The effects of mergers in broadcast television

Abstract

In 1999 the Federal Communications Commission decided to relax its prohibition against one firm owning two television stations in the same market. Although joint ownership was prohibited prior to 1999, evidence on the effects of joint operation is provided by local marketing agreements, contractual arrangements that allow one station to operate another station in the same market. Chapter 1 studies the effect of joint operation on costs by estimating a model of television station entry decisions from 1993 to 1998. Using the method of simulated moments to estimate the entry model, I find that stations operated under local marketing agreements are significantly more likely to enter. Controlling for the endogeneity of local marketing agreements and the competition-reducing effects of local marketing agreements does not affect the conclusion that joint operation reduces costs. Chapter 2 uses the experience with local marketing agreements to study the effects of joint operation on markets for advertising and programming. Using panel data on over 160 markets from 1993 to 1998, I find that most mergers do not increase the price of advertising. However, mergers between stations that are likely to be close substitutes (as measured by their network affiliation) can lead to significant price increases.

(cont.) In the programming market I find that the ratings of merging stations increase, suggesting that mergers increase the quality and variety of programming. During the 1990s the broadcast television industry also experienced significant consolidation at the national level. This consolidation was spurred in part by the Telecommunications Act of 1996, which relaxed restrictions on the number of television stations a firm can own nationwide. Chapter 3 studies the effect of group ownership on viewers by using ratings data for 750 television stations in 1993 and 1998. I find that the increase in group ownership led to small increases in ratings.