The effects of vertical integration between cable television systems and pay cable networks

Using data for 1646 cable systems, we find that vertical integration between pay cable programming networks and cable systems has substantial effects on final market outcomes. Cable systems owned by the two multiple system operators (MSOs) having majority ownership ties to four major pay networks tended to carry their affiliated networks more frequently and rival networks less frequently than did the average nonintegrated system. These systems also offered fewer pay networks in total than did the average nonintegrated system. We also find that when carriage differences are accounted for, integrated systems tended to ‘favor’ their affiliated networks with respect to pricing or other marketing behavior. The models we employ are obtained from a model selection technique involving backward elimination and the Schwarz criterion.