Presentation delivered during 9th Seminar on Media and the Digital Economy (21-22 March 2019). http://fsr.eui.eu/event/annual-scientific-seminar-on-media-and-the-digital-economy-9th-edition/

1. Content provision in the media market with
single-homing and multi-homing consumers
Armando J. Garcia Pires
Centre for Applied Research at NHH (SNF), Norwegian School of Economics (NHH)
FSR Communications & Media, CMPF and FCP Annual Scienti…c
Seminar on The Economics, Law And Policy of Communications and
Media (9th Edition): Media and the Digital Economy
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2. Introduction: 3 trends in the news media market
Migration from print to the Internet
Advertising revenues on the news media market has been decreasing
Free news: no competition on prices but on advertising
Rise of social media in the provision of media content.
62% of U.S. adults get news from social media sites (Pew, 2016)
Consumers like to read news that others also read
Multi-homing was never so easy
The escalation of divisive politics, as shown by "echo chambers"
Consumers dislike to consume news that di¤er from their ideal views
(see last US presidential elections and Brexit)
Empirical evidence con…rms that readers …lter news according to
political views (Del Vicario et al., 2016 PNAS).
Multi-homing was never so easy, but at same time we have "echo
chambers"
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3. Introduction: Single- vs. Multi-Homing
Single-homing
Readers access one news outlet
Multi-homing
Readers access many news outlets
Multi-homing is made easier by the new information and social media
technologies
Some argue that multi-homing can promote content provision, since it
increases demand for news
Is that so?
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4. Introduction: What we do?
Media model, where …rms compete on:
Advertising (Anderson & Coate, 2005 RES; Peitz & Valletti, 2008 IJIO)
News content (Garcia Pires, 2013 JME, 2014 IEP): single content vs.
multi-content
Consumers su¤er a disutility from consuming content that di¤ers
from their ideal variety of content (Hotelling, 1929)
Consumers su¤er a disutility from advertising
Consumers choose: single-homing (i.e. consume from just one media
outlet) vs. multi-homing (i.e. consume from competing outlets).
Network e¤ects: Social media
Utility can increase with the number of readers of a newspaper
(Doganoglu & Wright, 2006 IJIO)
Information e¤ects: opposite of echo chambers
Consumers can (or not) derive extra utility from consuming news from
competing media outlets (Kim & Serfes, 2006 JIE).
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5. Introduction
Standard media models consider only single-content …rms (Hotelling,
1929): media …rms choose a point in the line
However, in the "real world" media …rms are multi-content …rms (see
evidence O’Neill and Harcup, 2009; and Coleman et al., 2009)
Our model: media …rms can choose between providing content in just
a point (single-content) or a line segment (multi-content)
Garcia Pires (2013 JME, 2014 IEP)
Standard media models consider only single-homing consumers:
consume just one variety
Empirical evidence: multi-homing is common in media markets
(Gentzkow et al., 2014 AER)
Our model: consumers can be single-homing or multi-homing
Doganoglu and Wright (2006 IJIO) and Kim and Serfes (2006 JIE)
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6. Introduction: Results
Under multi-homing media …rms do not diversify content.
Content provision is higher under single-homing than under
multi-homing, in particular when the advertisement market is
su¢ ciently large.
Surprise? Many argue that multi-homing promote content provision,
because it increase demand for media …rms.
Reason for opposite result:
Multi-homing readers reduce competition, since they consume news
from all outlets.
Under multi-homing, media …rms have lower incentives to provide
content to attract demand, because reducing content does not
necessarily reduces readership (and as such advertising revenues).
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7. The Model
Hotelling (1929) preferences: readers are uniformly distributed on a
line of length one, [0, 1]
Each reader has an ideal content variety and incurs a disutility
(transport costs) in consuming content that di¤ers from their ideal one
Hotelling duopoly competition on content: media …rm 1 and 2
located at each extreme of the line
Media …rms compete also on advertising (Anderson and Coate, 2005,
and Peitz and Valletti, 2008)
Readers su¤er a disutility from advertising
Media …rms can choose to be single- vs. multi-content (Garcia Pires,
2013, 2014)
Readers can choose to be single- vs. multi-homing (Doganoglu and
Wright, 2006, 2010 and Kim and Serfes, 2006)
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8. The Model: Content Provision
Contrary to standard Hotelling models, media …rms are not limited to
be single-content (i.e. cover only a point on the line)
Like in Garcia Pires (2013, 2014), media …rms can choose to become
multi-content (i.e. cover a line segment):
0 di 1, i = 1, 2. (1)
Bene…ts of a multi-content strategy: increase in demand, given that
consumers face lower transport costs than with a single-content
strategy
Consumers inside the content provision segment do not incur transport
costs
Consumers outside the content provision segment face lower transport
costs than with single-content …rms
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9. The Model: Content Provision
Standard Hotelling models: Content provision is just a point in the
line, i.e. …rms supply just one variety
0 1
1-d2 =0d1 =0
Garcia Pires (2013, 2014): content provision is a line segment, i.e.
…rms can choose to supply more than one variety
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10. The Model: Content Provision
Costs of the multi-content strategy (Alexandrov, 2008 JEMS):
Ci =
γd2
i
2 , i = 1, 2, (2)
γ : technological parameter
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11. The Model: Advertising
Media …rms derive revenues only from advertising
Demand for ads for Content Provider i, with i = 1, 2 (Anderson and
Coate, 2005, and Peitz and Valletti, 2008):
ri = α βai , i = 1, 2, (3)
ri : price of advertising per consumer
ai : advertising volume
α and β: size of the advertising market
The larger the α relatively to β, the larger the advertising market
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12. The Model: Single- vs. multi-homing
Network e¤ects (Doganoglu and Wright, 2006, 2010)
Consumers derive utility from reading content that other consumers
also read
Similar to what occurs in social media
Information e¤ects (Kim and Serfes, 2006)
Consumers derive utility from accessing di¤erent sources of information
with di¤erent point of views
Opposite to what occurs with echo chambers
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13. The Model: Single- vs. multi-homing
Utility of reader with location in the line x when he chooses
single-homing:
U = VS t (x d1) ηa1. (4)
VS : utility received from consuming from just one media outlet
t : intensity of readers’preferences for a type of content (transport
costs)
d1 : the amount of content supplied by media …rm 1,
η : disutility of advertising,
a1 : the advertising volume of media …rm 1.
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14. The Model: Single- vs. multi-homing
Utility of reader with location in the line x when he chooses
multi-homing:
U = VM t ((x d1) (1 x d2)) η (a1 + a2) . (5)
VM : utility received from consuming from two media outlets
If VM > VS (as in Kim and Serfes; 2006): readers have a stronger
preference for multi-homing over single-homing.
Equivalent to having information e¤ects, where consumers like to be
informed about di¤erent views.
Another interpretation: consumers enjoy network e¤ects, i.e. utility
increases with the number of consumers one can interact, like in social
media.
If VM < VS : readers have a stronger preference for single-homing
over multi-homing.
Equivalent to echo chambers, where consumers dislike to be exposed to
views they dislike
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15. The Model: Single-homing
Figure: News Content Provision: Single-Homing
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16. The Model: Multi-homing
Figure: News Content Provision: Multi-Homing
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17. Single-homing
Content provision:
di = t(2αη 3tβ)
6γη2 , i, j = 1, 2. (6)
Proposition
In a media market, where consumers are single-homing, media …rms
diversify content (d1 = d2 > 0) if the advertising market is su¢ ciently
large, i.e. if α > 3tβ
2η . Otherwise, if α < 3tβ
2η , media …rms do not diversify
content (d1 = d2 = 0).
Proposition
In a media market, where consumers are single-homing and …rms diversify
content, content provision increases with the size of the advertising market
(high α and low β) and with transport costs (t), and decreases with the
costs of providing content (high γ) and the disutility of advertising (high
η).
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18. Single-homing
Advertising:
ai = t
η , i, j = 1, 2. (7)
Proposition
In a media market, where consumers are single-homing, advertising
increases with transport costs (high t) and decrease with the disutility of
advertising (high η).
Reason
When consumers dislike advertising, the advertising market is smaller.
When consumers have a strong preference for their preferred variety,
advertising increases since it is less likely that a consumer changes to
the rival because of the nuisance of advertising.
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19. Multi-homing
Content provision:
di = (αη+β(VM VS ))
tβ < 0, i, j = 1, 2. (8)
Proposition
In a media market with the presence of multi-homing readers, media …rms
do not diversify content.
Reason:
Multi-homing readers reduce competition between media …rms, given
that they consume from all media outlets.
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20. Multi-homing
Advertising:
ai = α(VM VS )
2(αη+β(VM VS ))
, i, j = 1, 2. (9)
Proposition
In a media market with the presence of multi-homing readers, advertising
increases with the preference for multi-homing (large VM VS ), and with
the size of the advertising market (large α and small β), and decreases
with the disutility of advertising (δ).
Reason:
When the preference for multi-homing is large, more consumers
multi-home and therefore advertising can cater to a large audience.
When the advertising market is large, the market for advertising can
sustain more advertising.
When the disutility form advertising is large, the advertising market is
smaller, reducing therefore advertising levels.
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21. Pro…ts, Consumer Surplus, and Social Welfare: Single- vs.
Multi-homing
VM-VS
CSSH - CSMH
ΠSH - ΠMH
WSH - WMH
Figure: High disutility of advertising
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22. Pro…ts, Consumer Surplus, and Social Welfare: Single- vs.
Multi-homing
VM-VS
CSSH - CSMH
ΠSH - ΠMH
WSH - WMH
Figure: Medium disutility of advertising
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23. Pro…ts, Consumer Surplus, and Social Welfare: Single- vs.
Multi-homing
VM-VS
CSSH - CSMH
ΠSH - ΠMH
WSH - WMH
Figure: Low disutility of advertising
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24. Pro…ts, Consumer Surplus, and Social Welfare: Single- vs.
Multi-homing
Pro…ts are always lower under single-homing than under
multi-homing.
Under multi-homing, competition between media …rms is much lower
than under single-homing, since multi-homing consumers are in a way
captive since they consume from both media …rms.
Multi-homing tends to be better than single-homing in terms of
consumer surplus and social welfare for low η (low disutility of
advertising)
When η is high, competition for advertising and for readers is very
…erce.
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25. Pro…ts, Consumer Surplus, and Social Welfare: Single- vs.
Multi-homing
For medium η (medium disutility of advertising), single-homing tends
to be better than multi-homing in terms of consumer surplus and
social welfare for high VM VS (consumers have a high preference
for multi-homing), and the opposite for low VM VS .
For high VM VS , consumers tend to multi-home, but since media
…rms do not diversify content, consumer surplus is lower under
multi-homing than under single-homing.
When VM VS is low, readers do not care that much about content
diversi…cation, and therefore consumer surplus tend to be high under
multi-homing than under single-homing.
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26. Pro…ts, Consumer Surplus, and Social Welfare: Single- vs.
Multi-homing
When the advertising market is large (high α in relation to β), single
homing tends to be better than multi-homing
A high advertising market helps media …rms to …nance content
diversi…cation under single-homing.
When the costs to provide content are high (high γ), multi-homing
tends to surpass single-homing
Under multi-homing media …rms do not diversify content.
When transport costs are high (high t) single-homing tends to be
better than multi-homing
When transport costs are high, readers have a strong preference for
their ideal variety: readers have a higher disutility under multi-homing
than under single-homing.
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27. Discussion
How to promote content diversi…cation/plurality in media markets?
Challenge for media regulators since they only have instruments to
deal with the supply side of the market (like competition law)
Media regulators can do little to tackle the demand side
Can supply side instruments counteract demand side forces that
reduce media content?
If not, there might be a place for regulation of media markets
Very relevant and actual debate
Social media make multi-homing and network e¤ects a central feature
of media markets
Politics are more divisive because people are less tolerant of opinions
that do not agree with their own, making information e¤ects more
weak, and echo chambers more pervasive
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28. Future Research: Data from Norwegian Media Market
Online readership: internet-use (hits, sessions & visitors)
Weekly data from 2009 to 2016
About 125 news media-sites
O¤-line readership: paper-sales (subscriptions and news-stand sales)
Annual data from 2010 to 2017
More than 125 news media-sites
Revenues from four sources
Annual data from 2010 to 2017
Online revenues (advertising and sales)
O¤-line revenues (advertising and sales)
Ownership relations (owners of 150+ newspapers)
Accounting data for all active newspapers (2000-2017)
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