Will the Internet Destroy the News Media?
In this paper, we explore the hypothesis that an important force behind the collapse in advertising revenue experienced by newspapers over the past decade is the greater consumer switching facilitated by online consumption of news. We introduce a model of the market for advertising on news media outlets whereby news outlets are modeled as competing two-sided platforms bringing together heterogeneous, partially multi-homing consumers with advertisers with heterogeneous valuations for reaching consumers. A key feature of our model is that the multi-homing behavior of the advertisers is determined endogenously. The presence of switching consumers means that, in the absence of perfect technologies for tracking the ads seen by consumers, advertisers purchase wasted impressions: they reach the same consumer too many times. This has subtle effects on the equilibrium outcomes in the advertising market. One consequence is that multi-homing on the part of advertisers is heterogeneous: high-value advertisers multi-home, while low-value advertisers single-home. We characterize the impact of greater consumer switching on outlet profits as well as the impact of technologies that track consumers both within and across outlets on those profits. Somewhat surprisingly, superior tracking technologies may not always increase outlet profits, even when they increase efficiency. In extensions to the baseline model, we show that when outlets that show few or ineffective ads (e.g. blogs) attract readers from traditional outlets, the losses are at least partially offset by an increase in ad prices. Introducing a paywall does not just diminish readership, but it furthermore reduce advertising prices (and leads to increases in advertising prices on competing outlets.
Joshua Gans is a professor of strategic management and economics and of the Jeffrey S. Skoll Professor of Technical Innovation and Entrepreneurship at the Rotman School of Management, University of Toronto. He was previously a professor of management (information economics) at the Melbourne Business School, University of Melbourne, and a visiting researcher at Microsoft Research (New England). Joshua holds a Ph.D. from Stanford University and an honors degree in economics from the University of Queensland.
Gans is the co-author of the Australasian edition of Greg Mankiw's Principles of Economics and Finishing the Job, and the author of Core Economics for Managers and Parentonomics. Most recently, he has written an eBook, Information Wants to be Shared.
While Gans’s research interests are varied, he specializes in technological competition and innovation, economic growth, publishing economics, industrial organization, and regulatory economics. He has published in the American Economic Review, Journal of Political Economy, RAND Journal of Economics, Journal of Economic Perspectives, Journal of Public Economics, and the Journal of Regulatory Economics. Joshua serves as an associate editor of Management Science and the Journal of Industrial Economics and is on the editorial boards of the BE Journals of Economic Analysis and Policy, Economic Analysis and Policy, Games, and the Review of Network Economics. Gans was awarded the Economic Society of Australia’s Young Economist Award in 2007 and was elected as a fellow of the Academy of Social Sciences, Australia, in 2008.
As a consultant, Joshua is managing director of CoRE Research, and previously worked with London Economics, Frontier Economics, and Charles River Associates. He has also been retained by the Australian Competition and Consumer Commission and the Federal Trade Commission, where he provided expert testimony on market power and telecommunications network competition. Overall his consulting experience covers energy (gas and electricity markets), telecommunications, financial services and banking, pharmaceuticals, and rail transport.