FCC Regulation, Monopsony, and Network Television Program Costs
Volume: Volume 3, No. 2
Issue: Autumn 1972
Pages: pp. 483-508
Authors: Robert W. Crandall
Title: FCC Regulation, Monopsony, and Network Television Program Costs
Abstract: In this paper, a television program cost function is derived from a simple model of network rivalry based upon the Cournot postulate. This cost function is then fitted to data from a cross section of new network entertainment series for 1960-1965. The resulting estimates are quite unfavorable to two different aspects of FCC policy towards television broadcasting.
First, the Commission's implicit attempt to create monopoly profits for networks and their affiliates in entertainment programming for the purpose of subsidizing nonremunerative "public interest" programming is shown to be extremely inefficient. As much as two-thirds of entertainment program costs are simply rents paid to star performers and other inputs to the program production process -- rents which derive from the Commission's allocations policy.
Second, the Commission's recent decision to bar network investment in non-network rights to programs first exhibited on their interconnected stations is demonstrated to be unnecessary. The Commission has enunciated this policy in its recent Prime Time Rule in order to protect program suppliers from monopsonistic exploitation by the network. But the cost-function estimates show that the networks have paid their suppliers the economic value of the non-network rights obtained in the initial bargaining process. The only effect of prohibiting network investment in these ancillary rights is to limit the ability of suppliers to sell risky assets.