Working Paper: CEPR ID: DP5223
Authors: Simon P. Anderson; Jean Jaskold Gabszewicz
Abstract: Media industries are important drivers of popular culture. A large fraction of leisure time is devoted to radio, magazines, newspapers, theInternet, and television (the illustrative example henceforth). Most advertising expenditures are incurred for these media. They are also mainly supported by advertising revenue. Early work stressed possible market failures in program duplication and catering to the LowestCommon Denominator, indicating lack of cultural diversity and quality. The business model for most media industries is underscored byadvertisers? demand to reach prospective customers. This business model has important implications for performance in the market since viewer sovereignty is indirect. Viewers are attracted by programming, though they dislike the ads it carries, and advertisers want viewers as potential consumers. The two sides are coordinated by broadcasters (or 'platforms') that choose ad levels and program types, and advertising finances the programming. Competition for viewers of the demographics most desired by advertisers implies that programming choices will be biased towards the tastes of those with such demographics. The ability to use subscription pricing may help improve performance by catering to the tastes of those otherwise under-represented, though higher full prices tend to favour broadcasters at the expense of viewers and advertisers. If advertising demand is weak, program equilibrium program selection may be too extreme as broadcasters strive to avoid ruinous subscription price competition, but strong advertising demand may lead to strong competition for viewers and hence minimum differentiation (la pensee unique). Markets (such as newspapers) with a high proportion of ad-lovers may be served only by monopoly due to a circulation spiral: advertisers want to place ads in the paper with most readers, but readers want to buy the paper with more ads.
Keywords: Advertising; Finance; Circulation Spiral; Pensee Unique; Platform Competition; Two-Sided Markets
JEL Codes: D43; L13; L82; M37; Z11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| advertising demand (M37) | programming choices (C88) |
| programming choices (C88) | viewer satisfaction (Y10) |
| advertising demand (M37) | market performance (G14) |
| advertising demand (M37) | viewer satisfaction (Y10) |
| advertising demand weak (M37) | extreme programming choices (C90) |
| extreme programming choices (C90) | market performance (G14) |