The battle for ”exclusive eyeballs” among media platforms explains the sharp decrease in advertising revenues for mainstream media over the last 10 years. Remarkably, the battle also generates more media diversity, since it becomes more profitable for media platforms to differentiate themselves so as to reach new audiences. This may result in greater polarisation and less duplication of content for the mass market.
These are among the findings of research by Simon Anderson, Øystein Foros and Hans Jarle Kind, published in the February 2018 issue of the Economic Journal.
Their study notes that before the internet, the local newspaper was the only available channel for a local retailer to reach a city”s inhabitants with an advertisement. The local newspaper therefore had a monopoly; advertisers were delivered exclusive eyeballs.
Today, not least due to programmatic advertising, the same eyeballs can be reached through Facebook, Google and even foreign newspapers. As a consequence, the local newspaper competes for local advertisers with Google, Facebook and the New York Times.
This increased competition for advertisers can explain the sharp decrease in advertising revenues for mainstream media over the last 10 years. The driving force is that exclusive eyeballs can be sold to advertisers for a higher price than eyeballs that are reached by several channels.
Think of the Super Bowl. A 30-second Super Bowl advertisement costs more than $5 million to air, since it reaches ”all” (the Super Bowl has more than 110 million viewers), many of whom cannot be reached elsewhere.
A major reason why exclusive eyeballs have become rarer is that media firms know the geographical location of the consumers who visit their websites. An advertiser can thus book an advertisement in any online newspaper (or social media such as Facebook) and request that the advertisement is only shown to customers in, say, Norway.
Suddenly the whole world can compete to sell advertisements that were previously effectively reserved for a local Norwegian newspaper. When the product – in this case, readers” attention – has gone from being unique to becoming something that many can offer, pricing must change accordingly.
This gives rise to incremental pricing: the local newspaper cannot charge the advertiser more than it is willing to pay to reach a consumer in that newspaper over and above Facebook.
The decrease in advertising revenues for traditional newspapers may therefore be explained by the huge proliferation of alternatives for advertisers. Lower media consumption is not the reason. In the UK, for example, total media consumption rose from nine hours per day in 2010 to more than 11 hours in 2014.
The battle for exclusive eyeballs also affects media content and media diversity. Advertising-financed media firms have focused on the mass market because they wanted to reach a large number of eyeballs. The consequence, as Bruce Springsteen sang, is Fifty-seven channels and nothin” on. TV channels have stacked reality series on top of each other in their fight for broad appeal.
This may change. The reason is that media channels want to chase exclusive eyeballs by focusing on reaching specific groups who are not provided for elsewhere. Media need to offer something unique and different.
Media may now want to focus on specialised content instead of aiming for the mass market. They can do so by trying to reach the audiences that their competitors do not.
”Competition for Advertisers and for Viewers in Media Markets” by Simon P. Anderson, Øystein Foros and Hans Jarle Kind is published in the February 2018 issue of the Economic Journal. Simon Anderson is at the University of Virginia. Øystein Foros and Hans Jarle Kind are at the Norwegian School of Economics.
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