How many viewers does a cable network need? A survival analysis of cable networks

Abstract

This article employs survival/duration analysis to determine how subscriber levels affect cable networks’ survival probabilities. Using piecewise-constant hazards estimation, we find that an additional one million subscribers increases a cable network's probability of survival in a given year by 17%.

Notes

¹ These revenue streams are quasi-rents and not profits, because they may not equal the sunk costs of entry, but still may be greater than the minimum revenue required to keep the cable network operating.

² Dixit (1989) explores this gap between the prices that induce exit and the prices that induce entry and finds that even a small gap induces significant hysterisis.

³ Of course, programmers may charge distributors on a per-subscriber basis, but that does not change the fact that the cost of making a program is fixed, and that the actual cost of making the program need not rise when the program reaches more subscribers.

⁴ Warren Communications, Television and Cable Factbook, Warren Publishing, 1984–2001.

⁵ The intuition of this proposition is illustrated in the following example: ten households are willing to pay $10 for an old classic movie channel, while 90 households are only willing to pay $1 for the same channel. The sum of households’ willingness-to-pay is $190. The most the single-price cable operator can obtain, however, is $100, by charging $10 and attracting only 10 households. This case represents a more convex demand schedule.

⁶ Consider this example: all 100 households in a system may be willing to pay $1.90 for a channel featuring game show re-runs. The cable operator charging a single price can obtain all $190 by charging $1.90 and attracting all 100 households. This case represents a more concave demand schedule.

⁷ To clarify, the operator would favour the programming network by carrying it under circumstances in which it would normally not carry a comparable network in which it lacks any ownership.

⁸ Because we obtain data on vertical integration and spinoff status from the same sources, any observation that is missing for vertical integration is also missing for spinoff status (though one more observation is missing for spinoff status), so that it is unnecessary to create a missing dummy variable for both vertical integration and spinoff status.

⁹ However, because all networks’ start dates are observed, left censoring problems are avoided.

¹⁰ These values are simply used to illustrate how to generate survival profiles and are not intended to suggest appropriate values for the calculation.

¹¹ For this analysis, we assume that Comcast reaches 21 million subscribers, because NCTA reports that Comcast reached approximately 21 million subscribers through its owned and managed systems as of December, 2003.

¹² The best Echostar could offer is a 45% chance of survival over a cable network's first 10 years.