Ad addressability and personalized content in IPTV markets

Abstract

The formation of Internet based TV channels denotes an elementary change in media markets. By combination of traditional broadcasting and interactive networks, television can be transformed from a mass medium into a customized service. In view of virtually unlimited channel capacity and addressable audiences, content will increasingly be adjusted to viewer preferences. In this submission ad addressability and personalized content are discussed as the relevant options to customize IPTV services. We consider a two-sided market framework with an ad averse audience. The impact of ad addressability and personalized content on the TV market is analyzed in case of a monopoly channel and for the duopoly case. In both settings ad addressability enhances the equilibrium advertising level and increases channel profits. The program location on the preference spectrum and the audience share remains equal with ad addressability. This submission contributes to the theory on two—sided markets especially Anderson and Gabszewicz (2006, Handbook of the economics of art and culture. Amsterdam: Elsevier, pp. 567—614) and Armstrong (The RAND Journal of Economics, 2006;37:668—691). Further it contributes to the theory of free TV markets (Gabszewicz et al. European Economic Review 2005;45:645—651; Kind et al. Journal of Media Economics, 2007:20:211—233) by introducing interactive channels and it augments the discussion of ad addressability by Kim and Wildman (Journal of Media Economics 2006:19, 55—79). The theoretical results give inside to the challenges and opportunities of individualized content in IPTV markets. Ad addressability appears to be a profit increasing tool for IPTV providers. Customized content on the other hand leads to a more severe competition in advertising levels. An essential question for the future development of IPTV markets is therefore, to what extend channels can differentiate their program with exclusive broadcasting rights.