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Broadcasting, Advertising Finance, and the Rationale for Public Broadcasting

Broadcasting, Advertising Finance, and the Rationale for Public Broadcasting. Simon P. Anderson Hans Jarle Kind Guttorm Schjelderup Bologna, 5 th Media Economics Conference October 16-17 2007. background. 2-sided market performance: may not serve segments of low value to high-paying side

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Broadcasting, Advertising Finance, and the Rationale for Public Broadcasting

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  1. Broadcasting, Advertising Finance, and the Rationale for Public Broadcasting Simon P. Anderson Hans Jarle Kind Guttorm Schjelderup Bologna, 5th Media Economics Conference October 16-17 2007

  2. background • 2-sided market performance: may not serve segments of low value to high-paying side • Steiner, Beebe models • Allow for viewers worth different amounts • Role of public broadcaster • Extension to ad competition (nuisance) Model the product differentiation structure • Armstrong-Weeds; Anderson-Gabszewicz

  3. Steiner, 1952 • Principle of Duplication • Single program type per viewer type • 700,000 watch only game show • 300,000 watch only opera People equally valuable to advertisers • 2 stations, duplicate GameShow • Monopoly would air both with 2 channels • Public Broadcaster: air Opera (private airs GS) • (do not succumb to pressure to serve majority)

  4. Duplication • Steiner. Duplication.

  5. riddle • Like Boulding Principle of Minimum Diff For spatial model • Suppose 2 private, 1 public firms • private: max market length • Public: maximize social welfare • What equilibrium locations ?

  6. Differing values to advertisers(disenfranchised viewers) • 51%, 20+, prefer Sitcom • 49% OAPs prefer Nature 20+ are each worth 3 times as much • 3 channels – all SitComs • Make 1 Public; air Nature: 20+ no worse off; advertisers neither! Advertisers better off if Public accepts ads JUST replace market size with economic worth in S

  7. LCD tastes • Beebe. Lowest Common Denominator. Country-rock; talk-rock; news-rock Monopoly may provide only rock (LCD) Competition caters to individual groups

  8. Beebe and the Lowest Common Denominator

  9. Beebe Table • 2 competing each air GS (LCD) • Duplication, now at a lower level • Make 1 Public – should air S or N • More pronounced version:

  10. Beebe and the Lowest Common Denominator (2)

  11. Beebe Table (2) • 2 competing each air S (not LCD) • Make 1 Public – should air N; now all served! • Variations of above when viewer worth differs … • Next: intro ad nuisance and comp into above

  12. Steiner: with ad nuisance • u i = r – γiai i = 1,…,K; u 0 = 0 • γi nuisance/ad; ai ads on channel i, Ni potential viewers on program type i • Res price, r, uniform on [0, Ri] • Hence number of viewers: Di = (1 – γiai/Ri) Ni CSi = (Ri – γiai)2 Ni /2Ri

  13. Steiner; ad nuisance • Profits: πi = vi ai Di with Di = (1 – γiai/Ri)Ni • So choose aMi = Ri/2γi • πi* = vi Ri Ni/4γi • So, if Bertrand in niche; choose those for which this is greatest • Can consider Cournot variant (ad levels adjust) • Next: Public Broadcaster; also, extending Beebe

  14. Public Broadcaster in Steiner • Public carries ads iff γi < vi • Surplus: Si = (viai + (Ri– γiai)/2) (Ri– γiai)Ni /Ri • Gives optimal ads - below monopoly level as it internalizes the ad nuisance (ad market power effect has been shut down here) • Which channel ? - where incremental surplus highest; e.g. high γi

  15. LCD structures • 1 LCD program, M others • “Hotelling” on each arm • Can also do LCD with other duopoly models. • Ad revenues proportional to ads • Nuisance $γi/ad: set γi = 1 • Ni viewers per arm, worth vi each • Suppose first all arms are occupied, later deal with “empty” arms

  16. Preliminaries to Beebe-Hotelling • Recall: ui = R + qi – ai – t|x - xi|, xi = {0, 1} xind = ½ + [(q0 – a0 )- (q1 – a1 )]/2t Hence best-reply: 0 = ½ + [(q0 – 2a0 ) - (q1 – a1 )]/2t or a0 = t/2 + [(q0 - q1 ) + a1 ]/2 and a1 = t/2 + [(q1 – q0 ) + a0 ]/2 (strategic complements) So a*0 = t +(q0 - q1 )/3 and a*1 = t + (q1 – q0)/3

  17. For Monopoly segments • For segments without a competitor: xind = [Ri + (q0 – a0)]/t Hence best action. Putting together: markets linked through LCD, although not a direct strategic link.

  18. Solution (qualities suppressed): • a0 = (4ΣERi vi +3t ΣFvi ) / (8ΣEvi +3ΣFvi ) • Familiar forms when: - Single empty market: a0 = Ri / 2 • Single full market: a0 = t Otherwise, multi-market contact spillovers. [non-LCD profit is simply vi [a0+ t]/4t, so tend to take high valuation slots] Now, suppose one private is rendered public

  19. Setting one station public • As with Steiner analysis, Public wants lower ad level to internalize viewer nuisance • Here we have strategic complements, so Lower LCD ad level Lower ads on other stations Raises welfare throughout Which station? Add low value/nuisance; substitute one with a high nuisance.

  20. Riddle solution • 2 private companies at ¼ • Public broadcaster at ¾ • Public serves ½ the market • Existence in pure strategies

  21. conclusions • Extend Steiner and Beebe to different viewer worth and Ad nuisance • Illustrated performance shortcomings with public firm Further work needs to address Does monopoly perform better than comp? Which program type(s) to produce? • Positive theory of Public Broadcaster • NPR (voluntary contributions) business model

  22. The role for Public TV • Early history: control info (cold war, WWII) • Weak ad demand, exclusion infeasible: public good • Stronger ad demand: disenfranchisement problem • With exclusion now possible, is there a role? • Provide for disenfranchised poor • are these the programs we see? • arts subsidy, cultural export, local content • Altering performance of private sector • Modeling issue: citizen candidate, SW max?

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