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Monday, October 25, 2010

How Changes in the Economics of Broadcast Television Are Affecting News and Sports Programming and the Policy Goals of Localism, Diversity of Voices, and Competition

Charles B. Goldfarb
Specialist in Telecommunications Policy

Market and technological changes are creating challenges to the long-standing business models employed by broadcast television networks and local television stations, but at the same time generating potential opportunities. The changes also may be affecting the three pillars of U.S. government media policy—localism, diversity of voices, and competition—and damping the effectiveness of existing regulations intended to foster them. These changes generally are strengthening the position of parties that own or control popular content in their negotiations with distributors of video programming. Broadcast networks and stations, alike, both own content and distribute programming, so they have been strengthened and weakened by these changes.

The successful entry of hundreds of cable networks and the proliferation of social networking and video Internet websites have fragmented audiences and provided advertisers with alternative avenues for reaching consumers. This presents a significant challenge to broadcast networks and stations, which traditionally have relied on advertising for more than 90% of their revenues. As audiences have declined for both national and local news programming, networks and stations alike have reduced costs by sharing the fixed costs of newsgathering over multiple platforms and undertaking cooperative newsgathering with other outlets. Some broadcasters have sought to generate additional cost savings or revenue by combining with other newsgathering organizations, and urge modifications to the Federal Communications Commission’s broadcast media ownership rules that restrict such combinations. Policymakers will have to weigh whether allowing such consolidation will, on net, benefit the public by improving the financial viability of newsgathering firms or harm the public by reducing diversity of voices and competition.

At the same time, competition has developed among the companies that deliver multiple channels of video programming to subscribers—cable operators, satellite operators, and some telephone companies. If a multichannel video distributor fails to obtain the retransmission rights to popular national and local broadcast television programs, it risks losing subscribers to a competitor that does offer the programming. As a result, broadcast networks and stations are able to demand higher payments from these multichannel video distributors for the retransmission rights. This has created a second revenue stream for broadcasters that is projected to reach $2.6 billion in 2016. It also occasionally results in subscribers losing access to broadcast programming when their video provider and the broadcaster reach an impasse in retransmission negotiations. A coalition of video distributors and consumer organizations has petitioned the FCC to modify its retransmission consent rules by adding dispute resolution mechanisms and mandatory interim carriage.

The amount of local broadcast news programming has been increasing despite declining audiences and does not appear to be threatened by stations’ revenue declines. Many stations are broadcasting more news because local news programs can be cheaper to provide than purchased programming. In addition, local news provides a way for stations to develop strong brand identities as they compete for local advertising dollars.

The production and distribution of major sports programming is largely controlled by the sports entities that control the events. If it benefits them to distribute their programming through pay venues, such as cable networks that they own, rather than over the air broadcast, they will do so. This is likely to result in more events being televised, though many will only be available to subscribers to pay television services

Date of Report: October 20, 2010
Number of Pages: 36
Order Number: R41458
Price: $29.95

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