Download PaperWith the development of the Internet and online media, audiences and revenues are migrating from traditional offline to Internet-distributed online media. Several studies have shown that traditional offline media markets are shrinking with the expansion of the Internet. Some scholars detected a decline of advertising revenues of established individual delivery systems such as newspapers and music publishing, whereas others reported negative effects on aggregated advertising revenues.
While public attention has largely focused on the reduction of advertising revenues of established delivery systems, only a few studies empirically examined the overall transition of the media industry caused by Internet. In particular, one study reported current trends in the U.S. media industry: after U.S. Internet broadband penetration started to grow significantly in 1999, the aggregated revenue of the U.S. media industry steadily declined as a proportion of gross domestic product (GDP) and a marked shift from advertising toward direct payment occurred (Waterman & Ji, 2012).
In this study, we examine economic effects of the Internet on changes in the media industries from a broad perspective. Our goal is to empirically test whether the above two trends, previously found in the U.S. media industry, also apply in other countries. For this, we extended our scope to an international comparison of media industries. We examine whether (1) online media affected established traditional media in terms of aggregate revenues, and (2) the shift in the balance of advertising vs. direct payment support changed as Internet penetration grew.
Our primary methodology is to quantify trends in the size of the media industries as a proportion of overall economic activity, or GDP. The GDP metric is used to give comparative meaning to the size of the media industries as a proportion of overall economic activity of each country. In this manner, this study is in the tradition of studies in the field of information society which measure the size of the ?information economy,? proportional to total economic activity.
Based on industry and government sources, we constructed a country-level dynamic panel of 45 countries from 2005 to 2011. The data set includes the individual nation trends of media industries in terms of % GDP , country-specific economic status, Internet & broadband penetration, and the ICT Opportunity Index (ICT OI) measured by ITU. We empirically investigate the Internet effect on the overall transition of traditional media industries which include 10 individual media such as newspaper, broadcast TV, subscription TV, box office, home video, recorded music, radio, book, magazine, and video game industries.
Specifically, the dependent variable, the balance between advertising supported media revenue and direct payment media revenue (advertising media revenue divided by total media revenue) is regressed on a set of control variables, especially, Internet penetration (or ICT OI), and two lagged dependent variables. To control for autocorrelation, unobserved characteristics, and endogeneity, we estimate our results using the linear generalized method of moments (GMM) estimators (Arellano & Bond (1991); Bond (2002); Blundell & Bond (2000)), which allows us to use internal instruments.
Our preliminary analysis shows that 1) the development of the Internet may lead the shift of the balance from advertising, toward direct payment revenue, and 2) the Internet negatively affects aggregate revenue of established media industry in terms of % of GDP. The reasons behind those trends and policy implications will be discussed.
References
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of Economic studies, 58(2), 277-297.
Blundell, R., & Bond, S. (2000). GMM estimation with persistent panel data: an application to production functions. Econometric reviews, 19(3), 321-340.
Bond, S. R. (2002). Dynamic panel data models: a guide to micro data methods and practice. Portuguese Economic Journal, 1(2), 141-162.
Waterman, D., & Ji, S. W. (2012). Online Versus Offline in the United States: Are the Media Shrinking? The Information Society, 28(5), 285-303.
