A La Carte and 'Family Tiers' as a Response to a Market Defect in the Multichannel Video Programming Market

Many policymakers have recently expressed concern over the practice of multichannel video programming distributors ("MVPDs") such as cable and satellite video providers, to "bundle" a large number and variety of channels together into a "take-it-or-leave-it" package. In this BULLETIN, we describe a set of circumstances in which a market defect will lead to the bundling of potentially objectionable content with generally desired content. Our model focuses on the role that advertisers and video programming vendors play in the network bundling of MVPDs. Our economic model illustrates the role these "third parties" play in an MVPD's decision to deliver particular channels of video programming to households in a "forced bundle" of desired and potentially objectionable programming that does not give consumers the option to exclude objectionable programming from the purchased bundle. Forced bundles appear in both monopoly and competitive structures because the conditions that give rise to this market defect make these "forced bundles" resistant to changes in market structure. As a result, policymakers should look at all participants in the multichannel video distribution market, not just retail distributors, as potential sources of forced bundling problem