This presentation by Martin Peitz, Professor of Economics (University of Mannheim) was made during the discussion “Media Mergers” held for competition authorities officials on 27 September 2022. More materials on the topic can be found at https://www.oecd.org/competition/latinamerica. This presentation was uploaded with the author’s consent.

1. Martin Peitz 1
Media Platforms and
(Horizontal) Media Mergers
September 2022
Martin Peitz
University of Mannheim
and MaCCI

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Warning: This page contains advertising
Background material on the
economics of platforms:
Paul Belleflamme and
Martin Peitz
The Economics of Platforms:
Concepts and Strategy
Cambridge University Press,
published November 2021

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I. Media as multi-sided platforms

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Media markets
Media (and related content or entertainment) markets
 Newspapers and magazines (print or digital)
 Scientific journals
 Radio channels
 TV channels
 Digital media websites (and news aggregators
such as Google News)
 Streaming platforms (YouTube, Spotify)
 Social networks (Twitter, TikTok, Facebook,
LinkedIn)

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Media markets: traditional model
Free commercial media
quoting from Anderson and Gabszewicz (2006)
 The key to the basic market model is that
advertisers want to reach viewers, but viewers
dislike ads.
 The platform, or intermediary, is the broadcast
company (or companies) that renders the ads
palatable by bundling them with programs that
are the viewers’ ultimate objective.
 That is, entertainment is provided free of a direct
price, and this sugar-coats the consumption of
ads the prospective consumer would otherwise
not choose to watch.

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Multi-sided platforms
Sellers / Advertisers (often multi-homing side)
 Derive a higher surplus from more users
Content providers
Users / Readers / Listeners / Viewers (simplified
view: single-homing side) )
 Derive often a lower (sometimes higher) utility from more
advertising (often negative indirect effect) [some people enjoy
certain types of advertising on tv or in the movies]
 Derive a higher utility from more and better content
Media platform
 may pay for content (or produce its own content)
 may charge users for access or usage
 charges advertisers for access or usage

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Media platform
Media platform
Content providers
Users
Advertisers
content
ads
content+ads
(typically as bundle)

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Media platform: common model
Media platform
Content providers
Users
Advertisers
content
ads
content+ads
(typically as bundle)
Vertical integration

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Media platforms and market
definition
 Content markets: interaction between platforms
and content providers
 Advertising markets: interaction between
platform and advertisers
 Consumer markets: interaction between platform
and consumers
 Data markets (in particular, in digital):
interaction between platform and other parties
such as advertisers, content providers and third
parties about access to data or data driven
services (possibly provided as a bundle)

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Pricing structures
 If users dislike advertising, advertisers must pay a positive
price for ads.
 Users may pay only indirectly through the consumption of
advertising
 Free newspapers and magazines
 Free radio broadcasting
 Free-to-air (commercial) tv
 Free streaming platforms
 Users may pay directly (and, possibly, indirectly)
 National newspapers
 Subscription-based pay-tv (e.g. Canal+), radio, and streaming
offer (e.g. Spotify)
 Pay-per-view television

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Pricing structures: explanations
 Why are in some cases consumers not charged
or charged very little?
 2SIDED MARKET
 because of positive network effect it is often privately
(and socially) optimal to subsidize consumers to
obtain higher revenues on the advertising side
 in particular, if advertisers multi-home on competing
media platforms
 negative price often not feasible, then zero price
 even with positive price on the user side that
maximizes profits, zero price may be set because of
transaction costs (e.g. free weekly)
 Caveat: low user charge (possibly below cost) may be
problematic if user charge serves as a selection
device
 Technological reasons
 Decoder too costly

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Pricing structures
Is access or usage charged?
 Charges may be imposed for access or may depend on the
intensity of use
 Access and usage based charges
 Advertiser side:
 Access charges for advertisers: spot per second or ad depending
on space and location in newspaper.
 Usage charge for advertisers: charge depending on number of
times an ad has been viewed (measured by the number of
people that watched the show); charge depending on the
number of clicks on an ad or even number of purchases
generated
 End user side:
 Access charge for users: subscription-based television (e.g.
canal+), online subscription to a magazine (e.g. the Economist),
subscription-based streaming (e.g. Spotify)
 Usage charge for users: pay-per-view (e.g. individual articles in a
digital newspaper or a scientific journal)

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Pricing structures
When to apply access or usage charges?
 Usage charges on the user side may be costly to implement or
require certain technological developments
 Subscription model for newspapers; home delivery on a per copy
base difficult to implement
 Pay-tv subscription model easier to implement than pay-per-view
 Usage charges on the advertiser side requires reliable
measurement of usage
 Alternative offers of advertising, data transfer, usage and access
prices on the end user side may serve as a selection device
(heavy vs. light users)

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II. Media mergers

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What is special?
What is “special” about media mergers?
 Media as multi-sided platforms
 Media platforms cater to different user group
 Effect of the merger may differ across those groups (may be positive
for end users and negative for advertisers) -> question about
welfare standard
 Media mergers and content provision
 Media merger may lead to a repositioning of content package and
adjustment of editorial staff
 Media going digital and recent developments
 Traditional distinction between radio, television, and newspapers is
becoming blurred
 Market concentration in ad tech
 Mix of journalistic and end user-generated content
 Media mergers may be proposed in reaction to or anticipation of a
changing landscape
 Media and public policy objectives
 Increased media concentration may raise questions about media
diversity

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Media mergers and advertising
 Suppose that
 consumers make a discrete choice between media
platforms (single-homing) and advertisers can post
ads on multiple media (multi-homing)
 media platforms make money only on the advertiser
side
 consumers consider advertising to be a nuisance
 Media merger
 reduces competition for consumers
 Consumers have to bear with more advertising
 Advertisers encounter lower ad prices
 Anderson and Coate (2005), Anderson and Peitz (2020)

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Media mergers and advertising
 Alternative scenario 1 (Ambrus et al., 2016):
 some consumers are active on all platforms (e.g.
because of news aggregator)
 advertisers may waste some impressions on
consumers when they are hit too often
 Alternative scenario 2 (Anderson and Peitz, 2022):
 consumers are active on all platforms but
advertising is allocated efficiently
 consumers cannot absorb all advertising
 Implications:
 Platform’s ad price decreases not only in own ad
level but also those of its competitors
 Media merger may lead to less advertising and
higher ad prices

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Evaluating media mergers
 Jeziorski (2014) empirical setting:
 merger wave among U.S. radio broadcasters
 allows for repositioning of broadcaster after
merger
 Findings: mergers led to
 a decrease in advertising levels and
 an increase in ad prices
 in line with the alternative scenarios
 General lesson: effects of media mergers on ad levels
and ad prices difficult to predict in a media merger
case
 Other issue: Effect of media merger on media variety
(can possibly be addressed through remedies)

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Possible merger efficiencies
 Market consolidation may lead to stronger
network effect
 relevant when consumers make discrete choice
between media
 Examples:
 improved recommendations of journalistic content thanks to size
 improved targeting of ads allows for fewer ad impressions being
wasted (efficiency defense of targeted advertising)
 Market consolidation may lead to stronger
incentives to invest in quality content

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Digital media
 New challenges to media merger policy in
digital
 Convergence of different formats
 New players as aggregators and gatekeepers
 Market power in ad tech
 Personalized content provision
 Survey on the economics of digital media: Peitz
and Reisinger (2016)

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Broader picture
Special features of media:
 Non-rivalry of consumption
 Merit good (good or service that society should have on
the basis of some concept of societal benefit)
 Scarcity of consumer attention
Regulation
 Advertising restrictions
 Number of minutes per hour
 Programs that cannot be interrupted by advertising
 Content requirements
 Certain program types required
 National / local content requirements
 Data restrictions

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Cited academic work on media
• Ambrus, A., E. Calvano, and M. Reisinger. 2016. Either or Both
Competition: A “Two-Sided” Theory of Advertising with Overlapping
Viewerships. American Economic Journal: Microeconomics, 8, 189-
222.
• Anderson, S. and S. Coate. 2005. Market Provision of Broadcasting:
A Welfare Analysis. Review of Economic Studies, 72, 947-972.
• Anderson, S. and J. Gabszewicz. 2006. The Media and Advertising:
A Tale of Two-sided Markets. In: Handbook of the Economics of Art
and Culture, vol. 1, Elsevier.
• Anderson, S. and M. Peitz. 2020. Media See-Saws: Winners and
Losers in Platform Markets. Journal of Economic Theory, 186.
• Anderson, S. and M. Peitz. 2022. Ad Clutter, Time Use, and Media
Diversity. American Economic Journal: Microeconomics,
forthcoming.
• Jeziorski, P. 2014. Effects of Mergers in Two-Sided Markets: The
U.S. Radio Industry. American Economic Journal: Microeconomics,
6, 35-73.
• Peitz, M. and M. Reisinger. 2016. The Economics of Internet Media.
In: Handbook of Media Economics, vol. 1A, North Holland.