The media and advertising: a tale of two-sided markets

Media industries are important drivers of popular culture. A large fraction of leisure time is devoted to radio, magazines, newspapers, the Internet, and television (the illustrative example henceforth). Most advertising expenditures are incurred for these media. They are also mainly supported by advertising revenue. Early work stressed possible market failures in program duplication and catering to the Lowest Common Denominator, indicating lack of cultural diversity and quality. The business model for most media industries is underscored by advertisers’ demand to reach prospective customers. This business model has important implications for performance in the market since viewer sovereignty is indirect. Viewers are attracted by programming, though they dislike the ads it carries, and advertisers want viewers as potential consumers. The two sides are coordinated by broadcasters (or ”platforms”) that choose ad levels and program types, and advertising finances the programming. Competition for viewers of the demographics most desired by advertisers implies that programming choices will be biased towards the tastes of those with such demographics. The ∗Department of Economics, University of Virginia, PO Box 400182, Charlottesville VA 22904-4128, USA. [email protected] †CORE, 34 Voie du Roman Pays, B-1348 Louvain-la-Neuve, Belgium. [email protected]