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Broadcasting Competition and Programming Costs

Broadcasting Competition and Programming Costs. David Genesove Hebrew University of Jerusalem and C.E.P.R. Listener Behaviour. Utility generalizes from Distributed uniformly around circle of h-content D is listener share, x is marginal. S listeners. First order approximation.

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Broadcasting Competition and Programming Costs

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  1. Broadcasting Competition and Programming Costs David Genesove Hebrew University of Jerusalem and C.E.P.R.

  2. Listener Behaviour • Utility generalizes from • Distributed uniformly around circle of h-content • D is listener share, x is marginal. S listeners. First order approximation.

  3. Concave (Φ=2), N={2,4}, Δu/t=.05

  4. Convex (Φ=0.5), N=4, Δu/t=.05

  5. Firm Behaviour • Firm chooses advertising and quality • No multiple station firms. • Profits:

  6. Choice of Number of Ads • r(a): per-capita advertising revenue (concave, with maximum) • Benefit (RHS): smaller, since share falls (Choi, Armstrong&Weeds) • Cost: lost listeners.

  7. Econometric Spec.: Ad-Revenue • Advertising Specification • Per Firm Ad-Revenue

  8. Quality Choice • FOC • Specification

  9. Estimation Equations

  10. Potential Biases • Market size (OK for lnF|lnR,lnN) • Listener Heterogeneity (t): • Differential cost of talent (δ): • Incomplete Reports – e.g., fire, undocumented ownership transfer (Knoxville TN?) • Differential Local vs. Network allocation

  11. Estimation Equations

  12. Complications: The Industry and the Model • Network programs • SOLUTION: non-network revenue • Multiple Stations • Overlapping Markets • SOLUTION: for now, none; rely on FCC • Television • SOLUTION: stop in 1947 • Endogenous Wages • SOLUTION: wages, transcription services • Asymmetric Firms within markets • differing power • differing capabilities Fi(v)=δF(v) • expansion firms

  13. Tale 1a: Ratio of New to Existing Firms’ Revenue, 1947 Further Complications & Solutions • Are entering firms like existing firms? Ratio of New to Existing Firms, Revenue 1947 Source, “Economic Study “, FCC, 1947 Tables 5 and 20.

  14. (Final) Data • Annual Financial Reports to FCC (NARA): Revenue (R) & Programming Costs (F) • Lists of Radio Stations (BMB Spring 1946 and Broadcasting, Jan 1, 1947, 1948): Number of Stations (N) • Bank Debits to Demand Deposits (Source: Monetary and Banking Statistics, Fed): Economic Activity (S) • Markets: 137 metropolitan districts (- NY, LA, CHI) + 41 other FCC identified markets • Years: 1942-1948

  15. Today’s Sample • About 1/3 of stations • 1944-1947 → • 149 markets for examining station number growth (~First Stage for N) • 196 stations in 89 cities for effect of revenue on program. costs during Freeze • 153 stations in 79 cities for that and effect of growth in station numbers, post-war

  16. Programming Costs and Revenue with Competition Differenced Out (Station Data, War Period)

  17. SUMMARY: 1944-1945 • 89 cities (196 stations) • Variable Mean S.D. Min Max • dlnRevenue .13 .23 -0.55 1.62 • dlnProgCost .24 .24 -0.44 1.51 • gr43 .18 .10 -0.08 0.56 • gr44 .09 .07 -0.10 0.46 • gr45 .07 .07 -0.14 0.29 • War Growth .34 .15 0.08 1.00 • CORRELATIONS: • gr43 gr44 • gr44 0.07 • gr45 -0.11 0.16

  18. Table 2: American Imports in 1914

  19. First Stage: Explaining Growth in Number of Firms (Market Level, Post War)

  20. SUMMARY TABLE (N=149) • Variable Mean Std. Dv. Min N=1 Max • lnbd42 6.78 1.16 4.37 10.00 • ECONOMIC GROWTH: • War 0.33 0.16 -.17 1.00 • gr43 (1942-43) 0.17 0.12 -.08 0.72 • gr44 0.09 0.08 -.21 0.46 • gr45 0.07 0.08 -.17 0.41 • gr46 0.17 0.11 -.17 0.45 • gr47 0.14 0.06 .005 0.41 • POPULATION GROWTH: • 1930s 0.11 0.11 -.07 0.63 • 1940s 0.23 0.16 -0.13 0.75 • CHANGE IN LOG NUMBER OF STATIONS • 1946 to 1948 0.51 .40 0 1.79 • 1946 to 1947 0.19 .35 -.69 1.37 • 1947 to 1948 0.32 .32 0 1.79 • NUMBER OF STATIONS • 1946 2.99 2.06 1 (35) 13 • 1947 3.52 2.22 1 (20) 13 • 1948 4.71 2.75 1 (5) 17

  21. CORRELATIONS • War Conc. Lnbd42 dpop30 • War growth 1.00 • Conc. growth -0.02 1.00 • lnbd42 -0.16 -0.43 1.00 • dpop30 0.29 0.14 -0.07 1.00 • dpop40 0.29 0.09 0.04 0.76 1.00

  22. Table 2: American Imports in 1914

  23. Second Stage: (Station Data, Post War)

  24. Table 2: American Imports in 1914

  25. Table 2: American Imports in 1914

  26. Table 2: American Imports in 1914

  27. Table 2: American Imports in 1914

  28. Extensions • More data: • Rest of Stations • 1942 , 1943 and 1948 • More variables: • Employee Compensation? • Transcription Costs • Better concentration figures

  29. Conclusions • Endogenous Fixed Costs Industry • Not so large as to generate extreme case. • Competition’s Total Effect is zero or positive. • Competition’s Direct Effect is unclear. • Competition’s Advertising Effect is zero or positive.

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