opening of knesset winter session - Emil Salman -  October 31, 2011
Lawmakers attending the opening of the Knesset winter session, October 31, 2011. Photo by Emil Salman
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The very way that news is covered in Israel could be distorted by the intense concentration of Israel's media scene. That's one way to suggest that allowing big business cliques to own chunks of the press and broadcast companies could wind up gagging the press.

The domination of the media by business interests could imperil freedom of expression, warn economist Tamir Agmon and Ami Zadik, director of the Knesset's Department for Budgetary Control.

Agmon and Zadik wrote a paper - at the urging of Knesset member Einat Wilf (Atzmaut ) - analyzing the implications of economic concentration and cross-ownerships in the Israeli media. First and foremost, the two determined that the Israeli economy is relatively concentrated; much of it is controlled by a very few people. Credit in Israel is also highly concentrated, they found: Big business interests soak up most of the credit in the land. The upshot is that investment in Israeli media companies delivers relatively mean returns (by international standards ) and even leads to losses, they conclude. That in turn means that a businessman buys a media company not to make money, or for ideological gratification, but because he has another agenda to pursue, Agmon and Zadik conclude.

Their study of ownership structures in Israel's media found that some of Israel's biggest business groups also have holdings in media companies.

Four business groups - the Ofer family, the Dankner family, Mozi Wertheim and Yitzhak Tshuva - have holdings in media companies, finance companies and non-finance companies all together.

Cross-ownership in this case refers to owning shares in more than one media company - for instance, a television broadcaster and newspaper. Diagonal ownerships means that the company owns shares in a media company and other business interests.

Agmon and Zadik found the Israeli media scene is riddled with both cross-ownerships and diagonal ownerships.

"Concentrated ownerships and cross-ownerships in the media constitute a real potential danger," they write.

Cross-ownerships break down into horizontal ownership structures (owning interests in multiple media outlets, such as TV and newspapers ) and vertical ownership structures (owning interests in more than one media type - say, broadcast companies ). Israel has it all. The possible implications, say Agmon and Zadik, include skewed news coverage and suffocation of the very right to freedom of expression.

1. Stifling freedom of expression: Agmon and Zadik claim these concentrated ownership structures could narrow the range of published opinions. They could also reduce the amount of information brought to the public's attention and skew public opinion about political or commercial aspects, for the greater convenience of the media owners.

2. News coverage biased in favor of economic interests: Impairment of freedom of expression and opinions could take several forms, say Agmon and Zadik.

Attempts to shape public opinion in keeping with the controlling shareholder's interests could lead to biased coverage of the controlling shareholder's companies, for one thing. Problems with the business might get ignored, to the point of failing to cover investigations into the controlling shareholder's affairs or into businesses affiliated with the controlling shareholder. Rival businesses could be portrayed in an unflattering light.

Another upshot of tight cross-ownership could include biased reporting of processes in which the controlling shareholder has an interest, such as reporting of a reform that would constrain profitability in the controlling shareholder's area of business.

Also, a controlling shareholder might insist that other companies he owns provide production services to his media company, hurting competition in the Israeli production market, warn the two.

3. Weakening the advertising market: Another problem is that conflicts of interest arise when the owner of a big business group that spends heavily on advertising seeks to economize by advertising through its media holdings - but the media holdings want to maximize their income from advertising.

Also, cross-ownerships (holdings in multiple media companies ) can impair competition between the media companies, Agmon and Zadik say.

4. Paralytic politicians: Another bastard child of concentration in Israel's media scene is concern that politicians might become afraid to critique the business baron or his media outlets. The papers might also censor their reports based on the interests of the controlling shareholder and his political leanings.

There are a number of factors that led to a media field riddled with cross-ownerships and interests, say Agmon and Zadik.

1. The small size of the advertising market: Expenditure on advertising in Israel as a function of GDP is low, compared with other developed nations. That confers advantages of size which encourages cross-ownerships.

From 2004 to 2010 expenditure on advertising in Israel increased by 12%, while GDP increased by 44% (in nominal terms ). Expenditure on advertising fell from 0.62% of GDP in 2010 to 0.48% in 2010, which is about half the usual rate in other developed nations.

In 2010, Israel's advertising market turned over NIS 3.9 billion.

Why is expenditure on advertising so low in Israel? Zadik and Agmon list three possible reasons, one being the high level of economic concentration in the District Court. If there's little or no competition in a given sector, why waste money on advertising? A second reason is the intensely concentrated ownership of Israel's newspapers and broadcasters. A third is that the ad companies charge through the nose for their services.

Also, advertising on television costs a lot more in Israel. Big businesses can afford to advertise on national TV, but little ones can't, hampering competition even more.

As for the printed press, their revenues from advertising have been evaporating fast, which in some cases could threaten their very survival, say Agmon and Zadik.

Agmon and Zadik offer statistics to support that view: The daily press's revenues from advertising contracted from NIS 1.48 billion in 2008 to NIS 1.2 billion in 2010, a drop of 18%, all told.

2. Economic concentration, per se: The Israeli economy is relatively concentrated, which increases the probability of cross-ownerships and diagonal ownerships in the media sector.

How concentrated is it? The combined market cap of the biggest 10 business groups is 41% of the combined market cap of all the companies listed on the Tel Aviv Stock Exchange, which is more than 600. That 41% is high relative to developed nations. In Japan the commensurate figure is 3%. In Britain it's 5%, in Spain 11% and in Ireland about 15%. Israel's figure is more reminiscent of Thailand (45% ), the Philippines (50% ) and Indonesia (55% ).

3. The lending market is concentrated too: Building a media outlet takes big money, say Agmon and Zadik, which constitutes a high entry barrier. Because the loans market in Israel is so concentrated, obtaining money can be a problem for some.

As of year-end 2009, just six business groups were responsible for 25% of all bank credit to businesses.

In recent years, a brisk lending market outside the banks has developed - but there, too, much of the money goes to the same big business groups.

There is one underlying reason for the concentrated ownership of media, and that is the fact that returns on investment are so mean, Zadik and Agmon conclude. When a tycoon takes control of a media company, he isn't in it for the money or for the ideological satisfaction of building an excellent media outlet. He has another reason that may augur ill for freedom of expression.