no incentive to consult an alternative website. Hence, content is also affected by the
tracking technology.
The improved tracking technology also creates an additional revenue source for web-
sites, given that websites provide data to advertisers. Websites not only can charge users
for content and producers for placing ads, but also can offer data to producers. Since this
helps producers to make advertising more effective, producers are willing to pay for these
data. In addition to providing a better match, better tracking has further advantages to
producers. For example, it allows them to retarget users, thereby increasing users’ atten-
tion span for a particular ad.
With the increasing amount of time users spend on the Internet and websites’ strong
reliance on ad revenues, users appear to be more likely not to recall all advertising; thus,
congestion issues—already a problem in traditional media—appear to be even more rel-
evant on the Internet since users often visit a large number of ad-financed websites.
The literature on media economics, both in general and in how it applies to the Inter-
net, is evolving rapidly. This chapter does not aim to provide an exhaustive overview of
the economics of Internet media, but presents a selection of recent works on the topics
addressed above.
10.2. MEDIA AND ADVERTISING ON THE INTERNET: SOME FACTS
10.2.1 Facts About Internet Media Use
Internet media include traditional media going online (such as the New York Times); pure
online media, which in its editorial policies resemble traditional media (such as Huffington
Post); and pure online platforms (such as Yahoo) that may lack a clear editorial policy and,
instead, rely on sources such as Reuters news. Internet media are becoming increasingly
important as a source of news. The Pew Research Center runs surveys asking people
whether they got news “yesterday” from a particular type of media (data are made avail-
able by Pew Research Center). While in 1991 more than two-thirds of respondents said
that they got news from television (68%), in 2012 only 55% said so. A similar pattern
holds for radio: in 1991 more than half of the respondents said that they got news from
radio (54%), while only 29% said so in 2012. Even stronger is the change with respect to
newspapers. Here, 56% of respondents said that they got news from newspapers in 1991,
and only 29% said so in 2012. So-called digital news has only recently been included in
the survey: in 2012, 50% of the respondents said that they got news as digital news.
To the extent that users replace a subscription to a print edition with a subscription to
an electronic submission, this merely reflects a change in technology. However, the
switch to digital media certainly may affect the type of news and the way that it is con-
sumed. The move to the Internet also affects the production technology of the Internet;
in particular, it is less costly to provide more frequent updates, and the variable costs are
reduced, compared to print (no printing and low delivery costs).
450 Handbook of Media Economics
For the economics of Internet media, it is more important that there are changes in
the way that media on the Internet operate. Many newspapers have not made strong
inroads into Internet distribution, and those that do must seriously alter their business
model. In addition, emerging players in Internet media have attracted a lot of attention,
as we document next and treat more systematically in
Section 10.3.
Several online measurement firms (in particular, comScore, Nielsen, and Experian
Hitwise) provide information on digital traffic. Since they compute traffic in different
ways, their numbers look somewhat different. Here, we report only the numbers released
by Experian Hitwise (taken from
Pew Research Center, 2013a).
Table 10.1 provides information on the most frequented news websites based on hits
in 2012. We find that new and traditional media are both popular. Three general obser-
vations can be made. First, the 2012 numbers suggest that different types of traditional
media (newspapers such as the New York Times and television such as CNN) co-exist
on the Internet. Second, new media players have entered—in particular, news portals
Table 10.1 Internet news sites by visits in the US in 2012
Share (%) Total visits
news.yahoo.com 9.96 5,061,468,962
www.huffingtonpost.com 5.45 2,772,623,500
www.weather.com 3.8 1,937,665,856
www.msnbc.msn.com 2.13 1,096,295,903
www.cnn.com 2.02 1,006,425,806
gma.yahoo.com 1.70 871,463,749
www.foxnews.com 1.70 838,014,419
news.google.com 1.38 694,071,244
usnews.msnbc.msn.com 1.21 643,412,705
weather.yahoo.com 1.06 541,483,467
cityguides.msn.com 1.05 536,032,331
www.nytimes.com 1.04 522,225,600
www.drudgereport.com 0.98 481,470,727
home.now.msn.com 0.95 497,616,015
www.usatoday.com 0.82 420,809,971
www.accuweather.com 0.82 417,186,293
www.weatherunderground.com 0.81 412,512,889
abcnews.go.com 0.80 404,226,736
usnews.nbcnews.com 0.72 356,936,414
local.yahoo.com 0.72 367,29 5,141
www.people.com 0.67 341,541,090
www.newser.com 0.63 318,767,914
www.washingtonpost.com 0.57 286,614,807
www.foxnews.com/us 0.57 291,019,495
www.dailyfinance.com 0.56 283,381,243
Source: Pew Research Center (2013a) using Experian Hitwise.
451The Economics of Internet Media
such as Yahoo and Microsoft’s MSN. Third, Google, as a news aggregator and search
engine, has entered the game. To the extent that users consider both types of media
as sources of news or information, we observe that the online market of news platforms
is more diverse than traditional media markets. In addition, we observe media conver-
gence in the sense that some media that, in the offline world, belong to separate markets
now arguably belong to the same market. For instance, portals of newspapers and tele-
vision broadcasters offer news in text, photo, and video formats. In
Table 10.1,we
observe that the newspapers New York Times and USA Today have a strong online pres-
ence, as do television broadcasters CNN and Fox News.
There are multiple ways in which a user may access the media platform. An obvious,
necessary condition is that the user has access to the Internet. Here, the user has a con-
tractual relationship with an Internet Service Provider (ISP). The standard business
model of the (user’s) ISP is to charge the user a tariff. While not so a common feature,
an ISP may also receive payments from the content/media side for delivering traffic. We
address the role of ISPs in
Section 10.3 in the context of the net neutrality debate.
News aggregators provide a means to find news. For example, Google News can be
the first stop for a user looking for news on a particular event. While there is (currently)
no financial transaction between media platform and media aggregator, this issue is loom-
ing in the public debate (see
Section 10.3). Users may not turn directly to a news aggre-
gator and may, instead, initiate their search using a general search engine. The user then
finds search results by news aggregators and media platforms. Thus, the set of actors
include content providers, advertisers, media platforms, news aggregators, search engines,
ISPs, and users.
Figure 10.1 illustrates how content and advertising can reach users. On
the advertiser side, our illustration is a bit simplistic. Large media platforms do, indeed,
have direct contact with advertisers. However, many websites sell ad space to advertising
networks that act as intermediaries between media platforms and advertisers. Additional
players, not included in our analysis, are firms offering advertising software tools; these
firms offer separate tools to media platforms and advertisers.
8
Media operate in a richer environment on the Internet than in the offline world. As in
many traditional media, a media platform on the Internet typically combines content and
ads. When the platform does not vertically integrate with the content provider side, it has
contracts with content providers and advertisers. The most common business model,
then, is to offer such bundles of content and advertising to Internet users. The Internet
user derives a benefit from the content offer, while advertising may also affect her utility.
8
For more details, we refer to Evans (2008). This part of the industry is also characterized by vertical inte-
gration. For instance, Google, which is also a major advertising network for display advertising, acquired
DoubleClick in 2008. DoubleClick offers software that allows advertisers and media platforms to track
users (with the help of cookies) and to organize advertising campaigns. DoubleClick also offers software
for search advertising.
452
Handbook of Media Economics
Advertisers pay media platforms for placing their ads and delivering them to Internet
users. Content providers receive payments from the media platform for delivering con-
tent. In purely ad-financed media, Internet users do not make monetary payments to the
media platform. However, viewers of these ads are valuable, as they pay with their eye-
balls, similar to free-to-air television.
9
In the presence of multiple media platforms, the standard assumption is that users
make a discrete choice among the platforms. Although this assumption appears to be
appropriate in the traditional newspaper market, it is questionable how well it fits in
the case of television, and even more so in the context of Internet media, where the alter-
native media platform is just one click away. We discuss alternative models of user behav-
ior (in particular, multi-homing) and their implications in
Section 10.4.
News consumption via social network plays an increasingly important role for a large
number of users. News is defined here as “information about events and issues that
involve more than just your friends or family” (see, e.g.,
Pew Research Center, 2013c).
Figure 10.1 A stylized Internet media market.
9
If users consider advertising to be a nuisance, a media model on the Internet can be developed along the
lines of traditional media, as is formalized, for instance, in the
Anderson and Coate (2005) model (for a
recent, more general treatment, see
Anderson and Peitz, 2014b). This model formalizes the interaction
among advertisers, media platforms, and users. This media model connects to the literature on two-sided
markets, with seminal contributions by
Rochet and Tirole (2003) and Armstrong (2006), among others.
For a textbook treatment, see
Belleflamme and Peitz (2010).
453
The Economics of Internet Media
To document the user base, Pew Research Center (2013b) provides survey results for
the US adult population. Among adult Internet users, 71% are active on Facebook, while
the corresponding numbers are 46% for those over age 65 and 90% for those aged
between 18 and 29. A more recent phenomenon is social networking on mobile phones;
in September 2013, 40% of all Internet users were active with social networking on
mobile phones. The engagement on several social networking sites, especially on Face-
book, is strong: 63% of Facebook users visit the site at least once a day, and 40% do so
multiple times throughout the day.
In particular, Facebook has become an important platform for users to get news.
According to
Pew Research Center (2013c), with survey data from September 2013,
64% of US adults use Facebook, and 30% of US adults use Facebook to get news on
the site; thus, for around half of its users, Facebook is a news site. Another popular site
is YouTube. While 51% of US adults use YouTube, only 10% of US adults get news from
it, which is around one in five. Only Twitter exhibits a ratio similar to that on Facebook:
16% of US adults are on Twitter, and 8% get news from it.
Social networks play a role in the creation and spread of information; we note that
some users may become creators by posting their own images and videos, while others
become curators by reposting and sharing existing material.
Pew Research Center
(2013d)
, based on a survey data from 2013, classified 54% of social network users as cre-
ators and 47% as curators (some users are both). According to a July–August 2012 survey,
two-thirds of social network users have shown political engagement on the network—
e.g., by encouraging others to vote, expressing their political opinion or sharing others’
political expressions (
Pew Research Center, 2013e). This shows that social networks do
not only carry information relevant for a small set of people, but also contribute to the
general debate on civic issues. In our survey, we address the information-spreading aspect
of Internet media in
Section 10.4.
10.2.2 Facts About Internet Advertising
The previous subsection provided some facts about Internet media use and the content
side. Next, we present some facts on Internet advertising, which started only in 1994 with
the sale of the first banner ad (see
Kaye and Medoff, 2000). As pointed out in
Section 10.1, the Internet has changed the landscape for advertisers. To the extent that
advertisers have replaced some of their advertising on traditional media with Internet
advertising, this has a direct impact on those media. A striking example has been the move
of classified ads from print media to electronic platforms. While classified ads used to
bring in substantial advertising revenues for newspapers (which possibly cross-subsidized
other parts of the newspaper), Internet platforms have drastically cut those revenues for
newspapers unless they have been able to dominate the respective market segment on the
Internet. This loss in revenues on the advertising side has implications for the pricing of
454 Handbook of Media Economics
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