Student Blogger - Television Duopoly in Small Markets: The Effect on Diversity

The FCC is tasked with managing the public airwaves in furtherance of the public interest. In regulating local broadcast television markets, the FCC has broken this broad mandate into three criteria: localism, competition, and diversity of viewpoints. Localism means people in Bend, Oregon should see programming responsive to local needs and interests, not just the national nightly news broadcast. Competition traditionally meant robust competition for advertisers, but in 2008 the FCC expanded competition to include competition for viewers as well. Diversity of viewpoints, which is self-explanatory, is arguably necessary to further traditional marketplace of ideas and democratic self-governance ideals; it is not healthy for a community to hear only local Democratic Party talking points.

After assessing these criteria, the FCC promulgated regulations prohibiting companies from owning more than one broadcast television station in small markets. Professor Matthew Spitzer of Cal Tech & USC presented a paper at last week’s Law & Politics Workshop arguing the FCC should instead adopt a presumption in favor of duopolies in small markets because duopolies increase viewpoint diversity. An intervenor can then rebut the presumption by demonstrating the costs of merger outweigh the benefits based on local circumstances, such as the harm to the local advertising market; the difficulty of this comparison gives the presumption great weight, however.

The FCC and Professor Spitzer favor different approaches because they have different assumptions about how station owners choose their station’s political viewpoint. The FCC assumes stations reflect the viewpoint of their owner. But Professor Spitzer contends viewpoint is instead a tool for attracting viewers, much like other programming decisions. Rational owners will therefore choose station viewpoints that maximize the number of viewers.

Professor Spitzer’s paper presents two one-dimensional Hotelling models of a small television market demonstrating duopolies increase viewpoint diversity compared to three independently owned stations if you accept his assumption. The first model ignores costs while the second model takes the cost of generating local content into account. Both models contain two types of actors: local broadcasters and local viewers. The three local broadcasters (presumably representing the ABC, NBC, and CBS affiliates) compete to attract viewers based on offering a liberal, moderate, or conservative viewpoint. One thousand local viewers each have a preference for liberal, moderate, or conservative viewpoints, and watch ten hours of local content each month if content reflecting their viewpoint is available in the market; the viewer will use one of those ten hours to sample alternative viewpoints. A viewer watches no local content if their preferred viewpoint is unavailable. Viewers split equally in Professor Spitzer’s model between broadcasters providing the same viewpoint. The set of outcomes under both models are generated by searching for Nash equilibria, which are states in which a broadcaster can do no better for himself by switching viewpoints given the choices of the other actors.

Suppose the three broadcasters in the costless model are independently owned, and that 150 viewers prefer a liberal viewpoint, 700 of the viewers prefer a moderate viewpoint, 150 prefer a conservative viewpoint. Professor Spitzer’s model demonstrates all three broadcasters will provide a moderate viewpoint and receive 2,333 viewer-hours per month. If a broadcaster tried to instead provide a liberal (or conservative) viewpoint, he would only receive 2,050 viewer-hours per month while his two competitors would receive 3,225 viewer-hours per month ((700(1) + 150(9)) and (700(9) + 150(1))/2 respectively). No rational actor would choose to decrease his market share in both absolute and relative terms.

In a duopoly, however, one of these stations will provide a liberal viewpoint. Maintaining a moderate viewpoint on the two merged stations yields 4,666 viewer-hours per month for the owner. The other broadcaster receives 2,333 viewer-hours. But if the owner operates one moderate-viewpoint station and one liberal-viewpoint station, he receives 5,275 viewer-hours while other broadcaster receives 3,225 viewer-hours, and a rational two-station broadcaster will therefore flip one of the moderate stations to an independent station. This new, liberal viewpoint represents an increase in diversity in the market.

The analysis becomes more complicated, but the same result holds in a model incorporating cost: station merger increases diversity at best and has no effect on diversity at worst (some market structures make deviating from the status quo too costly). Generating local content requires both fixed and variable costs. A rational broadcaster will show the type of content that maximizes the difference between viewer-hours captured and the content generation costs. A station merger potentially increases diversity for the same reasons as in the costless model but also because the merged stations offer a more attractive cost structure.. Pre-merger, the two stations had to duplicate both the variable and fixed costs of content generation. Post-merger, the two stations can share the fixed-cost resources, which cuts their fixed costs by up to 50%.

The result in the cost-incorporating model only holds under a specific definition of diversity, however. Professor Spitzer assumes diversity remains constant so long as a viewpoint does not disappear completely. A dupolist can therefore “preserve” diversity by purchasing two moderate stations and keeping one of them moderate and having the other stop generating local content. This assumes there is no diversity within viewpoints, which preserves simplicity but doesn’t reflect reality.

A lot of discussion at the workshop centered on this question of properly defining diversity. Professor Spitzer assumes it means everyone gets the type of programming they want. But diversity could also mean stations with lots of debate between liberals, moderates, and conservatives, which is typed as moderate in Professor Spitzer’s models. Indeed, this is what the Fairness Doctrine and personal-attack rules suggest we are actually looking for. Professor Spitzer offered two responses. First, empirical data suggests people do not watch debate-driven diversity programming; people watch programming that reflects their viewpoint. Second, FCC proceedings have only sought to impose viewpoint diversity. The Fairness Doctrine was a congressionally-imposed incumbency protection mechanism.

Setting the definitional problem aside, Professor Spitzer’s models are fairly robust. For example, the results hold even if you change the viewership composition closer to 33% liberal, 33% moderate, and 33% conservative. The relative gains from diversified programming decrease, of course, as the viewership distribution becomes more uniform. The results also hold if you assume people will watch second-choice programming when their first choice is unavailable as long as they view no more than 54% of the hours they would have viewed had their first choice been available (5.4 hours rather than 10 hours a month). Even the introduction of ideologues, who are willing to tolerate moderate losses to broadcast their preferred viewpoint, only reduces diversity in unlikely market structures such as a 33%, 33%, 33% market composition.

Several workshop participants had a more fundamental concern than the robustness of the data, however: they wondered whether this paper is even relevant in 2009. Americans are no longer restricted to three broadcast channels. Instead, we receive and increasingly prefer the internet and cable channels for our news. Professor Spitzer concedes his models are myopic, but there at least two reasons for not overemphasizing this objection. First, the FCC still cares about localism, and cable news and the internet are poor local news substitutes for broadcast television in smallest of the 210 television markets. Second, the FCC only takes into account the local television market, not the broader modern media market, when devising small market merger rules. Professor Spitzer’s paper is designed as an argument for the conceivable, not the ideal, and the FCC is unlikely to transform its market definition in the foreseeable future.

While Professor Spitzer’s paper was rooted in the conceivable, I will conclude with a question raised by a participant rooted in the ideal. Should the FCC focus on diversity across markets rather than within markets (assuming we think diversity is a relevant goal)? Local broadcast news arguably serves a valuable signaling function to outsiders about the community, which helps outsiders decide whether they want to live within that community. Having three liberal broadcasters in Ann Arbor, Michigan signals to a conservative that Ann Arbor might not be an ideal community for them. This signaling function is not necessarily lost by pursuing intra-market diversity, however. What counts as liberal, moderate, and conservative can vary between Ann Arbor and Pocatello, Idaho as long as the FCC does not try to impose the national political spectrum on local communities.