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National Media and the Market for Local Products

National Media and the Market for Local Products. Lisa George Department of Economics Hunter College and the Graduate School, CUNY. 5th Workshop on Media Economics University of Bologna October 2007. Introduction. The product using TV most successfully to date is beer.

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National Media and the Market for Local Products

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  1. National Media and the Market for Local Products Lisa George Department of Economics Hunter College and the Graduate School, CUNY 5th Workshop on Media Economics University of Bologna October 2007

  2. Introduction The product using TV most successfully to date is beer. -- Sponsor Magazine, 1948 The angel of death for the brewing industry was the television tube. It changed the whole nature of the beer industry. You had Pabst coming in with their Friday night fights, all kinds of stuff like that, and the little guys were just overwhelmed. -- Interview with William Coors, Modern Brewery Age, September 13, 1999

  3. Introduction • What happens when the cost of distributing information declines? • Within media markets • Better, more specialized media available everywhere • Consumers may lose interest in local media • Beyond media markets • Social networks? • Political behavior? • Product markets? • Mechanisms: Content, Advertising

  4. Context and Question • Question: Did the Spread of Television Contribute to the Decline of Local Breweries? • Context: • Rapid expansion of television (96% access by 1960) • Shift from local to national advertising • Extensive national beer advertising (84% in 1952) • Consolidation of brewing industry • Trends • Brewery Consolidation • Beer Advertising • Television Penetration

  5. Independent Mass-Producing Brewers, 1950-2000

  6. Brewing Industry Concentration, 1950-2000

  7. Brewing Industry Concentration, 1950-2000

  8. Television Penetration, 1945-1960

  9. Beer Advertising Expenditure, 1950-2000

  10. Television Advertising, 1949-1969

  11. Literature • Industry Concentration • Decreasing Costs • Peltzman (1977, 1979) -- 165 industries • Strategic Advertising • Scherer (1979) – consumer vs. intermediate goods • Brewery Consolidation • Production Scale Economies • Elzinga (1982) • Advertising Scale Economies • Greer (1971, 1981) • Television & Advertising • Beer Advertising • Peles (1971) • Endogenous Advertising Expenditure • Sutton (1991)

  12. Local Producer Dilemma • Product Market = Newspaper TV Market • Advertising Cost avnp = an = aq • Product Market < TV Market • Advertising Cost avtv= 2an = 2qn • Effective Ad Price Higher for Local Producers • As viewers watch more and read less, local firms with product market < TV market face higher prices than national firms

  13. Beer on TV • 1945 Narragansett Beer sponsors first telecasts of Boston Red Sox games • 1947 Hyde Park brewery St. Louis runs first prerecorded beer ad with “Albert The Stick Man” • 1947 Regional Sponsorships • Griesedieck Beer in St. Louis • Goebel Beer in Detroit • Keeley, Peter Fox and Canadian Ace in Chicago • National Bohemian Beer in Baltimore • Sunshine Beer in Reading • 1950’s Advertising Growth • Carling, LaBatt’s, Blatz Beer • 1960’s Local vs. National Beers • Koehler Beer in Erie: “Uncle Jackson’s Watching” • Burger Beer in Cincinnati: “Don't be bamboozled by out-of-town beers.” • “Some beers come from Milwaukee; Some come from over the sea; But I'm not bamboozled, cuz my beer is Burger; My beer's from the same place as me.” • Ortlieb’s Beer in Philadelphia: “In the beer business, when you bump another brand out of a bar, it's called 'knocking off a spigot.' Those big guys can knock off my spigots, but they can't knock off my taste.”

  14. Data • Television Penetration (Television Factbook) • 1945-1965 TV Stations • DMA Population with TV Access • TV Pop, 2-TV Pop, TV Fraction, 2-TV Fraction • Brewery Data (American Breweries II) • 1945-1965 Brewery Locations & Owners • All Breweries, Local Breweries, Local Brewery Fraction • Production Data (The US Brewing Industry) • Local Brewery Output • Data Limitations

  15. Empirical Strategy • Goal: Measure the effect of TV penetration on • Number of local breweries in a market • Fraction of local breweries in a market • Local brewery output • Estimation Strategies • Basic Fixed Effects (1) NMt = a0 + a1TVMt + vt+ gM + eMt • Time Trend (2) NMt = a0 + a1TVMt + a2t + a3 TVMt_t + gM + eMt • FCC Licensing Freeze

  16. Sample Statistics

  17. Effect of TV on Local Breweries (Fixed Effects)

  18. Effect of TV on Local Breweries (Time Trend)

  19. Local Brewery Declines in Freeze Markets

  20. Local Breweries in Freeze and Non-Freeze Markets

  21. Local Brewery Output

  22. Results -- Summary • Adding 0.2 million viewers (TV increase 1950-55) • Increases non-local breweries by 0.014 (7%) • Reduces local breweries by 0.05 or (1.1%) • Adding 0.64 million viewers (TV increase 1945-50) • Increases non-local breweries by 0.043 (20%) • Decreases local breweries by 0.16 (3.5%) • Moving 0 to 100% TV penetration reduces local share by 0.023 (3%) • Spread of TV explains about 18% of the total decline

  23. Conclusion • The expansion of television appears to be associated with the decline of local breweries • The industrial organization of media markets appear to matter in product markets • Current implications? • Niche markets and mass customization? • Media outsiders • Markets • Restaurants • Pharmaceuticals

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