Oligopoly Watch
The latest manuevers of the new oligopolies and what they mean



Subscribe to "Oligopoly Watch" in Radio UserLand.

Click to see the XML version of this web page.

Click here to send an email to the editor of this weblog.



  Tuesday, April 15, 2003

The real Ben and Jerry's story

Two big trends we've noted in the new oligopolies:

  1. they buy up successful new startups with innovative ideas
  2. they offer a "pseudo-choice," that is, a way to buy their product while
    thinking your are protesting against multinationals or being more
    sophisticated than other shoppers.

Ben and Jerry's ice cream is a case in point. The socially-conscious,
enlightened-management Vermont-based company started having growth-related
problems in the late nineties. The company had been too successful and
the "hippie" founders had tired of running an increasingly complex

Four multinational corporate suitors appeared: ´They were:

  • Anglo/Dutch Unilever, in its vast variety of brands, manufacturer in the
    U.S. of Breyer's and Good Humor brand ice creams
  • Swiss Nestlé, which is a major ice cream maker in Europe
  • British Diageo, which is the current owner of the brand most competitive
    to Ben and Jerry's, Haagen Dasz
  • German/Italian Roncadin which is a major European ice cream maker.

By the year 2000, Unilever (a $45 billion multinational) was the winner,
buying the company for $326 million. all kinds of promises were made, but
Unilever has already taken a firm hand, putting a new CEO, a Unilever
veteran, in place, and ambitiously pushing the Ben and
Jerry's brand

The idea is that organic, eco-active image of the brand will translate
into a European market where organics are growing rapidly. To that end,
Unilever has maintained the funky, privately-held image, barely mentioning
the parent company on the company's home page. It's also continued
contributions to socially conscious causes. But internally, decisions are
being made as in any other division of a big company by people who think
like Unilever. For example, layoffs are in the air as Unilever tries to reduce overall staffing.  And payments to Vermont dairy farmers are elss genberous than they used to be. Gone too is the idea of making executive compensation have some tie to ssembly-line worker pay,

But the illusion of independence works. The average shopper still thinks
that by passing the Breyer's and picking up a pin of Cherry Garcia is a
act of social defiance. This is so much the case, that recently some
right-wing activists started their own premium ice cream business to much
flag-waving hoopla. Called Star Spangled Ice Cream, it proposes to donate
10% of its earning to conservative causes. as a reaction against the
policies of Ben and Jerry's. Perhaps they are hoping Unilever will buy
them out too, so you can vote any way you ant at the freezer case, as long
as its Unilever.

7:47:02 PM    comment []

  Monday, April 14, 2003

Apple or Microsoft to buy Universal Music Group from Vivendi?

Rumors that both Apple and.Microsoft are talking to Vivendi about buying off that company's Universal Music Group (UMG) hit the markets today. Apple is said to be offering between $5 and $6 billion for the division. Vivendi, the French water company turned media mogul, is under pressure to sell off its media assets, on which it has been leaking big money. Other media assets include movie and TV studios (Universal), theme parks, TV networks (USA and French Canal +), and game software (it's number two in PC games in the world).

UMG is the largest of the Big Five recording companies, with a 23.5% share of the market and over $6.5 billion in sales. It includes such labels as Universal, Decca, Mercury, Verve, Deutsche Grammophon, MCA, Motown and many others. It also owns the largest music publishing company in the world, with the rights to over a million songs.

Why does either company want to get into the recording business, a hot potato that others (MCA, Vivendi, Seagrams) have dropped? That business is in crisis, and neither computer company has the expertise to make the company really work. What I think both are interested in are two pieces: digital distribution rights, and, especially for Microsoft, the song collection. But without these pieces, the rest of UMG is worth very little. It's hard to imagine a full takeover, but either Apple or Microsoft may buy the remaining company and quickly spin off pieces. It's hard to imagine either company doing war on the charts and the shelves of music stores while developing new artists and coddling Eminem and Nelly. It's too much of a culture clash; but then again, presidents of big companies tend to get a thrill out of "owning" artists and reading about themselves in Hollywood news. After all, that's how Vivendi got in trouble in the first place.

8:49:43 PM    comment []

  Sunday, April 13, 2003

Barnes & Noble stocking its own books

Barnes and Noble, which along with Border's dominates the retail book industry, announced recently that it was going to issue a new line of classic books, which will compete with Penguin's Classics (Pearson PLC) and Modern Library (Bertelsmann). This expands an already existing collection of books published and sold by the retailer. Over 100 new titles are expected by next summer.

According to sources, 4% of Barnes and Noble's sales come from books it publishes itself. The company also bought last winter Sterling Books, a publisher of how-to books. It clearly hopes to knock up that percentage.

This strategy is in parallel with those of other oligopolies. Chains like Wal-Mart and Safeway sell their own house brands in competition with those of Kraft and Coca Cola. Dell Computer just announced that it will sell its own-brand printers (manufactured by Lexmark). .More and more, TV networks are producing the shows that they put on the air. The potential profits are high with no middlemen, the marketing costs are low, and the shelf space is assured, at least if a profit can be made.

Barnes and Noble CEO Steve Riggio is quoted as saying that the market for classic books is tens of millions of dollars.

He is also reportedly said "This isn't about replacing other books, it's about adding ,and getting our customers interested in the classics." Sorry Mr. Riggio, you know that retail is a zero-sum game. If your books get on the shelves, others will have to go. You are not planning add to add a new wing to each of your stores, are you?

5:08:37 PM    comment []

  Thursday, April 10, 2003

Fox acquires DirecTV

Under the guise of "increas[ing] competition in the cable markets and promote better services to U.S. customers," News Corp. (Fox) has just bought controlling interest in Hughes Electronics, owner of DirecTV. The $6.6 billion dollar deal takes U.S. satellite TV leader DirecTV out of the hands of a non-media parent (General Motors, which owned Hughes). This now solidifies the power of the Fox Entertainment Group, giving it ownership of one of the means of distribution as well as many of the goods (in the form of TV networks and programs) distributed.

DirecTV ended last year with over 11 million subscribers. The only U.S. pay-TV company that is larger is a cable company, Comcast, with some 23 million subscribers. Fox can combine it with its satellite TV operations in Europe, Asia , Australia,and Latin America.

Fox/News Corp., like many of its competitors is following a strategy of vertical integration. It is developing broadcast and cable networks, producing programs, and now owns one of the major pipes for distributing content in North America. That puts Fox in a position of power at every level of the television industry, Short-term, the reaction on Wall Street has been very negative. After all, the example of AOL Time Warner is an object lesson in how such seeming synergy can fail. But it's clear that news Corp. management believes that the long-term advantages are considerable, as the battle between a decreasing handful of media giants heats up.

One predicted bonus will be the launching of new Fox networks. One commentator already noticed that DirecTV agreed to carry the Fox-owned TV Guide Channel shortly before the buy-out was announced. As Fox develops new channels, something it has done steadily over the last ten years, it has at least one sure venue for trying them out. Another move might be the widespread availability of interactive TV, with which Fox has had major success abroad. Only by owning the programs and a delivery medium can interactive TV really work. (For example, the ability of the viewer to choose camera angles at a sporting event from his remote control.)

One final hurdle is the regulators. But in this case, there is little worry. The FCC seems almost too happy to allow for concentrations of media ownership. Plus, Fox has endeared itself to the Bush Administration through its cheerleading news coverage.

9:09:08 PM    comment []

  Wednesday, April 09, 2003

Oligopolies and Oligopsonies

An oligopoly occurs when there are only a few sellers in the market. An oligopsony (it’s a technical term from economics) happens when are only a few buyers in the market. As oligopolies grow, so do oligopsonies.

We’ve already mentioned a major oligopsony, the limited number of national book chains. Basically, the success or failure of any book depends on how it does at Borders, Barnes & Nobles, and Amazon. Other bookstores hardly matter. Needless to say, this puts those companies (that "buy books") in a very strong bargaining position in relation to book publishers. Those three can dictate terms and determine rates.

The potato market works similarly. The biggest buyer of potatoes in the world (through middlemen) is McDonalds, followed by Burger King and Wendy’s. There are other buyers of course, but these three determine the overall demand, the type of potato wanted, the price they’ll be willing to pay, and the time of delivery. The rest of the market, is by comparison, small potatoes.

Similarly all food manufacturers are increasingly being bossed around by an oligopsony of supermarkets. Whatever Wal-Mart, Kroger, Safeway and a few others demand, you’d better supply, whether it is fees, onsite help, co-op advertising. This set of expectations shows up the weakness of small producers, who don’t have the resources to meet these requirements, or to go toe-to-toe with the biggest chains.

The best way to counter an oligopsony is with an oligopoly. Proctor and Gamble or Unilever can, to some extent, stand up against Wal-Mart or Walgreen’s. Smaller companies haven’t a chance. And by the same token, oligopsonies are formed to fight the power of oligopolies. Safeway can interact as a peer with Nestle or Kraft, while the local grocery market cannot.

Most oligopsonies are in turn oligopolies. The big chains are oligopsonies with regard to the manufacturers, but oligopolies to the customers. The cable operators are becoming an oligopsony to the oligopoly of TV channel owners’ to their subscribers, they’re local monopolies. National radio chains like ClearChannel and Viacom operate the same way.

Of course, not all industries are in the hands of two or three major players. But in almost every imaginable industry, there are fewer players than there were ten years ago. Industries that had 10 major players now have six, those that had six now have three leading firms.

8:57:48 PM    comment []

 Oligopoly and the market

In the ideal free-market economy of our politicians, every product has an equal chance to make it big. But in the real world, entrenched forces combat equal opportunity. The market in most sectors is not a democracy but an oligopoly. Even the Internet, which was supposed to "change all that" is in danger of becoming still another tool that mostly enhances the power of the oligopolies that rule major markets.

In many developed market sectors, two or three players now command over 75% of the total market. Just as Coke, Pepsi, and Cadbury-Schweppes dominate soft drinks, so too so Budweiser, Miller, and Coors share the American beer market, while Nabisco, Keebler and Pepperidge Farms are the masters the cookie industry. (Typically enough, Sunshine Bakeries which used to be number three, was acquired by Keebler in 1996. Keebler in turn was acquired by Kellogg in 2000. Nabisco is a division of Kraft/Philip Morris and Pepperidge Farm is owned by relatively minor player Campbell.)

This tendency toward oligopoly is accelerating, as fewer and fewer companies grapple to control the limited mind space. In the book industry, historically an arena of many small and mid-sized competitors , there are now far fewer major players, both on the production and distribution side. A few large conglomerates (Bertelsmann, The News Corporation, Viacom, and, until it recently pulled out of the book business, Time-Warner) publish most leading titles, and a few chains (Barnes & Nobles and Borders) dominate retail sales, along with online shopkeeper Amazon. This state of affairs has been brought about by a series of mergers, acquisitions, and bankruptcies over the past thirty years.

In the same way, there are far fewer major recording studios than twenty years ago; fewer and fewer movie chains and movie studios. As for magazines, they are dominated by just a half dozen companies -- Conde Nast, Time-Warner, News Corporation, Hearst, Hachette Filipacchi and Bertelsmann.

There are exceptions, true, but even in many relatively de-centralized businesses, such as hospitals, hotels or commercial printing, the trend to consolidation has unmistakable. For example, the funeral home industry used to be the quintessentially local, owner-operated business, but is now dominated by three large chains who quietly bought up many Catholic, Protestant, and Jewish funeral homes in various municipalities, so that, in many case, one of them has become the dominant player in many local markets. Commercial printing was likewise a highly fragmented market with many thousands of local family businesses, but consolidation over the past decade is gradually changing that picture as publicly held corporations buy them out or run them out of business. These national companies have the stature to get serious mind space among potential customers nationwide.

8:51:50 PM    comment []

Click here to visit the Radio UserLand website. © Copyright 2003 Steve Hannaford.
Last update: 4/15/03; 7:50:23 PM.

April 2003
Sun Mon Tue Wed Thu Fri Sat
    1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30      
Mar   May