The Impact of the Internet on Advertising Markets for News Media

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The Impact of the Internet onAdvertising Markets for News

MediaSusan Athey, Emilio Calvano & Joshua Gans

November 2011

FTC Microeconomics Conference

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The chart of doom

Source: Newspaper Associationof America

Newspaper Ad Revenue

(1980 $m)

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Reactions

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Policies

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The Internet has disrupted the operation

of advertising markets

Need to understand this and focus onhow to improve their operation

Our hypothesis

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Attention is still scarce ...

and advertisers still want to access thatattention.

Economicfundamentals

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The Internet has facilitated consumer

switching between outlets

There is imperfect tracking between

outlets

Only two facts

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Browsing

Free content

Aggregators,social networks

and search

Switching

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Choice of ad supply: Anderson-Coate: competition reduces supply (increase ad prices) Ambrus-Reisinger: when middle consumers multi-home may increase supply

or

and

$

$

$0

Ourcontribution

and/or

??

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Focus on matchingrather than adquantity

Sensitive totechnology (esp:tracking)

Care regarding

allocation ofconsumer attention

Quantity (Impressions)

Price

2a

Supply

p

Market

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Puzzles

Evidence that competition reduces per reader adprices

Outlets claim mergers will improve ad revenue

For-profit outlets object to lifting of adrestrictions on public broadcasters

Larger outlets earn higher ad revenue perconsumer

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Two attention periods.

Two outlets with ad capacity per unit of attention, ai.

If they have opportunity to choose, consumers select outlet i with

probabilityxi.

In a given period, the probability that a consumer can choose is .

Advertising supply

Di

l= x

i x

i( 1 x

i)

Ds

= 2 x 1 x 2

i ' s ad in v en to ry = Di

l 2 ai+ D

sa

i

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Advertisers want to impress each consumer once over thetwo periods

and have heterogeneous values (v) on impressingconsumers with distribution F(v); assumed to be U[0,1].

Advertiser demand

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Morning

Afternoon

Outlet1

Outlet2

If Starbucks single-homes, it misses impressions.If Starbucks multi-homes, it wastes impressions.

The impression game

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The advertisers dilemma

Custom analysis of data provided to authors byComScore of 30 recent large, cross-outlet campaigns

WastedImpressions

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No switching

No tracking

Coordination in time

Pay per click

Perfect tracking

Solving the dilemma

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Expected UniqueImpressions

Single-Homeon i

Multi-Home

Multi-Home (2 oni)

Missed & wasted impressions

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To impress loyals,want to multi-home at the cost of wastedswitcher impressions

To impress switchers,want to increasefrequency at thecost of wasted loyalimpressions

Higher valueadvertisers morewilling to bear costs

Advertiserdemand

Quantity

(Advertisers)

Price

Single-homing

Multi-homing

Multi-homing+

Frequency

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No switching

Quantity(Impressions)

Price

2a

Supply

Multi-homers

(1

impression)

v= 1

v=p

p

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Moreswitchers

Quantity(Impressions)

Price

2a

Supply

Multi-homers

(1impression)

Single-

home on

1

Single-

home on

2

Ds p

v= 1

v=p

p

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High switchers

Quantity(Impressions)

Price

2a

Supply

Multi-homers

(1

impression)

Single-

home on

1

Single-

home on

2

MH 2 on

1

MH 2 on

2 Ds p

ifahigh

v= 1

v=p

p

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Incentives to adopt perfecttracking

Profits

Imperfe

ctTracking

PerfectTracking

Ds

Low ad capacity(a)

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Incentives to adopt perfecttracking

Profits

Imperfe

ctTracking

Perfect

Tracking

Ds

High ad capacity(a)

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Mergers

Allow intra-outlet

tracking

No intra-outlettracking

Merge only ifa and Ds not too

high

Neutral unless can pricediscriminatebetween single and multi-homers

Mergers may increase profits even when Ds =0

P bli b d t &

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Blogs and other non-adcontent

decrease available adcapacity in the market

and reduce adverse effectof switching

Causing impression pricesto rise.

Public broadcasters &blogs

Quantity

(Impressions)

Price

Supply

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Policies

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Conclusions