Financialization of media companies and impact on journalism Financiarisation des entreprises...

Financialization of media companies and impact on

journalism

Financiarisation des entreprises médiatiques

et impact sur le journalisme

Núria [email protected]

PART I Impact of financialization on media companies

Financialization

The non-controlled hegemony of finance is the main cause of the current economic crisis

Mortgage banking crash

(2007 US subprimes)

Whole banking

system crisis(2009-) National

Public Debt crisis

(2010-)See it visually here

Concepts

Commoditization

Process of transforming use values into exchange

values

Corporate mediaSystem of mass media

production, distribution, ownership, and funding which is dominated by

corporations (and their CEOs)

Financialization• Pattern of accumulation in which profit making occurs

increasingly through financial channels rather than through trade and commodity production

• Financial logics dominate over industrial/productive logics

• Attempting to reduce all value that is exchanged (whether tangible, intangible, future or present promises, etc.) either into a financial instrument or a derivative of a financial instrumentculture commodity financial asset

Financialization

Financial System’s theoretical role

To channel

Savings generated by economic actors with a surplus

Borrowers or economic actors with a deficit

Put capital at the disposal of productive economy

(allocating resources rationally)

Financial System’s real role

Money creation (fictitious capital)

(financial entities loan more money than they receive in deposit since they only

need a minimum of reserves in deposit to satisfy the routine demand of cash

payments)

Subordination of industrial economy to

finance capital

to

Productive investment benefits

Stock market benefits

Financialization

HOW TO READ THIS GRAPH: In 1975, about 80 percent of foreign exchange transactions (where one national currency is exchanged for another) were to conduct business in the real economy. The remaining 20 percent of transactions in 1975 were speculative, which means that the sole purpose was an expected profit from buying and selling currencies themselves, based on their changing values. Today, speculative economy is 98%.

Example 1: Foreign exchange transactions

Financialization

Example 2: Tax Havens (offshore financial centres)

HOW TO READ THIS GRAPH: According to the International Monetary Fund (IMF), the current total amount of assets and debt in Tax Havens is around 18 Trillion $ (a quarter of the total global Gross Domestic Product in 2011)

Global GDPUS$70 trillion

GDP in THUS$18 trillion

What is a TH:

• Nil or only nominal taxes

• Protection of personal financial information

• Lack of transparency in the operation of the legislative, legal or administrative provisions

TH & Financialization:

• Interconnected

• Finance liberalization pushed for TH creation and TH increases financialization

(GDP: Gross Domestic Product)

How much higher should be the salary of the top executive of a media corporation compared to the salary of a plain reporter?

CEO

Journalist

Juan L. Cebrián (Prisa’s CEO)

2011 Salaries

8,2 M.€ = x 341Average salary Prisa’s journalists: 24.000€

Jean B. Lévy (Vivendi’s Chairman) 4,5 M. € = x 94Average salary Vivendi’s employees: 48.000€

Lucian Grainge (Vivendi’s Director) 12,3 M.€ = x 256Average salary Vivendi’s employees: 48.000€

Padraic M. Fallon (DMGT’s Director) 6,9 M. € = x 90Average salary DMGT’semployees: 77.000€

Rupert Murdoch (News Corp’s Chairman & CEO)

27,4 M.€ = x 685Average salary US journalist: 40.000€

How is that possible?Because of Variable compensations:•Bonuses•Other incentives (meeting perfomance targets)•Contributions (pension, medical insurance plans, etc.)•Stock options

What are variable compensations relate to? Mainly to financial outcome (shares performance, stock exchange)

Financialization is at the root of the problem

How does financialization affect media corporations?

1990s–2008Media sector as a very attractive asset for investors

due to:

•DEREGULATION, LIBERALIZATION and CONCENTRATION in the communication markets

•EMERGENCE of NEW MARKETS and BUSSINESES (digitalization, media convergence)

•ACCESS to cheap credit (growth bubble)

LINKS Between media and banking system: origins tightly tied• Late 15th/16th Centuries: private and state postal networks created

• First elite to have direct access: merchants, diplomats, nobles, bankers (merchant bankers)

• Newsletters among well-known trading and banking families began to cross frontiers regularly


Modern finance & media: Historical Links

The Fugger Family (16th C.)

Quakers Community (17th-18th C.)

Rothschild Family (19th C.)

Reuters (19th C.)

Frankfurter Allgemeine Zeitung (19th C.)


1. Market capitalization2. Board of directors3. Ownership4. Debt5. Corporate Purpose6. Financial tools


1. Market capitalization

SUMMARY:

What does MC mean? The company is listed in stock exchange markets

Consequences: top executives are driven by short-term financial market interests

Case of study: US newspaper companies

WHAT HAPPENS: Stock-market pressures increase the emphasis placed on revenue, margins, profits, and share price.

RESULTS: lean staffing, low salaries, low efficiency, orientation to advertisers’ preferences, and definition of audience in terms of market and advertising aims.

CONCLUSION: newspaper companies are only looking at shareholders’ interests, not at public or social responsibilities and interests.

Example: Findings for U.S. newspapers companiesTaking Stock. Journalism and the Publicly Traded Newspaper Company (Cranberg, Bezanson, &

Soloski, 2001) (Revisited in 2005)

• Ownership of publicly traded newspaper firms was widely distributed in highly competitive and liquid financial markets whose interests were primarily financial and short-termed;

• the stock market dictated the behaviour of the companies at all levels of the organization;

• ownership was in the hands of investors not interested at all in the quality of news provided by the firms but in financial returns;

• investors were mainly concerned with revenues, margins, profitability, and stock performance;

• publicly traded newspaper firms had created a reward system for executives that assured that policies, decisions, and corporate behaviour conformed to the demands of the security markets;

• board and executive compensations were closely tied to the financial performance of the companies;

• publishers, editors, and other key members of newspapers were often compensated through bonuses and stock options;

• corporate control over newspapers was rarely focused on news content but on financial performance;

• the main aim of newspaper firms wasn’t circulation but revenue growth and margin;

• the most important short-term strategy for increasing margins was cutting costs (i.e., cutting personnel) regardless of the effect of this on the quality of news content.

Most of the world top media companies are listed companies

North America EuropeTime WarnerWalt DisneyNews CorpComcastCBS Thompson ReutersViacomGannet CompanyMcGraw-HillThe Washington Post CompanyThe News York Times CompanyThe McClatchy Company

France: Vivendi, Lagardère, TF1 Italy: Mediaset, RCS MediagroupSpain: Prisa, Vocento, Telecinco, Antena 3 TVGermany: RTL, ProsiebenSat, Axel SpringerThe Netherlands: Reed Elsevière (+UK), Wolters KluwerFinland: Sanoma OyjUK: Daily Mail and General Trust, ITVIreland: Independent News & MediaNorway: Schibsted


2. Board of directorsSUMMARY:

The composition of the Boards of directors of large media companies is financialized

What does it mean? Members of BoD are coming mainly from the banking and investment communities as well as from industry, and few of them have journalistic experience

Interlocking directorates &

ties to financial institutions through

directorates

are amongst the most widely researched issues (received much attention

from scholars)

MAIN FINDINGS

Most of the studies on interlocking directorates have shown that in all capitalistic economies financial institutions occupy central positions in boards of directors and have key influence

Many authors support the Theory of Bank or finance control:•financial institutions seek to profit from debt financing, which leads bank-controlled companies to carry heavy debt loads

•This is a non-imposed control, since nonfinancial companies have been actively seeking a vertical interlock with financial institutions to ensure easier access to capital

Having representatives from financial institutions on companies’ Boards not only increases debt-financing, but also protects the ownership interests of the financial institutionsFinancial shareholders' reasons for having a sit in BoD:1.Increasing debt (banking businesses)2.Controlling decisions (protecting ownership interests)3.Controlling information flows

The case of Grupo Prisa in 2012

Board of directors = Chairman, CEO and Deputy CEO plus 13 directors

Proprietary Directors

6 (4 of these with financial ties)

Independent Directors

7 (5 of these with financial ties)

AS A RESULT: 70% (9 up to 13) have

financial ties)

Financial ties:direct ties (they are financial investors or representatives of financial investors) or indirect ties (through interlocking directorates or former positions)


3. Ownership

Who owns listed media companies?

1. Publicly held companies typically diversify ownership

2. Yet, institutional investors are the dominant stockholders in them

3. Institutional investors are mainly financially-driven investors (investment and commercial banks, private equity firms, insurance companies, mutual funds, securitization companies, venture capital firms, etc.)

Types of shareholding structure in listed companies:

1. The founding family still is the largest proprietor with a rellevant stake of control (DMGT, Mediaset)2. The founding family still is the largest proprietor but without a control stake (Lagardère)3. Fully controlled by institutional investors (Vivendi, Prosieben)

Vivendi’s shareholding structure (may 2012)

Lagardère’s shareholding structure (end 2011)

Mediaset’s shareholding structure (mid 2012)

ProsiebenSat’s shareholding structure (mid 2012)

RCS’s shareholding structure (mid 2012)

77% of which (46,4% of total stock) is owned by financial institutions (mainly banking and insurance companies)

The largest shareholder is Mediobanca Spa (14,9% of shares)


4. Debt

What it means: Financial debt (current and non current financial liabilities)

TOP 15 EUROPEAN MEDIA GROUPS IN 2011

Group

Milions of €

Staff Quoted OriginTurnover / Var. in % vs 2007

Net Income /

Var. in % vs 2007

Financial Debt

(1)

Solvency ratio (2)

Vivendi 30,198 / 39% 2,681 / 2% 15,181 34.90 58,400 Yes FranceBertelsmann 16,040 / -5% 612 / 51% 4,612 33.88 99,948 No GermanyLagardère 8,069 / -11% -707 / – 2,006 33.03 26,744 Yes FranceReed Elsevier 7,208 / 15% 916 / -

44%5,116 19.10 30,600

YesUK

Mediaset 4,351 / 6% 289 / -58%

1,945 45.86 6,113Yes

Italy

Wolters Kluwer 3,556 / 5% 287 / -11%

2,522 24.87 18,237 Yes Netherland

Bonnier 3,441 / 50% 79 /-24% 688 31.49 10,238 No SwedenAxel Springer 3,265 / 22% 289 / - 853 46.11 12,885 Yes GermanySanoma Oyj 2,891 / -4% 86 / -65% 1,444 35.22 14,471 Yes FinlandProSiebenSat 2,766 / 1% 644 /

570%2,763 28.64 4,258 Yes Germany

Prisa 2,724 / -25% -395 / - 3,703 28.15 13,159 Yes SpainITV 2,557 / -10% 296 / 57% 1,100 27.70 3,958 Yes UKDMGT 2,295 / -28% 147 / -16% 995 5.64 15,157 Yes UKRCS Media Group

2,122 / -25% -335 / - 1,038 25.24 5,932 Yes Italy

Schibsted 2,000 / 24% 374 / 44% 332 42.44 7,500 Yes NorwaySource: Amadeus (1) Financial debt encompasses current and non current financial liabilities.(2) The solvency ratio measures the size of a company's after-tax income, excluding non-cash depreciation expenses, as compared to the firm's total debt obligations. It provides a measurement of how likely a company will be to continue meeting its debt obligations. A solvency ratio of greater than 20% is considered financially healthy.


4. Debt

Juan Luis Cebrian (Prisa’s CEO)2008 Extraordinary Shareholders General Meeting

“[The group has more than trebled its size since it went public] without any effort from its own funds, in the midst of a climate of abundant and cheap money, in which financial institutions were queuing in front of firms’ headquarters inciting them to incur in more and more loans at interest rates that were practically negative.”


4. Debt

Some of Prisa’s creditor banks (La Caixa, Banco Santander, HSBC) have agreed to buy a percentage of Prisa collectively through a

debt capitalization. When the operation is executed, in two years they will become shareholders

of reference.


5. Corporate purpose

Are media owners just devoted to media business?In many cases they are not, they have a diversified business.

But diversification doesn’t just mean industrial diversification.

Many media giants have integrated participation in the financial markets as a main regular activity, thus becoming financial actors in the financial arena.



Financial information & data providers

18% of DMGT’s revenues (55% of

revenues from newspapers division)

The same operating profit as the

newspapers division

96% of revenues comes from providing

financial data and financial advisory to

customers

Only 4% of revenues from the Media

segment.

81% of revenues from financial

services



Financial rating services

S&P is McGraw-Hill leading segment,

accounting for more than 50% of revenues (whereas information and media segment

only represents 14% of revenues)



Finance speculation as a corporate goal

Article 2 section f of Grupo Prisa bylaws declares as one of its corporate

purposes:

“Intervention in the capital and money market through the management of

capitals, the purchase and sale of fixed or variable-yield titles or of any other

kind, on its own”



Financially oriented roots of corporate goals are implicit when the company have financially-oriented owners. But some time they make them explicit:

Univision, SEC Fillings 2008 Form-10K, p.21 (financially-oriented owners are named here “Sponsors”):

We are controlled by the Sponsors, whose interests may not be aligned with ours or yours

We are controlled by the Sponsors, and therefore they have the power to control our affairs and policies, including entering into mergers, sales of substantially all of our assets and other extraordinary transactions as well as decisions to issue shares, declare dividends, pay advisory fees and make other decisions, and they may have an interests in our doing so. The interests of the Sponsors could conflict with your interests in material respects. Furthermore, the Sponsors are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us, as well as businesses that represent major customers of our businesses. The Sponsors may also pursue acquisition opportunities that may be complementary to our businesses, and as a result, those acquisition opportunities may not be available to us. So long as the Sponsors continue to own a significant amount of our outstanding capital stock, they will continue to be able to strongly influence or effectively control our decisions.


6. Financial Tools

Main tools used:

1. Financialization of labor

How: through financialized compensation practices such as stock options, salary bonuses and pension funds

Reason: alignment of the interests of media executives with those of shareholders and obtaining higher returns

Consequence: top executives focus mainly on profits and stock returns and higher risks (pension funds)

2. Financialization of corporate responsibilityHow: use of offshore financial centres

Reason: to benefit from non or low-tax charges on returns and from almost no information obligations

Consequence: media companies fail in fulfilling their corporate responsibility


6. Financial Tools

The use of offshore financial centres is one of the main signs of corporate embedding within financial logics and structures in all major industries.

•In the US more than 50% of publicly traded corporations (and almost all of the top-ranked ones) are incorporated in Delaware.

•A large number of US media subsidiaries are incorporated in European corporate havens, such as The Netherlands or Luxembourg or in Singapore, in Asia. And European and Asian subsidiaries in US are usually incorporated in Delaware.

•One of the controlling shareholders of ProsiebenSat, Permira, has its parent holding registered in the Island of Guernsey.

•Prisa case of study (1999-2004): wide use of harmful tax practices. Subsidiaries located in Delaware, Panama and Florida, for activities in North and South America, and in Andorra, Luxembourg and The Netherlands, for nonresident corporate activities in Europe.

•One of the top media companies in Spain, Imagina, had its parent holding registered in The Netherlands until recently .

The financialization paradox

Bankers increase they control or influence over

media &Top executives…

The financial economy growth

(more capital flowing due to

liberalization of capital markets)

Media companiesleveraged growth

(more financial debt)

When financial crisis pops up

(credit crunch due to the excess of

leverage)

Corporate crisis (lay offs, cuts,

asset sales, etc.)

What happen to the crisis

originators (bankers and

media top executives)?

The financialization paradox: remuneration of directors

Discussion

• How large should corporate earnings, profits and boards compensations be?

• Should media companies be listed?

• Should there be more restrictive regulation preventing media financialization? Is that possible in a context of global financial capitalism?

PART IIImpact of

financialization on journalism

Levels of impact

1. News firm

2. News messages

3. Journalists

Financialization impact on the NEWS FIRM

1. Increasing concentration and financialization

2. Greater instability and financial risk

3. Deviation from its own activity

4. Greater distance from social responsibility criteria

Financialization impact on the NEWS MESSAGE

1. Defense of economic-financial orthodoxy

2. Financialization of messages

3. Omission of negative information

Financialization impact on JOURNALISTS

1. Censorship or self-censorship

2. Greater pressure/capacity to influence journalists

3. Inability to develop critical capacity in financial matters

Financialization of media and the current crisis

Financialization of media is the main reason:

1. Media did not predict the crisis (nor raised true warnings on the risks of the financialization of economy).

2. Media contributed to the economical euphoria before the crisis (did not hep unveil the wheel/leverage recurrent invention fraud, but have had a crucial role in supporting speculative escalations and moods, reinforcing the notion that euphoric moments are well within the norm of successful contemporary capitalism and that the rewards of speculation can be something durable and sane)

3. Media did not understand the gravity of the crisis until very recently:

Kaufmann: “the media was neither a passive bystander nor the main contributor to the crisis, but instead it may have been an abettor of sorts — one which did not help in mitigating the depth and cost of the crisis once underway.” (2009)

2008-2012

4. Media ignored economists who did predict the crisis and focused on mainstream economists who failed to foreseen it

5. Media are repeating the same role in today’s scenario of recession (they are not seriously critically questioning convention, that is, solutions imposed by the political and financial elites in the face of financial troubles)

6. In general terms media have not helped combat the loss of our financial memory. This loss includes (Galbraith, 1993):

• that episodes of mass insanity are recurrent in financial capitalism;

• that the main problem is the association of money and intelligence, money being the measure of capitalist achievement; the more money, the greater the intelligence that allegedly supports it;

• the creation of debt as a recurrent financial “innovation”.

Financialization of media and the current crisis2008-2012

Discussion:MEASURES for CHANGE

Policies

Education

Ethics

Books

•Almiron, Núria (2010): Journalism in crisis. Corporate media and Financialization. Cresskill, NJ: Hampton Press.•Chomsky, Noam (1999): Profit Over People. Neoliberalism and Global Order. New York: Seven Stories Press.•Felber, Christian (2012): La economía del bien común. Barcelona: Deusto.•Galbraith, John K. (1993): A Short History of Financial Euphoria. New York: Viking Penguin•Galbraith, John K. (2004): The Economics of Innocent Fraud: Truth for Our Time. Boston: Houghton Mifflin.•McChesney, Robert W. & Pickard, Victor (2012): Will the Last Reporter Please Turn out the Lights: The Collapse of Journalism and What Can Be Done To Fix It. New York: The New Press.•Otte, Max (2010): El crash de la información. Los mecanismos de la desinformación cotidiana. Barcelona: Ariel.•Ramonet, Ignacio (2011): L'Explosion du journalisme : Des médias de masse à la masse de médias. Paris: Galilée.•Schiffrin, André (2010): Words & Money. London: Verso.

Articles

•Almiron, Núria & Hdez. Vigueras, Juan (2007): “Per una política responsible contra els paradisos fiscals”. Barcelona: Nous Horitzons 2007 Award.•Fuchs, Christian & Mosco, Vincent (eds.) (2012): “The importance of Marxist theory and research for Critical Communication Studies today”. In TripleC – Open Access Journal for a Global Sustainable Information Society 10 (2).•Miège, Bernard (ccord.)(2005): “La concentration dans les industries de contenu”. Reseaux, vo 23, issue 131, Paris: Lavoisier•Save Heaven Reports (2012): “Three Words Economists Should learn to Say”. In http://www.safehavenreports.com/what-economists-should-say.•The Kaufmann Governance Post (2009): “Financial Crisis and the Media: Capture, Culture and Incentives, or lack of training?” In http://thekaufmannpost.net/financial-crisis-and-the-media-capture-culture-and-incentives-or-lack-of-training/

Bibliography

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