Leading Telecommunications Economist Finds Flaws With FCC Report on A La Carte

Leading Telecommunications Economist Finds Flaws With FCC Report on A La Carte

FCC's New 'Further Report,' Designed to Update Previous Study, Has Its Own Critical Mistakes, Says Dr. Bruce Owen

NEW YORK, April 6 /PRNewswire-FirstCall/ -- Viacom Inc. (NYSE:VIA)(NYSE:and VIA.B) today announced the results of a new study conducted by Dr. Bruce Owen, working with Economists Incorporated, a premier independent economic consulting firm, challenging the methodology and conclusions of the recent Further Report on the Packaging and Sale of Video Programming Services to the Public ("The Further Report") by the Federal Communications Commission.

The Further Report, published in February 2006, was commissioned by the FCC as an update to its original 2004 study on the effects of a la carte and tiered services to cable and satellite television customers. In the original study, the FCC found the average household would pay between 14 percent and 30 percent more to receive the same channels under an a la carte system. The FCC's Further Report argues that it "may" be in consumers' interest to force a la carte.

However, according to an analysis by Dr. Owen of Stanford University, a consultant to Economists Incorporated and former Chief Economist of the Antitrust Division of the U.S. Department of Justice and the White House Office of Telecommunications Policy, the Further Report's findings are flawed.

"It would be a mistake for regulators to use that document to guide policy," said Dr. Owen. "Bundling of goods or services is a universal marketing practice. Nothing that the FCC has presented in the report leads me to believe that their initial 2004 recommendation against a la carte should be reversed. In fact, the report does not even consider the impact of a la carte on the diversity of programming and viewpoints available to consumers. Mandatory unbundling of video services will reduce the diversity of programming available to viewers, undermining a policy goal that has been critical to the FCC and Congress for the past half-century."

The study found that the FCC's potential reversal of its position invites disastrous increases in the costs of producing and distributing video programming, threatens to reduce the global competitiveness of the television and motion picture production business -- one of America's strongest export industries -- and virtually guarantees price increases and reduced program diversity for millions of American television viewers.

Dr. Owen's study also found that a la carte will create a massive new set of market interventions with effects in a broad swath of the American economy. Such intervention is certain to produce all the usual attendant bureaucracy, inefficiency and market distortion that attend price controls and regulatory systems, including in this case the likelihood of federal regulation of network and program content. The Commission's report does this without analysis of the costs of such a regime or the impact on any part of the economy.

In addition, Dr. Owen concludes that the Further Report cherry picks selective hypothetical examples to merely assert that some consumers may be better off with a la carte, but does not analyze the likely effects on consumers as a whole, which he believes would almost certainly be negative, or the fact that many consumers would have to pay more. Also, the Further Report focuses on a very narrow aspect of the unbundling issue, while ignoring the broader implications of unbundling on the video programming market and related domestic and export markets. As the FCC's 2004 report recognized and Dr. Owen restates, the current economic literature provides no basis to impose government intervention in video markets to forbid bundling.

Dr. Owen is the Morris M. Doyle Professor in Public Policy in the School of Humanities and Sciences and director of the Public Policy Program at Stanford University. He is also the Gordon Cain Senior Fellow in Stanford's Institute for Economic Policy Analysis and professor in the department of economics. Dr. Owen co-founded Economists Incorporated and was CEO of the firm until 2003. Prior to this, Dr. Owen was the Chief Economist of the Antitrust Division of the U.S. Department of Justice and, earlier, of the White House Office of Telecommunications Policy. He was also a faculty member in the schools of Business and Law at Duke University, and before that at Stanford University. Dr. Owen is the author or co-author of numerous articles and eight books, including Television Economics, Economics and Freedom of Expression, The Regulation Game and The Political Economy of Deregulation.

For a copy of the Economists Incorporated study, please contact Jeanine Liburd of Viacom at jeanine.liburd@viacom.com.

About Viacom

Viacom is one of the leading global entertainment content companies, with prominent and respected brands in focused demographics. Offering programming and content for television, motion pictures and digital platforms, Viacom's world-class brands include MTV Networks (MTV, VH1, Nickelodeon, Nick at Nite, Comedy Central, CMT: Country Music Television, Spike TV, TV Land, Logo and more than 100 networks around the world), BET, Paramount Pictures, Paramount Home Entertainment, DreamWorks SKG and Famous Music. More information about Viacom and its businesses is available at http://www.viacom.com/.

Source: Viacom Inc.

CONTACT: Jeanine Liburd of Viacom, +1-212-258-7437,
jeanine.liburd@viacom.com

Web site: http://www.viacom.com/

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