Determinants of profit in the broadcasting industry: Evidence from Japanese micro data

Abstract

We offer an empirical analysis of the relationships between: (a) the structural, operational, and regional characteristics of the businesses of the commercial terrestrial broadcasters that form the core of Japan’s existing broadcasting system; and (b) the profitability of these broadcasters. The findings may be summarized as follows: (i) A positive correlation can be seen with audience share, which is a proxy variable for market share, but no clear conclusion can be reached with respect to market concentration. (ii) There is a positive correlation with the scope of household coverage and with income per capita. (iii) The variable showing each station’s ability to produce its own programs correlates positively with revenue and negatively with profit. We also find that the variables indicating market conditions, such as the number of households covered and the income level of the area of operation, have a greater effect in determining profits. In the period ahead, it will probably be necessary to think about the proper shape of efficient management for terrestrial broadcasters, including the possibility of mergers or other forms of consolidation. But the results of our analysis indicate that it is also important to consider the standards for prevention of concentration in such a way as to even out the regional gaps in market conditions. And they show that a redrawing of the administrative boundaries in such a way as to even the regional operating conditions might even out the revenues and profits of broadcasters and the number of channels that people can watch.