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Working Paper

Competition between Cable Television and Direct Broadcast Satellite – It’s More Complicated than You Think

Andrew Wise and Kiran Duwadi.  

Media Bureau Staff Research Paper No. 2005-1 (Jan 2005) is also listed as "International Bureau Working Paper No. 3" because it was done jointly by the two bureaus.  It examines the substitutability between Direct Broadcast Satellite (“DBS”) and basic cable services.

Wise (Media Bureu economist) and Duwadi (International Bureau economist) use price data from the FCC’s annual cable price survey and other related demographic variables to examine the cost of switching from cable to DBS and vice versa. They find that, although DBS is often considered a substitute for basic cable service, subscribers may face substantial switching costs to move from to one of these services to the other.

The paper examines whether consumer behavior varies depending on the size of cable price per channel or quality-adjusted price change (i.e., monthly cable rates divided by the number of channels for the first two tiers of channels). It finds that, when quality-adjusted prices for basic cable services increase substantially, subscribers will switch from cable to DBS, presumably at the point at which the price change is larger than the cost of switching.  It therefore concludes that the presence of DBS still acts as an imperfect constraint on the ability of cable operators to raise price per channel.

Issued: January 2005

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