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The Effectiveness and Targeting of Television Advertising

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  • Ron Shachar
  • Bharat N. Anand

Abstract

Television networks spend about 16% of their revenues on tune‐ins, which are previews or advertisements for their own shows. In this paper, we examine two questions. First, what is the informational content in advertising? Second, is this level of expenditures consistent with profit maximization? To answer these questions, we use a new and unique micro‐level panel dataset on the television viewing decisions of a large sample of individuals, matched with data on show tune‐in advertisements. The difference in effectiveness of advertisements between “regular” shows (about which viewers are assumed to have substantial information a priori) and “specials” (about which they have very little) reveals the value of information in advertisements and the different roles that information can play. The number of exposures for each individual is likely to be correlated with their preferences, since networks target their audiences. We address this endogeneity problem by controlling for observed, and integrating the unobserved, characteristics of individuals, and find that the estimated effects of tune‐ins are still large. Finally, we find that actual expenditures on tune‐ins closely match the predicted optimal levels of spending.

Suggested Citation

  • Ron Shachar & Bharat N. Anand, 1998. "The Effectiveness and Targeting of Television Advertising," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(3), pages 363-396, September.
    • Handle: RePEc:bla:jemstr:v:7:y:1998:i:3:p:363-396
    DOI: 10.1111/j.1430-9134.1998.00363.x
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    References listed on IDEAS

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    1. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 63-81.
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    Cited by:

    1. Jungwon Yeo, 2017. "The Weekend Effect in Television Viewership and Prime-Time Scheduling," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(3), pages 315-341, November.
    2. Anderson, Simon P. & Gabszewicz, Jean J., 2006. "The Media and Advertising: A Tale of Two-Sided Markets," Handbook of the Economics of Art and Culture, in: V.A. Ginsburgh & D. Throsby (ed.), Handbook of the Economics of Art and Culture, edition 1, volume 1, chapter 18, pages 567-614, Elsevier.
    3. C. Clark & Ulrich Doraszelski & Michaela Draganska, 2009. "The effect of advertising on brand awareness and perceived quality: An empirical investigation using panel data," Quantitative Marketing and Economics (QME), Springer, vol. 7(2), pages 207-236, June.
    4. Niebler, Sarah & Urban, Carly, 2017. "Does negative advertising affect giving behavior? Evidence from campaign contributions," Journal of Public Economics, Elsevier, vol. 146(C), pages 15-26.
    5. Nilssen, Tore & Sørgard, Lars, 2000. "TV Advertising, Program Quality, and Product-Market Oligopoly," Competition Policy Center, Working Paper Series qt2zp943hj, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    6. Bharant N. Anand & Alexander Galetovic, 1998. "Weak Property Rights and hold-up in R&D," Documentos de Trabajo 39, Centro de Economía Aplicada, Universidad de Chile.
    7. Celik, Levent, 2016. "Competitive provision of tune-ins under common private information," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 113-122.
    8. Doraszelski, Ulrich & Draganska, Michaela & Clark, C. Robert, 2007. "Information or Persuasion? An Empirical Investigation of the Effect of Advertising on Brand Awareness and Perceived Quality using Panel Data," Research Papers 1971, Stanford University, Graduate School of Business.
    9. Levent Çelik, 2008. "Strategic Informative Advertising in a Horizontally Differentiated Duopoly," CERGE-EI Working Papers wp359, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    10. Levent Çelik, 2008. "Monopoly Provision of Tune-ins," CERGE-EI Working Papers wp362, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    11. Levent Çelik, 2008. "Viewer Sampling and Quality Signaling in a Television Market," CERGE-EI Working Papers wp363, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    12. Dr. Makarand Upadhyaya, 2015. "The Impact of Humorous Television Advertisement in Customer Opinion in Bahrain," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 6(3), pages 20-25, September.
    13. Nickolay V. Moshkin & Ron Shachar, 2002. "The Asymmetric Information Model of State Dependence," Marketing Science, INFORMS, vol. 21(4), pages 435-454, August.
    14. Bharat N. Anand & Alexander Galetovic, 2000. "Weak Property Rights and Holdup in R&D," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 615-642, December.
    15. Chen, Linfeng & Hu, Qibing & Lv, Qiang, 2020. "The economics of TV tune-in," Economic Modelling, Elsevier, vol. 89(C), pages 189-200.
    16. Nilssen,T. & Sorgard,L., 2001. "The TV industry : advertising and programming," Memorandum 18/2001, Oslo University, Department of Economics.
    17. Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2007. "Competition for Viewers and Advertisers in a TV Oligopoly," Journal of Media Economics, Taylor & Francis Journals, vol. 20(3), pages 211-233.

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