The timing could hardly be better. As traditional television continues on its years-long decline—with millions of cable subscribers cutting the cord, broadcast audiences shrinking, and streaming splintering into a dozen rival platforms—this year’s Nobel Memorial Prize in Economic Sciences has gone to three scholars who have spent their careers studying this very kind of market transformation.
The Royal Swedish Academy of Sciences awarded the 2025 prize to Joel Mokyr, Philippe Aghion, and Peter Howitt for their research on innovation-driven economic growth. The committee highlighted their insights into the sources of long-term prosperity. For a detailed explanation of the laureates’ work, read Brian Albrecht post.
Their research is both revolutionary and relevant. Their ideas explain one of the most visible market transformations we can see from the comfort of our living rooms—the collapse of traditional television and the rise of streaming.
The Quality Ladder in Motion
Philippe Aghion and Peter Howitt received half the prize for their 1992 model that formalized what economist Joseph Schumpeter called “creative destruction.” Their framework is straightforward: economic growth happens as firms climb a “quality ladder.”
At any given moment, the market leader uses the best available technology. Growth occurs when a challenger invests in R&D, creates something better, and leapfrogs to a higher rung—earning profits while rendering the previous technology obsolete.
The video market maps onto this model. Broadcast television and cable companies sat at the top of the ladder for decades. Broadcast was constrained by the finite radio spectrum. Cable required enormous infrastructure investment—physical wires running to every home. These technological barriers created natural monopolies and tight oligopolies that faced minimal competitive pressure.
Then came the technological shock. A new body of what Joel Mokyr calls “useful knowledge” emerged. This included innovations in broadband internet, advanced video compression, adaptive bitrate streaming, and content-delivery networks (CDNs). Together, these technologies created a superior distribution method in nearly every way that consumers care about. Netflix, Hulu, and Amazon Prime Video now offer vast on-demand libraries accessible on any device, anywhere, at any time.
The data on market displacement tells the story. As of 2025, streaming commands 46% of U.S. television viewing time. Broadcast has fallen to 19% and cable to 23%. Traditional pay-TV subscribers are projected to drop below 50 million this year—less than half the peak from 15 years ago. The market has fragmented into competition so intense that it’s been dubbed “The Streaming Wars.”
This is creative destruction in action. Every household that cuts the cord, streams the Super Bowl on Tubi, or catches up with CBS’ Survivor the next day on Paramount+ participates in a creatively destructive act. Consumers are immeasurably better off, while legacy broadcasters and cable providers struggle.
Why Some Innovations Sustain and Others Fizzle
Joel Mokyr received the other half of the prize for identifying why the Industrial Revolution—unlike previous bursts of innovation—became self-sustaining. His answer addresses something fundamental about how progress actually works.
Mokyr distinguishes between two types of knowledge. “Prescriptive knowledge” is the craftsman’s know-how—techniques that work without explaining why. “Propositional knowledge” is scientific understanding that explains underlying principles. For most of history, these existed in separate spheres. Blacksmiths knew how to make steel without understanding the chemistry. That made innovation slow and prone to dead ends.
The Industrial Revolution’s breakthrough was fusing these two types of knowledge. Scientists developed theories about thermodynamics, and engineers used those theories to build better steam engines. The engines revealed new puzzles that scientists had to explain. Once established, this feedback loop became self-reinforcing.
The digital revolution followed the same pattern. Computer scientists and network engineers spent decades developing the theoretical foundations, such as information theory, data-compression algorithms, and distributed systems. Engineers then built practical technologies, such as streaming protocols, CDN architectures, and video codecs. Together, they created a distribution paradigm that leapfrogged spectrum scarcity and cable monopolies, making them less technologically relevant.
But Mokyr also emphasized that innovation requires institutional openness to change. Technological progress creates losers who will fight to preserve their privileges. The Enlightenment’s emphasis on reason and new political institutions helped reduce incumbent resistance during the Industrial Revolution.
The Regulatory Asymmetry Problem
The Aghion-Howitt model demonstrates that some market power is necessary; the prospect of temporary monopoly profits motivates R&D investment. But excessive entrenchment of incumbents stifles growth, so markets must remain contestable.
The current U.S. video regulatory framework fails this test. The problem isn’t too much or too little regulation but a profound asymmetry that distorts competition.
Legacy broadcasters remain bound by rules designed for mid-20th-century technological scarcity. They face national audience-reach caps of 39%, in addition to local-ownership restrictions. They must fulfill “public interest” obligations for local programming. They operate under the retransmission-consent regime, which has evolved into a mechanism transferring nearly $15 billion annually from cable distributors to broadcasters—costs ultimately borne by consumers.
Streaming services face none of these constraints. Built on internet distribution, they can serve 100% of the U.S. market with no ownership caps, public-interest mandates, or retransmission rules. Streamers compete globally without the regulatory apparatus that constrains broadcasters.
This asymmetry creates what might be called a “golden cage” for networks and broadcasters. The guaranteed revenue from retransmission fees blunts the incentive for broadcasters to invest aggressively in competitive streaming platforms. They’re simultaneously handicapped in the new market while being subsidized to remain in the old one.
The persistence of these obsolete rules represents the institutional friction that Mokyr identified as a threat to sustained growth. Established interests resist change, particularly when their existing privileges depend on outdated technological assumptions. The result is a regulatory framework that shields incumbents from full market competition, while simultaneously preventing them from achieving the scale needed to compete effectively in the new landscape.
The Clean Slate Test
The folly of the current framework becomes clear through a simple thought experiment: If over-the-air broadcasting were invented today, would we impose the existing regulatory regime? The answer is obviously no.
In a world of digital abundance, a one-to-many, linear-distribution technology is a niche supplement, not a foundational element of the media landscape that requires its own unique and burdensome regulatory framework.
Ownership caps to promote viewpoint diversity would make no sense when the internet offers effectively unlimited viewpoints. “Public interest” content mandates would be unnecessary when consumers have virtually endless access to news and educational content online. Must-carry and retransmission-consent rules would be unthinkable, because cable television would not be a bottleneck to access video content.
This suggests a different approach. Rather than endless tinkering with rules designed for a different technological era, policy should embrace principles for the market today and lay the groundwork for innovation in the future.
That begins with recognizing that broadcast, cable, and streaming aren’t separate markets, as far as consumers are concerned. They’re substitutes that compete for consumer attention and advertising dollars in a single integrated video-distribution market. Regulatory analysis should reflect this reality.
Toward this end, policymakers must embrace technological neutrality. Policymakers should sunset legacy regulations tied to specific distribution technologies. Similar services should face similar rules, regardless whether the signals arrive via antenna, cable, or internet connection.
In this world, ex ante structural regulations—such as ownership caps—are unnecessary, if not harmful. Regulators should instead rely on well-established antitrust enforcement. The proper government role is to intervene when concrete evidence demonstrates anticompetitive conduct that harms consumer welfare, rather than pre-judging market structures or evaluating competition on vague and ever-shifting “public interest” grounds.
This framework doesn’t dismiss concerns about media consolidation’s potential effects on local journalism and viewpoint diversity. These are legitimate public goods that markets may underprovide. The current regulatory apparatus, however, is an increasingly ineffective and costly tool to achieve those goals.
A technology-neutral antitrust framework focused on actual market power and consumer harm is more appropriate. If society values local news production above what markets provide, a targeted tax credit for hiring local journalists would be more efficient and transparent than maintaining a distortionary regulatory structure built for a different century.
Broader Implications
The video-market transformation offers lessons that extend well beyond media and entertainment. Across finance, transportation, health care, and energy, new technologies continuously emerge to challenge established business models. The question is always the same: Will institutions adapt to foster innovation, or will they calcify to protect incumbents?
In announcing this year’s prize, John Hassler, chair of the Nobel committee, noted that:
[E]conomic growth cannot be taken for granted. We must uphold the mechanisms that underlie creative destruction, so that we do not fall back into stagnation.
Technological change creates opportunities for sustained prosperity, but only if regulatory institutions can overcome inertia and the political power of established interests. The current regulatory framework for video content illustrates what happens when institutions fail this challenge. Legacy rules designed for spectrum scarcity have become barriers to efficient market operation in an era of digital abundance. They create distortions, slow adaptation, and prevent the competition that drives innovation.
Policymakers across sectors should internalize the laureates’ core insight that prosperity flows from continuous innovation, that innovation requires creative destruction, and that creative destruction requires institutions that embrace—rather than resist—change. The video market shows both the promise of getting this right, and the cost of getting it wrong.
