Simon P. Anderson
Joshua S. Gans
First Draft: 7
April, 2006This Version: 9
The business model of commercial-financing relies on advertisers to pay for content.Advertisers will not pay if consumers unbundle the advertisements from the content(advertising bypass). TiVo, remote controls, and pop-up ad blockers are examples of ad-avoidance technologies. Purchasing such devices causes content providers to increaseadvertising levels (as has happened recently) because the remaining audience is lessadverse to ads, and leads to a downward spiral. The bypass option may cause totalwelfare to fall. Higher avoidance reduces content quality and can lead to more mass-market content. We cast doubt on the profitability of using subscriptions to counter theimpact of ad-avoidance.
JEL Classification Numbers
. L82, L86, M37
. Two-sided markets, advertising-finance, media economics, siphoning, bypass,death spiral.
University of Virginia (Anderson) and University of Melbourne (Gans). This paper builds, expands upon andreplaces a previously distributed paper, “Tivoed: The Effect of Ad Avoidance Technologies on Content provider Behavior.” We thank Sunit Shah, Ken Wilbur, Helen Weeds, and participants at the 4
Workshop on MediaEconomics (Washington, 2006) and seminars at New York University and Cornell University for comments. Wethank the Australian Research Council and IPRIA for financial assistance. The first author thanks the NSF for support under grants SES 0452864 (“Marketing Characteristics”) and GA10704-129937 (“Advertising Themes”).All correspondence to firstname.lastname@example.org. The latest version of this paper will be available atwww.mbs.edu/jgans.