Is Your Netflix a Substitute for Your Telefunken? Evidence on the Dynamics of Traditional Pay TV and OTT in Latin America
21 Pages Posted: 2 Feb 2022
Date Written: November 1, 2021
Are audiovisual over the top (OTT) services in Latin America substitutes for the traditional Pay TV services (cable or satellite), complementary or independent? To respond to this question, we develop a simple theoretical model based on a CES utility function and estimate simultaneously using non-linear least squares demand functions for both audiovisual services. Our results, based on original database covering 17 Latin American countries from 2011 to 2020, suggest no substitution of Pay TV for OTT. However, during the more recent period (2015-2020), we find evidence of gross substitution (i.e., similar enough, although not completely equivalent for consumers) between audiovisual services. This confirms, although only partially, the existence of the so-called cord-cutting and cord-saving phenomena, due to the expansion of fast internet and the richer OTT offers, and their relatively lower prices, but recommends further analysis on the country level before extrapolating decisions on the regulatory front regarding how to regulate OTT services.
Keywords: Audiovisual market, OTT, Pay TV, Cord-cutting, Latin America
JEL Classification: D4, I5, M21, N86
Suggested Citation: Suggested Citation