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http://ssrn.com/abstract=2102801
 
 

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The Negative Effect of Concentration and Vertical Integration on Diversity and Quality in Video Entertainment


Mark Cooper


Fordham University

Derek Turner


affiliation not provided to SSRN

August 15, 2007

TPRC 2007

Abstract:     
This paper uses an analysis of a comprehensive 20-year data base on the video entertainment product space in a period of massive public policy change (roughly 1985-2005) to show that vertical integration and the elimination of source diversity (competition from independent producers) has had a negative impact on product quality and diversity.

Business practices of vertically integrated media companies indicate a strong incentive to run, rerun, repurpose, repackage and recycle owned content, even when it is inferior or attracts a smaller audience because it is more profitable than producing new content or purchasing content from unaffiliated entities, and a close look at the timing and nature of performance declines suggests that vertical integration associated with declining quality and audiences.

Although the Internet presents an alternative distribution mechanism, the vigorous effort to vertically integrate distribution and content production, as well as the efforts of traditional media content companies to rerun content on the Internet, suggests that traditional media/communications firms may successfully capture the new technologies, as they have done in the past. Understanding how recent deregulatory policies fostered concentration and failed to deconcentrate the video product space by purportedly introducing more competition (including the introduction of new technologies like cable and satellite and broad deregulatory policy changes), provides a cautionary note in a chorus of optimistic projections.

The database includes measures of quantity, quality, source and outlet of product for television and movies, TV: prime time programming, first fun syndications, ratings and Emmys. Movies: domestic and foreign theatrical box office, home video sales and rentals, Oscars and
Golden Globe awards.

At the intersection of the two, analysis of over 1000 made-for-TV movies. From 1990 to 1996 Congress and the Federal Communications Commission shifted policy toward broadcast TV and cable in sharply opposite directions. Vertical and horizontal restraints on broadcast were eased with the elimination of the Financial and Syndication rules, the granting of must carry/retransmission rights, the lifting of the ban on multiple station ownership in the largest and most important media markets, and an increase in the allowed national reach of (O&O) stations.

In contrast, vertical restraints and horizontal limit were imposed on cable including program access rules, limitations on the percentage of programming that could be owned and horizontal limit on national reach. These policies radically altered the market structure of the video entertainment product space in distinct stages. Independent producers, who were uniquely successful in bringing diverse and innovative content to TV, were excluded from the dial, with unaffiliated production of scripted content all but disappearing from both prime time and first run syndication.

Competition from satellite (triggered by the cable program access rules) stimulated cable to expand its capacity, which it could not fill (in part because of the vertical restraint on ownership), so studios and broadcasters (armed with must carry-retrans rights) rushed in to expand their output.

Ultimately, the end of Fin-Syn made it possible and rational for broadcasters and movies studios to merge and every major studio became vertically integrated with a major broadcaster or large multiple system operator. Five vertically integrated entities (NBC/GE/Universal, ABC/Disney, CBS/Viacom/Paramount, Fox, Time Warner) came to dominate both TV and Movies, where two dozen had been. The market shares and purchasing practices of these vertically integrated video entities indicate a tight oligopoly. Every measure of output – prime time and syndicated programming, programming and writing budgets, cable carriage TV viewership, theatrical box office, and home video – indicates that four entities control over 60 percent of the market (the big five account for 75 to 80 percent).

Qualitative and quantitative analyses of product acquisition practices show that this dominance rests on a clear pattern of self-dealing and favoritism, first for affiliated content and second, where self-supply is insufficient, for product from other members of the oligopoly.

The exercise of monopsony power has squeezed prices paid for cable movie content to a bare minimum and driven movie product into narrowly defined niches, where the vertically integrated entities are the only outlets available.

Independents has produced disproportionately higher quality with greater diversity of content in prime time, but the change in policy resulted in their elimination from these highly valued TV time slots and audiences declined. The negative effects of the elimination of competition have outweighed the hoped for positive effects (synergies and efficiency gains) of vertical integration, yet policymakers are being pressured to extend the failed policies to the new distribution platform.

Number of Pages in PDF File: 61

Accepted Paper Series


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Date posted: July 10, 2012  

Suggested Citation

Cooper, Mark and Turner, Derek, The Negative Effect of Concentration and Vertical Integration on Diversity and Quality in Video Entertainment (August 15, 2007). TPRC 2007. Available at SSRN: http://ssrn.com/abstract=2102801

Contact Information

Mark Cooper (Contact Author)
Fordham University ( email )
113 West 60th Street
New York, NY 10023
United States

Derek Turner
affiliation not provided to SSRN ( email )
Feedback to SSRN


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