The Market Signals of Television
In recent years, the world of television has undergone a revolution which would have been unimaginable even a decade ago, with the emergence of new players and an extremely rich and varied range of content and business models. Traditional, free-to-air TV (Rai, Mediaset, La 7) based on commercials today represents a robust but obsolescent cluster facing competition from the pay-TV segment (Sky, in primis) and, more recently, the aggressive programming of streaming operators (Netflix, Amazon Prime, Disney+, Dazn, etc).
In today's market for televised programs there is differentiation in the nature of the content, in the offer of predefined programming (TV channels and schedules) vs. content selected by the individual viewer in very rich video libraries, and the technological support for the delivery of content (digital terrestrial, satellite, Internet). But first of all, television operators can be distinguished in terms of very different business models. Traditional free-to-air televisions collect their revenues entirely from advertisers and distribute content for free, as opposed to pay operators who generate their revenues from viewers' subscriptions, with little or no contribution from advertising.
In a recent work with Emilio Calvano ("Strategic Differentiation by Business Models: Free-to-Air vs Pay-TV", Economic Journal, 2020) we analyzed the competition models in the television market, characterized by the competition between multi-channel platforms that bring into relation viewers and advertisers. It is the same competitive dynamics that pushes various operators to pursue different business models. If a television channel opts for a Free-to-Air model by financing itself with advertising revenues, a competitor will avoid competing for the same resources, instead offering paid content free from commercials to the segment of viewers more bothered by commercial interruptions. The choice of a paid business model, on the other hand, reinforces the convenience of the former operator in their choice of a Free-to-Air model, since the lack of competition from rivals in the market for TV commercials increases the advertising revenues derived from this business model. The push to limit competition through differentiation of supply also extends to the characterization of the content of individual channels or program libraries according to large market segments (sports, entertainment, films, TV series) and within each one of them. In conclusion, the vast richness and variety of today's television offer is the result of intense competitive pressures, which pushes media companies to explore new business models and new forms of content and content delivery.
The pandemic that has been raging for nine months now has altered the ways people work, study and entertain themselves, and has made a deep impact on the TV industry as well. During the lockdown period, the consumption of video content grew markedly (a +32% increase in consumption of TV and video content occurred in Italy in March 2020). Many users were forced to get acquainted with digital media and the Internet, and consequently the time spent watching streamed video doubled globally between March 2019 and March 2020. The sharp drop in advertising spending also reduced the funding abilities of television networks to the advantage of paid operators, foreshadowing a permanent change in market hierarchies that will be consolidated in future years. Finally, the increasingly important role of the Internet as channel for disseminating content has strengthened the trend towards convergence between content companies and telecommunications operators that had already been signaled by mergers such as ATT-TimeWarner or Sky-Comcast.