Quantifying the Impact of Service Blackouts in the U.S. Television Industry

This paper focuses on the impact of unsuccessful vertical bargaining outcomes between upstream and downstream firms in the U.S. pay television industry. Specifically, I investigate how disruptions to TV programming caused by unsuccessful vertical bargaining can have the direct effect of potentially decreasing the viewership of the disrupted channel in that market (the content is still available to subscribers of competing cable and satellite distributors in that market) and the indirect effect on viewership of competing channels that the affected pay T.V. distributor continues to offer to its subscribers in that market. This indirect effect can be positive if viewers substitute to a non disrupted channel in lieu of the blacked-out channel during the time the blacked-out channel is unavailable. However, the indirect effect can also be negative if the blackout leads households to substitute away from viewing television and availing of the outside option during the time of the channel blackout. As households adjust their television viewing habits, their decisions have direct implications for advertisers and corresponding broadcast stations who rely on advertising revenues to offset their own distribution costs. Hence, I also investigate the direct and indirect effect on advertisers placing their ads on both disrupted and the non-disrupted channels as well as pay T.V. distributors. I find that in the short-term (during the blackout) viewership of the disrupted channel drops, advertisers overpay per household seeing their ad as the disrupted channel loses some of its viewers. In the long run (after the disruption is over) disrupted channel’s viewership is restored, advertisers do not overpay, but distributor keep loosing their subscribers. The magnitude of these effects depend on which channel was disrupted, duration of the event and whether it spanned across multiple markets. I then recover indirect short-term and long-term effects on each channel’s viewership and distributor’s market share in my sample in order to establish disruption-induced substitution patterns between channels and distributors. I conclude this chapter with a study on how treatment effects on channels and advertisers differ by days of the week and programming types. Causal identification of these direct and indirect effects is quite challenging since it warrants constructing a counterfactual that describes what channels (and programs) the affected subscribers would have consumed had their service not gone dark. To this effect, I leverage the institutional features of the U.S. cable industry to construct a pseudonatural experiment that allows me to treat the timing of the service disruptions as-if being random. I causally estimate the direct and indirect effect of channel blackouts using three distinct comparative case-study approaches to treatment effects estimation, namely: (a) difference-in-difference, (b) synthetic control, and (c) synthetic difference-indifference. I quantify and contrast the impact of such blackouts on: (i) costs of advertising on the disrupted and non-disrupted TV channels, (ii) advertising eyeballs (gross rating points) for the disrupted and non-disrupted TV channels, and (iii) market shares of disrupted and non-disrupted distributors - across all three comparative case-study approaches. My analyses reveal the benefits of using synthetic difference-in-difference vis-à-vis the difference-in-difference or synthetic control method