CONSUMER SERVICES PROVIDED BY BUSINESS THROUGH ADVERTISING‐SUPPORTED MEDIA IN THE UNITED STATES

Abstract

The purpose of this paper is to examine and attempt to solve a longstanding “puzzle” in national economic accounting. Radio and television broadcasting are services clearly designed for and used by consumers but not purchased by them and, consequently, not counted in personal consumption expenditures (PCE); the costs of broadcasting (and a part of the costs of newspaper and magazine publication) are not counted in final product but are counted as intermediate expenses in the manufacture and distribution of advertised products. An important result of this treatment is that an increase in broadcasting services will not increase real product, but will be reflected as price increases in advertised goods. Are consumer services provided by advertisers properly handled in the conventional accounts? How should they be valued? If their value is to be added to PCE, where does the offsetting income originate?The paper argues that the puzzle is resolved by recognizing the nonmarket exchange between the consumer and the broadcaster; the consumer provides the reception and display of audiovisual advertisements in his home in return for broadcast entertainment. The exchange rate‐e.g. 501/2 minutes of entertainment for 91 minutes of commercial messages in “prime time”‐is established in the United States by the National Association of Broadcasters. Similar exchanges occur between consumers and radio broadcasters, newspaper and magazine publishers. This concept is used as the basis for a new treatment shown in abbreviated sample accounts. Estimates for the U.S. in 1976 are included.