TV on Mobility as a Two-Sided Platform Marc Ivaldi University of Toulouse (IDEI), EHESS and CEPR Estelle Malavolti-Grimal ENAC and University of Toulouse (GREMAQ) Conference on Competition Policy in Two-Sided Markets Toulouse - June 29/30th - July 1st, 2006

2 A new market ● Demand  1.7 billion mobile subscribers  Korean market, US market, European markets  Short duration  Mobility  Monthly fee = $ 20 ; price per program = 50 cents  Higher willingness-to-pay ● Supply  Type of content  Classical TV  Dedicated content (“mobizode”)  High cost for the tuner ($ 600)  Technological issues

3 Features of the mobile TV market ● Enlarged market ● Two-sided market

4 Enlarged Market ● Episodes of mobility  Larger potential usage wrt to classical TV ● Conclusions  Better and larger audience of advertising  Potential profits for the mobile operator  Higher willingness-to-pay for TV  Potential profits for the mobile operator –Customers / consumers accept more advertising

5 Telcom Operators Consumers Advertising & TV Two-sided Market Purchase of broadcasting time / advertising (Quantity : price) Operators provide a platform that makes contact between … Purchase / sale TV duration (quantity / price)

6 Two-sided Market ● Existence of externalities  Consumers want to consume TV broadcasts  Positive externality  Consumers don’t want to consume advertising  Negative externality ● Conclusion  The more advertising, the less TV broadcast  Arbitrage  Higher price of ads, higher demand of advertising duration –Increase of profits on the side of TV broadcasters/channels BUT –Decrease of profits on the side of consumers

7 Literature ● Two-sided markets  Rochet-Tirole 04, 03  Armstrong 02  Crampes-Haritchabalet-Jullien 04  Emerging market = the operator is a monopoly  Impact of mobility  Anderson-Coate 05  Welfare analysis  Two part tariffs

8 Market structure ● Agents  Telecom operator  Monopoly  Two-part tariffs  TV broascasters / Advertisers  Consommateurs ● A regulator

9 Objective ●Instruments: price ●Two questions  Normative aspects  What are the optimal level of advertising and broadcasting?  Positive aspects  How to implement them?

10 Telecom Operator Consumers Advertisers C = Fixed cost (tuner) c = Variable costs of broadcasting r = price of one minute of broadcasting A = Access fee p = price of one minute of TV on mobile T = Subscrition fee

11 Normative aspects: Three different views ● Regulator  Maximizes welfare ● Wise monopoly  Maximises profit taking into account the two sides of the market ● Myopic monopoly  Maximises profit on each side separately

12 The consumer ●n usage of mobile TV en mobilité (minutes) ●m gain per minute from mobility ●p purchase price of one minute of mobile TV ●T subscription ●a quantity of ads (received) ● social cost of advertising

13 The consumer ●  Inverse demand function

14 The myopic monopoly ● Choice of the price of advertising / broadcasting ● Choice of the price of the minute of mobile TV

15 The wise monopoly ● Choice of prices of broadcasting and mobile TV ● Price lower than marginal cost!

16 Results on positive aspects ●Analysis  Wise monopoly / Myopic monopoly  Two dimensions  Externality of advertising   Sensitivity of advertising demand to audience 

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19 Results on normative aspects ● The wise monopoly achieves a higher social welfare than the myopic monopoly ● Analysis  Regulator / Wise monopoly / Myopic monopoly  Two dimensions  Externality of advertising   Sensitivity of advertising demand to audience 

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22 Concluding remarks ● An integrated structure provides higher profits and welfare than a separated structure  Role of telecom operators ● Competition policy  Prices lower than marginal costs