ABSTRACT
Media firms that adopt a strategy of clustering portfolio properties may hope to reduce variance in earnings by reducing systematic and idiosyncratic risk. Clustering is a form of horizontal integration because it merges firms in the same line of business that also operate in the same market. Clustering may appeal to managers hoping to extend core competencies to a newly acquired firm. Horizontal integration occurs when firms making the same product merge. A cluster of media firms exists when the horizontal acquisition involves firms that might otherwise compete because they operate in the same or in adjacent markets. Portfolio theory was developed to describe optimal diversification strategies in financial markets. An intuitive analysis suggests that creation of a cluster, which allows one firm to access audience segments previously served by competitors, might reduce the systematic risk associated with operating in a particular market. Systematic risk is measured as the covariance between market events and returns from an asset.
