main radio competitors, and both firms are heavily invested in Warner Music, a major music supplier to the radio industry. Thomas H. Lee Partners holds stakes in Univision, also an active radio broadcaster.”
In his final assessment, he writes, “The evidence presented in this analysis strongly indicates that private equity, in its perpetual search for profit maximization, is, at a foundational level, antithetical to the public interest obligations of the media sector.”
Below is the post I wrote in 2008, much of which is more relevant now than ever.
It is hard to talk about the media without someone claiming that “traditional media” is on its deathbed. Every time we turn around, there is another pundit warning Americans about the dire situation facing our broadcast stations and newspapers. Pundits wring their hands about the surge in “citizen journalism” on blogs, and Big Media flacks point to YouTube videos as evidence of a new era in media competition. We want to believe this alluring argument because we want to believe in the democratic promise of new media outlets.
While the Internet offers unprecedented opportunities for individuals to make their voice heard, 70 percent of Americans still get the majority of their news from local stations. Even when they use the Internet, they tend to go to the Web sites of local stations and newspapers for their news. These statistics — along with news that the Federal Communications Commission just approved the massive $19.5 billion buyout of Clear Channel Communications, the country’s largest radio conglomerate, by a private equity group led by Thomas H. Lee Partners and Bain Capital Partners — are stark reminders of the vibrancy and vitality of traditional media sources. While profits from traditional media sources may have slowed, they are still highly valuable properties.
Just last month, the FCC also approved the sale of Clear Channel’s television division to another equity firm, Providence Equity Partners. But Clear Channel is far from unique. These deals are just the latest in a growing trend of private equity firms snatching up broadcast media companies and privatizing the conglomerates. New York Times journalists Andrew Ross Sorkin and Peter Edmonston report:
“Some of the largest broadcasters and publishers are being swept into the arms of private equity firms, which are drawn to the rich cash flows these businesses generate and undaunted by their slowing growth. The trend could raise new regulatory concerns as some of the big private equity firms start to weave a complex web of cross-ownerships in the industry.”
In fact, such regulatory concerns have been raised before. Last year, private equity firms were trying to out bid each other to buy Univision Communications, the largest Spanish-language broadcaster in the United States. At that time, Federal Communications Commissioner Michael Copps called on the FCC to carefully study “the impact of private equity on our ability to ensure that licensees protect, serve and sustain the public interest.” But since he made this statement, the only response from the FCC has been to approve one deal after another. The impact of this private equity feeding frenzy is still unclear.
Private equity’s reach has not been limited to broadcast and newspapers alone. Back in 2006 at the Reuters Media Summit in New York, Time Warner chief Richard Parsons described the attention his company has received from these groups. “Probably every private equity firm has approached us about every conceivable idea.”
Providence Equity Partners, which bought Clear Channel’s TV stations this winter, has also invested heavily in the new online joint venture between NBC Universal and News Corporation. According to the New York Times, Providence Equity Partners and its chief executive Jonathan Nelson have “a long history of investing in media properties like local newspapers, television stations and cable networks.” Between their diverse investments and Nelson’s position on the boards of MGM, Warner Music Group and the Yankees Entertainment and Sports Network, Providence Equity Partners symbolizes a new kind of media consolidation.
In his dissenting statement regarding the Clear Channel-Providence vote, Copps argues that:
“No one should be under any illusion that Clear Channel’s sale of its 35 full-power television stations strikes a blow for de-consolidation. After this transaction closes and all divestitures have occurred, Providence Equity Partners will have attributable interests in a whopping 86 television stations and 99 radio stations in the United States, as well as interests in media companies around the world such as MGM studios (largest shareholder), Yes Network, Hallmark Channel, and Warner Music Group. You will search this Order in vain, however, for any mention of the scope of Providence’s holdings or how they potentially affect our public interest analysis.”
Copps is not alone in his concern about private equity’s impact on America’s media. On July 12, 2007, Reps. John Dingell (D-Mich.) and Ed Markey (D-Mass.) wrote to FCC Chairman Kevin Martin to warn the agency about the potential dangers of private equity firms: “History also suggests that private equity ownership is marked by a management structure that is not overly transparent and by fluid asset management where actual holdings and control may vary significantly, as properties are bought and sold. These historical styles may not be consistent with many of the core public interest and localism values that Congress has assigned to local media and may implicitly undermine the Commission’s media ownership rules.”
As Big Media companies and local stations are bought and sold, changing hands and changing owners, our most important sources of information are increasingly seen as mere investments. “The more people disparage ‘old media,’ the happier I am,” said one private equity manager. “These companies don’t require a lot of capital investment. They sell subscriptions, so you get the money up front and deliver the product over time. They generate a lot of cash, so they make great buyout candidates, and you can get them at reasonable prices, because everyone else is focused on buying shares of Google.”
But our media is not just another product; it is a vital component of our democracy. For too long, our media policies have been made by big media lobbyists and big business investors without our consent. As we enter this new era of private consolidation, we should be vigilant and demand a seat at the table and a voice in shaping the media policies that so impact our daily lives