Content vs. Advertising: The Impact of Competition on Media Firm Strategy

Abstract

Media firms compete in two connected markets. They face rivalry for the sale of content to consumers, and at the same time, they compete for advertisers seeking access to the attention of these consumers. We explore the implications of such two-sided competition on the actions and source of profits of media firms. One main conclusion we reach is that media firms may charge higher content prices in a duopoly than in a monopoly. This happens because competition for advertisers can reduce the return per customer impression from the ad market, making each firm less willing to underprice content to increase demand. Greater competitive intensity may thus increase content profits and decrease ad profits. These findings are in sharp contrast to those in a regular one-sided product market, in which competition typically lowers product prices and profits. We extend the framework to examine competition across different media (e.g., between magazines and cable TV) and show that firms in a duopolistic medium may benefit from more intense competition from a monopolist in another medium. We characterize the conditions for each firm in the duopoly medium to bundle more ads and earn greater total profits than the rival firm in the monopoly medium.media, advertising, two-sided markets, competitive strategy, game theory

Business Models for Media Firms: Does Competition Matter for How They Raise Revenue?

“…In the Appendix we consider a Nash bargaining game between one advertiser and two media …rms. 15 Not surprisingly, we …nd that the more bargaining power given to the advertiser, the lower the price of advertising. We further verify that independent of the distribution of the bargaining power, the media …rms will rely 13 This was discussed in detail in an earlier version of the paper, see Kind et al (2005).…”

“…Corollary 1 is directly related to Proposition 1, which shows that advertising revenue is higher and consumer payments lower the less di¤erentiated the media products are (as in Godes et al, 2009). In the Appendix we prove that Corollary 1…”

“…In our framework, competition leads to higher aggregate output, and we believe that this is a In this study, we predict how some fundamental economic forces in the media industry a¤ect media …rms'…nancing. There should be scope for testing empirically the validity of our model, compare this with the validity of other relevant models, and in particular that of Godes et al (2009). One way to discriminate between the two models is to test whether there is any relationship between the advertising volume in a media outlet and the extent to which the competitors produce close substitutes.…”

“…In the Appendix we show that, if m = n = 1, then we have underpricing if 3 < < 3 + 2 p 2: 14 We would like to thank one of the referees for suggesting this possibility. 15 solely on consumer payments at s = 0 and solely on advertising revenue at s = 1.…”

Survivor Curve Shape and Internet Revenue: A Laboratory Experiment

“…But all revenue strategies take a toll -while some users see the nuisance as a fair exchange for the value obtained, other users see the nuisance as intolerable and leave the website, and some potential users are deterred from joining. The issue is especially acute with increasingly intrusive "rich media" advertising formats (Godes et al 2009). …”