Tuesday, September 27, 2005

Academic Research Confirms--and Undercuts-- FCC Media Regulation, Deregulation

I spent last weekend at the Research Conference on Communication, Information and Internet Policy (better known by its organizer’s initials, TPRC) held at George Mason University Law School outside Washington. It was kicked off with a session featuring a rather heated discussion between two former FCC chairmen, Richard Wiley (from the Nixon era) and Reed Hundt (appointed by Pres. Clinton). Despite some substantial differences, they both agreed on Hundt’s major point, that voice telephone calling could or should be free or near free, as just one of many services available via broadband. As VoIP proliferates, that could happen. Thus the focus of policy and regulation should be on broadband, rather than on old school regulation that focused on voice or data or Life Line rates for universal service.

There were several empirical research papers relevant to media ownership regulation. Jun-Seok Kang, a graduate student at Indiana University, was the top of the class in the student paper competition with “Reciprocal Carriage of Vertically Integrated Cable Networks.” His work was specifically addressing the FCC requirement that cable system owners are restricted to systems covering 30 percent of the national market. This was designed to limit their power over unaffiliated cable network providers who might be competing with the cable operator’s own cable networks offering similar programming. For example, his model says that an integrated cable operator A will take cable operator B’s news channels in the “hope” that cable operator B will carry cable operator A’s sports channel. His conclusion, rather overwhelming me in mathematical notation that made my eyes glaze, “suggests” (as they say in academia) that there may be something to the premise that vertically integrated cable operators are more likely to get their new cable networks picked up by other large MSOs than a similar independent network. Kang had to make many assumptions and simplify the real world to make his model work, so it doesn’t resolve anything by itself, but it does provide some empirical evidence that supports the FCC’s ownership limits.

A team of researchers from the University of Michigan also presented an empirical analysis, “Duopoly Ownership and Local Informational Programming on Television.” This study showed that in markets where one broadcast company owns two stations (usually one affiliated with a major broadcast network combined with one affiliated with a small, minor network or an independent station) the combined stations aired “significantly less local news programming than their same market non-duopoly counterparts.” The measurements were taken in 1997 and 2003. This study is important for policy because one of the arguments of the broadcasters who favored the change in FCC rules allowing duopoly was that the combination of stations would allow more resources to go to news and information. In fact there was more news in such combinations in 2003 than in 1997—but less of an increase than on the stations that were not part of duopolies. Moreover, almost all the increase was on only one of the two stations—the “major” station.

Putting aside what the broadcasters promised would happen to convince the FCC to allow duopolies, from both a business and audience perspective this would not only make sense but could be consumer friendly. Just as there is no need for three networks to simultaneously broadcast a speech by the President these days (let those who want to watch it go to CNN and let those who don’t watch their regular programs), why not beef up one station for people who like the news while freeing up the other to reach a different market niche? This could be the Steiner effect: In a 1954 economics dissertation, Peter Steiner held that a single monopolist would maximize product diversity and economic welfare in a broadcast market, because the monopolist would want to capture every single viewer, and would therefore not duplicate programming. Social welfare is therefore higher under monopoly—in this case, a duopoly-- because more viewers receive their preferred programming. But that’s a hard sell for public policy, so this Michigan study ultimately does not help the broadcasters’ arguments for allowing greater in-market mergers.

Though not by themselves proving anything, these two studies, coming as they do from non-stakeholders, do “suggest” that media industry regulation will continue to be needed, so long as it is well supported by empirical data.

(Full disclosure: I served on the Board of TPRC, Inc. – a nonprofit corporation—from 2000 to 2004 and was its chairman from 2001-2003.)

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