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Analysis of Broadcasting Competition and Programming Costs in the 1940s

This study delves into the impact of broadcasting competition on programming costs and listener behavior, considering firm behavior and revenue influences. It explores multiple variables and market dynamics from the 1940s, offering insights into the economics of the broadcasting industry.

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Analysis of Broadcasting Competition and Programming Costs in the 1940s

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  1. Broadcasting Competition and Programming Costs David Genesove Hebrew University of Jerusalem and C.E.P.R.

  2. Listener Behaviour • Utility generalizes from • Distributed uniformly around circle of h-content • D is listener share, x is marginal. S listeners. First order approximation.

  3. Concave (Φ=2), N={2,4}, Δu/t=.05

  4. Convex (Φ=0.5), N=4, Δu/t=.05

  5. Firm Behaviour • Firm chooses advertising and quality • No multiple station firms. • Profits:

  6. Choice of Number of Ads • r(a): per-capita advertising revenue (concave, with maximum) • Benefit (RHS): smaller, since share falls (Choi, Armstrong&Weeds) • Cost: lost listeners.

  7. Econometric Spec.: Ad-Revenue • Advertising Specification • Per Firm Ad-Revenue

  8. Quality Choice • FOC • Specification

  9. Estimation Equations

  10. Potential Biases • Market size (OK for lnF|lnR,lnN) • Listener Heterogeneity (t): • Differential cost of talent (δ): • Incomplete Reports – e.g., fire, undocumented ownership transfer (Knoxville TN?) • Differential Local vs. Network allocation

  11. Estimation Equations

  12. Complications: The Industry and the Model • Network programs • SOLUTION: non-network revenue • Multiple Stations • Overlapping Markets • SOLUTION: for now, none; rely on FCC • Television • SOLUTION: stop in 1947 • Endogenous Wages • SOLUTION: wages, transcription services • Asymmetric Firms within markets • differing power • differing capabilities Fi(v)=δF(v) • expansion firms

  13. Tale 1a: Ratio of New to Existing Firms’ Revenue, 1947 Further Complications & Solutions • Are entering firms like existing firms? Ratio of New to Existing Firms, Revenue 1947 Source, “Economic Study “, FCC, 1947 Tables 5 and 20.

  14. (Final) Data • Annual Financial Reports to FCC (NARA): Revenue (R) & Programming Costs (F) • Lists of Radio Stations (BMB Spring 1946 and Broadcasting, Jan 1, 1947, 1948): Number of Stations (N) • Bank Debits to Demand Deposits (Source: Monetary and Banking Statistics, Fed): Economic Activity (S) • Markets: 137 metropolitan districts (- NY, LA, CHI) + 41 other FCC identified markets • Years: 1942-1948

  15. Today’s Sample • About 1/3 of stations • 1944-1947 → • 149 markets for examining station number growth (~First Stage for N) • 196 stations in 89 cities for effect of revenue on program. costs during Freeze • 153 stations in 79 cities for that and effect of growth in station numbers, post-war

  16. Programming Costs and Revenue with Competition Differenced Out (Station Data, War Period)

  17. SUMMARY: 1944-1945 • 89 cities (196 stations) • Variable Mean S.D. Min Max • dlnRevenue .13 .23 -0.55 1.62 • dlnProgCost .24 .24 -0.44 1.51 • gr43 .18 .10 -0.08 0.56 • gr44 .09 .07 -0.10 0.46 • gr45 .07 .07 -0.14 0.29 • War Growth .34 .15 0.08 1.00 • CORRELATIONS: • gr43 gr44 • gr44 0.07 • gr45 -0.11 0.16

  18. Table 2: American Imports in 1914

  19. First Stage: Explaining Growth in Number of Firms (Market Level, Post War)

  20. SUMMARY TABLE (N=149) • Variable Mean Std. Dv. Min N=1 Max • lnbd42 6.78 1.16 4.37 10.00 • ECONOMIC GROWTH: • War 0.33 0.16 -.17 1.00 • gr43 (1942-43) 0.17 0.12 -.08 0.72 • gr44 0.09 0.08 -.21 0.46 • gr45 0.07 0.08 -.17 0.41 • gr46 0.17 0.11 -.17 0.45 • gr47 0.14 0.06 .005 0.41 • POPULATION GROWTH: • 1930s 0.11 0.11 -.07 0.63 • 1940s 0.23 0.16 -0.13 0.75 • CHANGE IN LOG NUMBER OF STATIONS • 1946 to 1948 0.51 .40 0 1.79 • 1946 to 1947 0.19 .35 -.69 1.37 • 1947 to 1948 0.32 .32 0 1.79 • NUMBER OF STATIONS • 1946 2.99 2.06 1 (35) 13 • 1947 3.52 2.22 1 (20) 13 • 1948 4.71 2.75 1 (5) 17

  21. CORRELATIONS • War Conc. Lnbd42 dpop30 • War growth 1.00 • Conc. growth -0.02 1.00 • lnbd42 -0.16 -0.43 1.00 • dpop30 0.29 0.14 -0.07 1.00 • dpop40 0.29 0.09 0.04 0.76 1.00

  22. Table 2: American Imports in 1914

  23. Second Stage: (Station Data, Post War)

  24. Table 2: American Imports in 1914

  25. Table 2: American Imports in 1914

  26. Table 2: American Imports in 1914

  27. Table 2: American Imports in 1914

  28. Extensions • More data: • Rest of Stations • 1942 , 1943 and 1948 • More variables: • Employee Compensation? • Transcription Costs • Better concentration figures

  29. Conclusions • Endogenous Fixed Costs Industry • Not so large as to generate extreme case. • Competition’s Total Effect is zero or positive. • Competition’s Direct Effect is unclear. • Competition’s Advertising Effect is zero or positive.

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