Technology and content companies are scrambling to grow and consolidate, claiming that this is the recipe for survival in the media landscape wrought by the new Goliaths — Facebook, Google, Apple and Amazon.com — which have themselves used mergers and acquisitions to grow ever larger.
[Jeffrey P. Bezos, who is founder and chief executive of Amazon, owns The Washington Post.]
For the past 18 months, AT&T has been hoping to imitate its new media rivals and amalgamate with Time Warner. A federal judge recently approved their merger, but the Justice Department appealed the decision. As we await the outcome of that process, it’s worth taking a moment to remember the lessons of the first vertically consolidated media monopoly, which arose in the early 1880s under Jay Gould, the robber baron who owned both the “media” — newspapers — and the “technology” — domestic and international telegraphy.
There are similarities between Gilded Age America of the late-19th century and the United States today. In the past, the country was divided along economic, ethnic and racial lines. The majority of people distrusted and resented corporations and the wealthy one-percenters who controlled them, technological advancement changed life at breakneck speed, and enterprising entrepreneurs made constant headlines.
But instead of the likes of today’s Bezos and Mark Zuckerberg, in the mid-1880s, it was Gould and John Mackay. Their exploits teach us that the United States must be zealous in regulating these ever-growing corporate behemoths, lest American consumers be left at the whims of media moguls — some of whom will keep the public interest in mind, but others of whom will freely harm the public to make a buck.
Gould rose from obscurity with nearly two decades of ruthless Wall Street buccaneering and corporate speculation, often operating outside moral bounds in a fashion that made him the most hated and feared man in the United States. In February 1881, Gould seized control of Western Union, the company that controlled nearly 90 percent of the domestic telegraph business in the United States. Gould then held sway over an empire built on three interconnected pillars: railroads, newspapers and the telegraph.
Rival businessmen panicked. They were certain Gould read their private dispatches, employed code-breakers to unravel their ciphers and delayed information flows so he could read news before anyone else.
Newspapers lived in particular terror of Gould’s clout. Their business depended on stories cabled home by far-flung correspondents. By delaying, misrouting or losing their traffic, Gould could crush them entirely. Compounding their agonies, newspapers had no choice but to pay the exorbitant rates charged by Gould’s Western Union.
Thanks to their reliance on his companies, lily-livered newspapers refused to publish anything inimical to Gould’s interests — and with good reason. Broadsheets with more courage spoke out in favor of telegraph reform, and suddenly stopped receiving timely communications. Gould exercised his power at every opportunity.
And many Americans came to see Gould’s far-reaching influence in politics, the courts, communications and the media as a threat to democracy itself. The public reeled as courts handed down a seemingly endless succession of Gould-corrupted decisions.
As soon as Gould got control of Western Union, he started laying two transatlantic cables to connect Europe to North America, which, combined with Western Union’s near-total dominance of domestic telegraphy, forced the other existing transatlantic cable companies to join a Gould-controlled “pool” — a cartel — in the spring of 1882 that doubled rates from 25 to 50 cents per word and divided the traffic. They all earned higher profits on lower volumes, making more money for less work. And, it goes without saying, doing great harm to the public.
But government at neither the state nor federal level had the tools to challenge Gould’s willful disregard of the public interests. A federal regulatory state didn’t exist. Court decisions and rampant corruption hamstrung state and local governments.
Things looked bleak, but Gould’s gouging had put him on a collision course with Mackay, an Irish immigrant who’d grown up in New York City’s Five Points slum and risen to success in the dangerous gold and silver mines of the Comstock Lode beneath Virginia City, Nev. On his way up, Mackay used skillful maneuvering, underground knowledge and a huge quantity of hard work to become one of the richest and most admired men in the world.
Mackay had grown appalled at the huge sums he hemorrhaged on transatlantic communications — either with his Paris-based family when he was on business in the United States, or with his U.S.-based business interests when he was visiting his family in Europe. Thinking his pharaonic wealth obligated him to do some special service on behalf of his adopted country, Mackay decided to attack Gould’s telegraph monopoly.
To have any chance of success, Mackay needed access to a domestic distribution network. In the summer of 1883, he took control of the foundering Postal Telegraph Co., one of the few small telegraph companies independent of Western Union. With Mackay at the helm, Postal expanded its network, slashed rates and swiftly morphed into a credible and expanding rival of the “Western Union anaconda.”
Mackay struck the crucial blow against Gould’s transatlantic monopoly by building and laying two new transatlantic cables, at incredible cost. They went into service on Christmas Day, 1884.
Mackay’s challenge to Gould captivated the nation. In an interview in the Carson Morning Appeal, Mackay promised that people could do business with him with confidence, without fear that he’d sell out and give Gould the opportunity to “revenge himself” upon his former customers.
Gould counterattacked with every means within his power, some of them legitimate, others of more dubious morality. Mackay fought back with good service and initially lower rates. Gould attempted to induce Mackay to join his pool and raise rates to 60 cents per word. Mackay steadfastly refused.
When Gould cut prices to 12 cents per word to run Mackay out of business, Mackay refused to match the cuts. Instead, he ordered Commercial Cable’s word-rate cut to 25 cents and unleashed a barrage of publicity explaining that the new pool prices, which were far below the cost of transmission, were Gould’s efforts to eliminate competition. “The existence of an independent and competitive Atlantic cable service” was at stake, announced Commercial, “and our patrons must now pronounce for or against its maintenance.”
In essence, Mackay bet three years of effort and millions of dollars of invested capital on the public’s faith in his good name and in their belief in the benefits of competition.
The Cable War lasted five years, but in the end, Mackay won this war of trust. He’d earned his fortune in the dangerous, violent world of mining, and unlike Gould, no one begrudged him his success. The U.S. public felt he’d won an honest living from an honest day’s work.
In an era largely devoid of government regulations, only a war of Gilded Age millionaires could break a pernicious monopoly and advance the public interest. Not until President Theodore Roosevelt led a trustbusting charge in the early years of the 20th century did the American people establish a regulatory framework that checked the abusive power of the corporate monopolies that had arisen in railroads, oil, manufacturing, beef, sugar, tobacco and other industries.
With the recent flurry of merger activity from not just AT&T and Time Warner, but also Comcast, Disney, 21st Century Fox and others, it seems technology and content companies believe the old rules of regulation in the United States no longer apply. But without those regulations, will a deep-pocketed businessman such as Mackay appear to police and break a modern-day media monopoly? Most likely not. So here’s hoping the public remembers the vital role that communication, media and privacy play in a democracy — and why having fewer choices and higher prices is bad for everyone.