MARKET STRUCTURE AND MEDIA DIVERSITY

I. INTRODUCTION Information on news and current affairs can raise political awareness and promote a range of ideas. Under the assumption that unregulated media markets supply too little variety, many societies have charged regulators with ensuring there are sufficient opportunities for different, new, and independent viewpoints (diversity), and that media respond to the interests of their local communities (localism). (1) The Federal Communications Commission (FCC) has traditionally limited the amount of common- and cross-ownership of newspapers, radio, and television (TV) stations. Recently, the FCC relaxed ownership rules and refocused their attention on market forces, for example, consumer preferences and new media, such as satellite, the Internet, and Smartphone, in order to achieve their diversity and localism goals. Given the increase in choices through new media, supporters of greater ownership concentration argue that traditional media should be free to consolidate and use the efficiencies to provide more diverse and local news programming. Opponents question whether such efficiencies are achievable, and argue that large, consolidated media corporations are not flexible enough to serve the interests of local and minority communities. In this paper, we estimate consumer preferences for their local news and current affairs (news service) described by the offerings from newspapers, radio, TV, the Internet, and Smartphone. News service characteristics are: diversity of opinion in the reporting of information, coverage of multiculturalism issues, amount of information on community news and events, and amount of space or time devoted to advertising. We use our demand estimates to calculate the impact on consumer welfare from a change in media market structure that reduces the number of independent TV stations in the market by one. Specifically, we employ the willingness-to-pay (WTP) construct to measure the expected consumer welfare effects between the news service supplied to the consumer before the change in market structure and the service supplied after the change. We focus on broadcast TV stations because they are the main news for most households and because the FCC has direct oversight of their ownership. We estimate our demand model with data obtained from a nationwide survey of households during March, 2011. Results show that the representative consumer is willing to pay from $18 to $26 per month for an increase in diversity of opinion (and slightly more for community news) from a low to a medium level, but only an additional $6 to $7 to move to a high level of diversity of opinion (or community news). The representative consumer also values an improvement in information that reflects the interests of women and minorities from low to medium ($7). The representative consumer is willing to pay about $5 to avoid a change from a low to a medium level of advertising, but the much higher amount of $20 to avoid a change from a medium to a high level. Using FCC (2011) data on media market structure, we present evidence that indicates the amount of diversity, localism, and advertising in the news services supplied to consumers is lower in markets with one fewer independent TV station. As a result, the average "small market" (i.e., five or fewer TV stations) consumer loses $.83 per month, whereas the average "large market" (i.e., 20 or more TV stations) consumer loses $.37 per month. These losses are equivalent to $45 million annually for all small-market households in the United States and $13 million for large-market households. If the change in market structure occurs in all markets, aggregate losses nationwide would be about $681 million. Other studies have measured the relationship between information on news and current affairs and market structure. Flowever, these studies measure supply from just one of the media sources that comprise the consumer's news service; for example, Milyo (2007), Gentzkow (2007), and Gentzkow and Shapiro (2010) for newspapers, and Siegelman and Waldfogel (2001) and Crawford (2007) for radio and TV. …