Will The Internet Destroy The News Media

Will the Internet Destroy the
News Media?
Susan Athey, Emilio Calvano & Joshua Gans
Google
October 2010
Thursday, 21 October 2010

Can Online Advertising Markets
Save the News Media?
Susan Athey, Emilio Calvano & Joshua Gans
Google
October 2010

The chart of doom

The chart of doom

Theories

Theories
Loss in classifieds

Theories
Loss in classifieds
Advertising space unlimited

Theories
... online ads sell

Lossat rates that are a fraction of those
in classifieds
for print, for simple reasons of competition. “In a print
world you had pretty much a limited amount of
inventory Advertising
— pages inspace unlimited
a magazine, ” says Domenic
Venuto, managing director of the online marketing
firm Razorfish. “In the online world, inventory has
become infinite.”
(from the NYT, May 2010)

Theories
Loss in classifieds

Theories
Loss in classifieds
Web display ads are not effective

Theories
“NewspaperLoss readers are ‘better’ than Web

in classifieds
visitors. Online readers are a notoriously fickle
bunch, and apparently are getting more so by the
day. WebAdvertising space
visitors barely stickunlimited
around, yet they are
counted in broad traffic statistics as if they were
the Web
samedisplay
as the ads are who
reader not effective
lingers over his
Sunday paper.”
(Paul Farhi, Washington Post)

Theories
Loss in classifieds

Theories
Loss in classifieds
Dramatic increase in competition

Proposed solutions

Proposed solutions
Enforce copyright on aggregators

Proposed solutions
Allow mergers

Proposed solutions
Allow mergers
Public subsidies (non-profits)

Proposed solutions
Allow mergers
Public subsidies (non-profits)
Cut public broadcasting

Only two facts

Only two facts
The Internet has facilitated consumer

switching between outlets

Only two facts
The Internet has facilitated consumer

switching between outlets
There is imperfect tracking between

outlets

Switching

Switching
Browsing

Switching
Browsing
Free content

Switching
Browsing
Free content
Aggregators, social
networks and
search

Switching
Browsing
Free content
Aggregators, social
networks and
search

Single-homing consumers

Traditional media economics with

single-homing consumers …


cannot explain total ad revenue decline.


cannot explain total ad revenue decline.
Each outlet sells access to consumer as a

monopolist (Anderson-Coate).

Traditional Media Economics

Advertisers

Readers/Viewers Advertisers

Readers/Viewers Outlet Advertisers





$ $$

$ $$

$ $$

$ $$
or

$0 $$
or

$0 $$
and
or

$0 $$
and
or

$0 $$
and
or
Anderson-Coate

This paper
$0 $$
or and

This paper
$0 $$
and

This paper
$0 $$
and and

This paper
$0 $$
and and ?

This paper
$0 $$
and
? and ?

Our assumptions
10

Our assumptions
Consumers have two attention periods …
10

Our assumptions
and allocate attention to outlets based on quality …
10

Our assumptions
… with a probability of switching outlets between each.
10

Our assumptions
Advertisers want to impress each consumer once over the two

periods …
10

Our assumptions

periods …
and have heterogeneous values on impressing consumers.
10

Our assumptions

periods …
and have heterogeneous values on impressing consumers.
Two outlets supply advertising space associated with each unit of

consumer attention
10

Consumer Model
11

Consumer Model
If they have opportunity to choose
11

Consumer Model
consumers select outlet i with probability xi.
11

Consumer Model
In a given period, the probability that a consumer can choose is ρ.
11

Consumer Model
In a given period, the probability that a consumer can choose is ρ.
Dil = xi − xi (1 − xi )ρ
D s = 2 ρ x1 x2
11

The impression game
Morning Afternoon
Outlet 1
Outlet 2
12

The impression game
Morning Afternoon
Outlet 1
Outlet 2
12

The impression game
Morning Afternoon
Outlet 1
Outlet 2
12

The impression game
Morning Afternoon
Outlet 1
Outlet 2
12

The impression game
Morning Afternoon
Outlet 1
Outlet 2
12

The impression game
Morning Afternoon
Outlet 1
Outlet 2
12

The impression game
Morning Afternoon
Outlet 1
Outlet 2
12

The impression game
Morning Afternoon
Outlet 1
Outlet 2
If Starbucks single-homes, it misses impressions.

If Starbucks multi-homes, it wastes impressions.
12

The advertiser’s dilemma
Customer analysis of data provided to authors by

CommScore of 30 recent large, cross-outlet campaigns
13

The advertiser’s dilemma
Wasted
Impressions
Customer analysis of data provided to authors by

CommScore of 30 recent large, cross-outlet campaigns
13

Solving the dilemma
14

Solving the dilemma
No switching
14

Solving the dilemma
No switching
Pure multi-homing
14

Solving the dilemma
No switching
Pure multi-homing
No tracking (Bergemann-Bonatti)
14

Solving the dilemma
No switching
Pure multi-homing
Coordination in time
14

Solving the dilemma
No switching
Pure multi-homing
Coordination in time
Perfect tracking
14

Perfect tracking
15

Perfect tracking
D1l
15

Perfect tracking
D1l D2l
15

Perfect tracking
D1l D2l Ds
15

Perfect tracking
D1l D2l Ds
2a1
15

Perfect tracking
D1l D2l Ds
2a1 2a2
15

Perfect tracking
D1l D2l Ds
2a1 2a2 a1 + a2
15

Perfect tracking
Pooled w/o Tracking
D1l D2l Ds
2a1 2a2 a1 + a2
15

Perfect tracking
s
D l
1
D D2l
2a1 a1 + a2 2a2
15

Perfect tracking
s
D l
1
D D2l
2a1 a1 + a2 2a2
15

Perfect tracking
s
D l
1
D D2l
2a1 a1 + a2 2a2
p1 = 1 − F(2a1 ) p12 = 1 − F(a1 + a2 ) p2 = 1 − F(2a2 )
15

Profit comparison
π i = F −1 (1 − a1 − a2 )ai D s + F −1 (1 − 2ai )2ai D l
π i = D l F −1 (1 − 2ai )2ai
16

Profit comparison
π i = (D s + 2D l )F −1 (1 − 2a)a
π i = D l F −1 (1 − 2a)2a
16

Profit comparison
π i = xi F −1 (1 − 2a)2a
= π i = xi F −1 (1 − 2a)2a
16

Intra-outlet tracking
No tracking (Butters, 1977; Athey-Gans, 2010; Bergemann-Bonatti, 2010)

Content-based tracking
Frequency-based tracking
Internal tracking
Here, we will consider the frequency-based tracking case
17

Advertiser demand
Price
Quantity (Advertisers)
18

Advertiser demand
Price
Single-homing
18

Advertiser demand
To impress loyals, want

to multi-home … at the Price
cost of wasted switcher
impressions
Single-homing
18

Advertiser demand

impressions
Single-homing
Multi-homing
18

Advertiser demand

impressions
Single-homing
To impress switchers,
want to increase
Multi-homing
frequency … at the cost
of wasted loyal
impressions
18

Advertiser demand

impressions
Single-homing
want to increase
Multi-homing
of wasted loyal
impressions Multi-homing +
Frequency
18

Advertiser demand

impressions
Single-homing
want to increase
Multi-homing
of wasted loyal
impressions Multi-homing +
Frequency
Higher value
advertisers more
willing to bear costs
18

Market clearing
Price
Supply
2a
19

Market clearing
Price
Supply
2a
19

Market clearing
Price
Supply
2a
19

Market clearing
Price
The equilibrium
impression price is set Supply
by a single-homing
advertiser.
2a
19

Market clearing
Price
The equilibrium
impression price is set Supply
by a single-homing
advertiser.
The price also

determines the mix of
advertisers in ‘homing’
strategies
2a
19

More switchers
Price
Supply
20

More switchers
Price
More switchers reduces

demand for multi- Supply
homing
20

More switchers
Price

homing
20

More switchers
Price

homing
… but increases the

demand for multi-
homing + frequency
20

More switchers
Price

homing

demand for multi-
homing + frequency
20

More switchers
Price

homing

demand for multi-
homing + frequency
20

More switchers
Price

homing

demand for multi-
homing + frequency
… can increase profits
20

More switchers
Price

homing

demand for multi-
homing + frequency
… can increase profits
20

Endogenous ad capacity
π i = (1 − a1 − a2 )ai D s + (1 − 2ai )2ai D l
πi = 2 − Ds
4 − Ds
(1 − a1 − a2 )2ai
πi =
s s
D (2 − D )
s
4 + D (2 − D )
s (3 − 2(a1 + a2 ))ai
π i = D l (1 − 2ai )2ai
21

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D

s l
a pt = 1
4 − Ds
πi = 2 − Ds
4 − Ds
(1 − a1 − a2 )2ai
πi =
s s
D (2 − D )
s
4 + D (2 − D )
s (3 − 2(a1 + a2 ))ai
π i = D l (1 − 2ai )2ai
21

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D

s l
a pt = 1
4 − Ds
πi = 2 − Ds
4 − Ds
(1 − a1 − a2 )2ai ac = 1
3
πi =
s s
D (2 − D )
s
4 + D (2 − D )
s (3 − 2(a1 + a2 ))ai
π i = D l (1 − 2ai )2ai
21

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D

s l
a pt = 1
4 − Ds
πi = 2 − Ds
4 − Ds
(1 − a1 − a2 )2ai ac = 1
3
πi = ac =
s s
D (2 − D )
s
4 + D (2 − D
s
)
(3 − 2(a1 + a2 ))ai 1
2
π i = D l (1 − 2ai )2ai
21

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D

s l
a pt = 1
4 − Ds
πi = 2 − Ds
4 − Ds
(1 − a1 − a2 )2ai ac = 1
3
πi = ac =
s s
D (2 − D )
s
4 + D (2 − D
s
)
(3 − 2(a1 + a2 ))ai 1
2
π i = D (1 − 2ai )2ai
l
am = 1
4
21

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D

s l
a pt = 1
4 − Ds
πi = 2 − Ds
4 − Ds
(1 − a1 − a2 )2ai ac = 1
3
πi = ac =
s s
D (2 − D )
s
4 + D (2 − D
s
)
(3 − 2(a1 + a2 ))ai 1
2
π i = D (1 − 2ai )2ai
l
am = 1
4
Perfect tracking restores efficiency but competition

remains
21

Common ownership
π i = (1 − a1 − a2 )ai D s + (1 − 2ai )2ai D l
πi = 2 − Ds
4 − Ds
(1 − a1 − a2 )2ai
πi =
s s
D (2 − D )
s
4 + D (2 − D )
s (3 − 2(a1 + a2 ))ai
π i = D l (1 − 2ai )2ai
22

Common ownership
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D

s l
a pt = 1
4
πi = 2 − Ds
4 − Ds
(1 − a1 − a2 )2ai
πi =
s s
D (2 − D )
s
4 + D (2 − D )
s (3 − 2(a1 + a2 ))ai
π i = D l (1 − 2ai )2ai
22

Common ownership
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D

s l
a pt = 1
4
πi = 2 − Ds
4 − Ds
(1 − a1 − a2 )2ai ac = 1
4
πi =
s s
D (2 − D )
s
4 + D (2 − D )
s (3 − 2(a1 + a2 ))ai
π i = D l (1 − 2ai )2ai
22

Common ownership
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D

s l
a pt = 1
4
πi = 2 − Ds
4 − Ds
(1 − a1 − a2 )2ai ac = 1
4
πi = ac =
s s
D (2 − D )
s
4 + D (2 − D
s
)
(3 − 2(a1 + a2 ))ai 3
8
π i = D l (1 − 2ai )2ai
22

Common ownership
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D

s l
a pt = 1
4
πi = 2 − Ds
4 − Ds
(1 − a1 − a2 )2ai ac = 1
4
πi = ac =
s s
D (2 − D )
s
4 + D (2 − D
s
)
(3 − 2(a1 + a2 ))ai 3
8
π i = D (1 − 2ai )2ai
l
am = 1
4
22

Common ownership
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D

s l
a pt = 1
4
πi = 2 − Ds
4 − Ds
(1 − a1 − a2 )2ai ac = 1
4
πi = ac =
s s
D (2 − D )
s
4 + D (2 − D
s
)
(3 − 2(a1 + a2 ))ai 3
8
π i = D (1 − 2ai )2ai
l
am = 1
4
Perfect tracking restores full efficiency
22

Profits
Share of switchers
23

Outlets compete in
Profits
Cournot fashion due
to presence of
switchers
Share of switchers
23

Outlets compete in
Profits
Cournot fashion due
to presence of
switchers
Increase in switchers
causes expansion in
ad capacity in
equilibrium
Share of switchers
23

Outlets compete in
Profits
Cournot fashion due
to presence of
switchers
Increase in switchers
causes expansion in
ad capacity in
equilibrium
‘Potential’ U-Shaped
relationship Share of switchers
23

Perfect tracking
Profits
Share of switchers
24

Perfect tracking
Profits
Under perfect tracking …
Share of switchers
24

Perfect tracking
Profits
inefficient matching is
eliminated …
Share of switchers
24

Perfect tracking
Profits
inefficient matching is
eliminated …
but switchers create

competition at the margin
Share of switchers
24

Impact of blogs
Price
Supply
Quantity (Impressions)
25

Impact of blogs
Price
Supply
Blogs and other non-ad
content …
25

Impact of blogs
Price
Supply
content …
decrease available ad
capacity in the market …
25

Impact of blogs
Price
Supply
content …
25

Impact of blogs
Price
Supply
content …
and reduce adverse effect

of switching …
25

Impact of blogs
Price
Supply
content …

of switching …
25

Impact of blogs
Price
Supply
content …

of switching …
Causing impression prices

to rise.
25

Impact of blogs
Price
Supply
content …

of switching …
Causing impression prices

to rise.
25

Paywalls
26

Paywalls
Subscription-based paywalls reduces

switching (increase efficiency).
26

Paywalls

Unilateral paywalls cost an outlet in readership

but benefit both outlets in increased efficiency.
26

Paywalls

Unilateral paywalls cost an outlet in readership

but benefit both outlets in increased efficiency.
Switchers magnify positive externalities so we

expect lower equilibrium paywalls.
26

Conclusions
27

Conclusions
Mergers may increase outlet ad revenue.
27

Conclusions
Public broadcasting is an ‘attention’ threat but

involves less competition than commercial
outlets.
27

Conclusions
Public broadcasting is an ‘attention’ threat but

involves less competition than commercial
outlets.
Paywalls may be a poor substitute to

advertising.
27

Future directions
28

Future directions
Outlet asymmetries and competition for

readers
28

Future directions

readers
Platform market structure issues in perfect

tracking
28

Future directions

readers
Platform market structure issues in perfect

tracking
Interactions with ad targeting
28

Will the Internet Destroy the News Media?
29

Will The Internet Destroy The News Media

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Will the Internet Destroy the

Thursday, 21 October 2010

Thursday, 21 October 2010

Thursday, 21 October 2010

Thursday, 21 October 2010

Thursday, 21 October 2010

Thursday, 21 October 2010

Advertising space unlimited

Thursday, 21 October 2010

... online ads sell

Thursday, 21 October 2010

Advertising space unlimited

Thursday, 21 October 2010

Advertising space unlimited

Web display ads are not effective

Thursday, 21 October 2010

“NewspaperLoss readers are ‘better’ than Web

Thursday, 21 October 2010

Advertising space unlimited

Web display ads are not effective

Thursday, 21 October 2010

Advertising space unlimited

Web display ads are not effective

Dramatic increase in competition

Thursday, 21 October 2010

Thursday, 21 October 2010

Enforce copyright on aggregators

Thursday, 21 October 2010

Enforce copyright on aggregators

Thursday, 21 October 2010

Enforce copyright on aggregators

Public subsidies (non-profits)

Thursday, 21 October 2010

Enforce copyright on aggregators

Public subsidies (non-profits)

Cut public broadcasting

Thursday, 21 October 2010

Thursday, 21 October 2010

The Internet has facilitated consumer

Thursday, 21 October 2010

The Internet has facilitated consumer

There is imperfect tracking between

Thursday, 21 October 2010

Thursday, 21 October 2010

Thursday, 21 October 2010

Thursday, 21 October 2010

Thursday, 21 October 2010

Thursday, 21 October 2010

Thursday, 21 October 2010

Traditional media economics with

Thursday, 21 October 2010

Traditional media economics with

cannot explain total ad revenue decline.

Thursday, 21 October 2010

Traditional media economics with

cannot explain total ad revenue decline.

Each outlet sells access to consumer as a

Thursday, 21 October 2010

Thursday, 21 October 2010

Thursday, 21 October 2010

Thursday, 21 October 2010

Readers/Viewers Outlet Advertisers

Thursday, 21 October 2010