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Discussant: Giacomo Calzolari University of Bologna, CEPR

Broadcasting, advertising finance and the rationale for public broadcasting by Anderson, Kind, Schjelderup. Discussant: Giacomo Calzolari University of Bologna, CEPR. Advertising financed broadcasters. Main issue. Advertising financed broadcasters

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Discussant: Giacomo Calzolari University of Bologna, CEPR

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  1. Broadcasting, advertising finance and the rationale for public broadcastingby Anderson, Kind, Schjelderup Discussant: Giacomo Calzolari University of Bologna, CEPR

  2. Advertising financed broadcasters

  3. Main issue • Advertising financed broadcasters • They lead to duplication of more profitable segments • TV channels filled with soap and reality shows • They leave some segmentsuncovered • Opera lovers will not watch TV • Quite a realistic prediction …

  4. The model • K separate groups / segments of viewers (i, vi, Ri, Ni) • Viewers in group i only watch at their preferred channel i or nothing • Extreme horizontal differentiation • Viewers in a group have heterogeneous valuation ri uniform over [0,Ri] • A viewer in group i obtains from his channel ri- i ai • Notice advertising is like a “hedonic” price

  5. Profit-maximizing firms • Free-to-air broadcasting financed with advertising • Anderson and Coate (2005): since advertising is a price • TVs avoid price/advertising competition • TVs serve different segments • Hence, no duplication issues in this model • However, unprofitable segments may remain uncovered • What to do?

  6. A Public firm • It is obliged to serve one of the otherwise uncovered markets • It is obliged to set welfare maximizing advertising • The interesting question • What is the market to serve so as to max social welfare?

  7. A public firm? • Irrelevant whether it is public or private • Just a regulated firm: • Must maximize Welfare • Advertising ai  regulated price pi • Receives reimbursement for costs to balance the budget • Regulatory transfer Ti

  8. Let’s exploit the parallel withthe theory of regulation • Once we accept regulation … … open the regulator’s toolbox • Interesting issue: mixed-oligopoly • A regulated firm with profit-maximizing competitors • BBC • RAI • Exactly the same problem of public utility services with competing unregulated firms • Postal services

  9. Theory of regulation • TV exclusion of some segments of viewers • Similar issues in regulation • Cream-skimming • Policy: Universal service obligations • E.g. postal services • Unprofitable segments in low population density areas • Profitable segments in urban areas

  10. Traditional regulation in the media • Alternatives to the “public” TV? • Cost of public funds for balancing the budget deficit • Balancing the budget with no transfers may be preferable • An example from price-cap regulation • Impose bundling channels: • A broadcaster must serve a profitable segment but also an unprofitable one • And balance the budget • With an advertising-cap: e.g. ai≤A • Welfare properties of this regulation?

  11. Traditional regulation in the media • Asymmetric information? • Asymmetric information on viewers preferences • Asymmetric information on broadcasters’ costs • Again the literature on regulation is of help here • Also for regulation of quality of “public” TV …

  12. Need for tight regulation of qualityalso on public / regulated TV

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