Merger mania fuelled by hope and greed

Merger mania in the red-hot media sector is fired in equal parts by hubris and lucre. Media moguls, their ambitions greased by too much money and their imaginations fired by dreams of market dominance, are intent on placing their bets early in what many believe will be a brutal fight for supremacy.

But the mergers to date this year, far from proving that the outsized egos that dominate the US media industry have got it right, may mark a high point in wishful thinking. There is too little loose talk about "synergy" and "critical mass" and not enough about consumer choice.

Most of the deals to date share some characteristics. They are fuelled by a widespread faith in the power of vertical integration - in the need, that is, to own both content (films, books, information) and distribution networks (television networks, cable systems), or at least to develop close alliances between content providers and "carriers".

Likewise, the deals are all being consummated at outlandish prices. In the case of Disney's record-breaking offer for ABC, the price-tag looks particularly rich given that the US network may be at the very top of the advertising cycle right now, and profits from the core broadcasting operations are likely to be more modest in the future, certainly by 1997. Disney boss Michael Eisner is betting that the "synergies" between content king Disney (films, cartoon characters and merchandising items galore) and a major national network will be enough to leverage earnings higher.

While the mega-deals do have some common features, there are some key variations in the thinking of the companies involved. Westinghouse and Seagram, for example, are both looking to buy their way into the big leagues of entertainment. Industrial and consumers goods giant Westinghouse, which has some important local television stations, is essentially a conservative manufacturing company. By buying CBS, it immediately becomes owner of one of the US Big Three Networks, still responsible for a 40 per cent share of the national television audience even in the highly fragmented US market.

Seagram, for its part, has spent $7bn on 80 per cent of ailing MCA, owner of Hollywood studio Universal. The Canadian drinks company's chief executive, Edgar Bronfman Jr, likes to talk about how much Seagram knows about "distribution" and how it can help the film and music giant find its way again. The uncharitable will believe that Mr Bronfman's well-known love of the film business may have had more to do with the deal than any underlying strategic logic.

With all the cash washing around the media business, the question must be asked - what will the future look like, and what sort of company is likely to do best?

Disney, a huge "content provider", obviously believes it needs better distribution arms to be able to shift "goods" (music, TV programmes and films, primarily) more effectively. Time Warner and Disney also appear to believe that size (and volume production) will be as important as range and quality.

More level-headed observers might reach a different conclusion. If the future of the "information highway" is all about choice, then the best business to be in is the generation of content. No matter what the distribution network (cable, TV, even the telephone line, as MCI, in its link with News Corporation, appears to believe), the high-quality offerings ought to sell.

By the same token, distribution experts might concentrate their efforts on making their chosen "pipeline" the best one available, selling capacity to anybody with a product to push.

Trying to do both might appeal to the ego, but does it really appeal to common sense?