Steve Bernstetter

As time marches on, the pace of technological advancement marches along with it: the hand-written letter becomes an email, the horse and buggy becomes the automobile, and the pen and paper become the word processor. These advancements are mirrored in the media services industry by the ability to use iPods and cell phones to access programs once available solely through the home television set. Though the options for accessing media services outside the home have increased dramatically, the cable television market has remained largely stagnant. This stagnation results from current policies limiting competition amongst cable providers. Changing these policies will benefit consumers in the form of lower prices and better service.

Those desiring a wider variety of programming than that provided by traditional over-the-air broadcasting have only two options: satellite, and its several variants, or the local cable company. For technological reasons, cable typically provides the strongest, most consistent service, and this fact is reflected in its respective market share: over two thirds of those subscribing to television programming are cable customers. While that figure is large, it reflects meaningful competition from satellite providers, competition demonstrably leading to a better product being delivered to consumers by both cable and satellite providers alike. However, significant opportunities for progress remain. Currently, a company looking to enter the market must receive special permission, a franchise license, from every municipality it seeks to serve. This process hinders firms from entering the market, stifling competition and leading to higher prices and poorer service for consumers.

Proponents of the current system make two key arguments for maintaining the status quo. First, they argue that entry into the cable market is prohibitive due to the immense cost of infrastructure, and the legal entanglements of building that infrastructure. While this was a reasonable argument at the onset of the industry, technology has driven these costs down dramatically. Furthermore, many of the firms entering the market, such as incumbent telephone companies, already have the necessary infrastructure in place. Proponents also argue that if cable companies aren’t required to provide service to everyone, then some won’t have any service, particularly poor minorities. This argument is a red herring: Companies exist to make a profit; any consumer willing to pay the price of service will find a firm happy to provide it. Furthermore, the increased competition will drive prices down, making service both more affordable and available.

Careful economic analysis supports these notions. First, exclusive licensing agreements create monopolies. Monopolies set higher prices than a competitive market would yield. Second, when such monopolies are dissolved and competition enters the market, prices drop and quality increases. A 2004 study found that when satellite providers were allowed to compete with cable providers, cable prices dropped an average of $4 per month. With 67 million cable customers nationwide, that translates to a $3.22 billion annual savings for those who stuck with their cable service. Third, new technologies promise to change media the way the internal combustion engine changed transportation and the Internet changed communications. Eliminating the monopoly power of cable companies will foster these innovations by granting new firms opportunities to capture a piece of the economic pie.

While the current system may have made sense during the industry’s infancy, advances in technology have undermined the reasoning behind it, leading to higher prices and lower quality. It is time for the state of Missouri to reform its cable regulations and allow the competition necessary to drive innovation at the pace of technological growth, for the good of all consumers.

Steve Bernstetter is an intern at the Show-Me Institute and a graduate student in Public Policy Administration at the University of Missouri-St. Louis.

 

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Steve Bernstetter