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Business Models for Media Firms: Does Competition Matter for how they Raise Revenue?

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  • Hans Jarle Kind
  • Tore Nilssen
  • Lars Sørgard

Abstract

The purpose of this article is to analyze how competitive forces may influence the way media firms like TV channels raise revenue. A media firm can either be financed by advertising revenue, by direct payment from the viewers (or the readers, if we consider newspapers), or by both. We show that the scope for raising revenues from consumer payment is constrained by other media firms offering close substitutes. This implies that the less differentiated the media firms’ content, the larger is the fraction of their revenue coming from advertising. A media firm’s scope for raising revenues from ads, on the other hand, is constrained by how many competitors it faces. We should thus expect that direct payment from the media consumers becomes more important the larger the number of competing media products.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2713.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2713

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References

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  1. Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2006. "Competition for Viewers and Advertisers in a TV Oligopoly," CESifo Working Paper Series 1862, CESifo Group Munich.
  2. Yong Liu & Daniel S. Putler & Charles B. Weinberg, 2004. "Is Having More Channels Really Better? A Model of Competition Among Commercial Television Broadcasters," Marketing Science, INFORMS, vol. 23(1), pages 120-133, July.
  3. Jean J. Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004. "Programming and Advertising Competition in the Broadcasting Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 657-669, December.
  4. Kind, Hans Jarle & Nilssen, Tore & Sørgard, Lars, 2005. "Financing of Media Firms: Does Competition Matter?," Memorandum 01/2005, Oslo University, Department of Economics.
  5. Spence, A Michael & Owen, Bruce, 1977. "Television Programming, Monopolistic Competition, and Welfare," The Quarterly Journal of Economics, MIT Press, vol. 91(1), pages 103-26, February.
  6. Peter J. Danaher, 2002. "Optimal Pricing of New Subscription Services: Analysis of a Market Experiment," Marketing Science, INFORMS, vol. 21(2), pages 119-138, February.
  7. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  8. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
  9. Anthony Dukes & Esther Gal–Or, 2003. "Negotiations and Exclusivity Contracts for Advertising," Marketing Science, INFORMS, vol. 22(2), pages 222-245, November.
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  11. Kenneth C. Wilbur, 2008. "A Two-Sided, Empirical Model of Television Advertising and Viewing Markets," Marketing Science, INFORMS, vol. 27(3), pages 356-378, 05-06.
  12. David Godes & Elie Ofek & Miklos Sarvary, 2009. "Content vs. Advertising: The Impact of Competition on Media Firm Strategy," Marketing Science, INFORMS, vol. 28(1), pages 20-35, 01-02.
  13. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
  14. Esther Gal-Or & Anthony Dukes, 2006. "On the Profitability of Media Mergers," The Journal of Business, University of Chicago Press, vol. 79(2), pages 489-526, March.
  15. Esther Gal-Or & Anthony Dukes, 2003. "Minimum Differentiation in Commercial Media Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(3), pages 291-325, 09.
  16. GABSZEWICZ, Jean & LAUSSEL, Didier & SONNAC, Nathalie, 2002. "Attitudes toward advertising and price competition in the press industry," CORE Discussion Papers 2002026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. Peitz, Martin & Valletti, Tommaso, 2004. "Content and Advertising in the Media: Pay-TV versus Free-To-Air," CEPR Discussion Papers 4771, C.E.P.R. Discussion Papers.
  18. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  19. Beebe, Jack H, 1977. "Institutional Structure and Program Choices in Television Markets," The Quarterly Journal of Economics, MIT Press, vol. 91(1), pages 15-37, February.
  20. Goettler, Ronald L & Shachar, Ron, 2001. "Spatial Competition in the Network Television Industry," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 624-56, Winter.
  21. S. Siddarth & Amitava Chattopadhyay, 1998. "To Zap or Not to Zap: A Study of the Determinants of Channel Switching During Commercials," Marketing Science, INFORMS, vol. 17(2), pages 124-138.
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Citations

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Cited by:
  1. Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2010. "Price Coordination in Two-Sided Markets: Competition in the TV Industry," CESifo Working Paper Series 3004, CESifo Group Munich.
  2. Harald Nygard Bergh & Hans Jarle Kind & Bjørn-Atle Reme & Lars Sørgard, 2012. "Competition between Content Distributors in Two-Sided Markets," CESifo Working Paper Series 3885, CESifo Group Munich.
  3. Brekke, Kjellr Arne & Nilsen , Tore, 2011. "The Market for Fake Observations," Memorandum 25/2011, Oslo University, Department of Economics.
  4. Yu-Fu Chen & Michael Funke, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," CESifo Working Paper Series 2759, CESifo Group Munich.
  5. Dietl, Helmut & Lang, Markus & Lin, Panlang, 2013. "Advertising pricing models in media markets: Lump-sum versus per-consumer charges," Information Economics and Policy, Elsevier, vol. 25(4), pages 257-271.
  6. Reisinger, Markus & Ambrus, Attila & Calvano, Emilio, 2013. "Either or Both Competition: A "Two-Sided" Theory of Advertising with Overlapping Viewerships," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79912, Verein für Socialpolitik / German Economic Association.
  7. Monic Sun & Feng Zhu, 2011. "Ad Revenue and Content Commercialization: Evidence from Blogs," Working Papers 11-32, NET Institute.
  8. Helmut M. Dietl & Markus Lang & Pannlang Lin, 2012. "The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV," Working Papers 315, University of Zurich, Department of Business Administration (IBW).
  9. Anderson, Simon P & Foros, Øystein & Kind, Hans Jarle, 2012. "Product quality, competition, and multi-purchasing," CEPR Discussion Papers 8923, C.E.P.R. Discussion Papers.
  10. Daniel Halbheer & Florian Stahl & Oded Koenigsberg & Donald R. Lehmann, 2013. "Digital Content Strategies," Working Papers 329, University of Zurich, Department of Business Administration (IBW).
  11. Reisinger, Markus, 2012. "Platform competition for advertisers and users in media markets," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 243-252.
  12. Kind, Hans Jarle & Nilssen, Tore & Sørgard, Lars, 2014. "Inter-Firm Price Coordination in a Two-Sided Market," Discussion Paper Series in Economics 16/2014, Department of Economics, Norwegian School of Economics.
  13. Huang, Jian & Leng, Mingming & Liang, Liping, 2012. "Recent developments in dynamic advertising research," European Journal of Operational Research, Elsevier, vol. 220(3), pages 591-609.
  14. Rennhoff, Adam D. & Wilbur, Kenneth C., 2012. "Local media ownership and media quality," Information Economics and Policy, Elsevier, vol. 24(3), pages 231-242.
  15. Hans Jarle Kind & Lars Sørgard, 2013. "Market Segmentation in Two-Sided Markets: TV Rights for Premier League," CESifo Working Paper Series 4060, CESifo Group Munich.

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