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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 19 channels. The result here indicates that larger MSOs dropped a larger number of over- the-air television stations in order to add more cable networks to their lineups. Whether this is anti-competitively motivated, however, is unclear, because cable systems may favor carriage of cable networks over local broadcast stations if the bargaining power of the systems, conferred by their national sizes, leads to favorable deals with the cable networks. A system’s share of subscribers in its own ADI, SYSSHARE, did not affect the system’s local carriage decision. SYSPENE, a system’s penetration rate in its franchise area, was found to have a significantly negative effect on DROP ( β = -1.138, p < .05). Specifically, a 1% increase in a system’s penetration rate increases the probability of a station to be carriage by .07 or decreases the odds of a station being denied carriage by 32%, holding all other variables constant. These findings are not consistent with an anticompetitive explanation for local carriage denials. Channel capacity (CAP) had a significantly negative effect on DROP ( β = -.027, p < .01), confirming the hypothesis that great channel capacity increases the chance of a broadcast station being carried by a cable system. An additional channel in a system’s channel capacity decreased the odds of a station being dropped by the system by 2.6%, holding other variables constant. Cable system age had a significantly positive effect on DROP, indicating that older systems were more likely to drop stations ( β = .03, p < .05). This may be because some older systems had not updated their system and expanded their channel capacity. Other system-level variables, system plant miles (MILES) and household cable viewing share (SHARE_C) had no significant effect on DROP.

Authors: Yan, Zhaoxu.
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Must carry rules
19
channels. The result here indicates that larger MSOs dropped a larger number of over-
the-air television stations in order to add more cable networks to their lineups. Whether
this is anti-competitively motivated, however, is unclear, because cable systems may
favor carriage of cable networks over local broadcast stations if the bargaining power of
the systems, conferred by their national sizes, leads to favorable deals with the cable
networks.
A system’s share of subscribers in its own ADI, SYSSHARE, did not affect the
system’s local carriage decision. SYSPENE, a system’s penetration rate in its franchise
area, was found to have a significantly negative effect on DROP (
β
= -1.138, p < .05).
Specifically, a 1% increase in a system’s penetration rate increases the probability of a
station to be carriage by .07 or decreases the odds of a station being denied carriage by
32%, holding all other variables constant. These findings are not consistent with an
anticompetitive explanation for local carriage denials.
Channel
capacity
(CAP) had a significantly negative effect on DROP (
β
= -.027,
p < .01), confirming the hypothesis that great channel capacity increases the chance of a
broadcast station being carried by a cable system. An additional channel in a system’s
channel capacity decreased the odds of a station being dropped by the system by 2.6%,
holding other variables constant.
Cable system age had a significantly positive effect on DROP, indicating that
older systems were more likely to drop stations (
β
= .03, p < .05). This may be because
some older systems had not updated their system and expanded their channel capacity.
Other system-level variables, system plant miles (MILES) and household cable viewing
share (SHARE_C) had no significant effect on DROP.


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