David Waterman

The effects of vertical integration between cable television systems and pay cable networks

Abstract Using data for 1646 cable systems, we find that vertical integration between pay cable programming networks and cable systems has substantial effects on final market outcomes. Cable systems owned by the two multiple system operators (MSOs) having majority ownership ties to four major pay networks tended to carry their affiliated networks more frequently and rival networks less frequently than did the average nonintegrated system. These systems also offered fewer pay networks in total than did the average nonintegrated system. We also find that when carriage differences are accounted for, integrated systems tended to ‘favor’ their affiliated networks with respect to pricing or other marketing behavior. The models we employ are obtained from a model selection technique involving backward elimination and the Schwarz criterion.

The Economics of American Theatrical Movie Exports: An Empirical Analysis

Consistent with predictions of an economic model of international trade in media products, we show that in countries that have relatively high consumer spending on movies-notably the United States-domestically produced movies account for relatively large shares of theater box office receipts. We also find that American-produced movies account for relatively small market shares of the box office in high movie-spending foreign countries. We also find that English language fluency, or a dummy variable for non-U.S. countries whose native language is English, generally has an insignificant or marginally significant effect on these results.

The Competitive Balance of the Italian and American Film Industries

Since the early 1970s, the box-office market shares of Italian films in Italy have greatly diminished, while the shares of American films have comparably increased. Italian films have also lost a once significant market share in the US to American films. Using an economic model of international trade in media products, we argue that one reason for the better performance of the US film industry is that the US has been relatively more successful than Italy in growing its commercially supported domestic media for exhibiting films, especially the video media of pay television and video cassettes. This accelerated domestic media development has apparently provided American producers with an economic support base for greater increases in commercial film production investment levels than Italian producers could sustain, leading in turn to relatively more plentiful and more appealing American film products.

A model of vertical integration and economies of scale in information product distribution

The author investigates theoretical conditions under which vertical integration between a retailer (such as a cable television system, newspaper, or movie theater) with local monopoly power and the...

Cable Advertising and the Future of Basic Cable Networking

Using a pooled cross section/time series data base for 18 basic cable networks over a seven‐year period, we show that limited national household reach is a major reason that cost‐per‐thousand (CPM) advertising rates for cable have remained consistently below broadcast rates. Our models thus imply that limited reach disproportionately restricts the economic potential of advertiser‐supported cable networks. The models also predict, however, that reach expansion, via DBS and other multichannel media and via digital compression technology, will disproportionately improve their viability: average cable CPMs would be well above broadcast network CPMs if household reaches were comparable. Our results also support the view that larger MSOs are able to adversely affect entry and survival of advertiser‐supported cable networks by threatening to refuse carriage.

Online Versus Offline in the United States: Are the Media Shrinking?

We find that combined revenues for 10 major media in the United States have steadily declined as a proportion of overall economic activity or gross domestic product (GDP) from 1999 to at least 2009 (the latest year for which we have complete data). For individual media, we find a generally consistent pattern in which increasing revenues from Internet distribution are exceeded by declines in revenues from established distribution channels, with the exception of television and video games, whose revenues have so far kept pace with GDP. We also report a marked overall shift from advertiser to direct payment support for the media industries over this period. We consider four possible reasons for these revenue trends: shifts in consumer media usage, reduced appropriability due to more difficult copyright protection, inadequate advertising business models, and reduced costs due to more efficient Internet distribution. Our analysis suggests we may be entering an era of a declining size of media industries in terms of conventional measures, but not necessarily a falling supply of media products themselves.

The economics of online video entertainment

Although online video entertainment dates back to the mid-1990s, its revenue models, market structure, and programming content continue to evolve. Driving these changes have been dramatic technological advances, accompanied by rapid broadband Internet adoption, from about 3 percent of households in 2000, to about two-thirds of households only a decade later, and by a growing migration of consumers from offline to online media delivery systems. In this chapter we address some broad questions about this industry to provide a framework for thinking about its economic future. Has Internet distribution of video entertainment created real economic value for consumers, relative to established ‘offline’ media? How are its market structure and revenue models evolving? How does Internet entertainment programming differ from offline media? While our answers are necessarily incomplete, patterns of market organization, income sources, programming content, and other characteristics of this industry have now emerged. For our purposes, we consider online video entertainment to be the streaming or downloading of videos to a personal computer or other Internet-connected media device. Our main focus is on professionally produced content, but user-generated video is a remarkable part of the online video entertainment landscape, and is also part of this study. We thus focus on television, movies, and similar forms of video entertainment, or what has been widely regarded as the ‘over-the-top’ (OTT) video industry.

Broadcasters vs MVPDs: economic effects of digital transition on television program supply

Although FCC policy has mostly focused on broadcasters, the digital transition of television has involved a variety of other players, notably cable television, DBS, and other multi-channel video providers (MVPDs). We assemble an historical database of consumer spending, advertising revenue and related data to argue that non-broadcast suppliers of TV programming, especially cable operators, have been able to take much greater economic advantage of the digital television transition than have broadcasters. Cable and DBS systems have used digital technology to greatly expand the amount of programming available and to more efficiently price discriminate on the basis of program quality—including the direct sale to consumers of broadcast and other HD programming. The result has been rapidly raising cable and DBS revenues since the mid-1990s, and a general shift from advertiser to direct payment support for television services. Overall, digital transition has enhanced the economic viability of cable and DBS delivery, and decreased that of broadcasting. It is evident that consumers have much higher quality and variety of programming available as a result, though usually at higher prices. In conclusion, we speculate on the effects of emerging Internet video services.

A transition for IEP

Publication of this first issue of 2008 marks the retirement of Donald M. Lamberton as Coordinating Editor of Information Economics and Policy. Don was instrumental in the founding of IEP in 1983 and has provided continuous editorial service ever since. His official role began as a Supervisory Editor in 1983 along with Roger Noll (Coordinating Editor), Ronald Braeutigam, Hiroshi Inose, John McCall, Michael Spence, Jean Voge and Christian von Weizsacker. After a period from 1989 to 1995 when IEP was the official journal of the International Telecommunications Society, Don became Coordinating Editor, a role that he filled with ability and distinction until his retirement at the end of 2007. We emphasize that this brief note no more marks the end of Don’s remarkable academic career than did the publication in 1999 of Information and Organization: A Tribute to the Work of Don Lamberton, edited by Stuart MacDonald and John Nightingale (North-Holland). More than 30 scholars besides Don, including many of the most accomplished economists in the field, built upon Don’s classic works in the economics of information and knowledge with their contributions to this volume. Yet Don has followed that honor with a continuing stream of published articles and edited books, including The Economics of Language (Edward Elgar, 2002), and Globalization, Employment and Quality of Life (I.B. Tauris/The Toda Institute for Global Peace and Policy Research, 2002). In addition to his research, Don is General Editor of Prometheus (Routledge/Taylor & Francis), and he actively supervises graduate students at Queensland University of Technology, Australian National University, and Murdoch University. Three or four years ago, under Don’s leadership, IEP began repositioning from a prevailing focus on the economics and regulation of telecommunications networks into the production, distribution, and use of information more broadly, including economics of the telecommunications, mass media, and other information industries; the economics of innovation; intellectual property; the role of information in economic development; and the role of information and IT in the functioning of markets. As the four principal editors now charged with IEP’s future, we endeavor to continue on this path and invite your contributions.