Mergers and Acquisitions in the Media Industries: Were Failures Really Unforeseeable?

Abstract

Over the last 2 decades, mergers and acquisitions (M&A) have become the most preferred strategic tool of firms in the media industry. As still claimed by analysts and managers, M&A deals are expected to generate greater economic efficiency, especially through size effects (economies of scale and scope and other synergies). However, it seems that the hopes placed in these synergies are generally disappointed. Indeed, among a sample of 11 media firms for fiscal years 1998 and 1999, it appears a firm's size and a simultaneous presence in many businesses of the media industries do not improve economic performance, nor does the possession of complementary assets. The existence of economies of scale and scope, or at least the ability of firms to implement them, has still to be proved. Inversely, the internationalization rate of firms, especially for non-U.S. firms, and their level of focus on the media industries both appear to improve economic performance. These results, based on data available when AOL Time Warner and Vivendi Universal M&A deals took place, raise the issue of the economic rationality of such mergers.