Pricing Digital Contents for Broadcasting

1. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

2. Table of contents: • Abstract • Introduction • Hypothesis • Scenarios in the model • The model • Criterion for establishing the value of contents • Conclusions • References Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

3. Abstract: The value a user’s free time provides to a pay television channel is not the same as that provided to an open-broadcast television channel or to an Internet services provider that distributes audiovisual content. This aspect is of paramount importance because it influences what a television channel or an Internet content provider can pay the owner of a content: it will never be able to pay more than the value the end user provides when he consumes the content. We analyse how the current acquisition of successful mass consumption content, based on tenders, is contrary to the perfect competition model and we propose a model that is more in line with the social optimum. The model we propose favours both competition among companies and the maximum benefit for the end consumer. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

4. Introduction: • With pay television, from the regulator's point of view, two types of content should be distinguished: • The content produced by the channel or television platform itself. • The content produced by third parties, purchased from other producers or audiovisual companies. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

5. Introduction: • Own Content: • As to the content produced by the television itself, the channel holds absolute control over the product. In other words, the exclusive, monopolistic use of own content should be allowed. • Third-party Content: • All the audiovisual content that is not own production should be freely available for any pay-television channel. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

6. Hypothesis: Product innovation is determined by market structure and to increase the rate of innovation, it is necessary to favour certain changes in the market structure. The impressive, broad spectrum of competition has not necessarily forced television channels to change their programming plans to make them different from the rest, especially at prime time. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

7. Scenarios in the model: Scope All commercial processes comprise three elements: producer, intermediary and end consumer, which, translated into the audiovisual language, would be content provider, pay television and subscriber. Purpose The aim is for the advantages for a pay platform of a dominant position on the market to disappear. Scenarios This situation is represented, for example, by the current panorama of pay television in Spain: Digital + Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

8. The model (I): The model proposes a direct purchase of content by the platforms; without auction. The provider sets the price for his product and the various televisions who are interested pay not the entire amount, but rather a proportion of the whole. Here, we are talking about shared broadcasting rights. Accordingly, the owner of the content sells his product, with profits that are fair but perhaps not as high as in the case of the auction. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

9. The model (II): Special Case: With content produced by third parties outside pay television, the monopoly could occur only in one case, which would be limited to the period of one year. This would occur if only one platform were interested in broadcasting an audiovisual product which, for whatever reason, were not trusted by the other television companies. That programme could become an audience success, even only a short while after its premiere and in this case, the other television companies could not broadcast it until it returned to the market the next year. As all the contents, whether they be of general or minority interest, are regulated in this way, by free availability, and can be shared, we avoid the legal loopholes that arise in any regulator model that is overly specific. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

10. Criterion for establishing the value of contents: Introduction Like in any economy, in order to value, we have to quantify. So, to find a numeric expression for the magnitude of spending or earning in leisure, we use the term lenny (the combination of Leisure and Penny), which means "the units of time in the existence of a human being without a specific purpose and potentially attributable to multiple uses". We first of all have to set the length of that unit of time: one lenny is equal to one hour.Consequently, when a person spends 3 hours and 30 minutes of his leisure time, we quantify his investment in 3.5 lennies Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

11. Criterion for establishing the value of contents: The value a lenny provides to a pay television is not the same as it provides for an open-broadcast television or to an Internet services provider that distributes audiovisual content. This aspect is of paramount importance: it will never be able to pay more than the value the end user provides when he consumes the content. The price the owner of the content can ask from each television channel or any other distributor of audiovisual content (for example, an Internet provider) must be different. The struggle between the different television channels for attracting the lennies of consumers can only have one meaning: the lenny has an equivalent monetary value. And it is precisely this valuation of the lenny that helps us determine the value of audiovisual content; the price of audiovisual content is not determined by its production cost, but rather by the intangible value it provides. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

12. Criterion for establishing the value of contents: The concept of lenny helps determine the price of a content. An audiovisual product will have as much value as the number of lennies it has managed to attract multiplied by the value each of the said lennies has for the company distributing the content. The key lies in setting the price of the lenny, which, as we have already pointed out, has a different value depending on the distribution medium. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

13. Criterion for establishing the value of contents: • Pay TV. • The different fractions of time into which a day is divided do not have the same value. We do not perceive the same value of service at nine o'clock in the morning as at nine o'clock at night. With the help of an appropriate market study, it is easy to determine which part of the quota paid by a subscriber to pay television would correspond to each hour of the day. That would be the direct base value of the lenny. The corresponding pluses related to the pay-per-view value would then be added to this value, where applicable. • Open-broadcast TV. • The quantification is related to income from advertising that can be obtained, which depends on the audience. The value of the lenny is the income from advertising, divided by the number of people watching a programme. • Internet TV. • This type of distribution will be a combination of the previous two. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

14. Conclusions: The income an owner of audiovisual content would receive would be determined by the medium and the time the user chooses for consumption. The key to the model lies in the fact that the user is the one who decides not only what content he wishes to consume, but also the medium on which he is going to consume it. The price paid by each contents distributor would be different, even for the same content. To calculate this, we have used the lenny concept; each distributor will calculate the cost of his lenny and pay the contents owner a prize that is proportional to the result of multiplying the cost of his lenny by the leisure time consumers have devoted to consuming the content. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

15. References: *Adams, W. J. (1993). Program scheduling strategies and their relationship to new program renewal rates and rating changes. Journal of Broadcasting & Electronic Media, 37, 465–474. *Barrett, M. (1999). The relationship of network affiliation change to prime time program ratings. Journal of Broadcasting & Electronic Media, 43 (1), 98-109. *Bielby, W.T. & Bielby, D.D. (1994). All hits are flukes - institutionalized decision-making and the rhetoric of network prime-time program-development. American Journal of Sociology, 99 (5), 1287-1313. *Eastman, S.T., Neallunsford, J. & Riggs, K.E. (1995). Coping with crazing - prime-time strategies for accelerated program transitions. Journal of Broadcasting & Electronic Media, 39 (1), 92-108. *Hellman, H. & Sauri, T. (1994). Public-service television and the tendency towards convergence - trends in prime-time program structure in Finland: 1970-92. Media Culture & Society, 16 (1), 47-69. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

16. References: *Li, S.C.S. & Chiang, C.C. (2001). Market competition and programming diversity: A study on the TV market in Taiwan. Journal of Media Economics, 14 (2). 105-119. *Park, S.K. (1996). Determinants of renewal and adjustment of license fees of network prime time programs. Journal of Media Economics, 9 (3), 1-19. *Pavlik, J.V. (2004). Clash of the titans: How the unbridled ambition of Ted Turner and Rupert Murdoch has created global empires that control what we read and watch each day. Television Quarterly, 34 (2), 82-83. *Reinard, J.C. & Ortiz, S.M. (2005). Communication law and policy: The state of research and theory. Journal of Communication, 55 (3), 594-631. *Stromberg, D. (2001). Mass media and public policy. European Economic Review, 45 (4-6), 652-663. Pricing Digital Contents for Broadcasting dariusz.rozanski@szczesliwice.net

17. Personal details: Name: Surname: Company: Phone: E-mail: Beatriz Sainz University of Valladolid 00 34 983 423660 beasai@tel.uva.es dariusz.rozanski@szczesliwice.net

18. Personal details: Name: Surname: Company: Phone: E-mail: Judith Redoli University of Alcalá de Henares 00 34 91 6337405 judith@judithredoli.com dariusz.rozanski@szczesliwice.net

19. Personal details: Name: Surname: Company: Phone: E-mail: Rafael Mompó University of Valladolid 00 34 983 423660 rafa@rafaelmompo.com dariusz.rozanski@szczesliwice.net

20. Personal details: Name: Surname: Company: Phone: E-mail: Miguel López University of Valladolid 00 34 983 423660 miglop@tel.uva.es dariusz.rozanski@szczesliwice.net

21. Personal details: Name: Surname: Company: Phone: E-mail: Carlos De Castro University of Córdoba 00 34 957 218322 cdecastro@uco.es dariusz.rozanski@szczesliwice.net

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