Power play in television: a political economy analysis of power balances in broadcasting markets

In this dissertation, the focus is on the (evolving) configurations of power and control in broadcaster-to-distributor markets. Technological developments, as well as changes in the institutional framework, are in the process of fundamentally transforming legacy TV business models and have transferred power to ‘gatekeepers’ which derive a dominant position by controlling competitive bottlenecks. Since technology shocks might disrupt established power relationships in television, interactions between TV broadcasters and distributors incur tensions and conflicts of interests. It is argued that each party controls crucial platform resources and that the broadcaster-to-distributor market is organized around two converging TV platforms that unfold enveloping strategies and thus provoke power conflicts. One of the major assumptions of this dissertation is the mutual dependency between broadcasters and distributors, which leads to the conclusion that the market is marked by bilateral bargaining power, and needs to deal with double-marginalisation problems. Although both parties may have bargaining power, relationships between broadcasters and distributors are often characterised by power asymmetries, either in favour of the broadcaster or distributor. In the ever-increasing complex TV ecosystem, broadcasters as well as distributors are looking for outside opportunities to lessen dependence on their counterparty, and build strategic advantage during carriage negotiations. However, pricing power usually remains with the distributors, which eventually decide about the possible carriage and the package (basic or upgraded), and the position of the channel in that package (or in the electronic programming guide). A gatekeeping position allows distributors to pressure broadcasters to demand lower wholesale (input) prices. On top, distributors leverage bargaining power through the ownership of affiliated channels that directly compete access-seeking broadcasters. In a similar vein, owners of premium rights or must-have channels leverage their popularity and exclusivity in order to bargain higher retransmission payments from distributors. Whereas existing frameworks hold that competitive advantage essentially rests on the activities a firm performs within the value chain, it is claimed here that a firm’s position in the value chain does not adequately explain why different firms with similar activities have different levels of bargaining power. Rather than sticking to hollow aphorisms like ‘Content is King, but Distribution is King Kong’, it is assumed that the allocation of power between broadcasters and distributors crucially depends on the politico-economic context of broadcasting and its distribution, including the set of complex relationships between different parties in the business ecosystem. Since bargaining power in the broadcaster-to-distributor market tends to be context-specific and varies between different local settings, it is determined by the allocation of scarce resources in the industry, the individual nature of the broadcaster-to-distributor relationship and potential path dependencies in media and telecommunication policies. Hence, the major research objective is to study the interactions between broadcasters and distributors, and identify, in a qualitative way, those contextual variables that define bargaining power in broadcaster-to-distributor relationships. Although Porter’s model is still relevant for analysing the industry environment, the complexity of broadcasting and distribution markets and the speciality of carriage negotiations demands for a more specific framework to examine relationships and power conflicts between broadcasters and distribution. Following a resource-centric perspective, the ownership and control of strategic assets are considered determinants of bargaining power. Based on a literature review and interviews with 36 media managers and experts, it was possible to come up with a multidimensional and multilevel approach to bargaining power and to construct a complex of interrelated power attributes (clustered in five dimensions) that influence a firm’s competitive position in carriage negotiations. On the macro level, a number of legal provisions and regulatory requirements strongly affect the carriage negotiations. Reference is made to telecommunications rules, competition law, media-specific regulation and copyright law. On the meso level, the model suggests that the market structure forms an important factor in the creation of bargaining power. Industry concentration, number of business partners, entry barriers and the threat of technological progress are identified as critical parameters. On the micro level, the structure of the negotiating firms needs to be taken into account to assess bargaining power. Hence, firm-specific characteristics of broadcasters and distributors involved in a carriage negotiation include relative firm size, conglomerateness, vertical integration and financial resilience. Next to firm characteristics, emphasis is put on product differentiation as a source of a bargaining power. Product characteristics are related to the market and industry structure, and predominantly refer to product differentiation, exclusivity, bundling and switching costs. On the individual level, psychological, emotional and interpersonal issues play a decisive role in carriage negotiations.