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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 2 pointed out, cable systems have in the past consistently carried the large majority of local broadcast signals available in their local markets, with or without must carry regulations. However, the government, the broadcasters and other proponents of the must carry rules have spawned the notion that these isolated non-carriage actions against broadcast stations are broadly systematic and are determined by the cable industry structure. Therefore, without regulations, the cable industry would take unjust advantage of their market power to adopt adverse carriage actions against local broadcasters. These “structural” arguments gained popularity in the 1980s as the cable industry became increasingly integrated horizontally and vertically. 4 Policy makers and the public at large worried that these structural trends in an industry that already had monopolistic control of the local multichannel video programming distribution (MVPD) market could heighten cable systems’ incentives to behave anti-competitively, such as denying carriage of certain kinds of program services (unaffiliated or otherwise competitive) on their systems. 5 The negative effects that vertical integration and/or horizontal concentration may have on program service carriage were especially troublesome to lawmakers because of the First Amendment implications involved. For example, the failure to carry local broadcast stations on cable might endanger the ability of affected broadcast stations to survive, which, by extension, would deny the access of television viewers to the programs that could be otherwise broadcast on those stations. This not only impedes fair competition in the television programming market, but also defeats governmental policies intended to foster program diversity on television. 4 Half of the nationally distributed cable networks had vertical ties with cable system owners by the end of the 1980s (FCC, 1990). The FCC also reported that the top 10 multiple system operators (MSOs) controlled 61.8% of U.S. basic cable subscribers in 1990, an increase of 12% since 1984 (FCC, 1990). 5 See Waterman & Weiss (1997, Chapter 2) for a discussion of the general social concerns and policy controversies about vertical integration and horizontal concentration.

Authors: Yan, Zhaoxu.
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Must carry rules
2
pointed out, cable systems have in the past consistently carried the large majority of local
broadcast signals available in their local markets, with or without must carry regulations.
However, the government, the broadcasters and other proponents of the must carry rules
have spawned the notion that these isolated non-carriage actions against broadcast
stations are broadly systematic and are determined by the cable industry structure.
Therefore, without regulations, the cable industry would take unjust advantage of their
market power to adopt adverse carriage actions against local broadcasters.
These “structural” arguments gained popularity in the 1980s as the cable industry
became increasingly integrated horizontally and vertically.
4
Policy makers and the public
at large worried that these structural trends in an industry that already had monopolistic
control of the local multichannel video programming distribution (MVPD) market could
heighten cable systems’ incentives to behave anti-competitively, such as denying carriage
of certain kinds of program services (unaffiliated or otherwise competitive) on their
systems.
5
The negative effects that vertical integration and/or horizontal concentration
may have on program service carriage were especially troublesome to lawmakers because
of the First Amendment implications involved. For example, the failure to carry local
broadcast stations on cable might endanger the ability of affected broadcast stations to
survive, which, by extension, would deny the access of television viewers to the
programs that could be otherwise broadcast on those stations. This not only impedes fair
competition in the television programming market, but also defeats governmental policies
intended to foster program diversity on television.
4
Half of the nationally distributed cable networks had vertical ties with cable system owners by the end of
the 1980s (FCC, 1990). The FCC also reported that the top 10 multiple system operators (MSOs) controlled
61.8% of U.S. basic cable subscribers in 1990, an increase of 12% since 1984 (FCC, 1990).
5
See Waterman & Weiss (1997, Chapter 2) for a discussion of the general social concerns and policy
controversies about vertical integration and horizontal concentration.


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