Programmers and Advertisers Drive 'Forced Bundling' of Video Channels

Programmers and Advertisers Drive 'Forced Bundling' of Video Channels

Phoenix Center Study Says 'Market Defect' May be Reason Why Consumers are Required to Purchase Objectionable Programming

WASHINGTON, Feb. 9 /PRNewswire/ -- A new study by the Phoenix Center says that forced "bundles" of video programming sold by cable and satellite companies may be the result of public policy and a "market defect." The study argues that policymakers should consider and address the root causes and explore whether policies may be necessary to help American families avoid programming they find objectionable.

The POLICY BULLETIN explores the incentives of video service providers to package popular, non-controversial programming like news and sports in "take- it-or-leave-it" bundles containing programming that parents believe is not suitable for their children. The BULLETIN shows that tying policies and advertising incentives can lead multichannel video programming distributors ("MVPDs") to ignore consumers' desires.

According to the BULLETIN: "MVPDs do not create their tiers of programming solely by reference to what consumers want to watch (or not watch) -- an MVPD establishes tiers in order to maximize profits. Those profits include advertising revenues and programming licensing considerations, which, in essence, require that popular programming networks be bundled with new and niche channels."

The BULLETIN employs an economic model that shows that the "content, size and price of expanded basic tiers is not solely the result of MVPDs providing to consumers programming that consumers demand. As a result, American families are often faced with the unpleasant reality that in order to obtain access to programming they may desire, they may be required to subscribe to programming that they do not want their children to see." The BULLETIN also shows that this particular driver of "forced bundling" is "resistant to competitive entry."

"The Phoenix Center is a strong supporter of policies that will open the video market to new competition because that delivers important benefits to consumers," Phoenix Center President Lawrence J. Spiwak said. "While competition will certainly bring more choices to American consumers, the root causes of this problem need to be addressed as well."

"Too many parents are faced with the Hobson's choice that to watch educational and informative channels, they have to open the doors of their houses to programming that is not family friendly," said Phoenix Center Resident Scholar and co-author of the BULLETIN Thomas M. Koutsky. "Bundles of video programming including objectionable programming may be the result of the economic motives of programmers and advertisers, and not necessarily the desires of consumers. Without an adequate market mechanism for consumers to convey their preferences fully, intervention may be needed."

The Phoenix Center's BULLETIN does not make any specific policy recommendation, but it does review a variety of policy options. These options included a la carte and "family tier" requirements, reform of federal broadcast retransmission consent rules, and "anti-tying" measures, which restrict the ability of program providers to link access to one network to an agreement to carry a second network on a particular tier.

According to the study's other co-author and Phoenix Center Chief Economist Dr. George Ford: "We need to leave the ideological ramblings on this issue to the bloggers. Every parent knows that this is a real problem, and it is time we analyze the root cause and possible solutions with dispassionate and serious analysis."

A copy of the full BULLETIN, A La Carte and "Family Tiers" as a Response to a Market Defect in the Multichannel Video Programming Market, may be downloaded free from the Phoenix Center's web page at: http://www.phoenix-center.org/PolicyBulletin/PCPB14Final.pdf.

The Phoenix Center is an international, non-profit 501(c)(3) organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of regulated industries.

Source: Phoenix Center

CONTACT: Lawrence J. Spiwak of the Phoenix Center, +1-202-274-0235

Web site: http://www.phoenix-center.org/

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