Content and Advertising in the Media: Pay-Tv Versus Free-to-Air

Abstract

We compare the advertising intensity and content of programming in a market with competing media platforms. With pay-tv, media platforms have two sources of revenues, advertising revenues and revenues from viewers. With free-to-air media, platforms receive all revenues from advertising. We show that if viewers strongly dislike advertising, the advertising intensity is greater under free-to-air television. We also show that free-to-air television tends to provide more similar content whereas pay-tv stations differentiate their content. In addition, we compare the welfare properties of the two different schemes.

Keywords: Advertising, media, product differentiation, two-sided markets

JEL Classification: D43, L13, L82