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March 09, 2004
Telecomm Regulation Encourages Media Consolidation
The Street has an article on what is becoming an increasingly common occurence: disputes between content creators and cable/satellite distributors that result in loss of signal for consumers (EchoStar Tiff Tarnishes Content's Crown). In this case, content provider Viacom (home of CBS, Comedy Central, MTV, Nickelodeon and others) is facing off with satellite distributor EchoStar. The issue isn't so much about price apparently, as about whether EchoStar will be forced to carry Viacom's less popular channels in order to distribute Viacom's more popular channels.
The balance of power in this case is probably with Viacom, according to analysts. Viacom has enough power through its collection of popular channels that it can essentially force EchoStar to take the unpopular channels, otherwise Viacom will withhold the popular channels and viewers will be upset with EchoStar.
The logic of this situation for content creators is to merge, merge and merge, so that they have similar negotiating power with regard to distributors. The logic of this situation for distributors is to buy content creators so that they have the power over other content creators. In other words, both sides are put under pressure to achieve more media consolidation.
One way out of this vicious circle is to structure telecomm regulation so that distributors such as cable companies, satellite and broadcast are regulated as common carriers. Viacom would not be able to force unpopular channels on the distributor, rather, bandwidth would be allocated based on neutral, transparent rules. This would certainly decrease the content creators' incentives to consolidate and remove the distributor's incentives entirely.
The problem isn't an irrational desire for consolidation, the problem is a regulatory scheme that encourages consolidation.
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