Business models for media firms: Does competition matter for how they raise revenue?

The purpose of this article is to analyze how competitive forces may influence how media firms like TV channels raise revenue. A media firm can either be financed by advertising revenue, by direct payment from the viewers (or the readers, if we consider newspapers), or by both. It is shown that the less differentiated the media firms’ content, the larger is the fraction of their revenue that comes from advertising. If the number of media firms increases, on the other hand, direct payment from the media consumers becomes more important. We also show that advertising prices are strategic substitutes, which implies that competition in advertising prices is distinctly different from price competition in other markets.