An Example and a Question

I got an email yesterday that demonstrates quite well just how badly capitalism is broken in the US these days.

It seems that DirecTV and Viacom are in a bit of a snit over renewing their contract. Not a big surprise, negotiating contracts in the entertainment business is hardly a new thing and those negotiations going public is also a common tactic. It’s even common to see cases such as this where the renewal of the contract was scheduled years in advance. Apparently long enough in advance to build web pages, produce videos, coordinate mass mailings but not long enough to actually negotiate a contract.

In this case, both companies have decided to use the same negotiation tactic. Their goal of negotiating a better deal has resulted in their joint customers not getting products that they paid for. And both mega corporations are, rather than apologizing for their incompetence at negotiating a business deal and providing less service than their customers paid for, are appealing to the customers they’re no longer serving – but are still charging – to lobby the other party to back down in the negotiation.

Let’s look at the parties involved.

Viacom

Viacom is one of the very few – depending on how you measure things, one of only four or five – corporations that provide television programming to the satellite and cable distribution channels. As a TV producer they follow the traditional broadcast model and run their channels with advertising. That advertising is their real business. They sell viewers’ eyeballs to companies and that is how they make a living and cover the costs of production. The distribution of their programming is a cost of doing business and if they find a way to turn that cost into a profit center, that’s gravy.

DirecTV

DirecTV is one of generally three or four outlets for television in the various communities they market in – the others being Dish, a local cable monopoly and possibly a fiber-optic provider like FiOS. They distribute product somebody else produces and charge their customers for the distribution pipe.

FCC

The Federal Communications Commission is charged with regulating all radio frequency transmission inside the US and all businesses that use radio frequency transmission. Needless to say, satellite rebroadcasting falls under the category of radio frequency transmission.

FTC

The Federal Trade Commission is charged with regulating interstate commerce inside the United States. Now it is fair to say that a television program produced in Los Angeles, sold to a packaging network based in New York City and owned by a conglomerate in Massachusetts, transferred to a transmission center in Ohio owned by a distribution company in El Segundo, California, transmitted to a satellite in geosynchronous orbit and received by an earth station in Washington state is the epitome of Interstate Commerce.

The Real Problem

The key problem here is precisely what has been happening to commerce in the United States since the “Reagan Revolution” changed how corporations see their mission. The same thing that turned Gordon Gecko from a villain to a model for a presidential candidate.

Both Viacom and DirecTV have Directors and Executives that rightly see their mission as doing what’s best for the stakeholders in their respective corporations.

That’s not the problem

The problem is that they’ve forgotten two key things:

  1. There are many stakeholders in a corporation. There are shareholders, employees, customers, business partners and the communities they serve including the nation they are based in just to hit the top level. Both of these corporations have key decision makers who have forgotten all the stakeholders but the shareholders.
  2. There are many things needed to do “what’s best” for the stakeholders. They’ve forgotten that even for the narrow range of stakeholders they’ve not ignored, the long term health of the business is a much higher priority than the shortest term return on investment for the trading bots that buy and sell their stock every few milliseconds that the markets are open.

Both of these corporation have, apparently decided that harming their customers is not even something to be avoided but is merely a tactic that can be used to help their short term negotiating position. They’ve shown that they think their customer is no longer the person consuming their product but is the institutional investment group driving their stock price.

The FCC and FTC

Now, why did I spend time talking about the FCC and FTC? Simple. The purpose of government oversight is to prevent predatory behavior between businesses from harming the public. In this case, however, the regulatory commissions are not doing their job.

Capitalism

And how is this a failure of capitalism? After all, most people think that “Capitalism” is a system of unregulated competition between businesses unfettered by government. And they’re totally wrong. Period. Most people have as little understanding of Adam Smith as they do of Karl Marx. Smith felt and publicly stated in The Wealth of Nations that the key to Capitalism is a level competitive marketplace and that the role of government must include regulating the marketplace to keep it level and to prevent those with power from misusing that power. And if you haven’t actually read Smith, please stop using him to back up what you believe. To say Smith believed in unregulated trade is as silly as saying Jesus supports your war.

Even beyond the question of unregulated markets, we’re dealing with a distribution system that is, and always has been, a licensed use of a public resource. There is not now, nor has there ever been an unregulated use of radio frequencies. To broadcast inside the US has always been a privilege that you only were able to use by agreeing to the terms of the FCC. DirecTV knows that. Their negotiation team knows that. Viacom knows that. The FCC and FTC know that.

Which brings us to:

The Question.

Why are neither of these corporations  testifying in hearings before Congress, the FCC and the FTC to determine whether they should be disbanded for misuse of a licensed government trust?

Let’s see if we ever get an answer to that question. I’m not holding my breath – but I AM looking online at the shows Viacom and DirecTV think they’re using to blackmail me.

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