Discovery Channel to leave Silver Spring, Maryland

Over the past year, Aaron Renn, writing in his Urbanophile blog, had two posts that I found particularly provocative (in a good way) but I haven't gotten around to reacting. 

One was more recent, "St. Louis and the Consequences of Consolidation," discussing corporate "consolidation" and the impact of corporate mergers, distant control of the corporation, and the eventual impact on support services.

His example was Anheuser Busch, the nation's number one beer producer, based in St. Louis, but now owned by an international brewing behemoth based in Europe and South America. 

Historically, companies like A-B or General Motors were large enough to have key services such as advertising development and media buying provided locally, albeit by divisions of larger firms located in the nation's advertising capital--New York City, whereas most other companies would go to New York (or Chicago) more directly for this work.

(St. Louis has lost many locally significant businesses through corporate consolidation, such as Boatman's Bank, now part of Bank of America, May Company department stores, now part of Macy's, and increasingly, Anheuser-Busch, with a major negative impact resulting on the business district in Downtown St. Louis.)

The acquisition of Anheuser-Busch is an example of how business is now organized on international terms without respect to national boundaries, and even companies that are huge within their markets can not avoid or evade the merger and consolidation process as business is reorganized on a global basis.

A-B, acquired in 2008, took until 2017 to shift its advertising accounts to New York City, costing a number of highly paid St. Louis-based jobs as a result. 

Aaron discusses this in terms of consolidation and was reacting to a 2016 Washington Monthly article, "The Real Reason Middle America Should Be Angry," which makes the argument that lack of adequate anti-trust regulation against corporate mergers led to this kind of result.

Personally, I think the WM argument is weak because as long as companies are stock-based, the pressure from investors, especially large institutional investors and hedge funds agitating for maximized returns ("The Effects of Hedge Fund Interventions on Strategic Firm Behavior," Harvard Law School Forum on Corporate Governance and Financial Regulation) is to make more money and that comes from bigness and consolidation.

Although it must be noted that because extranormal business growth is unattainable in mature markets, profit margins are mostly increased by "efficiency gains" that come through layoffs and consolidation of production. This is true especially for businesses in countries like the U.S. where the days of hyper-growth are decades in the past. Moreover, as countries like China accelerate the growth of their economies especially in consumer-focused industries, those firms are now the hyper-growth actors and increasingly operating on an international basis.

In college, I came across a couple books, Human Scale by Kirkpatrick Sale, and The Bigness Complex: Industry, Labor, and Government in the American Economy by Walter Adams which had a lot of influence on my thinking about these issues, but the reality is that the organization of the capitalist system and a focus on "efficiency" leads this process and anti-trust regulation is more likely to result in the crippling of smaller companies.

Being from the Detroit area myself, I had witnessed a similar type of activity dating to the 1970s, in how the control of the city's advertising and media businesses (other than locally focused media) and banks especially, was shifting out of the region, in particular to Chicago, because a primarily one industry town wasn't big enough to generate its own momentum in the support of business-related "service" economy.

So this process isn't new to me.  It's the basis of agglomeration economies and the benefits of clustering.  What has happened is that as businesses grow and operate on a national or global/international basis, where they purchase services changes, from locally-owned or based businesses, to national centers.

This is the same effect as with the difference between locally-owned retail and national chains.  Chains don't purchase products or services locally, so the "multiplier effect" or the economic and business-to-business recirculation benefits from consumer spending are significantly reduced compared to purchases made at locally owned businesses ("The Multiplier Effect of Local Independent Businesses," AMIBA).

This comes up locally with yesterday's announcement ("Discovery Communications to exit Silver Spring," Washington Business Journal) that Discovery Channel, a large cable network, alongside their merger with Scripps Media, owner of channels such as HGTV, Travel Channel, and Food Network, is shifting its corporate headquarters to the nation's media capital--New York City--and most of its back office and production functions to Knoxville, Tennessee, where the Scripps operation is based.

Hurts Montgomery County, especially Silver Spring's office market.  This is a blow to Montgomery County, Maryland and the conurbation of Silver Spring, which loses one of three major business headquarters located there (the others being United Therapeutics and a federal agency, NOAA), 1,500 jobs directly, and likely more than double that in terms of indirect jobs.

It makes the capture of office jobs in Silver Spring even more difficult as suburban office space demand is shrinking ("Report: No Recovery in Sight for Parts of Montgomery County Office Market," Bethesda Magazine).

For whatever reason, Bethesda has been more successful ("Marriott to move headquarters to downtown Bethesda with $62 million in incentives," Washington Post) than Silver Spring in continuing to capture new headquarters, as companies shift to transit-adjacent locations away from the office parks.

Diminishes the DC area's relevance as a media production center, excepting television news.  Interestingly, both Detroit and Washington have functioned as secondary media production centers for a long time.  For Detroit, this came out of the business videos produced for the auto industry.  For Washington, it derived from the various television news operations for national networks and station groups.

And like with how MCI, the long distance telecommunications firm, located in the DC area because of access to regulatory agencies, a handful of television operations (PBS) and cable networks (BET, Discovery Channel, C-SPAN, Learning Channel later acquired by Discovery, etc.) developed here out of a similar proximity, including to the National Cable Television Association and the National Association of Broadcasters, industry trade associations and lobbying organizations.

But as these companies become relevant on a larger scale, nationally and/or internationally, local agglomeration economies are less valuable, and the businesses relocate.  This happened with BET already ("BET Shutters Washington, D.C., Office as Operations Move to New York," Hollywood Reporter) and now Discovery.  Plus, control of the National Geographic Channel shifts to Disney from Fox, etc.

How realistic is it for a ban (anti-trust regulation) of corporate mergers to occur, to staunch this kind of relocation? I'd say, not very.