competing brands. Sahni (2015) finds similar results using data from restaurant search
websites. He also shows that the extent of the spillover depends on the advertising inten-
sity. If the intensity is low, spillovers are particularly large, perhaps because advertising
then has mainly the effect of reminding consumers about similar options. By contrast,
if the intensity is high, spillovers disappear and the advertiser receives more searches.
The business model of most news websites is ad-financed. However, there are a few
exceptions, primarily newspapers. For example, in the UK, almost all major newspapers
require readers to subscribe to their online content. The Times has a paywall for all of its
content. Other newspapers, such as The New York Times or The Wall Street Journal, offer
limited free access with some number of free articles per month. Therefore, these news-
papers have a mixed business model—that is, partly ad-financed and partly subscription-
financed.
10.3. PROVIDING MEDIA CONTENT
Media content on the Internet reaches users through multiple channels. In this section,
we discuss some of the issues of media content provision and how users access this con-
tent. We address the various layers of the value chain, as illustrated in
Figure 10.1, with a
focus on the provision of content. While a large part of this section will be informal, the
section contains a formal analysis of media platforms as gatekeepers and of the role of news
aggregators. We take a broad view and also shortly discuss the role of search engines (for-
mally investigated in
Section 10.4) in the context of user choice, and the role of ISPs with
a guide to the net neutrality debate.
10.3.1 Internet Media Consumption and Convergence
The availability of media content on the Internet dilutes or even removes the boundaries
between newspaper and television channels. For instance, in the case of news program-
ming, a consumer can visit the website of a news channel or one of a newspaper. Each of
these media typically has combined offerings of electronic articles (containing text and
often photos) and videos. This describes the convergence of different media. We may
view this convergence as market integration, implying that offerings that used to be inde-
pendent (newspaper versus television) become substitutes. How this convergence affects
market structure is an issue that deserves investigation.
One issue is the coverage of different topics. Media platforms have to choose topics
that differ in their success probability, with success meaning that the topic attracts users’
attention and generates a reward (e.g., through ad revenues). In such markets, the quality
of the media platform and its ability to predict the success of a topic affects its choice of
topic.
15
15
For a theory contribution on this point, see Katona et al. (2013).
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The Economics of Internet Media
Another issue (for empirical research) is whether the Internet alters the way news is
consumed. In particular, news on the Internet facilitates the combined consumption of
news and background information. For instance, a particular news item may lead a user
to consult Wikipedia for additional information or background. While we typically would
not classify Wikipedia as media, the overall portfolio of information on a topic consumed
over the Internet may look very different from the product consumed in traditional media.
The convergence of different types of traditional media also leads to important policy
questions. As newspapers and television channels on the Internet become closer substi-
tutes, policymakers have to tackle the fact that newspapers and television channels are, in
many places, subject to different regulations. Furthermore, in many countries, public ser-
vice broadcasters play an important role in traditional radio and television markets. As
television channels develop an Internet presence, they start to compete with newspapers
on the Internet. While we do not intend to address these policy issues directly, this sec-
tion helps to understand the functioning of Internet media markets and may therefore
also be helpful from a policy perspective.
10.3.2 Media Platforms as Gatekeepers
The gatekeeper role of media appears to be of particular relevance on the Internet—the
issue also arises in traditional media, as discussed below. Media platforms on the Internet
(and traditional media) can be seen as managing the amount and type of information a
user can digest. In particular, if a user has a limited attention span for news and is unable
or unwilling to push herself to read more news, a media platform, by recommending a
selection of news, can emphasize the most relevant news items. This is especially the case
if the platform has information on the user’s tastes and tailors the news selection to them,
as is the case with Internet media. Since the role of Internet media platforms as gate-
keepers is widely discussed, it is useful to provide a simple formal exposition, which gives
some structure to think about this issue. To this end, we reinterpret the model by
Anderson and de Palma (2009), in that we include individual news providers that com-
pete for users’ attention. Access to users is managed by a media platform.
Consider a media platform that selects among alternative news providers and offers a
selection of news items to a user. Suppose that there are n potential news providers, each
contributing up to one piece of news. A news provider of type θ obtains advertising rev-
enue π(θ). Advertising revenue is increasing in the value of content θ because we assume
that a news provider with more valuable content is more likely to deliver advertising to
the user.
The user has an attention span φ for news items, which will be derived below; i.e., she
randomly selects φ news items if she is presented with more than φ.
16
In particular, if
16
Somewhat related, in Section 10.6 we present a setting in which users have a limited attention span for
advertising.
460
Handbook of Media Economics
there is no selection among news, each available news item is seen with probability min
{φ/n, 1}. Suppose that delivering a news item costs κ. Under free entry and appropriate
boundary conditions, there is a marginal type θ
¼n such that πθ
ðÞφðÞ=n ¼κ: This
determines the number of news items n(φ; κ) under free entry.
The user’s cost of sampling messages is denoted by C(φ). Given the total number
of news items n, each randomly sampled news item gives an expected surplus of
S
e
nðÞ¼
1
n
ð
n
0
s θðÞdθ: The utility-maximizing attention span is arg max
φ
φS
e
(n) C(φ).
The first-order condition S
e
nðÞ¼C
0
φðÞdetermines the chosen at tention span w hen
φ n.Hence,φ nðÞ¼min n,C
0
1
S
e
nðÞðÞ
no
.Inequilibrium,forlowvaluesofκ,there
may be information overload—i.e., φ
n
.
The media platform can manage the amount of news being offered to users. In other
words, the media platform can become a gatekeeper. Traditional media partly filled this
role by selecting articles provided by news agencies and other sources. In the case of
newspapers, they traditionally charge readers for the active selection of content. While
they may also provide unique content, an important role of both traditional and new
media is this selection role. Whether this selection is based on an editorial policy or is
software-based is irrelevant in this context. Limiting the amount of content on the plat-
form can reduce or even eliminate information overload. In particular, a monopoly gate-
keeper would price out information overload. It may do so by charging news providers
for access. If the provision of news is costly, payments may flow in the opposite direction.
Then, the media platform pays less than what it would do in the case of an unlimited
attention span. Thus, the overall message is that a limited attention span for news may
give a role to a platform to limit the amount of news included on its website.
To the extent that users frequent multiple media platforms, these platforms do not
fully internalize that additional content on their platform reduces the probability that
content on other platforms will receive the users’ attention. Hence, information overload
remains an issue for competing media platforms. A characterizing feature of the Internet is
that users often visit many media platforms.
17
Therefore, the Internet is particularly prone
to the problem of information overload.
The media platform’s role as gatekeeper is not restricted only to the amount of con-
tent, but also to content selection and quality. These two dimensions are also highly influ-
enced by the ad-financed business model. For example,
Sun and Zhu (2013) conduct a
study on how the content and quality of blogs are affected by an ad-revenue-sharing pro-
gram of a Chinese portal site. In particular, this portal site launched the program and
invited around 3000 bloggers to participate. Bloggers who allowed the portal site to
17
See Section 10.4 for a more detailed discussion of this issue in an advertising context.
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The Economics of Internet Media
run ads on their blogs received 50% of the ad revenues generated on the site. Around
1000 bloggers decided to participate.
Sun and Zhu (2013) find that the decision to participate in this program has led to a
shift to more popular content by around 13%. Around 50% of this increase comes from
shifts to topics from three domains: stock market blogs, salacious content, and blogs about
celebrities. The blog posts of participants in these domains increased by 6.6% relative to
non-participants.
In addition, participating bloggers also increased their content quality. This is mea-
sured, for example, by the number of users who bookmark a post as one of their favorites
and by the average number of characters, pictures, and video clips. (For example, more
characters means that the blogger invests more effort in writing and goes deeper into the
focal topic, whereas more pictures often make the blog more attractive.) This suggests
that bloggers exert more effort on blogging content that they are not necessarily intrin-
sically interested in, and that they do so to obtain higher revenues from advertising.
Sun and Zhu (2013) also show that these effects are strongest for moderately popular
bloggers and, in particular, stronger than for very popular bloggers (and non-participating
bloggers). A possible explanation is that very popular bloggers have always covered pop-
ular topics and/or maintained a high level of quality. Hence, there is not much space for
improvement. Non-participating bloggers, by contrast, may have a large disutility from
blogging about content that does not reflect their tastes, and thus they choose not to
participate.
10.3.3 News Aggregators and the Selection of News
News aggregators such as Google News have added another layer in the market for Inter-
net media. Users may use an aggregator as the main access point and select news items
based on this aggregator’s listings. A few academic studies have tried to shed light on the
link between quality choice of media platforms and the presence of news aggregators.
Here, the role of a news aggregator such as Google News is to help users to easily find
high-quality content. As
Dellarocas et al. (2013) point out, absent news aggregator, users
may find their way to different news because media platforms may provide links to a
rival’s content. They present a model in which users are interested in a particular event,
and different media platforms cover this event with different quality. Users are not
informed ex ante about the quality and therefore visit media platforms randomly. While
users appreciate the provision of external links (toward higher-quality content), and this
increases the overall attractiveness of a media platform, users reduce their time spent on a
particular platform, which decreases ad revenues for the media platform. Despite such
links, there is a role for the news aggregator, as it actively selects among content, allowing
users to avoid the hassle of moving from one media platform to another that provides
higher quality. The news aggregator improves the overall performance of the market,
462 Handbook of Media Economics
which is in the overall interest of media platforms, as this increases user participation in
the market; however, the news aggregator also absorbs some of the rents generated in the
market, thereby reducing what is on the table of media platforms.
Dellarocas et al. (2013)
show that if content providers offer links to each other’s content, entry of an aggregator
may lead to less competition among content providers to provide high quality. If, by con-
trast, content providers cannot link to rivals’ content, entry of an aggregator tends to lead
to more competition among content providers.
Rutt (2011) analyzes quality choice by media platforms when some users are loyal to a
particular media platform, and others search for free high-quality content. Loyal users are
willing to pay for content, but searchers are also valuable, as additional traffic generates
advertising revenue. The presence of an aggregator is assumed to be essential for searchers
to identify the quality of content. A platform may charge for content but then loses
searchers. Platforms simultaneously set price on the user side and the quality of content.
Under some conditions, a mixed-strategy symmetric equilibrium exists, with the feature
that media platforms randomize over price and quality by choosing from a probability
distribution among qualities at a price of zero or by setting a particular quality at a positive
price.
18
If a platform ends up doing the latter, it serves only loyal users (and extracts all the
surplus from them), while in the former equilibrium, it competes with other platforms for
searchers. The main finding is that as the fraction of searchers increases, platforms with
free content increase their content quality (in the sense of first-order stochastic domi-
nance), while platforms with positive prices decrease their content quality. In addition,
as the fraction of searchers increases, content is provided more often for free. Thus, exist-
ing searchers benefit from more searchers. Also, loyal searchers benefit, as it becomes
more likely that they can enjoy content for free.
Jeon and Nasr (2013) study media competition, where users can access content either
by going directly to a media platform or by accessing news via an aggregator, such as
Google News. The presence of such a news aggregator affects competition between
media platforms, especially in the long run, when they react to changes by adjusting
the quality of their news items.
To analyze this issue,
Jeon and Nasr (2013) propose a stylized model of competing
media platforms that offer news items from a full set of news categories. Each news item
is either of high or of low quality. Media platforms may operate in an environment with-
out a news aggregator or in an environment in which the news aggregator selects high-
quality news items for all news categories for which high quality is available. Low quality
is selected only for those news categories for which media platforms fail to make high
quality available.
18
The intuition for the existence of a mixed-strategy equilibrium is similar to the one of equilibrium price
dispersion in a model of sales (e.g.,
Varian, 1980).
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The Economics of Internet Media
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