Entry and growth of basic cable programming networks: An industry and policy analysis

This dissertation consists of three interrelated studies on economic and policy issues in the multichannel video programming market in the United States. The first empirical study examines the determinants of the post-entry economic performance of start-up cable programming networks in terms of the speed of growth of their market penetration rates and of the time taken for them to reach the break-even point. Important questions asked are: Do start-up cable networks experience different post-entry performances? If they do, what are the characteristics of start-up cable networks which differentiate their post-entry performance? The second empirical study examines the factors influencing cable system operators' cable network carriage decisions. In particular, this section of the study tests the reciprocal carriage hypothesis, which predicts that vertically integrated cable system operators tend to favor each other's affiliated cable networks over cable networks that are not affiliated with any cable system operators. While the possibility of such collusive network carriage decisions is a major economic rationale behind the FCC's cable system ownership cap, no systematic study has been undertaken to determine the validity of the hypothesis. The third part of the dissertation conducts a policy study about on-going controversies over the government regulation on the horizontal size of a cable system operator. This study identifies economic arguments for and against a cable system ownership cap and evaluates these arguments with the tools of economic and policy analysis. The analysis suggests that government has good reasons to worry about excessive ownership concentration among cable system operators. Without any limit on the size of a cable system operators, highly concentrated cable system operators would not only have sufficient market power to impede the flow of programming in the MPPD market, but also have economic incentives to exercise their market power. In addition, this study attempts to evaluate the present remedies for the problems associated with excessive cable system concentration and to propose some alternative remedies for these problems.