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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 22 firms favor their own program services and discriminate against local stations. An unregulated cable operator chooses the program service that makes the greatest marginal contribution to the value of its channel lineup. Given the greater benefits of carrying local stations (relative to the cost), market foreclosure due to vertical integration, while possibly applicable to other cable program services, did not happen to local broadcast stations. There is another reason, as some argued, that cable firms with more interests in cable programming have more incentive to deny carrying local stations. That is, a crippled broadcast industry would increase consumer demand for cable program service and production resources going into cable programming; and cable companies with more programming interests would benefit more from this result. However, people supporting this view forget that cable programming companies also have vested interests in broadcast programming. This was true in the 1980s, and even more so now. Hence, the motivation of vertically integrated cable companies to hurt stations for programming purposes is weaker than generally thought by the must carry proponents. Other main results from the study include: 1). Horizontal concentration or bigger firm size in the cable industry had a negative effect on the carriage of local broadcast stations on cable systems. However, as mentioned before, whether these carriage denials - induced by national audience size - were anti-competitively motivated is unclear. An anticompetitive motive for carriage denial is more plausible if cable systems that dropped more stations are those larger ones at the regional level, relative to the size of a broadcast market. The study tested this hypothesis but found no significant effect resulting from regional firm size, SYSSHARE.

Authors: Yan, Zhaoxu.
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Must carry rules
22
firms favor their own program services and discriminate against local stations. An
unregulated cable operator chooses the program service that makes the greatest marginal
contribution to the value of its channel lineup. Given the greater benefits of carrying local
stations (relative to the cost), market foreclosure due to vertical integration, while
possibly applicable to other cable program services, did not happen to local broadcast
stations.
There is another reason, as some argued, that cable firms with more interests in
cable programming have more incentive to deny carrying local stations. That is, a
crippled broadcast industry would increase consumer demand for cable program service
and production resources going into cable programming; and cable companies with more
programming interests would benefit more from this result. However, people supporting
this view forget that cable programming companies also have vested interests in
broadcast programming. This was true in the 1980s, and even more so now. Hence, the
motivation of vertically integrated cable companies to hurt stations for programming
purposes is weaker than generally thought by the must carry proponents.
Other main results from the study include:
1). Horizontal concentration or bigger firm size in the cable industry had a
negative effect on the carriage of local broadcast stations on cable systems. However, as
mentioned before, whether these carriage denials - induced by national audience size -
were anti-competitively motivated is unclear. An anticompetitive motive for carriage
denial is more plausible if cable systems that dropped more stations are those larger ones
at the regional level, relative to the size of a broadcast market. The study tested this
hypothesis but found no significant effect resulting from regional firm size, SYSSHARE.


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