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A Two-Sided, Empirical Model of Television Advertising and Viewing Markets

46 Pages Posted: 27 Feb 2006  

Kenneth C. Wilbur

University of California, San Diego (UCSD) - Rady School of Management

Date Written: June 2, 2007

Abstract

For marketers, television remains the most important advertising medium. This paper proposes a two-sided model of the television industry. We estimate viewer demand for programs on one side, and advertiser demand for audiences on the other. The primary objective is to understand how each group's program usage influences the other group.

Four main conclusions emerge. First, viewers tend to be averse to advertising. When a highly-rated network decreases its advertising time by 10%, our model predicts a median audience gain of about 25% (assuming no competitive reactions). Second, we find the price elasticity of advertising demand is ?2.9, substantially more price-elastic than 30 years ago.

Third, we compare our estimates of advertiser and viewer preferences for program characteristics to networks' observed program choices. Our results suggest that advertiser preferences influence network choices more strongly than viewer preferences. Viewers' two most preferred program genres, Action and News, account for just 16% of network program hours. Advertisers' two most preferred genres, Reality and Comedy, account for 47% of network program-hours.

Fourth, we perform a counterfactual experiment in which some viewers gain access to a hypothetical advertisement-avoidance technology. The results suggest that ad-avoidance tends to increase equilibrium advertising quantities and decrease network revenues.

Keywords: Advertising, Broadcasting, Demand Estimation, Empirical Industrial Organization, Endogeneity, Entertainment Marketing, Media, Television, Two-Sided Markets

JEL Classification: C10, C21, C35, C51, D12, D43, L13, L82, M31, M37

Suggested Citation

Wilbur, Kenneth C., A Two-Sided, Empirical Model of Television Advertising and Viewing Markets (June 2, 2007). Available at SSRN: https://ssrn.com/abstract=885465 or http://dx.doi.org/10.2139/ssrn.885465

Kenneth C. Wilbur (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

HOME PAGE: http://kennethcwilbur.com

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