The Value of the Internet as Entertainment in Five European Countries

ABSTRACT

We estimate the value of leisure online by applying Goolsbee and Klenow (2006) method to Nielsen Clickstream dataset, which covers the clickstream of more than 12,000 internet users in France, Germany, Italy, Spain and United Kingdom, in 2011. We find that the equivalent variation of welfare from leisure online for the average internet user was between 524 and 785 euros per year. At country level, it amounted to between 18 and 44 billion euros.

Acknowledgments

The views and opinions expressed in this article are the authors’ and do not necessarily reflect those of the JRC or the European Commission. The authors thank Marc Bogdanowicz, Russel Cooper, Ibrahim Kholilul Rohman, Piotr Stryszowski and anonymous referees for comments and suggestions. Errors and omissions remain the responsibilities of the authors.

Notes

¹ Austria, Belgium, Bulgaria, Croatia, Denmark, France, Finland, Germany, Greece, Hungary, Italy, Netherlands, Norway, Poland, Romania, Russia, Slovakia, Spain, Sweden, Switzerland and Turkey, the United Kingdom, and the United States.

² The assumption that opportunity cost of time spent on leisure is given by income that could be earned in labour markets is common in studies related to leisure. It is important to notice that is has been shown that income is an appropriate measure for the value of time even for people working fixed hours (Larson, 1993). Another measure used for value of time is 1/3 of income (Loomis, 2011). Because of functional form chosen, the estimates of elasticity of substitution and of consumer surplus would not be affected if the opportunity cost of time represented a fixed proportion of income.

³ It is important to notice that the composite good may also include time intensive offline leisure activities. However, overall, the composite good is relatively less time intensive and more money intensive than internet good, which includes only online leisure activities.

⁴ In Goolsbee and Klenow (2006), A is a function of the price of internet good and time intensity of internet good and the price and time intensity of the composite good. This ratio is constant across individuals because it is assumed that all internet users are price takers and face the same prices.

⁵ This is done by prompting the users in households where there are more than one user to log in.

⁶ This is done by using information about the website in focus and keyboard input.

⁷ Nielsen provides incentives to participate and to remain in the panel in the form of vouchers and points which can be redeemed from their reward website or used in online games and sweepstakes(prize drawing), which might bias our sample towards people who are more likely to value these activities. As a robustness check we repeated the estimations excluding time spent on online games and gambling websites to make sure that our results are not driven by time spent on these websites. These estimations are not reported here.

⁸ Goolsbee and Klenow (2006) made the same assumption. Given the lack of data on other possible non-discretionary time use activities, we assume that the 8 hours include all such activities. Lack of data on sleep hours also prevents us from taking into account the possible endogeneity of the sleeping patterns, despite evidence that they might depend on employment opportunities (Brochu et al., 2012).

⁹ Internet users may also have access to internet from portable devices, which are not covered by the Nielsen meter. However, OECD (2012) suggests that internet traffic from such devices accounted for 6.8% of internet traffic in the UK, 4% in Spain and less than 3% in France of all internet traffic in these countries in August 2011. To the extent that these figures are representative of other months of the year and of other two countries, they suggest that the internet traffic on these devices represented only a small share of total internet activity.

¹⁰ Goolsbee and Klenow (2006) assumed that all time spent online is leisure. However, activities, such as ecommerce or online banking are not considered leisure by most people. Time spent on these activities contributes to the utility as an input in the production of the composite good.

¹¹ This definition is chosen because these categories of websites are related to leisure, but they may include several activities not leisure related. We have tried two other definitions: all time spent online, as in Goolsbee and Klenow (2006) and Nielsen entertainment category. Both these definitions are problematic. Classifying all time spent online as leisure, would result in including websites clearly no related to leisure such as e-banking, e-government, job search, education resources online. The Nielsen entertainment category does not include social networks websites, such as Facebook, which is the most popular leisure website (in terms of time spent on it). For comparison, with Goolsbee and Klenow (2006), we report the results using all time spent online.

¹² This assumption is not unreasonable. Van Dijk (2012) found that more 80% of the internet access offers were unmetered offers.

¹³ We considered several alternative measures of α_o, including we calculated it assuming that the share of consumption expenditure on internet is equal to share of consumption expenditure with all telecommunication services and using different measures of average working hours. Overall, the estimates were very similar to the baseline estimates.

¹⁴ The dataset provides information on whether the household is composed of 1–2 persons, 3–4 persons or more than 5 persons.

¹⁵ In Table 9, in the annexes, we report the estimates obtained when considering all time spent online as leisure online, as in Goolsbee and Klenow (2006). As expected, these estimates are larger and closer to those obtained by Goolsbee and Klenow for the United States. However, we do not emphasise this definition of leisure online, as it includes many non-leisure activities, such as e-banking and job search.

¹⁶ Loomis (2011) suggested that a suitable estimate of price of leisure is one-third of the wage.