Núria Almiron nuria.almiron@upf almiron

1. Financialization of media companies and impact on journalismFinanciarisation des entreprises médiatiques et impact sur le journalisme Núria Almiron nuria.almiron@upf.edu www.almiron.org

2. PART I Impact of financialization on media companies

3. The non-controlled hegemony of finance is the main cause of the current economic crisis Financialization Mortgage banking crash (2007 US subprimes) Whole banking system crisis (2009-) National Public Debt crisis (2010-) See it visually here

4. Corporate media Commoditization System of mass media production, distribution, ownership, and funding which is dominated by corporations (and their CEOs) Process of transforming use values into exchange values Concepts 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 instrument financial asset culture commodity

5. Financial System’s real role Financial System’s theoretical 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) To channel Financialization Savings generated by economic actors with a surplus to Subordination of industrial economy to finance capital Borrowers or economic actors with a deficit Put capital at the disposal of productive economy (allocating resources rationally) Stock market benefits Productive investment benefits

6. 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%.

7. Financialization • 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) Global GDP US$70 trillion GDP in TH US$18 trillion 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)

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

9. 2011 Salaries 27,4 M.€ = x 685 Average salary US journalist: 40.000€ 12,3 M.€ = x 256 Average salary Vivendi’s employees: 48.000€ Rupert Murdoch (News Corp’s Chairman & CEO) Lucian Grainge (Vivendi’s Director) Juan L. Cebrián (Prisa’s CEO) 4,5 M. € = x 94 Average salary Vivendi’s employees: 48.000€ Jean B. Lévy (Vivendi’s Chairman) 8,2 M.€ = x 341 Average salary Prisa’s journalists: 24.000€ 6,9 M. € = x 90 Average salary DMGT’semployees: 77.000€ Padraic M. Fallon (DMGT’s Director)

10. 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

11. 1990s–2008 • Media 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) How does financialization affect media corporations?

12. How does financialization affect media corporations?Modern finance & media: Historical Links • 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 The Fugger Family (16th C.) Quakers Community (17th-18th C.) Rothschild Family (19th C.) Reuters (19th C.) Frankfurter Allgemeine Zeitung (19th C.)

13. How does financialization affect media corporations? Market capitalization Board of directors Ownership Debt Corporate Purpose Financial tools

14. SUMMARY: What does MC mean? Thecompany is listed in stock exchange markets Consequences: top executives are driven by short-term financial market interests How does financialization affect media corporations?1. Market capitalization 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.

15. 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.

17. SUMMARY: 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 How does financialization affect media corporations?2. Board of directors Interlocking directorates & ties to financial institutions through directorates are amongst the most widely researched issues (received much attention from scholars)

18. 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 institutions • Financial shareholders' reasons for having a sit in BoD: • Increasing debt (banking businesses) • Controlling decisions (protecting ownership interests) • Controlling information flows

19. Board of directors = Chairman, CEO and Deputy CEO plus 13 directors Financial ties: direct ties (they are financial investors or representatives of financial investors) or indirect ties (through interlocking directorates or former positions)

20. Who owns listed media companies? How does financialization affect media corporations?3. Ownership • Publicly held companies typically diversify ownership • Yet, institutional investors are the dominant stockholders in them • 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: • The founding family still is the largest proprietor with a rellevant stake of control (DMGT, Mediaset) • The founding family still is the largest proprietor but without a control stake (Lagardère) • Fully controlled by institutional investors (Vivendi, Prosieben)

21. Vivendi’s shareholding structure (may 2012)

22. Lagardère’s shareholding structure (end 2011)

23. Mediaset’s shareholding structure (mid 2012)

24. ProsiebenSat’s shareholding structure (mid 2012)

25. 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)

26. What it means: Financial debt (current and non current financial liabilities) How does financialization affect media corporations?4. Debt

28. Juan Luis Cebrian (Prisa’s CEO) 2008 Extraordinary Shareholders General Meeting How does financialization affect media corporations?4. Debt “[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.”

29. 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. How does financialization affect media corporations?4. Debt

30. How does financialization affect media corporations?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.

31. Financial information & data providers How does financialization affect media corporations?5. Corporate purpose 81% of revenues from financial services 96% of revenues comes from providing financial data and financial advisory to customers Only 4% of revenues from the Media segment. 18% of DMGT’s revenues (55% of revenues from newspapers division) The same operating profit as the newspapers division

32. Financial rating services How does financialization affect media corporations?5. Corporate purpose S&P is McGraw-Hill leading segment, accounting for more than 50% of revenues (whereas information and media segment only represents 14% of revenues)

33. Finance speculation as a corporate goal How does financialization affect media corporations?5. Corporate purpose 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”

34. Financially oriented roots of corporate goals are implicit when the company have financially-oriented owners. But some time they make them explicit: How does financialization affect media corporations?5. Corporate purpose 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.

35. 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 responsibility How: 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 How does financialization affect media corporations?6. Financial Tools

36. 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 . How does financialization affect media corporations?6. Financial Tools

37. The financial economy growth (more capital flowing due to liberalization of capital markets) Media companies leveraged growth (more financial debt) The financialization paradox Corporate crisis (lay offs, cuts, asset sales, etc.) When financial crisis pops up (credit crunch due to the excess of leverage) Bankers increase they control or influence over media & Top executives… What happen to the crisis originators (bankers and media top executives)?

38. The financialization paradox: remuneration of directors

39. 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?

40. PART IIImpact of financialization on journalism

41. Levels of impact 1. News firm 2. News messages 3. Journalists

42. Financialization impact on the NEWS FIRM • Increasing concentration and financialization • Greater instability and financial risk • Deviation from its own activity • Greater distance from social responsibility criteria

43. Financialization impact on the NEWS MESSAGE • Defense of economic-financial orthodoxy • Financialization of messages • Omission of negative information

44. Financialization impact on JOURNALISTS • Censorship or self-censorship • Greater pressure/capacity to influence journalists • Inability to develop critical capacity in financial matters

45. 2008-2012 • Financialization of media is the main reason: • Media did not predict the crisis (nor raised true warnings on the risks of the financialization of economy). • 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) • 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) Financialization of media and the current crisis

46. 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 crisis

47. Discussion:MEASURES for CHANGE Policies Education Ethics

48. Bibliography • 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/