Document Type

Article

Publication Date

3-16-2010

Abstract

The analog to digital "DTV transition" completed in June 2009 was a technological event unprecedented in scale in the broadcast television industry. The final analog cutoff for TV stations culminated more than ten years of complex regulatory decisions. Facing concerns that costs and revenue could change dramatically, stations chose when to transition in response to both market and regulatory forces. The history of broadcasting reveals a continual interplay between consumer demand, technological change, and regulation. This article describes the various forces that influenced the DTV transition, and empirically examines the stations’ decisions regarding when to switch. The economic and strategic aspects of the stations’ business decisions are modeled with tools from decision theory and game theory that reveal the costs and benefits of switching to DTV. In the decision theoretic model we develop, a station’s management considers only its own power costs and the effect of its own decision on its viewership when deciding to switch early. The game theoretic model incorporates strategic thinking, where a station manager considers the impact of other stations’ decisions on its profit when making its choice. The stations’ decisions are in line with the predictions of the models. The results indicate that station managers considered their cost savings and the potential to lose viewers, but also that they were thinking strategically when they made their transition decisions. The results thus provide insight into the stations’ decision-making process, which can help market observers and regulators better understand the calculus of the industry.

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