Advertising Plays Key Role in Success of Satellite TV, Study Finds |  News |  Notre-Dame news

Advertising Plays Key Role in Success of Satellite TV, Study Finds | News | Notre-Dame news

Television
Television

The pay television market in the United States was dominated by a handful of cable operators until the early 1990s with the arrival of satellite television, which has grown steadily since.

A new study from the University of Notre Dame documents the role of advertising in helping to explain the continued success of satellite operators.

“Commercial success thanks to advertising? Advertising and Pay TV Operators ”was recently published in the Journal of Marketing Research by Joonhyuk Yang, Assistant Professor of Marketing at Mendoza College of Business in Notre Dame, with Jung Youn Lee of Northwestern University and Pradeep Chintagunta of the University of Chicago.

Using data on the subscription choices of American households and the advertising decisions of operators, the authors document the supply and demand conditions conducive to the growth of satellite operators. The study highlights the interaction between the profitability of advertising and the entry scale to explain the competition between incumbents (cable) and entrants (satellite).

Joonhyuk yang
Joonhyuk yang

The entry of satellite operators into the television services market has been widely studied by academics and regulators. Previous studies have covered topics ranging from its impact on consumer welfare to its impact on pricing and product quality of cable services and consumers switching from cable to satellite services. These discussions focus on the outcomes of the entry market and competition, but not on the entry process itself.

“We highlight the potential role of advertising in explaining the successful entry and survival of satellite operators through demand generation and competition with cable operators,” Yang said. “We note that consumers in this market are sensitive to advertising, and especially to that of satellite operators. We provide proof that a form of asymmetric profitability in television advertising has benefited entrants more than incumbents.

“Specifically, the costs of local advertising tend to be higher than those of national advertising, which has likely allowed satellite operators to better leverage their national presence with cheaper national advertising.”

The cost differences between national and local television advertising have long been recognized as a barrier to entry. However, the subject has generally been explored in contexts where the incumbents of the market operate on a large scale and entry occurs on a smaller scale.

Few studies have empirically explored the role of the cost advantage of national advertising in a context where new firms enter nationwide and compete with local incumbents.

“This is a study of the history of marketing that utilizes the US market for television services in which satellite operators, facilitated by new technologies, have entered the market nationwide, while cable operators were limited to operating locally, ”Yang said.

According to Yang, it is difficult to identify the effects of advertising because there are other things that evolve with advertising. For example, the basic demand for products and services changes over time. To distinguish the advertising effect of other factors requires an experience that randomly assigns different levels of advertising by region or consumers. Often, however, the experiments are impossible or too expensive.

“Our study uses more of a quasi-experimental method, a border strategy, which isn’t quite an experiment, but it attempts to resemble the properties of an experiment,” Yang said. “There is a subset of regions served by the same set of pay-TV operators, but the media market borders. This causes different parts of a region to receive different levels of advertising, as companies make advertising decisions for each media market. On the other hand, other characteristics of consumers in the region, regardless of the market they belong to the media, are expected to be comparable. We identify the advertising effect by comparing consumers across the boundaries of the media market.

In general, the TV service market offered a unique framework to study the advertising effect, according to Yang.

“To our knowledge, the effect in service industries has received relatively little attention, compared to a wide range of consumer packaged goods markets. In this sense, our study complements the literature on advertising by providing evidence of the important role that advertising may have played in the context of a service market.

Contact: Joonhyuk Yang, [email protected]

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