There Is No Consolidation…Period. :: AO

AlwaysOn Network published my latest piece entitled: “There Is No Consolidation…Period.” today.

Here it is:

There Is No Consolidation…Period.
Auren Hoffman maintains that from bank services to music, consumers have more choices than ever before.

In October, I published a controversial piece on AlwaysOn proposing that the idea of media consolidation in America is a bunch of baloney.

I started thinking about it more and realized that the media industry is not some anomaly. In fact, there is actually more competition in virtually every industry today than there was thirty years ago.

U.S. consumers and businesses have more choices when buying products than they ever did before. That competition translates into lower prices, better features, and higher quality. Sometimes, it even translates into better customer service.

Let’s take the banking industry, for example. There are those who decry the massive consolidation in the financial services sector. But the facts speak otherwise. Though Bank of America and Wells Fargo have acquired many of the regional banks in San Francisco, many new players (Washington Mutual, Citibank, E-Trade, PayPal, Charles Schwab, et cetera) have entered the market, causing fierce competition. Today consumers have literally thousands of different banks to choose from, with a multitude of ways to access their accounts, specifically via branch, ATM, telephone, mail, or the Internet.

While there ARE fewer banks in the United States than there were 30 years ago, the average consumer has access to more of them, and to the vast array of services these institutions now provide at a fraction of the previous cost.

Another example is the computer industry. Although operating systems are dominated by Microsoft, consumers do have options. Linux is fast becoming the operating system of choice for many users. And, of course, competition in the personal computer market allows consumers to exert a massive influence on hardware manufacturers.

Many industries will go through brief periods of reduced choices for consumers only to be followed by massive ingenuity and demand. This fresh, new perspective on the old industry can lead to more options for consumers. Today, the best example of this is the music industry, which recently has consolidated but is seeing CD prices drop rapidly. And though the industry outwardly says that the pressures are due to Napster-like piracy, most music insiders acknowledge that the lower prices are a response to the booming after-market for used CDs that have become so prevalent on eBay and other online stores.

Some other quick examples:

* Entrepreneurs can now get money from thousands of different venture capital firms, angels, and lending institutions.

* Children, for the first time in centuries, now have cheaper alternatives for education with the advent of charter schools and for-profit institutions like Sylvan Learning Centers.

* Want to buy a home? The Multiple Listing Service and the Internet give you access to more homes than ever before. So even though there are technically fewer real estate brokerage firms, there is nevertheless far more competition.

I tried to think of at least one industry that has really consolidated. Finally, I came upon the manufacturers of long-haul passenger airplanes. Boeing and Airbus dominate the market—especially after Boeing’s acquisition of McDonnell Douglas a few years back. But here too, competition is on the upswing. JetBlue recently ordered 100 jets from Embraer, a Brazillian jet maker; Bombardier Aerospace of Canada just won a lucrative contract with All Nippon Airways; and AVIC-1 of China is selling to Shanghai Airlines and Hainan Airlines.

I expect this trend to continue for another thirty years. We should count on more competition, more consumer choices, more ingenuity, falling prices, and better customer service. Because there is no consolidation…period.

3 thoughts on “There Is No Consolidation…Period. :: AO

  1. Ashley D'Cruz

    Despite consolidation, average consumer choices have increased. But the range of choice has decreased. In cases where the only contract of note is between the producer and the consumer, consolidation is excellent, bringing down prices through better efficiency and economies of scale. But what happens when there are other significant contracts? For instance, what is the impact on social contracts such as those between a citizen and the government, people and their environment, or between peoples? Where the market has an impact on these other social contracts, consolidation places the contract between producer and consumer above all other contracts, skewing the power dynamics involved. In those instances, consolidation has a negative impact and should be regulated.
    That overall concept can be applied to almost all the issues you touch, but let’s concentrate on the media. In the media, public ownership is slowly being transferred to private ownership. Yes, you can read more newspapers in the same market, but you can’t get more international coverage in general. This is because each of the news agencies in the United States have cut their regional experts and coverage. When asked, they state the obvious: U.S. consumers are not interested in events in the rest of the world. A significant fact no doubt when responding to your consumer, but an insignificant fact when considering the impact on democratic decision-making. Similarly, local news in the U.S. often focuses on who got shot instead of local lawmaking. Incentives do matter, and the incentive for stations to make money on their news broadcast and increase viewership overall have negative impacts on the public spaces for democratic dialogue. This is why so many people are against consolidation in media. There are more choices, but the range has been reduced to choices between Pepsi and Coke, CNN and Fox.
    And, in the case of Fox, the impact on democratic decision-making is well-documented. Americans who believed that their was a link between Iraq and Al Queda, that the world supported U.S. led war, and that Hussein was responsible for 9-11 were overwhelmingly for attacking Iraq. This view is legitimate except that of course none of these beliefs are accurate. A study by the Program on International Policy Attitudes in October showed that 80% of Fox viewers held at least one of these 3 misconceptions whereas only 23% of PBS/NPR viewers held one of them. Fox viewers were most likely to hold all 3 misconceptions. And Fox viewers were far more likely to support war.
    So, does that mean that Fox viewers were spun towards misconceptions which had a direct impact on democracy? Since part of the mandate of licensed television stations is providing for the public good, should such blatant abuse of truth lead to a suspension in their license? If it wasn’t for consolidation and the shifting of relative power, these questions would at least be examined in the United States. They were actually asked, but you would need to follow the news in the Netherlands to hear them investigated on television.
    This is of course one example in a sea of them. The national debate and the relative power between the public and private entities, the government and the populace, the rich and the poor has shifted. Consolidation is part of this dynamic. Those interested in the subject of consolidation should read the conservative Kevin Phillips’ book Wealth and Democracy and watch the liberal Bill Moyers’ show NOW with Bill Moyers. Those interested in the economics of competitive markets and consolidation should study information economics and in this area Joseph Stiglitz has written a lot worth reading. And anyone interested in the media should contrast the opinions of citizens and the media in different countries through the Pew foundation or Gallup’s research. News coverage is nationalistic, and these opinion polls display the rifts of chauvinisms.
    In essence, people who are against consolidation are against a choice between Pepsi and Coke, a foreclosure of their range of choice. That’s the real issue, not whether we now have Cherry Coke.

    Reply
  2. Ezra Perlman

    It may be true that consumers largely have more choices than ever and receive better service for cheaper prices than ever before. That, however, does NOT mean that there is no consolidation anywhere. There are plenty of industries that do not sell directly to consumers where actual consolidation has restricted choices and/or increased prices. The farming and agrochemicals industries provide a good example.
    Monsanto and DuPont together control over 65% of the market for corn seeds worldwide (excluding China). They also control nearly half of the soybean seed market. Their market shares are increasing rapidly. Perhaps more worrying is the increasing link between the seed markets and the market for pesticides and other agrochemicals. The top 6 agrochem companies (which includes Monsanto and DuPont as well as secretive Swiss giant Syngenta) control 70% of the worldwide pesticide market. As more and more seeds are sold with genetic modifications that render them immune to branded pesticides, it clearly becomes harder for new entrants and smaller firms to compete effectively in either market. The result is a restiction of choice, a decrease in global biodiversity, and unnecessary added fragility to the world’s food supply.
    On a related note, there are plenty of other places where consumer choice is muted, typically through governmental influence of large corporations and other special interests. American consumers can choose between coke, pepsi, and hundreds of other soft drinks, but the preponderance of those drinks are sweetened with corn syrup because we are unable to choose to consume sugar at global price levels. Consolidation of policy-making power – by multinationals or by rich sugar growers – is in many ways a greater threat to consumers than consolidation of industries.

    Reply

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