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Broadcasting, Advertising Finance, and the Rationale for
Public Broadcasting
Simon P. AndersonHans Jarle Kind
Guttorm Schjelderup
Bologna, 5th Media Economics Conference
October 16-17 2007
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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
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Steiner, 1952
• Principle of Duplication• Single program type per viewer type• 700,000 watch only game show• 300,000 watch only operaPeople 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)
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Duplication
• Steiner. Duplication.
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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 ?
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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
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LCD tastes
• Beebe. Lowest Common Denominator.
Country-rock; talk-rock; news-rock
Monopoly may provide only rock (LCD)
Competition caters to individual groups
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Beebe and the Lowest Common Denominator
Group 1st choice 2nd Choice
1 (33.5% ) Sports Game Show
2 (33.5% ) News Game Show
3 (33% ) Drama Game Show
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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:
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Beebe and the Lowest Common Denominator (2)
Group 1st choice 2nd Choice
1 (33.5% ) Sports Game Show
2 (33.5% ) News Game Show
3 (33% ) Sports Game Show
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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
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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
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Steiner; ad nuisance
• Profits: πi = vi ai Di with
Di = (1 – γiai/Ri)Ni • So choose aM
i = 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
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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
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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
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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
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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.
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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
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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.
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Riddle solution
• 2 private companies at ¼
• Public broadcaster at ¾
• Public serves ½ the market
• Existence in pure strategies
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conclusions
• Extend Steiner and Beebe to different viewer worth and Ad nuisance
• Illustrated performance shortcomings with public firm
Further work needs to addressDoes monopoly perform better than comp?Which program type(s) to produce?• Positive theory of Public Broadcaster• NPR (voluntary contributions) business model
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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?