Can democracy flourish if media ownership is limited?
The simple answer to the question is yes, assuming the type of democracy being discussed is democracy in the American sense and that the media is owned by a limited number of private entities. Granted, both assumptions are significantly speculative, but they are innately important to the answer.
American democracy is based on the concept of a republic of law. The terms democracy and republic are often used interchangeably, but, despite the fact that the boundaries between the two have noticeably dimmed over the last several decades, they are not the same constructs.
The point being, the founders of this country were extremely concerned about establishing a true democracy because it was understood that majority rule, while sounding good in theory, is the most basic element of a mob. If 20 out of 30 people believe that everyone on the block should only have white cars-or worse yet, hang someone, then democracy wins while individual liberty loses. That's not the kind of democracy anyone wants to flourish, regardless of who owns the media.
More to the point, unless the government is the one owning the media, even a small number of voices can still generate competition for ideas, and that is what has been demonstrably apparent over the last decade or so. NBC, CBS, ABC, MSNBC, CNN, and their internet components currently dominate most of the news media. Their coverage is almost identical in word and thought on most national issues even though they are owned by different entities, and they never really faced any significant opposition until the advent of FOX News Channel. Incidentally (or maybe specifically), Fox's share of the market has grown exponentially over the years. Whether you agree with the message or not, they have been quite successful.
In reality, the true strength of American democracy is its ties to the philosophy and political structures of capitalism and individual liberty. As such, even if only a handful of individuals owned all the media outlets, their message could not be uniformly dishonest or manipulative without government collusion. If the cost of running a radio or TV station was uniformly easy (or difficult for that matter) and no one received special treatment or consideration from the government, then the number of owners would be irrelevant because the content would be subject to the free market.
At the risk of mentioning another "right wing" format, conservative talk radio is a perfect example of limited ownership not affecting American democracy. On the large scale, the ownership of most conservative media outlets (Cox, Clear Channel, etc.) are owned by a relatively small number of groups, however, the content itself is highly competitive. Liberals, Moderates, Libertarians, and Conservatives all fight for the same finite number of hours during any broadcast week. The ones that rise to the top are not the ones chose by the owners of the particular broadcasting licenses because they share their philosophy. They are chose by the owners of the broadcasting outlets because they get the most market share and thus, create the highest potential for profit by selling spots to advertisers.
In reality, the crux of this question is actually aimed the particular argument for "diversity of ownership" as currently bandied about by different entities trying to get a feel for public opinion. It's an interesting slant, but it is a red herring. If 1000 different people are all given licenses to broadcast the exact same message regardless of the basic interests of the marketplace, then the first person to show up and speak a different message will win ridiculous amounts of market share almost overnight.
Limited ownership is not the problem. A limited message is. Democracy can flourish as long as the government doesn't take over control of the content of the media. Once that happens, Big Brother is in control, regardless of how diverse the ownership of the media sources might be. A uniform message controlled by the state is the true threat to democracy.