Business Models for Media Firms: Does Competition Matter for How They Raise Revenue?

The purpose of this article is to analyze how competitive forces may in‡uence the way media …rms like TV channels raise revenue. A media …rm can either be …nanced by advertising revenue, by direct payment from the viewers (or the readers, if we consider newspapers), or by both. We show that the scope for raising revenues from consumer payment is constrained by other media …rms o¤ering close substitutes. This implies that the less di¤erentiated the media …rms’ content, the larger is the fraction of their revenue coming from advertising. A media …rm’s scope for raising revenues from ads, on the other hand, is constrained by how many competitors it faces. We should thus expect that direct payment from the media consumers becomes more important the larger the number of competing media products.