This study examined the degrees of product diversification of media conglomerates since the Telecommunications Act of 1996 and tested the impact of product diversification of the firms on their financial health. The strategy of related product diversification enables firms to gain market power and synergy effect, then improves financial performance. Based on that assumption, for a sample of 26 media firms from 1996 to 2002, this study conducted a regression analysis to test the hypotheses. The results showed two contradictory curvilinear models. First, revenue, EBITDA and sales growth rates revealed a U‐shaped relationship with diversification. That is, performance decreased as firms shifted from concentrated business strategies to related diversification, but performance increased as firms changed from related diversification to unrelated diversification. On the other hand, financial efficiency variables measuring management effectiveness or profitability (ROS, ROA and ROE) and stock market evaluation (earnings per share) showed an inverted U‐shape relationship. Thus, the unrelated diversification led to a decrease in financial efficiency.