Every Viewer has a Price: On the Differentiation of TV Channels

The authors analyzed the implications of targeted advertising on the equilibrium level of channel profile differentiation (e.g., in terms of political positioning), in free-to-air broadcasting industries. When consumers have no preferences over program content (e.g., entertainment vs. news) standard Hotelling type results apply. Market forces minimize differentiation while the optimal degree is at an intermediate level. As preferences over program content get somewhat stronger, the difference between optimal and market outcomes is initially reduced. However, when preferences over program content get more pronounced, minimal differentiation suddenly becomes optimal while market forces lead to excessive differentiation. Hence, policies aimed at increasing diversity are beneficial only when viewers care little about differences in program content.