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Vertical integration and the must carry rules in the cable television industry: An empirical analysis
Unformatted Document Text:  Must carry rules 13 One necessary condition for an anticompetitive explanation for non-carriage is that cable systems with higher penetration rates tend to drop more broadcast stations (Vita, 1997). This is because carriage denials in these high penetration markets could foreclose a larger chunk of a market to an affected station without incurring much subscription loss to a cable system. T his is particularly true if the high penetration markets are those smaller ones with fewer over-the-air television stations or the ones where there are significant reception problems with respect to local broadcast stations. In these markets, the demand for cable television is relatively inelastic. Therefore, a positive effect of SYSPENE would be consistent with an anticompetitive rational for carriage denial. Therefore, a positive effect of SYSSHARE on DROP is consistent with an anticompetitive explanation for carriage denials. 20 CAP and MILE are cost variables. Greater channel capacity and more plant miles mean less marginal cost in signal carriage and other system operations. This should lead to the carriage of more channels, local and cable. Findings of positive effects of these variables, contrary to the predictions here, would be consistent with an anticompetitive theory of local carriage denials. The effect of cable system age (AGE_C) is ambiguous. Older systems may be more efficient and carry more channels, but they may also have smaller channel capacity if have not been renovated, leading to the carriage of few stations. One important factor influencing a cable operator’s local carriage decision is how many people like to watch broadcast stations compared to cable networks. If cable network programs were relatively more popular than broadcast fare in one ADI versus 20 However, it can also be argued that lower carriage of local stations in high cable penetration markets simply reflects cable subscribers’ preference for cable services, but at least a negative effect of SYSPENE would not be consistent with an anticompetitive rational for local carriage denial

Authors: Yan, Zhaoxu.
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Must carry rules
13
One necessary condition for an anticompetitive explanation for non-carriage is
that cable systems with higher penetration rates tend to drop more broadcast stations
(Vita, 1997). This is because carriage denials in these high penetration markets could
foreclose a larger chunk of a market to an affected station without incurring much
subscription loss to a cable system. T his is particularly true if the high penetration
markets are those smaller ones with fewer over-the-air television stations or the ones
where there are significant reception problems with respect to local broadcast stations. In
these markets, the demand for cable television is relatively inelastic. Therefore, a positive
effect of SYSPENE would be consistent with an anticompetitive rational for carriage
denial. Therefore, a positive effect of SYSSHARE on DROP is consistent with an
anticompetitive explanation for carriage denials.
20
CAP and MILE are cost variables. Greater channel capacity and more plant miles
mean less marginal cost in signal carriage and other system operations. This should lead
to the carriage of more channels, local and cable. Findings of positive effects of these
variables, contrary to the predictions here, would be consistent with an anticompetitive
theory of local carriage denials. The effect of cable system age (AGE_C) is ambiguous.
Older systems may be more efficient and carry more channels, but they may also have
smaller channel capacity if have not been renovated, leading to the carriage of few
stations.
One
important factor influencing a cable operator’s local carriage decision is how
many people like to watch broadcast stations compared to cable networks. If cable
network programs were relatively more popular than broadcast fare in one ADI versus
20
However, it can also be argued that lower carriage of local stations in high cable penetration markets
simply reflects cable subscribers’ preference for cable services, but at least a negative effect of SYSPENE
would not be consistent with an anticompetitive rational for local carriage denial


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