The Stone City

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Friday, March 02, 2007

Spot the Constraint

A loyal Marginal Revolution reader asks for discussion of:
... the potential effects of not only making cable tv a la carte, but also requiring that television content providers allow choice in how the consumer pays for the service - either an advertisement based system or a fee that would eliminate the commercials. Additionally, require that the consumers be given a choice of types of advertisements they would be exposed to.

After all, if consumer choice is a good thing, wouldn't a mandatory increase in consumer choice be even better?

Snark aside, let me take these suggestions in reverse order. Giving consumers a choice of types of advertisement is a recipe for chaotic and intrusive intervention, as the definition of "type" is by no means obvious. Immediately obvious consequences include pressure groups seeking to create new types so that people can ask to not see them, and advertisers deliberately seeking to blur the boundary lines in order to minimize the relevance of the restrictions.

Next we come to the much more reasonable suggestion of forcing broadcasters to offer a choice between fee-based and advertising-based funding; for every channel we must also have a "premium" channel offering the same content (plus some filler to make up for all the time saved, I expect) without advertising.

Why doesn't such a thing already exist? The scarcest resource seems to be cable bandwidth, and it seems probably that premium ABC (or other major network) would be a more profitable use of bandwidth than an extra shopping channel. There are two possibilities.

First, perhaps a premium version of a major network would be the most valuable use of bandwidth, and the network operators are suppressing it for nefarious reasons of their own. In this case they could circumvent the proposed rule, for example by pricing the premium channel too high; cable operators would lose capacity and content providers would be unaffected.

Second, perhaps the market's apparent message is correct, and premium channels add so little value that they cannot justify this expense of setting them up. Then this would be just another mildly value-destroying government intervention.

There are two broad points to make. First, broadcast content providers may reasonably be subject to regulation based on their use of a public good (i.e., bandwidth on the relevant delivery mechanism), but regulations which oblige them to consume more of that good are difficult to justify.

Second, returning to my first reaction above, consumer choice generally cannot be manufactured by government regulation. Here the effect of duplicating major channels will be to drive marginal channels out of the spectrum.

[Mr. Cowen's discussion is here.]