INFORMATION TO USERS This dissertation was produced from a microfilm copy of the original document. While the most advanced technological means to photograph and reproduce this document have been used, the quality is heavily dependent upon the quality of the original submitted. The following explanation of techniques is provided to help you understand markings or patterns which may appear on this reproduction. 1. The sign or “target" for pages apparently lacking from the document photographed is "Missing Page(s)". If it was possible to obtain the missing page(s) or section, they are spliced into the film along with adjacent pages. This may have necessitated cutting thru an image and duplicating adjacent pages to insure you complete continuity. 2. When an image on the film is obliterated with a large round black mark, it is an indication that the photographer suspected that the copy may have moved during exposure and thus cause a blurred image. You will find a good image of the page in the adjacent frame. 3. When a map, drawing or chart, etc., was part of the material being photographed the photographer followed a definite method in "sectioning" the material. It is customary to begin photoing at the upper left hand corner of a large sheet and to continue photoing from left to right in equal sections with a small overlap. If necessary, sectioning is continued again — beginning below the first row and continuing on until complete. 4. The majority of users indicate that the textual content is of greatest value, however, a somewhat higher quality reproduction could be made from "photographs" if essential to the understanding of the dissertation. Silver prints of "photographs" may be ordered at additional charge by writing the Order Department, giving the catalog number, title, author and specific pages you wish reproduced. University Microfiims 300 North Zeeb Road Ann Artwr. Michigan 48106 A Xerox Education Company 73-9172 SALIM, II, Michael Thomas, 1945- THE GRCWIH OF TELEVISim BROADCASTING AND STRUCTURAL ALTERATION THROUGH SUBSCRIPTION TELEVISION. The Ifiiiversity of Oklahoma, Ph.D., 1972 Economics, general University Microfilms, A Company, Ann Arbor, Michigan THIS DISSERTATION HAS BEEN MICROFILMED EXACTLY AS RECEIVED THE UNIVERSITY OF OKLAHOMA GRADUATE COLLEGE THE GROWTH OF TELEVISION BROADCASTING AND STRUCTURAL ALTERATION THROUGH SUBSCRIPTION TELEVISION A DISSERTATION SUBMITTED TO THE GRADUATE FACULTY in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY BY MICHAEL THOMAS SALIBA, II Norman, Oklahoma 1972 THE GROWTH OF TELEVISION BROADCASTING AND STRUCTURAL ALTERATION THROUGH SUBSCRIPTION TELEVISION APPROVED BY ^ r A - w o ^ DISS^TATION COMMITTEE PLEASE NOTE: Some pages may have indistinct print. Filmed as received. University Microfilms, A Xerox Education Company ACKNOWLEDGMENTS There are many to whom I owe a great deal. This study is submitted with grateful acknowledgments : To Professor James E. Hibdon, chairman of the dissertation committee, who gave me direction not only while working on this study, but also throughout my graduate program. He has been a teacher and a friend; To the other members of the committee. Professors Alexander J. Kbndonassis, Jim E. Reese, Jack L. Robinson, and Stephen Sloan, for their help; To Ronald C. Davidson for assistance in constructing the figures; And last, but not least, to ray parents, whose never ending support, both morally and financially, enabled me to reach the point that I could attempt such a study. To them I shall always be grateful. i i i TABLE OF CONTENTS Page LIST OP T A B L E S ..........................................vii CHAPTER I. INTRODUCTION .................................. 1 The Communications Act of 1934 ............. 3 The Coming of Television................... 6 Identification and Significance of the Economic Problem........................ 10 Method of Study................................ 13 Limitations of the Study ......................15 II. THE ECONOMIC GROWTH AND IMPACT OF THE COMMERCIAL TELEVISION BROADCASTING INDUSTRY . 18 Growth of Stations and Networks............... 22 Growth of Advertising.......................... 36 The Economic Impact of Television............. 49 The Impact on the Radio Industry........... 52 The Impact on the Motion Picture Industxry................................ 59 III. THE ECONOMIC STRUCTURE OF THE COMMERCIAL TELEVISION BROADCASTING INDUSTRY................. 64 The Structure of Stations and Networks . 65 Television Stations ........... 66 Television Networks........................74 History of Networks.......... 77 Economic Advantages of Affiliation . 79 Barriers to Entry: Television Stations . 81 Barriers to Entry: Television Networks . i v Page CHAPTER III. (Continued) Regulatory Efforts to Diversify Programing . 90 Efforts to Increase Competition ........ 91 Increasing the Number of Stations via UHF Development............ 91 History of the UHF Problem...... 93 Obstacles to the Growth of UHF Television.................. 97 Proposals to E^^and UHF Television. 98 UHF Development and Program Diversity......................106 Controlling Multiple Ownership .... 108 Direct Control Over Product Differentiation..................... 119 The Blue Book........................119 The Outlawing of Option T i m e .......121 The Prime-Time Access R u l e ......... 123 IV. SUBSCRIPTION TELEVISION..................... 133 Alternative One: Government Operation of the I ndu stry....................... 137 Alternative Two: Subscription Television. 139 Historical Development of STV ...... 140 Nature of S T V ..........................143 STV and CATV ....................... 143 Delivery of STV Programs........... 148 Feasibility of STV..................... 151 FCC Constraints................ 156 Economic Rationality of STV.........160 Cost of STV Output ................. 162 Benefits of S T V ....................... 164 Provision of a Direct Index of Progrcun Preference............... 164 Promotion of a Differentiated Oli gopoly....................... 170 Page CHAPTER IV. (Continued) Welfare Economics of STV.................. 176 The Pareto Criterion ................. 180 The Kaldor Criterion...................182 The Scitovsky Criterion.................185 The Bergson Criterion...................187 The Consumer Surplus ...................190 V. S U M M A R Y .......................................... 193 BIBLIOGRAPHY............................................ 204 v i LIST OF TABLES Table Page 1. Median Family Income in the United States, 1947-1970 20 2. Gross National Product of the United States, 1947-1970 21 3. Commercial Broadcasting Stations on the Air, January 1, 1952-1971 ..................... 23 4. Per Cent of U.S. Households with Television Sets, 1952-1970............................ 26 5. Television Station and Network Revenues, Expenses, and Incomes, 1952-1970 ......... 29 6. Television Station Revenues, Expenses, and Incomes, 1952-1970 ........................ 31 7. Television Network Revenues, Expenses, and Incomes, 1952-1970 . ................... 33 8. Investment in Tangible Broadcast Property of Television Networks and 686 Television Stations as of December 31, 1970 ........ 37 9. Number of Employees of Networks and 682 Television Stations as of December 31, 1970 ...................................... 38 10. Volume of Advertising in the United States by Medium, 1970................. 43 11. Advertising Expenditures by Medium, Selected Years, 1952-1970. • • • ......... 45 12. Television Time Sales, 1952-1970.............. 46 vix Table Page 13. Top-Twenty Television Advertisers, 1970 .... 48 14. Radio Time Sales, 1952-1969 .................... 56 15. Motion Picture Theaters emd Receipts, Selected Years, 1948-1967................... 60 16. Motion Picture Production and Distribution Organizations and Receipts, Selected Years, 1954-1967 ............................ 63 17. Oklahoma Commercial Television Allocations as of December 31, 1970............ 69 18. Highest Prime-Time Rates for One 30-Second Spot, Top-Ten Markets, Effective November 15-December 15, 1970............... 71 19. Network Affiliation with Television Stations as of June 1, 1970 .......................... 76 20. Number of VBF Channels in Major Markets .... 87 21. Profit cuid Loss of Television Stations, 1969. 94 22. Average Weekly Station Hours for Syndicated and Off-Network Programs in the Top-Fifly Markets from 5 to 10 p.m., 1958 and 1968 and Sources of Prime-Time Programs Carried on Networks, 1957 and 1968 ................. 126 23. Sources of Prime-Time Programs Carried on Networks, 1957 and 1968..................... 127 24. CATV Systems by Subscriber Size, As of March 15, 1971 ............................... 145 25. CATV Systems and Subscribers, January 1, 1952-1971.................................... 147 v i i i Table Page 26. Channel Capacity of Existing CATV Systems, As of March 15, 1 9 7 1 ........... 149 27. Summary of STV Projections by Zenith-Teco . 152 28. Markets Receiving at Least Four Channels. .. 158 IX THE GROWTH OF TELEVISION BROADCASTING AND STRUCTURAL ALTERATION THROUGH SUBSCRIPTION TELEVISION CHAPTER I INTRODUCTION Modern communication was born over 125 years ago— May 26, 1844, to be exact. On that date, the first success­ ful test of electronic communication was made by sending a telegraphic message from Washington to Baltimore. Samuel Horse transmitted the famous message, "What God hath wrought," over a wire. Later came experiments and improvements that brought the telephone, wireless telegraphy, radio, and