The Impact of the Internet on Advertising Markets for New Media

8/6/2019 The Impact of the Internet on Advertising Markets for New Media

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Will the Internet Destroy the

News Media?Susan Athey, Emilio Calvano & Joshua Gans

May 2011

Wednesday, 18 May 2011



The chart of doom

Source:NewspaperAssocia0onofAmerica

NewspaperAdRevenue(198$m)




The chart of doom

Source:NewspaperAssocia0onofAmerica

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

$0

$7,500

$15,000

$22,500

$30,000

NewspaperAdRevenue(198$m)




Explaining the decline




Psychology (digital less effective)





Economic fundamentals




Attention is still scarce ...





Attention is still scarce ...

and advertisers still want to access that

attention.





Disruption




Disruption

The Internet has disrupted the traditional

business model ...




Disruption


business model ...

need to wait for experiments to sort itout.




Disruption


business model ...


Most experiments rely on the ‘waterbed

effect’ ...




Disruption


business model ...


Most experiments rely on the ‘waterbed

effect’ ...

but based on assumption readers choose

content and advertisers sell access.




Only two facts


O l t f t



The Internet has facilitated consumer

switching between outlets

Only two facts


O l t f t



The Internet has facilitated consumer

switching between outlets

There is imperfect tracking between

outlets

Only two facts


Puzzles



Puzzles


Puzzles



Puzzles

Evidence that competition reduces ad prices


Puzzles



Puzzles


Outlets claim mergers will improve ad revenue


Puzzles



Puzzles



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


Puzzles



Puzzles



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

Larger outlets earn higher ad revenue per consumer


Switching



Switching


Switching



Browsing

Switching


Switching



Browsing

Free content

g


Switching



Browsing

Free content

Aggregators, social

networks and

search

g


Switching



Browsing

Free content

Aggregators, social

networks and

search


Tracking




Tracking



Switching alone does not explain the

decline.


Tracking



Switching alone does not explain the

decline.

With no tracking or perfect tracking do

not care where consumers are.


Advertising supply




Advertising supply



Two attention periods.


Advertising supply




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


Advertising supply





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

probability xi.


Advertising supply






probability xi.

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


Advertising supply






probability xi.


Di

l = x

i− x

i(1− x

i)ρ

Ds= 2ρ x

1 x

2


Advertising supply






probability xi.


Di

l = x

i− x

i(1− x

i)ρ

Ds= 2ρ x

1 x

2

i's ad inventory = Di

l 2ai+ D

sa

i


Advertiser demand




Advertiser demand



Advertisers want to impress each consumer once over the two periods …


Advertiser demand



Advertisers want to impress each consumer once over the two periods …

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


The impression game



Morning Afternoon

Outlet 1

Outlet 2


The impression game



Morning Afternoon

Outlet 1

Outlet 2

If Starbucks single-homes, it misses impressions.

If Starbucks multi-homes, it wastes impressions.


The advertiser’s dilemma



Custom analysis of data provided to authors by

ComScore of 30 recent large, cross-outlet campaigns


The advertiser’s dilemma



Custom analysis of data provided to authors by

ComScore of 30 recent large, cross-outlet campaigns

Wasted

Impressions


Solving the dilemma




Solving the dilemma



No switching


Solving the dilemma



No switching

No tracking


Solving the dilemma



No switching

No tracking

Coordination in time


Solving the dilemma



No switching

No tracking


Pay per click


Solving the dilemma



No switching

No tracking


Pay per click

Perfect tracking


Missed & wasted impressions



Expected Unique Impressions






Single-Home on i






Single-Home on iθ

i

= Di

l +

1

2

Ds






Single-Home on i

Multi-Home

θ i

= Di

l +

1

2

Ds






Single-Home on i

Multi-Home θ 12= D

1

l + D

2

l +

3

4D

s

θ i

= Di

l +

1

2

Ds






Single-Home on i

Multi-Home θ 12= D

1

l + D

2

l +

3

4D

s

θ i

= Di

l +

1

2

Ds

Multi-Home (2 on i)






Single-Home on i

Multi-Home θ 12= D

1

l + D

2

l +

3

4D

s

θ i

= Di

l +

1

2

Ds

Multi-Home (2 on i) ′θ 12= 1






Single-Home on i

Multi-Home θ 12= D

1

l + D

2

l +

3

4D

s

θ 12

≤ θ 1+θ

2= ′θ

12for ρ > 0

θ i

= Di

l +

1

2

Ds

Multi-Home (2 on i) ′θ 12= 1


No switching



Quantity (Impressions)

Price

Multi-homers

(1 impression)


No switching




Price

2a

Supply

Multi-homers

(1 impression)


No switching




Price

2a

Supply

Multi-homers

(1 impression)

v = 1


No switching




Price

2a

Supply

Multi-homers

(1 impression)

v = 1

v = p


No switching




Price

2a

Supply

Multi-homers

(1 impression)

v = 1

v = p

p


More switchers




Price

2a

Supply

Multi-homers

(1 impression)

Single-home on 1

Single-home on 2

v = 1

v = p

p


More switchers




Price

2a

Supply

Multi-homers

(1 impression)

Single-home on 1

Single-home on 2

↑ Ds ⇒↓ p

v = 1

v = p

p


High switchers




Price

2a

Supply

Multi-homers

(1 impression)

Single-home on 1

Single-home on 2

MH 2 on 1 MH 2 on 2

v = 1

v = p

p


High switchers




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

v = 1

v = p

p


High switchers




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

if a high

v = 1

v = p

p




Incentives to adopt perfect tracking

Low ad capacity (a)



Profits

Imperfect

Tracking

Ds



Low ad capacity (a)



Profits

Imperfect

Tracking

PerfectTracking

Ds



Imperfect

T ki

High ad capacity (a)



Profits Tracking

Perfect

Tracking

Ds



P fi

Imperfect

T ki




Profits Tracking

Perfect

Tracking

Ds



P fit

Imperfect

Tracking




Profits Tracking

Perfect

Tracking

Ds


Public broadcasters & blogs




Price Supply





Blogs and other non-ad

content …


Price Supply






content …

decrease available ad

capacity in the market …


Price Supply






content …




Price Supply






content …



and reduce adverse effect

of switching …


Price Supply






content …




of switching …


Price Supply






content …




of switching …

Causing impression pricesto rise.


Price Supply





Positional advantages

in advertising markets






Content quality






Content quality Paywalls






Content quality Paywalls Magnet content


Asymmetric Quality

Low D s High D s

x 1= x

2



Multi-homers

(1 impression)

Single-home on 1

Single-home on 2

v = 1

v = p

Multi-homers(1 impression)

Single-home on 1

Single-home on 2

MH 2 on 1 MH 2 on 2

v = 1

v = p




Asymmetric Quality

Low D s High D s

x 1> x

2



Multi-homers

(1 impression)

Single-home on 1

Single-home on 2

v = 1

v = p2


Single-home on 1

Single-home on 2

MH 2 on 2

v = 1

v = p2

v = p1v = p1


Asymmetric Quality

Low D s High D s

x 1> x

2



Multi-homers

(1 impression)

Single-home on 1

Single-home on 2

v = 1

v = p2


Single-home on 1

Single-home on 2

MH 2 on 2

v = 1

v = p2

Outlet 1 gains a positional advantage

in the advertising market

v = p1v = p1


Paywalls




Paywalls

“No [it’s not a two way street with Google sending



traffic] What’s the point of someone comingoccasionally who likes a headline they see on Google?

Sure we go out and say we have so many millions of

visitors. The fact is that there is not enough advertising

in the world to go around to make all the websites

profitable. We’d rather have fewer people coming to

our websites but paying. They don’t suddenly become

loyal readers of our websites.” (Rupert Murdoch)


Paywalls




Paywalls

D1

l = x

1− x

1 x

2ρ 12




Paywalls

D1

l = x

1− x

1 x

2ρ 12

l



D2

l = x2

−x2 x1ρ 21


Paywalls

D1

l = x

1− x

1 x

2ρ 12

l



D2

l = x2

−x2 x1ρ 21

Ds= (ρ

12 + ρ 21) x1 x2


Paywalls

D1

l = x

1− x

1 x

2ρ 12

l



D2

l = x2

−x2 x1ρ 21

Ds= (ρ

12 + ρ 21) x1 x2

Micropayments


Paywalls

D1

l = x

1− x

1 x

2ρ 12

l



D2

l = x2

−x2 x1ρ 21

Ds= (ρ

12 + ρ 21) x1 x2

Micropayments ↑ ρ 12,↓ ρ

21


Paywalls

D1

l = x

1− x

1 x

2ρ 12

l



D2

l

= x2−

x2 x1ρ 21

Ds= (ρ

12 + ρ 21) x1 x2

Micropayments

Subscriptions

↑ ρ 12,↓ ρ

21


Paywalls

D1

l = x

1− x

1 x

2ρ 12

l



D2

l

= x2−

x2 x1ρ 21

Ds= (ρ

12 + ρ 21) x1 x2

Micropayments

Subscriptions

↑ ρ 12,↓ ρ

21

↓ ρ 21


Paywalls

D1

l = x

1− x

1 x

2ρ 12

l



D2 = x2−

x2 x1ρ 21

Ds= (ρ

12 + ρ 21) x1 x2

Micropayments

Subscriptions

Limited paywall

↑ ρ 12,↓ ρ

21

↓ ρ 21


Paywalls

D1

l = x

1− x

1 x

2ρ 12

l



D2 = x2−

x2 x1ρ 21

Ds= (ρ

12 + ρ 21) x1 x2

Micropayments

Subscriptions

Limited paywall

↑ ρ 12,↓ ρ

21

↓ ρ 21

↑ ρ 12


Paywalls

D1

l = x

1− x

1 x

2ρ 12

l



D2 = x2−

x2 x1ρ 21

Ds= (ρ

12 + ρ 21) x1 x2

Micropayments

Subscriptions

Limited paywall

↑ ρ 12,↓ ρ

21

↓ ρ 21

↑ ρ 12

D1

l < D

2

l


Paywalls

D1

l = x

1− x

1 x

2ρ 12

l

ρ



D2 = x2−

x2 x1ρ 21

Ds= (ρ

12 + ρ 21) x1 x2

Micropayments

Subscriptions

Limited paywall

↑ ρ 12,↓ ρ

21

↓ ρ 21

↑ ρ 12

D1

l < D

2

l

Paywalls may cause a positional disadvantage in advertising markets





Magnet Content



Multi-Home 2 on 2

Single-home on 1

Single-home on 2(2 impressions)


Single-home on 1



Magnet Content



Multi-Home 2 on 2

Single-home on 1



Single-home on 1


Suppose that Outlet 2 has

limited content


Magnet Content



Multi-Home 2 on 2

Single-home on 1



Single-home on 1



limited content

... and so can only serve one

period of attention.


Magnet Contentρ = 1



Multi-Home 2 on 2

Single-home on 1



Single-home on 1



limited content




Magnet Content D1

l =

x1−

x1 x2

ρ = 1



Multi-Home 2 on 2

Single-home on 1



Single-home on 1



limited content




Magnet Content D1

l =

x1−

x1 x2

D2

l = 0ρ = 1



Multi-Home 2 on 2

Single-home on 1



Single-home on 1



limited content




Magnet Content D

1

l = x

1− x

1 x

2

D2

l = 0

Ds= x

2(1+ x

1)

ρ = 1



Multi-Home 2 on 2

Single-home on 1



Single-home on 1



limited content




Magnet Content

Low x2

D1

l = x

1− x

1 x

2

D2

l = 0

Ds= x

2(1+ x

1)

ρ = 1



Multi-Home 2 on 2

Single-home on 1



Single-home on 1





Magnet Content

Low x2

D1

l = x

1− x

1 x

2

D2

l = 0

Ds= x

2(1+ x

1)

v = 1

ρ = 1



Multi-Home 2 on 2

Single-home on 1


v = 1


Single-home on 1



Magnet Content

Low x2

D1

l = x

1− x

1 x

2

D2

l = 0

Ds= x

2(1+ x

1)

v = 1

ρ = 1



Multi-Home 2 on 2

Single-home on 1


v 1


Single-home on 1



Magnet Content

Low x2

D1

l = x

1

− x1

x2

D2

l = 0

Ds= x

2(1+ x

1)

v = 1

ρ = 1



Multi-Home 2 on 2

Single-home on 1


v 1


Single-home on 1


v = p1


Magnet Content

Low x2

D1

l = x

1

− x1

x2

D2

l = 0

Ds= x

2(1+ x

1)

v = 1

ρ = 1



Multi-Home 2 on 2

Single-home on 1


v = p2


Single-home on 1


v = p1


Magnet Content

Low x2 High x2

D1

l = x

1

− x1

x2

D2

l = 0

Ds= x

2(1+ x

1)

v = 1

ρ = 1



Multi-Home 2 on 2

Single-home on 1


v = p2


Single-home on 1


v = p1


Magnet Content

Low x2 High x2

D1

l = x

1

− x1

x2

D2

l = 0

Ds= x

2(1+ x

1)

v = 1 v = 1

ρ = 1



Multi-Home 2 on 2

Single-home on 1


v = p2


Single-home on 1


v 1

v = p1


Magnet Content

Low x2 High x2

D1

l = x

1

− x1

x2

D2

l = 0

Ds= x

2(1+ x

1)

v = 1 v = 1

ρ = 1



Multi-Home 2 on 2

Single-home on 1


v = p2


Single-home on 1


v = p1


Magnet Content

Low x2 High x2

D1

l = x

1

− x1

x2

D2

l = 0

Ds= x

2(1+ x

1)

v = 1 v = 1

ρ = 1



Multi-Home 2 on 2

Single-home on 1


v = p2


Single-home on 1


v = p2

v = p1


Magnet Content

Low x2 High x2

D1

l = x

1− x

1 x

2

D2

l = 0

Ds= x

2(1+ x

1)

v = 1 v = 1

ρ = 1



Multi-Home 2 on 2

Single-home on 1


v = p2


Single-home on 1


v = p2

v = p1

v = p1


Profits

Magnet Content

0.15

0.20

Full content provider



0.2 0.4 0.6 0.8 1.0

0.05

0.10

x 2

Imperfect Tracking

Limited content provider


Profits

Magnet Content

0.15

0.20




0.2 0.4 0.6 0.8 1.0

0.05

0.10

x 2

Imperfect Tracking


As limited content provider’s share rises, industry profits rise.


Profits

Magnet Content

0.15

0.20




0.2 0.4 0.6 0.8 1.0

0.05

0.10

x 2

Imperfect Tracking



Twice the return to magnet content than full content.


Profits

Magnet Content

0.15

0.20

I f T ki




0.2 0.4 0.6 0.8 1.0

0.05

0.10

x 2

Imperfect Tracking




Higher return per reader due to positional advantage.


Profits

Magnet Content

0.15

0.20

I f t T ki




0.2 0.4 0.6 0.8 1.0

0.05

0.10

x 2

Imperfect Tracking





Evolution away from frequency and towards reach.


Profits

0.15

0.20

I f t T ki




0.2 0.4 0.6 0.8 1.0

0.05

0.10

x 2

Imperfect Tracking







Profits

0.15

0.20

Imperfect Tracking


150 million US accounts



0.2 0.4 0.6 0.8 1.0

0.05

0.10

x 2

Imperfect Tracking







Profits

0.15

0.20

Imperfect Tracking



95% users visit once every 2 days



0.2 0.4 0.6 0.8 1.0

0.05

0.10

x 2

Imperfect Tracking







Profits

0.15

0.20

Imperfect Tracking




10% of US site visits



0.2 0.4 0.6 0.8 1.0

0.05

0.10

x 2

Imperfect Tracking







Profits

0.15

0.20

Imperfect Tracking




10% of US site visits

30% of US display ads



0.2 0.4 0.6 0.8 1.0

0.05

0.10

x 2

Imperfect Tracking






Wednesday 18 May 2011

Conclusions




The efficient operation of advertising markets are dependent

upon consumer behavior.

Conclusions






A combination of consumer switching and imperfect tracking

Conclusions



can explain competitive effects in advertising markets for

news media.





Conclusions




news media.

Tracking technologies may assist in efficiency but adoptionfaces impediments.







l i i i ff i d i i k f

Conclusions




news media.

Tracking technologies may assist in efficiency but adoptionfaces impediments.

In addition to deterring consumers, paywalls may cause outlets

to have a positional disadvantage in advertising markets.

Incentives to provide content move from full line provision to

magnet but limited content provision.


The Impact of the Internet on Advertising Markets for New Media

Documents

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