37 Pages Posted: 3 Apr 2012 Last revised: 14 Oct 2012
Date Written: April 1, 2012
Unlike most media, the U.S. television industry has continued to prosper as broadband diffusion has grown to reach over 2/3 of households. We first identify the source of standard TV’s long term prosperity: technology, especially digital conversion. The result has been a massive shift since the 1970s from advertising to direct pay support, and greatly increased quality and variety of television programs-- in turn leading to ever-higher TV usage. Since about 2000, online video streaming has become widespread, but its overall proportion of all TV viewing remains under 2%. Focusing on professionally produced commercial TV products, we find that online TV has also shifted toward a direct pay revenue model, and we offer suggestive evidence that online distribution is cheaper and more efficient than MVPD distribution. We attribute the apparent dominance of aggregators in online TV distribution to economic efficiencies. Drawing on a taxonomy of “Everywhere TV” systems marketed by the top 25 MVPDs, we model these “authentication” tie-ins as price discrimination devices intended to slow MVPD disconnections; although in plausible circumstances, the price discrimination incentive can slow development of online TV. Anti-competitively motivated behavior by established MVPDs or ISPs is also plausible, but while facilitated by vertical integration into program supply, the viability of anti-competitive strategies ultimately depends on large national market shares of the MVPD and ISP markets to be effective.
Note: A set of slides presented by David Waterman at National Chengchi University in Taipei, Taiwan on March 29, 2012 offers a preliminary outline for the analysis now underway in support of this paper.
Suggested Citation: Suggested Citation
Waterman, David and Sherman, Ryland and Ji, Sung Wook, The Economics of Online Television: Revenue Models, Aggregation, and 'TV Everywhere' (April 1, 2012). 2012 TRPC. Available at SSRN: https://ssrn.com/abstract=2032828 or http://dx.doi.org/10.2139/ssrn.2032828