Effects of Advertising and Product Placement on Television Audiences

Abstract

Digital video recorder proliferation and new commercial audience metrics are making television networks' revenues more sensitive to audience losses from advertising. There is currently limited understanding of how traditional advertising and product placement affect television audiences. We estimate a random coefficients logit model of viewing demand for television programs, wherein time given to traditional advertising and product placement plays a role akin to the of consuming a program. Our data include audience, advertising, and program characteristics from more than 10,000 network-hours of prime-time broadcast television from 2004 to 2007. We find that the median effect of a 10% rise in traditional advertising time is a 15% reduction in audience size. We find evidence that creative strategy and product category factors are important determinants of viewer response to traditional advertising. When we control for program episode quality, we find that product placement time decreases viewer utility. In sum, our results imply that networks should give price discounts to those advertisers whose ads are most likely to retain viewers' interest throughout the commercial break.