It’s truly amazing to look back at history and find that the medium that kept most of us entertained during the coronavirus lockdown was only invented in 1927. However, it wasn’t until the 1950s that television reached national in scope, with at least one television set crossing the threshold of half of all US homes. Yet, if it wasn’t for the development of global capitalism, scientific revolutions and new technologies, television and broadcast media would not have been able to extend their reach to conquer audiences worldwide and become important components of economic activities.
Television viewing peaked during the 1990s-2000s, with the average American household watching 7 hours and 40 minutes of TV per day. Using this as a moneymaking behemoth, broadcast companies started showcasing more and more commercials. On the other hand, most media consumers preferred television programs over commercials and the introduction of remote controls facilitated their choice to avoid advertisements. However, if all consumers were to steer clear of all advertisements, a chaos would have been expected in the market, and all advertisers and broadcast companies would have ended up with a big goose egg.
As this scenario would have proved to be too costly, broadcast media couldn’t afford for its viewers to avoid all advertisements, which consequently gave birth to a new function of the media.
Fast forward twenty years and we are living in a new era where media platforms are now creating their own strategies and setting their own advertising levels to attract audiences and “sell” them to advertisers. So, in this article series, I will be giving an overview and describing the framework to explain how today the media industry is delivering media audiences to advertisers.
Media as Mediators
As per early literary works on broadcast advertising, the market demand for advertising was reckoned to be perfectly elastic, which therefore meant that the profit maximization of broadcast companies was interdependent on audience maximisation. However, as per the case study provided by Anderson and Coate (2005), which eventually became the first model to acknowledge the correlation between networks, viewers and advertisers, most viewers dislike being interrupted by commercials and excessive broadcast advertising would only result in the aggregate advertiser demand curve being represented by an increasing downward slope.
Decades ago, questions arose continually in debates as the advertising produced by the broadcast industry failed to yield enough consumers and profits. The continued wave of concerns and failures eventually led to the birth of the “two-sided market.” This phenomenon was initially developed by Anderson and Coate (2005) as a theoretical treatment. Perhaps, the most important literature built on the two-sided market is Picard (1989) where the term given was the “dual-product market.” This market allowed commercial broadcasting companies to act as both providers of programs and audience distributors to advertisers. Another pioneering literature would be that of Rochet and Tirole (2004) which claimed that the theory of “two-sided markets” was fleshed out of an analysis of network externalities and multi-product pricing. More precisely, because of imperfect advertising techniques and features and the unresponsive consumption behavior by viewers, a new market allocation involved the media serving all viewers and bundling media content (such as, magazine articles, television programs and web content) with advertising. In other words, all entertaining or informational content that viewers, readers and listeners will get access to will constitute some saleable form of output. And, consequently, the same audience that has been “lured” by media will be packed, delivered and sold to advertisers.
However, the question raised here is how the media will serve as a mediating platform for advertisers and viewers.
And, this question will be answered in the next article. So, stay tuned until then.