Mergers: marry in haste, repent at your leisure

SO, we are told, mergers are the answer. The landscape of the British media industry should no longer be shaped by old-fashioned rules taking a narrow and nationalistic view of the world.

Companies should have the freedom to get together; they should have the freedom to acquire; they should be aware that their shareholders will have the freedom to accept takeover bids from wherever they may come.

A parody? Yes, but only just. When Culture Secretary Tessa Jowell last week unveiled the Government's draft Communications Bill, she was, in essence, saying that the market should be allowed to decide the ownership of the British media. Yes, there will continue to be restrictions on ownership, but far fewer than before - and fewer than any media watchers had expected ahead of the Bill's publication.

Clearly, media companies should be allowed to gobble up one another and thus become ever-more efficient and powerful, shouldn't they? Well, shouldn't they?

Just look at recent history. Two years ago, media mergers were the in-thing. America Online (AOL) tied the knot with Time Warner. Vivendi did the same with Seagram. Companies such as these, we were told, were going to be the all-conquering giants of the global industry. They were the way forward. The laughable notion that any serious player in the media industry might confine itself to just one medium was, well, terribly 20th Century, terribly old-fashioned.

Fast forward to last month. We saw Vivendi announce a loss of $17bn (rather more than £10bn). AOL Time Warner went several better with a loss of $54bn. And these losses, remember, were just for the first quarter.

Mergers such as those that created AOL Time Warner and Vivendi Universal are at the extreme end of the scale. First, they were enormous. And second, each tried in its own way to demonstrate that the conventional divisions between different media should be broken down. The creation of AOL Time Warner, we were told, created a company that could exploit old media content through new media distribution channels. Seagram and Vivendi tried to bridge the divide between Europe and North America.

So were these particular mergers special cases? Not really. Despite their scale, the outcomes of both demonstrate that shareholders should be deeply, deeply sceptical when managements of companies in general and media companies in particular insist that mergers will inevitably reap benefits.

The publication of last week's draft Bill was enough to whip scores of investment bankers into a frenzy as they dreamed up ever more elaborate combinations and permutations that might be allowed under the new rules.

There may be good arguments why British broadcasters will fare better under foreign ownership than they do at present. Electronic media may become more efficient if owned by newspaper groups. But let those arguments at least be properly tested rather than simply accepted as natural truths.

A couple of further points. It is remarkable that in the flurry of recent speculation, so few people have looked at the idea of engineering tie-ups between cable companies and Granada and/or Carlton.

Second, it is now conventional wisdom that Granada and Carlton will merge. Certainly, Ms Jowell thinks they should be allowed to. It is still unclear that competition authorities will take quite so kindly a view.

Listen to the delicate, Scots tones of Granada boss Charles Allen as he explains that ITV advertising should be seen not as a discrete market, but as simply one of several media available to advertisers. He sounds almost persuasive. He points out that ITV accounts for only 17% of all advertising.

True as far as it goes. But more important, Granada and Carlton account for nearly 70% of television advertising. Surely, the ITV companies will still have to cope with a great deal of cross-questioning from competition authorities before they are finally allowed to tie the knot.