The Effects of Regulation on Economies of Scale and Scope in TV Broadcasting

This paper presents an analysis of the effects of FCC regulations on economies of scale and scope in television broadcasting, including their effects on the production of local news. We conclude that current FCC regulations are limiting, and potential future regulations could further limit, the ability of broadcasters to realize beneficial economies of scale and scope, thereby lowering economic returns to broadcasting, depressing investment below the economically optimal level, significantly reducing the output of news programming, and threatening to shrink the size of the industry. Using standard econometric methods and station-level financial data spanning 1995 through 2009, we find that, all else equal, smaller broadcast stations face higher average costs than larger stations. Specifically, we estimate that, as broadcast stations expand the scale of their operations, output increases approximately 22 percent faster than costs. With this in mind, we analyze the effects of existing and potential regulatory limitations on broadcasters’ ability to evolve their business models so as to realize available economies of scale and scope