Video Killed the Franchise Star: The Consumer Cost of Cable Franchising and Policy Alternatives

Abstract

Congress, state legislatures, and the Federal Communications Commission are all considering proposals to reform local video franchising to promote competitive entry. Consumers should welcome such reforms. We estimate that consumers pay an extra $8.4 billion annually in the form of higher rates and fees as a result of video franchise regulations. In addition, these price increases generate $2 billion in deadweight loss, or value that consumers forego annually because higher prices induce some consumers to go without cable television. Unlike previous studies, our estimates include the cost of nonprice concessions (such as PEG channels) and franchise fees, in addition to the market power effect of cable franchising. We analyze a variety of options federal and state officials have to reduce these costs, including exemption of telephone companies from cable franchise regulations, FCC pre-emption of unreasonable franchising practices, and federal or state adoption of open entry laws to replace local franchising.