Cable Television and the Impact of Regulation
Volume: Volume 2, No. 1
Issue: Spring 1971
Pages: pp. 154-212
Authors: William S. Comanor and Bridger M. Mitchell
Title: Cable Television and the Impact of Regulation
Abstract:
Recently proposed regulations by the Federal Communications Commission would
allow cable television firms to import distant television signals into major
urban markets, require local origination of programs by the cable system, and
set minimum requirements for channel capacity, signal quality, and fees paid to
copyright owners and to non-commercial television stations. This paper
explores the impact of such regulatory changes by means of a detailed
simulation model of a typical firm.
Demand functions for cable service are estimated from a sample of currently
operating systems. A wealth of detailed estimates of all major components of
the costs of a cable firm is also assembled. From this information, cost
functions are constructed for firms of varying sizes in several market
environments, with particular attention paid to effects of the regulatory
proposals. The simulation model which integrates these demand and cost results
is then systematically used to determine the impact of the proposed regulations
on firm profitability.
The principal findings are that the proposed regulations, taken together, will
reduce substantially the rates of return to the point where large-scale
expansion of cable service is unlikely except by very large firms in both large
and smaller markets. Two requirements are particularly costly - the provision
of capacity for twenty channels and the origination of local programming by
smaller cable systems.