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An Economic Analysis of the Prime Time Access Rule

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An Economic Analysis of the Prime Time Access Rule BEFORE THE FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In re: Review of the Prime Time Access Rule, Section 73.658 (k) of the Commission’s } MM Docket No. 94-123 Rules AN ECONOMIC ANALYSIS OF THE PRIME TIME ACCESS RULE March 7, 1995 ECONOMISTS INCORPORATED WASHINGTON, D.C. CONTENTS I. Introduction……………………………...……………………………………………1 II. Is ABC, CBS or NBC Dominant Today? A. No single network dominates any market...........................................................5 B. Factors facilitating the growth of competing video distributors ................................................................................................7 1. Cable penetration ....................................................................................7 2. Number and strength of independent stations.........................................9 3. Other video outlets................................................................................12 C. Competing video distributors............................................................................13 1. New broadcast networks .......................................................................13 2. New cable networks..............................................................................16 3. First-run syndication .............................................................................17 D. Impact on networks of increased competition ..................................................18 1. Audience shares ....................................................................................18 2. Advertising shares.................................................................................19 3. Relations with affiliates ........................................................................21 4. Purchasers and producers of programming...........................................23 III. Effects of PTAR on Viewers and Competition A. Network efficiencies .........................................................................................27 B. Effects of PTAR on viewers .............................................................................30 1. Reduction in program quality and loss of options ................................30 2. Loss of efficiencies and audiences........................................................31 3. Reduced viewing in the 1971/72 season (the Tuesday test)..................................................................................33 4. Viewing reduction after the 1971/72 season.........................................35 5. Estimating the dollar welfare loss to viewers .......................................38 C. Effects on competition ......................................................................................39 1. Competition among ABC, CBS and NBC............................................40 2. Competition from new networks ..........................................................41 3. Sources of first-run programming.........................................................41 4. Independent stations..............................................................................41 5. Off-network syndication .......................................................................42 ECONOMISTS INCORPORATED — i — 6. Competition for programs.....................................................................42 7. Program suppliers .................................................................................43 8. Multiple advantages for Fox and Fox affiliates ....................................43 9. Top-50 market affiliates........................................................................44 IV. Costs and Benefits of PTAR: An Assessment A. Insulating first-run suppliers from competition ................................................45 B. Network power over affiliates...........................................................................47 C. Insulating independent stations from competition............................................48 D. Diversity is not enhanced by PTAR..................................................................53 1. Outlet diversity......................................................................................54 2. Source diversity.....................................................................................55 3. Viewpoint diversity...............................................................................56 V. Conclusion ...............................................................................................................59 ECONOMISTS INCORPORATED — ii — APPENDICES Appendix A Data tables.............................................................................................61 Appendix B Programming on cable networks...........................................................72 Appendix C The UHF handicap................................................................................78 Appendix D An analysis of program clearances........................................................83 Appendix E Suppliers of prime-time entertainment series to ABC, CBS and NBC 1969–93.................................................................................85 Appendix F Television program producer data ......................................................101 Appendix G ABC, CBS and NBC’s share of video programming purchases.............................................................................................120 Appendix H Sources and types of broadcast programming.....................................123 Appendix I Access hour viewing dropped dramatically after the imposition of PTAR............................................................................128 Appendix J Impact of PTAR on viewer welfare ....................................................134 Appendix K Nielsen share data ...............................................................................137 ECONOMISTS INCORPORATED — iii — TABLES Table 1 Fox and non-Fox independent stations in the top-50 markets..................................................................................................11 Table 2 ABC, CBS and NBC production of prime-time entertainment series as share of all hours aired.....................................23 Table 3 Network affiliate shares Monday–Friday..............................................32 Table 4 Viewing by period, selected TV seasons ..............................................34 FIGURES Figure 1 Prime-time shares by season, 1964/65–1993/94.....................................7 Figure 2 Homes passed by cable ...........................................................................8 Figure 3 U.S. independent commercial stations..................................................10 Figure 4 Low-power television stations in the U.S. ............................................12 Figure 5 Households subscribing to video programming via backyard dishes, SMATV and MMDS .................................................13 Figure 6 Fox affiliates .........................................................................................14 Figure 7 U.S. national video cable networks.......................................................17 Figure 8 Average ABC, CBS and NBC affiliate share of all-day viewing by season .................................................................................19 Figure 9 Average ABC, CBS and NBC share of U.S. national television advertising ............................................................................20 Figure 10 U.S. household video cassette expenditure...........................................26 Figure 11 Percentage of TV households using television before and after PTAR............................................................................................36 Figure 12 Access period viewing as percentage of 8:00–8:30 p.m. viewing..................................................................................................37 Figure 13 Access hour programming of ABC, NBC and CBS affiliates.................................................................................................44 ECONOMISTS INCORPORATED — iv — Figure 14 Sources of programming on 94 cable networks....................................46 Figure 15 Program sources for prime-time broadcasts of top-50- market non-Fox independents...............................................................47 Figure 16 Average cash flow of U.S. television stations, by network affiliation...............................................................................................49 Figure 17 Average cash flow of independent and affiliated television stations..................................................................................50 Figure 18 1992 UHF station profitability..............................................................51 Figure 19 Access hour broadcasts of top-50-market independents, by source ....................................................................................................52 APPENDIX TABLES Table A-1 Prime-time shares by season, 1964/65 to 1993/94................................61 Table A-2 Fox affiliates in the U.S. .......................................................................62 Table A-3 Independent commercial stations in the U.S.........................................62 Table A-4 Low-power television stations in the U.S. ............................................63 Table A-5 Cable networks in the U.S. ...................................................................63 Table
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