An Analysis on Market Structure of Broadcast Service – Issues on Optimal Level of Channel Variety –

Unlike general goods, broadcasting service is financed not only by consumer’s direct payment but also by advertisement revenue. In other words, broadcasting service is supported by direct and indirect financial sources. However, rate of dependence on those financial sources are different by each media type; Terrestrial broadcasting carrier primarily depends on advertisement revenue while cable TV carrier and satellite carrier, which is called as pay-TV primarily depend on payment from audience in addition to small amount of advertisement revenue. In this paper, we examine broadcast market, where carriers with different financial sources compete in the market, and analyze market performance as a result of competition. Especially, we focus on the effect of competition in the mixed market which includes advertising supported media and subscription fee supported media. We made economic model and analyze the difference on several types of market. Our principle results of Case III, the market that an advertisement supported carrier and a subscription supported carrier compete in the market, are as follows;. (1) The greater the substitutability is, the number of channels supplied by advertisement supported media increases while those supplied by subscription fee supported carrier decreases. (2) Total number of channels supplied by advertisement supported carrier and subscription fee supported carrier is equal to the number of channels supplied by an advertisement supported carrier (Case II). (3) Total TV watching time of Case III is equal to Case II. (4) Because the amount of payment by consumer increases compared to Case II, consumer surplus decreases. General economic model predicts that the increase of the number of entrants brings the increase of consumer surplus. However, in our model, we show here that the increase of the number of entrants does not necessarily bring the increase of consumer surplus.