An Economic Theory of Censorship Revisited

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Although published in 2003, An Economic Theory of Censorship is actually based on insights I derived more than a decade earlier, while serving as deputy general counsel of the Federal Communications Commission (FCC) from 1987 to 1989. Because of technological change, over-the-air terrestrial broadcasting is of course a far less important industry in the United States in 2020 than it was 30 years ago, much less 90 years ago. With ever more sophisticated communications technologies come ever more sophisticated strategies for suppressing disfavored electronic speech. Federal regulators since the early 1930s have sought to control broadcast content. With that experience as prologue, the FCC’s sustained inability to provide a persuasive rationale for the newspaper-television cross-ownership rule invites the question whether the rule serves a function that is politically expedient, opaque, and durable—but constitutionally illegitimate.

Through economic analysis, one can hypothesize such a function. Though ostensibly a structural regulation of the broadcast industry, the newspaper-television cross-ownership rule increases a broadcaster’s vulnerability to political efforts to control content. The rule does so by raising the amount of the broadcaster’s investment in his station that is at risk of loss if the FCC does not renew his license. Asset-specific investment by the broadcaster exposes him to the risk that the regulator can influence the broadcaster’s content choices by threatening to terminate the revenue stream necessary to recover the portion of the broadcaster’s investment that remains undepreciated at the end of the current license term. The regulator’s ability to block cost recovery of the broadcaster’s undepreciated asset-specific investments thus can provide the lever for government control of broadcast content.

Extreme skepticism is therefore warranted when the FCC represents that the newspaper-television cross-ownership rule has no potential to infringe freedom of speech or of the press. The D.C. Circuit’s 1988 decision in News America Publishing Co. v. FCC is evidence that enforcement of the rule by the FCC is susceptible to influence by those in government who wish to punish publishers and broadcasters who criticize powerful public officials.

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Cite as

J. Gregory Sidak, An Economic Theory of Censorship Revisited, 5 Criterion J. on Innovation 101 (2020).