Getting beer during commercials: Adverse effects of ad-avoidance

This paper studies the impact of ad-avoidance behavior in media markets. We consider a situation where viewers can avoid advertisement messages. As the media market is a two-sided market, increased ad-avoidance reduces advertisers’ value of placing an ad. We contrast two financing regimes, free-to-air and pay-TV. We find that a higher viewer responsiveness to advertising decreases revenues and entry in the free-to-air regime. In contrast, in the pay-TV regime, lower income from advertisements is compensated by higher subscription income leaving revenues and the number of channels unaffected for a fixed total viewership.