What Influences Advertising Price in Television Channels?: An Empirical Analysis on the Spanish Market

Abstract

Advertising has an important role in the media industry. In a context where advertising generates a negative externality for viewers, this article analyzes the factors explaining ad prices in free TV empirically. This article also considers the participation of government-owned broadcasters in the Spanish market. This study finds that private ownership is associated with higher advertising prices. The results show a positive relation between audience size and ad price and a negative relation between ad price and advertising time. In addition, this study finds that higher prices are associated with the percentage of the population between 14 and 29 years old and the regional gross domestic product per capita in the broadcast area.

Notes

¹For public service broadcasting, it is understood that programming should satisfy wide social purposes such as education, plurality, minority protection, and democratic values.

²The European countries have agreed on the migration away from analog to digital technology, Digital Terrestrial Television. In Spain, the migratory process is scheduled to happen in 2010.

³The most important reorganization plan is that undertaken for RTVE, the national public network. Its core objective is increasing efficiency in the management of public funds and offering attractive public service programming. To achieve these goals, the central government has replaced unconditional, direct subsidies with program contracts that include specific agreements and conditions to be met. Many regional governments have also adopted this type of contract.

⁴In 2004, Radio Televisión Española (also known as RTVE) lost leadership in market share for the first time and has never recovered that position.

⁵In this sense, the relation between ad prices and channels ownership is a heavily discussed issue in Spain. Indeed, the Spanish Association of Commercial Television (2008) has considered that if the public channels compete directly for advertising revenues, this could distort competition in the market.

⁶ Mangàni (2003) and Peitz and Valletti (2008) analyzed the effect of advertisers on the level of product differentiation.

⁷ Hansen and Keiding (2006) considered a mixed oligopoly model where the public TV's objectives are different to those of the private broadcasters, and they analyzed the consequences of privatizing public TV.

⁸RTÈ receives funds from a canon or fee and from advertising sales. The canon or fee is approximately 155€, although there are discounts.

⁹ Withers (1985) studied other aspects related to competition. The author estimated a viewers' demand function for Australian public TV during 1962 and 1982. The results show that rather than competing with programs offered by private TV, ABC and private programs complement each other.

¹⁰ Brown and Alexander (2005) and Kasuga and Shishikura (2006) introduced, as well, audience characteristics as the percentages of the population 18 to 34 years old, as well as per capita income.

¹¹We only consider the minutes sold to advertisers. Actually, ad time used by the network for self-promotion is not affected by the regulation (and no data on this is publicly available).

¹²For instance, the audience in Spanish public TV has a higher average age and a much higher share in the viewers group > 65. In fact, TVE has a share of 36.4% in the age group, whereas the main competitors have much lower shares in the > 65 years old group (22.2% Antena 3 and 22.5% Telecinco). Unfortunately, we cannot specify this type of characteristic in the equation because either we do not have information for all channels and periods, or it would introduce serious problems of correlation with core variables, such as share (e.g., this is the case when trying to introduce the variable share in persons > 65).

¹³It is worth noting that we have conducted the estimation without introducing the variable public to compare the results. They remain similar and, when excluding the variable public, we do not meet the test for omitted variables.

¹⁴We use a dummy variable because the percentage of football among all programming is not available.

¹⁵In Spain, the minutes of advertising (by hour) are subject to national regulation. However, this variable shows variability because practices diverge among regional and national channels.

*p = .10.

**p = .05.

***p = .01.

¹⁶It is worth mentioning that we do not imply from this that a network will not set a profit-maximizing number of ad minutes in the presence of a cap.