Designing Information and Entertainment-Oriented Publications: Balancing Advertising and Programming Content

Abstract

Advertising is an important revenue source for many publishers of information and entertainment-oriented good and services on the Internet, television, and print media. The publication design must balance the revenue opportunity from advertising with its impact on consumers' perception of the publisher. We study a publisher's optimal strategy when viewers' attitude towards advertising friendly or hostile - varies along the amount of advertising and on the publisher's programming quality. The publisher's program quality impacts how much flexibility it has in balancing advertising revenues with making the best product for its subscribers. Among competing publishers, the one with higher programming quality, or larger consumer base, has more flexibility in setting its advertising level. Regulation that limits publishers' advertising levels is not necessarily in the subscribers' interest: even a monopoly publisher may offer too little advertising relative to the consumer ideal; this can happen when advertising enhances the consumer experience but is too costly to attract. We explain how the potential to generate non-advertising revenues from subscribers affects the publisher's advertising level, and how it might cause variation in advertising levels among publishers who experience the same consumer attitude towards advertising.