Disney marriage will please only size freaks
"There was nothing to stop either company doing internationally what they were prevented from doing domestically... Neither had the vision or the guts"
Wednesday 02 August 1995
What has caused Mr Buffet to throw caution to the wind and lavish such praise on what more normally he would have described as a pointless waste of money? Well, for a start there is the huge profit he will be making on his Capital Cities stake. That does rather concentrate the mind.
But there is more to it than that. Mr Buffett, like the rest of collective America, seems actually to believe the starry-eyed and, if the truth be known, largely vacuous, claims for this marriage being made by Michael Eisner and Thomas Murphy, respectively chairman of Disney and chief executive of Capital Cities-ABC.
This, we are told, is the ABC and Disney response to the multi-media revolution, a combination of one of America's most powerful and internationally recognised production houses and its perhaps best-known TV broadcaster to create a monolith capable of dominating the world.
The US still likes to believe it is capable of doing this, both in corporate and military terms, and that perhaps explains better than anything else the rapturous welcome this merger has received across the pond. Is it in any way justified?
Disney and Capital Cities are substantial companies perfectly capably on their own of chasing, or even leading, Rupert Murdoch and Ted Turner in the race to build a global digital highway in the sky, broadcasting products throughout the world. Before getting carried away with the potential this link-up unleashes, you have to ask yourself why. The most common answer, until recently, was that laws dating back to the 1930s - deliberately designed to prevent national broadcasters combining with Hollywood production houses - have frustrated the inter national ambitions of American media companies, stunting their development and growth. This, of course, is nonsense. There was nothing to stop either company doing internationally what they were prevented from doing domestically, nothing to prevent them going into satellite, nothing to stop them buying into foreign media companies. Neither had the vision nor the guts to do it.
No, this deal is much more about the domestic US market than the international one. It is fed primarily by the big-is-beautiful mentality and its purpose is essentially anti-competitive and monopolistic. It is about reducing choice and diversity, not increasing it, and it is about locking up product and dominating distribution. It also doubtless marks the start of a new era of media consolidation, the long-term consequences of which may not be so welcome.
Time was, not very long ago, when regulations upheld by the Federal Communications Commission in Washington DC meant that there was an unbreachable wall between the Hollywood studios that produced the television programmes and the networks themselves, which were the distributors. In recent years, the barrier has been slowly dismantled. A sweeping telecommunications bill before Congress will complete the process. Not everyone likes what is happening, including President Bill Clinton. The Disney-ABC merger is seminal in many respects. Disney will have at its disposal the best pipeline available for feeding its product to the American public and beyond by way of ABC's numerous cable interests, notably the ESPN sports channel, in which it has an 80 per cent holding. ABC meanwhile is establishing an unhealthy lock on the output of Disney, the most popular and pervasive production brand in the country.
A further rush towards consolidation will be inevitable as the fear of lock-out grabs hold. FCC Commissioner Andrew Barrett predicts that by 2000 there may be only 12 companies worldwide controlling everything we see and hear and convey on the media networks. The claim may be exagerated but the logic is faultless.
At the heart of the telecommunications bill, the result of feverish and determined lobbying by the industry, is the scrapping of all restrictions on telephone companies to compete freely with each other and leap wholesale into cable, film and television. Here, too, Disney and ABC are already setting the pace. Disney recently set up programming agreements with three of America's regional Bells.
The newly-merged giant, set to be the biggest in the world, will be the first Hollywood-broadcast-telephone behemoth. Whether the commercial benefit of this process of vertical integration lives up to Mr Eisner's claims is anyone's guess; as likely as not this is merely size for the sake of it.
For the time being, however, the consolidation freaks have the upper hand. Republican supporters of deregulation and the telecoms bill claim President Clinton is stuck back in the 1930s and risks frustrating the industry's efforts to leap into the information age. Consumers who wonder about handing control of that new age to a handful of mega-corporations such as Disney and Rupert Murdoch's News Corporation should ask themselves whether the Thirties offered some wisdom that is worth preserving, however.
Registering with the neighbours is costly
Car fanatics were assembling at dealerships on Monday evening to drive their new N-registration toys home at a minute past midnight. It is amazing what some people will do to impress the neighbours, if any were awake when they got back.
The Society of Motor Manufacturers and Traders is quite right to ask the Government to kill this crazy ritual, which distorts annual sales patterns and allows Continental manufacturers to offload cars cheaply in the UK when their own markets are in the summer doldrums. It is time for the date of manufacture to be confined to the log book, not the registration plate.
But the motor industry's other current whinge at the Government, for special fiscal help in the shape of a tax incentive to scrap old cars, is an equal nonsense. If the companies had passed on the whole of the benefits of their last help from Government, the scrapping of car tax in 1992, prices would now be 10 per cent lower, according to Ian Sheperdson, an economist at HSBC.
The price difference is worth about pounds 1,200 on an average car, more than twice the pounds 500 subsidy the SMMT is after to scrap a car. Manufacturers, he says, squandered a golden opportunity. The reason their sales have been suffering is that they have been so aggressive on prices. The boost to the motor industry three years ago cost the Exchequer pounds 1.25bn. If the companies had not held on to so many of the benefits, their total sales over the past three years could have been 200,000 higher.
With new car prices still rising at 3.9 per cent in the year to June, they should be cutting prices rather than asking the Government for help. If they were seen to do that, perhaps the Government would give them the number plate change as a quid pro quo.
Diving in at the deep end is no excuse for shirking the style stakes
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