Page 111 - Critical Political Economy of the Media

90 Critical investigations in political economy

US newspapers in the late nineteenth century. There is no necessary connection
between horizontal expansion and market concentration. However, when a firm
attempts to secure as large a market share as possible the usual, ‘successful’ outcome
is greater concentration. Vertical integration refers to the acquisition or control of
companies in different stages of the ‘value chain’ leading from production to
circulation, sales and consumption. Again, the process is not new. The Hollywood
studio system in the 1920s is the classic example, notable also as a system dis-
mantled in part through regulatory pressure when the US Supreme Court ruled in
1948 that the studios must give up their exhibition operations, and then subse-
quently reconstructed from the 1970s (Schatz 1997; Miller et al. 2005). However,
vertical integration was a leading feature of changes in corporate organisation and
business strategy from the 1980s. Older terms such as ‘diagonal’, ‘multisectoral’
indicate patterns of integration across product sectors as firms diversify into new
businesses, but such industry-based distinctions are becoming less tenable with
accelerating convergence. All the major multimedia corporations are vertically
and horizontally integrated and pursue diversification to occupy strategic posi-
tions across platforms and services. BSkyB, part owned by 21st Century Fox,
produces audiovisual content and sells ‘triple-play’ bundles of phone, TV and
broadband subscriptions. Games companies such as Sony, EA and Nintendo
have invested heavily in online and mobile platforms, and diversified revenues
through micro sales transactions and advergaming (in-game advertising).

Corporate synergy

Achieving economies of scope has been another important driver of corporate
merger activity. This took various forms including the integration of hardware
manufacturers and software operations (Negus 1997). Another form was integration
of telecoms and IT companies with media businesses involved in content creation,
exemplified by the merger, but effectively acquisition, of Time Warner by AOL.
Such economies usually arise ‘when there are some shared overheads or other
efficiency gains available that make it more cost effective for two or more related
products to be produced and sold jointly, rather than separately’ (Doyle 2002b:
14). Savings can be made if the creative and other inputs gathered to make one
product can be re-used in another (repurposing). In addition, product and brand
extensions can increase the scope for profits. The Scandinavian Broadcasting
System (SBS), for instance, cut production costs through the simultaneous
production of a variety of programming formats targeted at different national
markets (Iosifides et al. 2005: 84). The US-owned SBS broadcasting group,
based in Luxembourg, has expanded from its Nordic market base and now
controls channels in Northern and South-Eastern Europe. Firms use other means
to achieve scope benefits including licences, alliances and joint agreements. Where
first copy costs are high, there are incentives to sell the product or associated
products in as many formats or ‘windows’ of opportunity as possible. This
underlies the dynamics of branding and merchandising and the more recent