Ch 8 Foundations

1. Ch. 8 – Foundations

2. Introduction
2.1. 1980 – Majority of Americans watched television programming over-the-air
2.1.1. Only 19% of all television-viewing households subscribed to cable
2.1.2. Enjoyed a limited number of programming options
2.1.3. Major networks developed programming that appealed widely across varied tastes, political perspectives, and ethnic backgrounds
2.1.4. 3 major networks
2.2. By 2005 – Drastic shift to cable
2.2.1. 99% of all households could receive cable
2.2.2. 86% of all television-viewing households subscribed to cable or direct broadcast satellite
2.3. Two rationales for regulation
2.3.1. Services might exhibit properties of a natural monopoly
2.3.1.1. Due to cost structure
2.3.2. Implications for broadcast
2.3.2.1. Must be regulated to protect broadcast
2.4. 98% of all households have 1+ television set
2.4.1. Average household has at least 1 on 8+ hours a day (50 hours per week)
2.5. MVPD – “multichannel video programming distribution”
2.5.1. Whereas broadcast provides for mainstream audience, MVPD provides for more specified niche offerings

3. The MVPD Competitive Landscape
3.1. 108 million television-viewing households
3.1.1. 14 million over-the-air
3.1.2. 65.4 million cable
3.1.3. 26 million direct broadcast satellite
3.2. June 2002 – when passed the 50/50 mark of broadcast to MVPD
3.3. Still top programs on major networks generally have significantly higher ratings than top programs on cable
3.4. Video sales and rentals considered part of MVPD marketplace
3.4.1. 91% of all television-viewing households have a VCR
3.4.2. 75% have a DVD player
3.4.3. $24.5 billion industry – purchase and rent DVD or VHS
3.4.4. $9.4 billion industry – theaters
3.5. Echostar attempted to merge with DirectTV
3.5.1. FCC blocked the merger because it would shrink the possible MVPD choices in a given area
3.6. Comcast & AT&T merger approved
3.6.1. Because each served distinct regions and together would not limit competitive marketplace

4. Paying for Television
4.1. Broadcast is paid for by advertisers (those who want to get a message to consumers) and “free” to consumers
4.1.1. Non-rivalrous and considered a “public-good”
4.1.1.1. Non-rivalrous – one person’s consumption does not diminish another’s ability of consumption
4.1.2. Non-exludable – if one person consumes the good, it is impossible to prevent others from consuming (eg street lights)
4.1.3. No additional cost for an addition of 1 viewer
4.1.4. Mainstream audience
4.1.5. many times larger audience preferred over smaller more attractive audience
4.1.6. cost to viewers (time watching commercials)
4.1.6.1. said that many would pay extra to have commercial-free television
4.1.7. advertising increases competition in the marketplace and leads to overall lower prices
4.2. MVPD is paid for per show, per channel, per month by consumers
4.2.1. Prices serve to 1) help content providers better measure the intensity of consumer preferences 2) provide incentive to satisfy those preferences
4.2.2. Greater incentive to air niche programs that attract fewer but more enthusiastic viewers
4.2.3. Those unwilling to pay are denied access
4.2.4. Better match for view preferences

5. Why Regulate: Natural Monopoly
5.1. Natural monopoly – where cost of production is less expensive if demand provided by one firm rather than multiple
5.1.1. Higher fixed costs (eg large initial expenditures)
5.1.2. incremental costs of production (eg less cost per unit as production increases)
5.1.3. and demand variability (eg power company lowers consumer cost by sharing fixed cost of excess capacity over multiple households) – the variability of one cancels out the other
5.2. Average cost of cable television would be minimized by having a single company in any given area
5.2.1. High fixed costs (cable network layout) get distributed over more and more consumers, reducing the average price for the consumers
5.2.2. Cable long regulated as a natural monopoly
5.3. Omega Satellite Products Co v Indianapolis
5.3.1. Alternative procedure is to pick the most efficient competitor at the outset, give him a monopoly, and extract from him in exchange for a commitment to provide reasonable service at reasonable rates
5.4. Cable also interpreted as natural monopoly because the marketplace will naturally become a monopoly over time
5.4.1. Providers push and expand to consumer base to lower costs until they control an entire area

6. Why Regulate: Implications for Broadcast
6.1. 1940’s as CATV (community antenna television)
6.1.1. Benefitted both consumers and broadcasters
6.1.2. Brought tv to those who otherwise couldn’t get it
6.2. FCC always looked at cable as friend and foe
6.3. Cable example of difficulty to regulate and restrict entry when tech is changing rapidly
6.3.1. Rapid tech advances means deregulation is inevitable
6.4. “Auxillary service”
6.4.1. Obtaining multiple television services
6.5. 1959 Report and Order- FCC ruled in favor of retransmission consent (only rebroadcast a signal from a broadcast station if they give permission) and must carry rules (cable must carry signal of local broadcast stations)
6.6. 1965 – cable system must carry signals of all local stations and cable systems can’t carry distant broadcast stations in which the content is duplicated from a local station within 15 days
6.7. 1966 Second report and order – role of cable was to be that of a supplement to the over-the-air broadcast system
6.8. United States v. Southwestern cable co (1968)
6.8.1. Relyed on Communications Act
6.8.2. Supreme Court upheld the Commission’s authority to regulate cable
6.9. Fortnightly Corp v United Artists television inc (1968)
6.9.1. Lower courts ruled that cable system was liable for copyright infringement
6.9.2. Supreme Court reversed, held that the carriage of signals was closer to interest of viewers than of broadcasters
6.10. Regulations limiting feature films and sporting events to 90 % or less of total programming
6.11. 1979 – Commision’s report concluded that cable was a minor threat to the profits of broadcaster’s and their ability to perform in public interest
6.12. Home Box Office (HBO) v FCC
6.12.1. 15 consolidated cases challenged 4 orders of FCC which taken together, regulate and limit the program fare cablecasters and subscription based broadcast tv stations may offer to the public for a fee
6.12.2. Siphoning – when an event or program currently should on conventional free tv is purchased by cable operator for showing on a subscription channel
6.12.3. First amendment theory espoused in Red Lion Broadcasting Co cannot be directly applied to cable tv since preconditions of physical interference and scarcity are absent
6.12.4. As result, FCC removed all rules concerning programs that cable systems could offer for a fee, expanding cable’s ability to attract subscribers
6.12.4.1. Cable could offer programs other than those fully funded by advertising
6.12.4.2. Cable penetration and subscription rates moved steadily upward
6.12.5. As a result, HBO opinion suggested that cable operators enjoy First Amendment rights

7. Who Regulates Cable Television
7.1. Commission
7.1.1. Comm Act of 1934, FCC enjoyed authority to regulate telecommunications over wire and air, Title II and Title I respectively
7.1.2. United States v Southwestern Cable, broad view that FCC had jurisdiction over cable providers
7.1.3. Cable act of 1984, added Title VI that regulates cable television
7.2. Local Government
7.2.1. Cable operators must apply to local government to be a franchisee
7.2.1.1. Government charged costly fees
7.2.2. 1984 act
7.2.2.1. Limited local governments ability to use the threat of franchise non-renewal as a means to discipline cable franchisees
7.2.2.2. Capped franchise fee that government could charge
7.2.3. 1992 act
7.2.3.1. Prohibited government from granting exclusive franchises and unreasonably refusing to award additional competitive franchises
7.2.4. The acts together stripped power from governments ability to regulate cable rates
7.3. Other notes:
7.3.1. Leased access – make sure that cable companies do not freeze out potentially popular channels with which the cable companies are not affiliated

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