E.g., near simultaneous distribution of TV programs and music in traditional channels and on the internet
However, excludability in consumption increasingly difficult to enforce
Content Investments
Returns to investments in content accumulate from sales to many individuals in many different venues
This means that for any media product, the profit maximizing content investment, and thus quality and audience appeal, increase with the size of the potential audience
Market Consequences of Non-Rival Consumption
More expensive media products produced for larger markets
One-way trade flows and umbrella structures
Media products from more commercialized media markets have an advantage in international trade
Differential access to distribution outlets has second order effects on competition among content suppliers
Economies of scale effects
Optimal quality effects
Firms must consider financial trade-offs from releases in different channels and markets
Variety-Quality Tradeoffs
As increase number of media products, suppliers differentiate their products to appeal to finer gradations of consumer preferences
Applies to both competition and monopoly
As increase number of media products, suppliers respond by producing less expensive media products
Two-Sided Markets
Most (though not all) media products are supported at least in part by advertising
So price controls could increase or reduce viewer welfare (E.g., U.S experience after 92 Cable Act)
Limitations of most recent work
Fixed program costs and quality
Only 2 broadcasters (as with almost all recent TV market models)
Spatial model of differentiated viewer demand not fully general
No competition among multichannel services
Ignores access issues related to distribution platforms
Distribution platforms
New distribution systems that add channels to those available over the air are typically used for multichannel services
E.g. cable TV, satellite TV, telco IPTV services
Channel capacity in these platforms is finite and the possibility that platform owners will favor co-owned networks over broadcasters and independent networks has become a matter of policy interest
Economic incentives to discriminate
Positive
Save transaction costs
Eliminate double marginalization
Investment risk reduction for new networks
Negative
Weaken competing cable networks by denying access to audience
Capture advertising clients from broadcast networks
Evidence
Empirical studies of vertically-integrated U.S. cable systems suggest
System operators favor co-owned networks, but not by a lot
Subscribers may benefit from more networks overall
Policy responses to access issues
Must carry (or must pay) for broadcast stations in U.S.
Similar to Ramsey-optimal pricing of access to telecom network facilities
Competitive network suppliers pay access fees that cover the direct cost of supplying access plus the opportunity cost of viewer and advertiser payments the platform would have earned on its own content at Ramsey-optimal prices
MVPD competition
Outcome sensitive to laws governing access to programs
Effects on program quality not clear
Denying competitors access to programming
Vertically-integrated cable operators may unfairly disadvantage competing cable or satellite operators by denying access to popular co-owned networks.
Logic similar to anticompetitive bundling models of Whinston (1990), Carlton and Waldman (2002), and Aron and Wildman (1999), where tying denies economies of scale to entrant
U.S. Cable Act of 1992 mandates access to co-owned networks of vertically integrated cable operators
Comparisons with other countries (e.g., Korea) suggests this may be important to viable competition
Dynamic efficiency concerns (briefly)
Incentives to invest in new infrastructure often used as argument for allowing facilities owners greater control over access to new facilities
E.g., net neutrality debate
Digital must carry for cable systems in U.S.
Transitions to new standards
For digital broadcasting, fragmented ownership and indirect network effects a strong argument for government coordination
Policy concerns with media’s role in political and social systems
Contribution to politically informed citizenry
Generation and transmission of artistic and cultural values
Contribution to sense of community and cultural identity
Economists have contributed to study of all but # 3
Transmission of artistic and cultural values
Quotas and other restrictions on imported media products often justified on grounds of:
cultural preservation (e.g., European and Canadian TV foreign program restrictions for television; Korean film quotas)
Cultural imperialism
Anticompetitive practices of content suppliers from primary media exporting countries
Economists’ work has focused primarily on international trade in content goods
Anticompetitive practices not needed to explain unbalanced trade flows
Economists have contributed to this debate in the past, but recently has become a hot research topic
Big research questions
Are media biased? (And does it matter?)
Do media affect political outcomes?
Are the needs of local communities and/or minority populations adequately served and does ownership structure matter?
Effect on political outcomes
Growing empirical literature suggests that media do have an effect on voting
Fox news effect (DellaVigna & Kaplin)
Increased circulation of New York Times in other cities reduces circulation for local papers and reduces voting in local elections (George & Waldfogel)
Presence of Hispanic media in U.S. cities increases Hispanic voter turnout (Oberholzer-Gee & Waldfogel)
Local ownership and service to local community
Oberholze-Gee & Waldfogel paper suggests ethnically diverse ownership may be beneficial, although connection between ownership and ethnic orientation is debated.
Related debate is over whether ownership concentration and/or distant owners reduce media coverage of local affairs
Limited empirical literature is inconclusive, but suggests a small negative effect, if any, on amount of local TV news
Web-based media and policy for the emergent future
With growing broadband penetration and increasing download speeds we are seeing a proliferation of online video services
Many are ancillary to traditional television services
E.g., network programs available on the web, websites for network programs
Others, like YouTube, FaceBook, and Wikipedia,are native to the web.
To some extent, ancillary services are giving traditional video providers features of web-native services such as constant availability of content and access to older content.
Raises question of whether web-native services are the harbinger of television’s future
Critical cost tradeoffs
Media services in general are characterized by tradeoffs associated with costs of storage, content, and bandwidth
For traditional video services:
Single channel services can save on content costs by storing programs and repeating them more frequently
Multichannel services must add channels to increase viewers’ options at any given time, as illustrated with next slide
Contrast with IPTV
Content resident on system video server
Single broadband channel connects each viewer to video server
Expanding viewer choices involves tradeoffs in storage capacity and frequency of new content acquisition
Critical Difference
With traditional MVPD service, must add channels to increase simultaneous options available to viewers
With IPTV service, expand server capacity to increase simultaneous options available to viewers.
Several hundred videos on YouTube are testimony to the low cost of storage
Implications for nature of video services
Potentially massively more content
More unique programs
Older programs retained longer (maybe forever)
With no channels to fill, scheduling (and traditional networks, PVRs, and prime time as we know it) may become irrelevant
Old programs would be a competitive constraint on the supply of new programs
Diehard fans could always find what they want
To young viewers old programs are fresh
Compare with “true” internet TV
With “true” internet TV all video servers are web-based and accessed through home broadband connections
Raises questions about television regulations that target owners of local video distribution facilities
E.g., content requirements for local broadcasters
E.g., must carry obligations for cable systems
Raises questions about incentives of cable and telco broadband ISPs to increase capacity and reliability of their broadband services sufficiently to make web-based video services competitive with their own
Similar to but distinct from net neutrality debate
Program syndication arrangements for web-based services
For web-resident services traditional geographic exclusivity arrangements mean little
Simultaneous supply of common content to multiple content aggregators is observed (e.g., RSS services)
Economic logic suggests syndicators will distribute content to web programming services catering to distinct sets of viewers with partially overlapping, preferred content sets
Media policy for a web-based future
Access to limited broadcast, cable, or satellite channels no longer a concern
Control of licenses to broadcast facilities no longer a vehicle for political/policy influence on content
Biases or discrimination in control of bit streams from different sources will be a policy concern
Domination of key segments by a few web-based content suppliers may be a concern due to
Network effects
Search advantages of large aggregations of content
