Platform Siphoning

Abstract:     
The business model of commercial-financing relies on advertisers to pay for content. Advertisers will not pay if consumers unbundle the advertisements from the content (advertising bypass). TiVo, remote controls, and pop-up ad blockers are examples of adavoidance technologies. Purchasing such devices causes content providers to increase advertising levels (as has happened recently) because the remaining audience is less adverse to ads, and leads to a downward spiral. The bypass option may cause total welfare to fall. Higher avoidance reduces content quality and more mass-market content. We cast doubt on the profitability of using subscriptions to counter the impact of adavoidance.

Keywords: Two-sided markets, advertising-finance, media economics, siphoning, bypass, death spiral

JEL Classifications: L82, L86, M37

Working Paper Series