The Transnational Media Corporation

Global Messages and Free Market Competition

Richard A. Gershon

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136685514
• Edition: 1
• Topic: Languages & Linguistics
• Subtopic: Communication Studies
• Index: Languages & Linguistics

The combination of international privatization trends coupled with advancements in computer and communication technology have transformed the conduct of international business. The result has been a consolidation of players in all aspects of business, including banking, aviation, insurance, and mass media. This book discusses one such player -- the Transnational Media Corporation (TNMC). Long remembered as a time of rapid growth and expansion for international business, the decades of the '80s and '90s were a period characterized by major mergers and acquisitions. Good examples of this include Time Inc.'s 1989 merger with Warner Communication for $11.2 billion and Walt Disney's 1996 purchase of Cap Cities/ABC for $19.5 billion. According to the late Steven Ross, former co-chief executive officer of Time-Warner, "In order to succeed in business today, you must be in all the major markets of the world." TNMCs have indeed become salient features of today's global economic landscape. This volume asks the most basic of questions: What makes a global corporation global? And, to what extent do TNMCs affect the marketplace of ideas? This book, then, is intended for the business professional or student who is interested in understanding the business and operations of transnational media. Part I examines the regulatory and economic reasons prompting the formation of a TNMC. It seeks to explain why such companies engage in direct foreign investment and further considers how transnational operations affect the development of new media products in terms of cost, quality, and availability. The TNMC is unique among global corporations given the fact that its primary business is the creation of information and entertainment products. This book also examines the highly complex relationship between TNMCs and the host nations in which they operate. It further considers such specific issues as cultural trespass, transborder data flow, and the effects of transnational media on the marketplace of ideas. Part II of this volume provides a series of case study analyses of five leading TNMCs including Time-Warner Inc., Sony Inc., Bertelsmann AG, the Walt Disney Company, and News Corporation Ltd. Specific attention is given to the history, business philosophy, and economic performance of each of these companies.

I

The Transnational Media
Corporation:
Business and Economic
Considerations

1

The Transnational Media Corporation and Foreign Direct Investment

The multinational corporation is a nationally based company with overseas operations in two or more countries. It is a salient feature of today's global economic landscape. The origins of the multinational corporation can be traced back to the early 19th century.¹ However, today's multinational corporation is one of the important economic legacies of the post-World War II period. The postwar setting provided the right conditions for its rapid growth and development.²

In the decade that followed, there was a paradigmatic shift away from nationalistic economic policies of the 1930s, toward an internationally free-market economy. The shift was in large measure supported by the establishment of the World Bank and the International Monetary Fund. Both organizations were created for the purpose of making financial loans and the settlement of trade disputes more dependable. In addition, the cause of international free trade was greatly enhanced by the United States, which provided billions of dollars in financial aid and investment in the reconstruction of both allies and former enemies.³ The decade of 1950s saw the beginning of what would become a truly global economy.

Since then, the multinational corporation has become a major force in shaping the world's economy. It is the multinational corporation that has been particularly instrumental in organizing world trade as well as the allocation of resources. In describing the multinational corporation of the 1970s, Jacoby (1984) wrote:

The multinational corporation, is among other things, a private government, often richer in assets and more populous in stockholders and employees than are some of the nation states in which it carries on its business. It is simultaneously a “citizen” of several nation states, owing obedience to their laws and paying them taxes, yet having its own objectives and being responsive to a management located in a foreign nation.⁴

Vernon and Wells (1981) suggested that the multinational corporation is linked by ties of common ownership and is thus able to draw on a common set of resources, including managerial talent, financing, information systems, and patents.⁵ Roche (1992) contended that the multinational corporation is the most aggressive when it comes to employing the newest and best technology. One indication of this is the use of advanced telecommunications technology as a way to move information around the globe instantaneously.⁶ Telecommunications technology has fundamentally changed the conduct of international business trade and operations. Voice, data, and video communications using satellite and/or fiber optic transmission has virtually eliminated the time differential that once separated nations and business. Such technology allows the world to operate in real time and gives true meaning to the term global village.

THE TRANSNATIONAL MEDIA CORPORATION

Most contemporary research uses the term transnational in place of multinational. Often, the terms are used interchangeably without precise definitions and distinctions. The transnational corporation (TNC) as a system of organization represents a natural evolution beyond the multinational corporation of the 1960s and 1970s. One distinctive feature of the TNC is that strategic decision making and the allocation of resources is predicated on economic goals and efficiencies with little regard to national boundaries. Often, the national identity or (corporate center) is unknown to the general public.⁷

At the same time, very few companies operate in all markets of the world. Instead, the TNC tends to operate in preferred markets with an obvious preference (and familiarity) toward one's home market. Equally important is the fact that TNCs do not operate uniformly in their approach to business.⁸ The business strategies and corporate culture of a TNC is often a direct reflection of the person or persons who were responsible for developing the organization and its business mission. The Sony Corporation, for example, is very much a Japanese company. The company's board of directors is mostly Japanese and all strategic decision making occurs in Tokyo. Alternatively, Bertelsmann A.G. is a transnational media corporation that reflects the business philosophy and media interests of its founder, Reinhard Mohn, who believed in the importance of decentralization. Yet, when it comes to test marketing a new product or service, Bertelsmann will usually conduct the first set of tests in its native Germany before introducing it internationally.

The problem of divergent goals between multinational corporations and host governments has long been the subject of analysis. Nowhere is the problem of divergent goals more apparent than in the area of mass media products and services. What distinguishes the transnational media corporation (TNMC) from other types of TNCs is that the principle commodity being sold is information and entertainment. Yet, the financial imperatives that drive TNMCs are not always compatible with the political and economic objectives of the host nation. At issue is the control over the international marketplace of ideas, challenges to national sovereignty, the potential loss of national culture, and technological and product dependency. Bagdikian (1991) argued that in the United States alone, 23 corporations control most of the business of daily newspapers, magazines, television, books, and motion pictures.⁹

The decade of the 1980s saw the world's economy become more fully privatized. Current trends in privatization and free market economies have led to an international consolidation of media companies. The trend toward consolidation has begun to emerge worldwide. According to the late Steven Ross, former co-chief executive officer, Time Warner: “In order to succeed in business today, you must be in all the major markets of the world.”¹⁰ Similarly, the late Robert Maxwell fully expected to be 1 of 10 TMNCs responsible for the majority of worldwide news and entertainment. In a 1987 interview, Maxwell stated, “I expect to be one often surviving global publishing companies. Once you understand that, you understand what I've been driving at.”¹¹

This chapter considers the reasons prompting the formation of TNMCs as well as the reasons for engaging in foreign direct investment (FDI). Special attention is given to five leading TNMCs including Time Warner Inc., Sony Inc., Bertelsmann A.G., The Walt Disney Company, and News Corporation Ltd.

THE PURPOSE OF A GLOBAL MEDIA STRATEGY

Foreign Direct Investment

Foreign Direct Investment (FDI) refers to the ownership of a company in a foreign country. This includes the control of assets. As part of its commitment, the investing company will transfer some of its managerial, financial, and technical expertise to the foreign-owned company.¹² Most major corporations become foreign direct investors through a process of gradual evolution rather than by deliberate choice. Later, as pressures arise from various international operations, the company begins to recognize the need for a more comprehensive global strategy.¹³ Historically, the TNMC began as a company very strong in one or two areas. Bertelsmann A.G. began as a mail-order book distributor, whereas Time Inc. (prior to its merger with Warner) was in the business of magazines and pay cable television.

The decision to invest abroad can be a risky proposition because the TNC is subject to the laws and regulations of the host country. It is vulnerable to any future changes in the host country's politics and policies. Dymsza (1984) wrote that FDI can only occur if the host country is perceived to be politically stable, provides sufficient economic investment opportunities, and has business regulations considered to be reasonable.¹⁴ In short, the opportunities for FDI in mass media are strongly correlated to the level of openness in which the host country operates. This is most likely to occur in western democracies with stable governments.

The TNMC engages in FDI for many of the same reasons that other TNCs do.¹⁵ When considering the TNMC, in particular, five reasons can be cited:

1. Proprietary assets and natural resources.

2. Foreign market penetration.

3. Production and distribution efficiencies.

4. Overcoming regulatory barriers to entry.

5. Empire building.

Proprietary Assets and Natural Resources

Some TNCs invest abroad for the purpose of obtaining specific proprietary assets and natural resources. The ownership of talent or specialized expertise can be considered a type of proprietary asset. Sony Corporation's purchase of CBS Records in 1988 and Columbia Pictures in 1989 has made the company a formidable player in music and entertainment. The Sony Corporation purchased proprietary assets in the form of exclusive contracts with some of the world's leading musicians and entertainers. The company also holds the copyrights to various music recordings and films.

The company's 1975 introduction of its Betamax vidéocassette recorders underscored the point that hardware design was not enough to ensure consumer acceptance.¹⁶ The Sony Corporation firmly believes that ownership of music and entertainment will provide the company with greater leverage in promoting its technical business. One indication of this is Sony's entry in...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• About the Author
• Preface
• I The Transnational Media Corporation: Business and Economic Considerations
• II Transnational Media: The Players
• Postscript
• Author Index
• Subject Index