Commercial Success through Commercials? Advertising and Pay TV Operators

Journal of Marketing Research, forthcoming

Posted: 28 Jun 2019 Last revised: 9 Jun 2021

Date Written: June 8, 2021

Abstract

The US pay television service market had been dominated by cable operators until the nationwide entry of satellite operators in the early 1990s. The latter have been consistently growing their footprints since. This study documents the role of television advertising to explain the success. Using data on US households' subscription choices and operators' advertising decisions, the authors document both demand- and supply-side conditions conducive to the growth of the satellite operators. First, the authors find consumers in this market were sensitive to advertising, and especially so to that of the satellite operators (ad-elasticities of about .05-.06 for satellite operators vs. .02 for cable operators). The authors employ a border strategy to demonstrate advertising-elastic demand and discuss its robustness to potential threats to identification. Second, the authors provide suggestive evidence that a form of asymmetric cost efficiencies in television advertising benefited the entrants more than the incumbents. Specifically, the unit costs of local advertising tend to be higher than of national advertising, which likely allowed the satellite operators to better leverage their national presence with (cheaper) national advertising. Overall, this study highlights the interaction between advertising efficiencies and the scale of entry in explaining the competition between market incumbents and entrants.

Keywords: Advertising, Television service market, Cost advantage, Border strategy

JEL Classification: M37, L82, O33, D61

Suggested Citation

Yang, Joonhyuk and Lee, Jung Youn and Chintagunta, Pradeep K., Commercial Success through Commercials? Advertising and Pay TV Operators (June 8, 2021). Journal of Marketing Research, forthcoming, Available at SSRN: https://ssrn.com/abstract=3407058 or http://dx.doi.org/10.2139/ssrn.3407058

Joonhyuk Yang (Contact Author)

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Jung Youn Lee

Northwestern University, Kellogg School of Management ( email )

United States

Pradeep K. Chintagunta

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8015 (Phone)
773-702-0458 (Fax)

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