Rosse (1980b) provides a vivid description of how restrictions against resale price
maintenance are particularly harmful in the newspaper industry, showing how the usual
efficiency concerns are magnified due to the advertising side of the industry being
affected as well. More recently,
Flath (2012) documents an interesting case of newspaper
resale price maintenance in Japan. He shows that the vertical restrictions in this industry
actually lead to a floor on prices, rather than a ceiling, and argues that this supports
collusive behavior by newspapers.
9.6.4 Cross-Ownership of Newspapers and Other Media
In 1975, the FCC implemented a ban on newspapers owning either radio or television
stations in the same market, with some exceptions for those media firms that already
engaged in such cross-ownership. The rationale for the ban was to prevent a single media
company from dominating the communication of news and information, and to ensure a
diversity of opinions.
Ferguson (1983) investigated some of the consequences of this regulation. He finds
that when a daily newspaper owns either a radio or television station in the same local
market, it tends to increase the newspaper’s circulation. In the case of a newspaper own-
ing a television station, it also reduces advertising rates in the newspaper.
The FCC in 2007 voted to modestly relax its 1975 ban on cross-ownership, a move
that was seen to be helping the ailing newspaper industry (
FCC, 2010). See Chapter 8 for
a discussion of how this relates to the radio industry.
9.7. PRINT MEDIA AND THE INTERNET
Publishers, and media firms more generally, have traditionally been wary of the rise of
new media or new media outlets. British publishers feared that readers would substitute
from buying newspapers to reading them in public libraries, radio broadcasting stations
were afraid of competition from TV and, nowadays, publishers feel the threat from online
media.
So far, the majority of research in this area has concerned itself with the potential for
self-cannibalization, i.e., with the question of what launching a companion website does
to the demand of the print version. In 2005, the New York Times cited an analyst at J.P.
Morgan who claimed that “Newspapers are cannibalizing themselves.”
12
Germany’s
leading news magazine, Der Spiegel, published a skeptical article about the future of print
media, ironically on its own companion website, with the suggestive title “Too much to
die, too little to survive.” These fears trace back to the earlier days of the Internet. A Vice
President of the media consultancy Jupiter Media Metrix is reported to have said: “Seize
12
Seelye, K.Q. “Can papers end the free ride online?,” The New York Times, March 14, 2005.
433
Newspapers and Magazines
the day! Either you are going to cannibalize yourself or somebody else is going to
cannibalize you”
Hickey (1997, p. 38).
At least in the beginning, companion websites tended to contain “shovelware”—
content that had been directly copied from the print version to the online edition.
The threat of the Internet therefore appeared to be quite imminent. It had, however,
also been recognized that online companions entail the possibility of providing a bundle
of goods rather than a single product, the print edition and additional complementary
information on the online companion.
Kaiser and Kongsted (2012) describe three main
ways in which the online companion may influence print demand: (i) “awareness,”
(ii) online subscription, and (iii) additional service. Online companions generate aware-
ness by offering a preview of the contents of the print edition or views of current and past
articles. Consumers may thus sample the print edition, thereby raising print demand, an
issue that has been theoretically studied by
Peitz and Waelbroeck (2004) as well as by
Halbheer et al. (2014), and empirically studied by Oberholzer-Gee and Strumpf
(2007)
for music downloads.
Similarly, print and online audiences may differ in their audience characteristics,
which implies that online companions may reach out to an audience different from that
of the print version (
Joukhadar, 2004; Nicholson, 2001). Online companions also offer
online subscriptions, a feature that has been found to be important for the publishing
industry (
Barsh et al., 2001; Capell, 2004). Most importantly perhaps is that online com-
panions allow publishers to post complementary information. Studies by
Barsh et al.
(1999)
and Silk et al. (2001) identify the relative positioning of the online companion
compared to the print version as a key determinant of self-cannibalization. This relative
positioning argument has been emphasized by econometric work by
Deleersnyder
et al. (2002)
, Pauwels and Dans (2001) as well as Simon and Kadiyali (2007). If the
companion websites are just shovelware, substitution is more likely. By contrast, if
the companion website offers additional service, it might well complement the print
edition. Complementarity may be more likely for magazines than for newspapers since
a magazine’s online companion allows magazines to post current news, thereby enabling
magazines to overcome the disadvantage of infrequent periodicity.
To analyze whether the online companion is a substitute or complement to the print
version, and since traditional models of differentiated product demand only allow prod-
ucts to be substitutes,
Gentzkow (2007) develops a more general structural approach
where products can be either complements or substitutes and derives a novel identifica-
tion strategy that is based on one good being free of charge, the online companion, while
the other, the print version, is not. He uses consumer survey data on two regionally
competing newspapers, the Washington Post and the Washington Times, to find that online
companions and print versions are substitutes and that this result is not driven by unob-
served consumer heterogeneity.
Other papers that use structural demand models to gauge the effects of online com-
panion on print version sales include
Filistrucchi (2005) and Kaiser (2006). Both papers
434 Handbook of Media Economics
assume that the launch of a website is uncorrelated with the respective print medium’s
unobserved characteristics and they also both use nested logit-type demand models for
circulation.
Filistrucchi (2005) studies Italian national newspapers’ launch of companion
websites and shows that print demand statistically and economically decreases once an
online outlet channel is introduced.
Kaiser (2006) also estimates overall negative effects
but shows that these vary substantially across different consumer age groups and across
time. He claims that time may have mattered since publishers may have become better
at positioning the online companion.
George (2008) also underscores the importance of readership characteristics in the
relationship between the Internet and the demand for US newspapers. She estimates
reduced-form equations for local Internet penetration and per-capita local newspaper
circulation. Like
George (2008) and Gentzkow (2007), Hong (2007) also uses consumer
survey data to estimate the effect of the Internet on media demand. His dependent var-
iable is household expenditures for different types of entertainment goods, among others
newspapers and magazines. He estimates reduced-form equations and tries to identify
causal effects by running difference-in-difference regressions, treating general growth
in Internet penetration as exogenous.
Another strand of the literature uses time-series variation to explore the mapping
between online and offline media. In earlier work,
Deleersnyder et al. (2002) test for struc-
tural breaks (the introduction of the companion website) in monthly circulation time series
of British and Dutch newspapers, observed between 1990 and 2001. They find that few
newspapers experience a drop in circulation and advertising demand due to the existence
of a companion website. The effects are, however, disperse across newspapers and eco-
nomically fairly small. More recently,
Kaiser and Kongsted (2012) run Granger causality
tests on German magazine data. They find that online companion page visits decrease total
sales. This result is driven by a decrease in kiosk sales, which is not compensated by an
increase in subscriptions. Like
Kaiser (2006), they show that the relationship between
the online companion and the printed magazine depends on reader characteristics.
Cho et al. (2014) use a cross-country data set to study how Internet adoption affects
print newspaper circulation and the survival of newspaper firms. Their data covers over
90 countries for the years 2000–2009, which encompasses the most rapid period of Inter-
net adoption, but unfortunately ends just before the dramatic slowdown in newspaper
circulation following the financial crisis. Cho et al. show that Internet adoption directly
contributes to newspaper shutdowns in a number of countries, although the Internet
appears to have little effect on the net circulation of those firms that survive.
While existing research has primarily concerned itself with the effect of the Internet
on print demand, less is known about the reverse effect, which seems surprising given the
rapid gain in the importance of online advertising.
Kaiser and Kongsted (2012) do not
find any evidence that print circulation affects page visits, which contrasts with an earlier
study of a panel of 12 Spanish newspapers by
Pauwels and Dans (2001), which finds evi-
dence that print circulation increases website visits.
435Newspapers and Magazines
Economic research has recently started to become more interested in the effect the
Internet has on advertising demand and ad rates for print media.
13
Zentner (2012) uses
data on 87 countries for 11 years to document a negative relationship between Internet
penetration and advertising spending in traditional media for newspapers, magazines, and
TV.
Chandra and Kaiser (2014) study the effect that online companions and Internet use
by readers has on the value of targeted advertising for German consumer magazines. They
find a complementarity between the offline and online channels: the value of targeting
homogeneous consumer groups increases both with the Internet use of readers and with
the existence of a companion website. They hypothesize that this result is driven by
multi-homing consumers who enhance the value of targeted advertising. While they
do find evidence that online channels increase the value of targeting, they also show that
the overall effect of online companions and Internet use by readers on advertising rates is
negative.
One fundamental problem inherent in almost all of the empirical studies of
offline/online competition (or complementarity) is identification. Most studies assume
the launch of a companion website to be an exogenous event (
Filistrucchi, 2005;
Gentzkow, 2007; George, 2008; Kaiser, 2006; Kaiser and Kongsted, 2012
), which clearly
is questionable. The literature has so far been lacking good natural or quasi-experiments
such as the one used by
Goldfarb and Tucker (2011), who use an advertising ban to tease
out causal effects, or denial of service attacks as used by
Goldfarb (2006), who asks
whether consumers return to online channels after such an attack.
Another relevant issue from a managerial point of view is the setting up of paywalls for
access to online content. US websites used to be hesitant to charge access fees in order to
generate visits and thus to sell online advertising (
Barsh et al., 2001; Deleersnyder et al.,
2002
). There has, however, been a tendency toward charging, but results had not been
encouraging until recently (
Hickey, 1997; Robins, 2001). In 2011, the New York Times ,
however, re-opened a paywall for its online content and several other international qual-
ity newspapers followed suit.
14
Chiou and Tucker (2013) provide descriptive evidence
for the effects of paywall introduction on website visits using data from an experiment
conducted by a publisher, differentiating their findings by reader demographics. Studies
that also look into the effect of paywalls on offline reader demand as well as on advertising
are lacking so far.
Print media markets have hitherto been considered as a prototypical two-sided
market. Given the growing importance of online companions for both readers and
advertisers, future research may want to concern itself with the resulting four-sided
market and the implication that such an interrelationship has on pricing structures.
13
Lambert and Pregibon (2008), Joo et al. (2012), and Goldfarb and Tucker (2011) study the relationship
between offline and online advertising for media markets other than print.
14
McAthy, R. “Two years in: Reflections on the New York Times Paywall,” journalism.co.uk, 2013.
436
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