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. Continue reading