Much has changed since then, including the migration of many consumers from traditional cable and satellite service to streaming. One thing that has not changed, and that I discussed at length in my article, is the use of “most favored nations” (MFN) clauses and their effects on beloved independent programming providers like Hallmark Channel and Reelz. Regulators are now maneuvering to remedy this.

In markets, an MFN clause in a contract between two parties gives one party the legal right to terms and benefits equal to those received by anyone else who enters into a similar contract with the other party. So, for instance, if a provider is offering a good to one purchaser at a discounted rate, that provider must offer the same rate to other purchasers that have an MFN clause in their contracts. In the pay TV market, an MFN clause is a promise from a programming provider that every distributor can receive the same deal—or the same specific provision—offered to any other distributor.

MFNs limit the ability of independent programmers to take advantage of the opportunity that cord-cutting affords them to reach audiences without a distributor intermediary, while concomitantly constraining the independents’ growth in the traditional cable/​satellite sector. As a result, MFNs effectively reduce the amount (and diversity) of programming consumers have access to. A recent Notice of Proposed Rulemaking by the Federal Communications Commission would largely do away with MFN use in this market. Such a development would benefit those media consumers who still get most of their content from cable or satellite systems.

The industry / The number of available video offerings has grown exponentially over the last four decades. That growth has accelerated of late with the rapid expansion of video streaming over the internet—and outside of the traditional cable and satellite distributors. Today there are hundreds of video programming networks, and billions of dollars are spent each year producing and acquiring the rights to shows, movies, sporting events, and myriad other types of content for distribution.

There are four major distributors (or “Multichannel Video Programming Distributors”) in the United States through which a majority of households get their video programming: Comcast, Charter, AT&T/DirecTV, and DISH. Despite the dramatic trend toward internet streaming of programming, 56 million households still access video programming networks via a cable or satellite distributor subscription, representing 43 percent of all US households.

Two major factors drive distributor costs: the capital investment and service costs for deploying and maintaining their systems and the cost of acquiring content. Distributors negotiate carriage rights with the programming networks and typically pay a monthly per-subscriber “carriage fee” for each channel. Programming networks make their money both from the fees as well as the advertising they sell on their channels.

Most programming channels are members of network families, many of which are owned by major distributors. For instance, Comcast owns NBC, CNBC, Bravo, E!, and a few other networks. Large multimedia companies also own suites of networks: Disney owns ABC, Lifetime, A&E, the Disney Channel, and ESPN and its sister networks. Fox, Viacom, Time Warner/​Discovery, A&E, and AMC are other multimedia companies that have multiple networks. These entities negotiate the carriage fees for their entire lineup of channels as a package.

The small number of cable and satellite distributors can leverage their collective oligopsonistic market power to pay lower prices than if there were real per-channel competition. An effective oligopsony would result in fewer program networks and fewer programs. The distributors wouldn’t necessarily pass those lower costs onto consumers because there are no market forces nudging them to do so.

However, the oligopsonistic distributors mainly negotiate with an oligopolistic group of multimedia companies that own most of the networks: 97 of the 108 most-watched channels are owned by one of the major multimedia companies. Oligopolies—much like monopolies—extract higher prices from buyers and concomitantly sell less than the efficient amount.

Table 1 compares the fees paid by distributors to selected independent channels as well as to comparably rated channels owned by oligopolies. The table shows that ratings and household delivery do not directly translate into the value of subscriber fees that distributors grant to independent networks. The independent networks receive a fraction of the monthly subscriber fees paid to networks with similar or lower Nielsen ratings owned by large multimedia companies. The bargaining power of the large programming conglomerates allows them to extract higher fees for their channels.

Independents and MFN clauses / While oligopolies and oligopsonies by themselves can lead to suboptimal outcomes, the presence of both creates a bilateral oligopoly whereby each side’s market power tempers the other, and the market price can approach the efficient market outcome, benefiting consumers.

However, the bilateral oligopolistic outcome does not benefit the independent networks whose rights are sold alone by their company, unbundled with any other offerings. They have no market power when negotiating their carriage fees with the distributors, and the terms intended to govern the bilateral oligopoly—particularly MFN clauses—put the independents at a disadvantage.

For example, if Comcast pays the Tribune Corporation 13¢ a month per customer to carry WGN, and Charter offers to pay Tribune 10¢ a month to carry WGN but would provide it a favorable channel placement, Comcast would get to pay 10¢ as well—and without being required to match the favorable channel placement. Essentially, the MFN amplifies the economic losses from a reduction in monthly payments.

MFNs give distributors too much power over the independent channels by precluding customized pricing arrangements with distributors. For instance, an independent network that wants to offer a short-term low introductory rate to a distributor in exchange for a commitment to launch the network on its system cannot do so because other large distributors could demand the same low carriage fee. MFNs effectively preclude independent networks from providing streaming distributors with launch incentives.

Opening up the market / Economic theory suggests that countenancing MFNs facilitates bilateral monopolies in this market, but they harm the market for independent networks, resulting in fewer independent networks. The data show independent networks receive significantly lower carriage fees compared to networks with similar or lower ratings that are owned by large multimedia companies with multiple other networks or networks that are vertically integrated with a large distributor.

I obtained 2024 data on 118 different networks that included each network’s carriage fees, average ratings, and ownership status. I ran a regression analysis with carriage fees as the dependent variable and ratings as the primary independent variable. I also included three dummy variables for sports channels, channels in the Comcast package, and channels in the Fox package. The regression includes a dummy variable that equals 1 if the network is independent.

The results show that being an independent channel is associated with a subscriber fee that is 43¢ per month lower on average than an equivalent station owned by one of the large distributors. The difference is significant at the 95 percent confidence interval. Table 2 displays the regression results. It appears that MFNs have served to depress carriage fees for independent networks.

Conclusion / The video market has changed radically in the last decade. More consumers are opting to go without cable or a satellite dish to obtain programming directly from a network. However, the increasing cultural significance of sports and the ingrained habits of older viewers to watch television shows when they first appear on a network suggest there are no immediate prospects for the current business model of cable or satellite systems to wither away.

Providing the additional lever of MFN status to enhance market power for the distributors that already have a surfeit of it hurts the independents and dampens the incentives for new networks to be formed, except for those conceived by the established multimedia entities.

Promoting multiple diverse independent voices has been a cornerstone of US communications policy since the enactment of the Communications Act in 1934. The barriers to enter the national video marketplace are high. In addition to raising the tens of millions of dollars necessary to obtain or develop programming, a new network needs to obtain the necessary carriage agreements with all the major distributors. As a result of these and other marketplace factors, entrepreneurs struggle to launch new independent networks, and many of the existing ones struggle to fund original programming or are going out of business.

The advances in information technology have made it less costly to create and distribute new content. But the oligopolistic structure of the industry and the contractual constraints imposed on programming networks make it more difficult for new independent stations to get their programming to large numbers of potential viewers. Ending MFNs in this market would benefit consumers.