WillOnline

Can the Internet Destroy

Advertising the
Markets
News
Save Media?
the News Media?
Susan Athey, Emilio Calvano & Joshua Gans
Media Economics Workshop
October 2010
The
The chart
chart of
of doom
doom

2
 Theories
Theories

Loss in classifieds

Advertising space unlimited

Web display ads are not effective

Dramatic increase in competition

3
 Proposed
Proposed solutions
solutions

Enforce copyright on aggregators

Allow mergers

Public subsidies (non-profits)

Cut public broadcasting

4
 Only
Only two
two facts
facts

The Internet has facilitated consumer

switching between outlets

There is imperfect tracking between

outlets

5
 Switching
Switching

Browsing

Free content

Aggregators,
social networks
and search

6
 Single-homing
Single-homing consumers
consumers

Traditional media economics with

single-homing consumers …

cannot explain total ad revenue decline.

Each outlet sells access to consumer as

a monopolist (Anderson-Coate).

7
 Our
Our assumptions
assumptions

Consumers have two attention periods …

and allocate attention to outlets based on quality …

… with a probability of switching outlets between each.

Advertisers want to impress each consumer once over the two

periods …

and have heterogeneous values on impressing consumers.

Two outlets supply advertising space associated with each unit

of consumer attention

8
 The
The impression
impression game
game

Morning Afternoon

Outlet 1

Outlet 2

If Starbucks single-homes, it misses impressions.

If Starbucks multi-homes, it wastes impressions.
9
 The
The advertiser’s
advertiser’s dilemma
dilemma

Wasted
Impressions

Customer analysis of data provided to authors by

CommScore of 30 recent large, cross-outlet campaigns

10
 Solving
Solving the
the dilemma
dilemma

No switching

Pure multi-homing

No tracking (Bergemann-Bonatti)

Coordination in time

Perfect tracking
11
 Advertiser
Advertiser demand
demand

To impress loyals, Price

want to multi-home …
at the cost of wasted
switcher impressions Single-homing

To impress switchers,
want to increase Multi-homing
frequency … at the
cost of wasted loyal Multi-homing +
impressions Frequency

Higher value
advertisers more
willing to bear costs
Quantity (Advertisers)
12
 Market
Market clearing
clearing

Price

The equilibrium
impression price is set Supply
by a single-homing
advertiser.

The price also

determines the mix of
advertisers in
‘homing’ strategies

2a
Quantity (Advertisers)
13
 More
More switchers
switchers

Price

More switchers
reduces demand for Supply
multi-homing

… but increases the

demand for multi-
homing + frequency

… can increase profits

Quantity (Advertisers)
14
 Endogenous
Endogenous ad
ad capacity
capacity

Profits
Outlets compete in
Cournot fashion due to
presence of switchers

Increase in switchers
causes expansion in ad
capacity in equilibrium

‘Potential’ U-Shaped
relationship
Share of switchers

15
 Perfect
Perfect tracking
tracking

Profits

Under perfect tracking …

inefficient matching is
eliminated …

but switchers create

competition at the margin

Share of switchers

16
 Impact
Impact of
of blogs
blogs

Price

Blogs and other non-ad

content … Supply

decrease available ad
capacity in the market …

and reduce adverse effect

of switching …

Causing impression prices

to rise.

Quantity (Impressions)
17
 Paywalls
Paywalls

Subscription-based paywalls reduces

switching (increase efficiency).

Unilateral paywalls cost an outlet in

readership but benefit both outlets in
increased efficiency.

Switchers magnify positive externalities so

we expect lower equilibrium paywalls.

18
 Conclusions
Conclusions

Mergers may increase outlet ad revenue.

Public broadcasting is an ‘attention’ threat but

involves less competition than commercial
outlets.

Paywalls may be a poor substitute to

advertising.

19
 Future
Future directions
directions

Outlet asymmetries and competition for

readers

Platform market structure issues in perfect

tracking

Interactions with ad targeting

20