Haugen Og Lien (2016). Competitive Aspects of the Norwegian Broadcasting Corporation's Radio Services
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Norwegian School of Economics Bergen, Spring 2016 Competitive aspects of the Norwegian Broadcasting Corporation’s (NRK) radio services Advertising and diversity in a two-sided radio market Atle Haugen and Gjermund Lien Supervisors: Hans Jarle Kind and Øivind Anti Nilsen Master’s Thesis, MSc in Economics and Business Administration, Economic Analysis (ECO) and Economics (ECN) NORWEGIAN SCHOOL OF ECONOMICS This thesis was written as a part of the Master of Science in Economics and Business Administration at NHH. Please note that neither the institution nor the examiners are responsible − through the approval of this thesis − for the theories and methods used, or results and conclusions drawn in this work. 2 Acknowledgements Working with this thesis has been extremely rewarding, and we feel privileged to have had the possibility to study a topic that both interests us and at the same time is subject to public debate. We would like to thank our two supervisors, Øivind Anti Nilsen and Hans Jarle Kind, for constructive feedback throughout the writing process. Their insights within empirical methods and two-sided markets have been very helpful. We would also like to thank MTG, Bauer Media and NRK for helpfully providing us with all the data we requested. MTG and Bauer also financed our survey. Without this support, this thesis would have been quite different. Bergen, June 2016 Atle Haugen Gjermund Lien 3 Abstract There has been an ongoing debate in Norway on how the state-owned, commercial-free broadcaster, NRK, influences commercial agents in different media markets. Up to this point, little research has been done on NRK’s impact on the radio market. This thesis examines the competitive effects of NRK’s radio services when focusing on listener welfare. Through a content analysis, a double-coverage analysis and a survey revealing diversion ratios, we establish that NRK competes hard with commercial broadcasters in the hit-radio segment, although less fierce with P5 Hits and Kiss than what was expected from the general media coverage. We develop a theoretical model to consider the effects on advertising and diversity, and thereby listener welfare, in a market with the commercial-free broadcaster, NRK, present. We find that NRK’s presence would lower the advertising level, and that the commercial stations would differentiate to soften the competition. We further find from the empirical analyses, slight tendencies that NRK may work as a block, forcing the commercial stations to some extent to differentiate in order to be able to air advertising. The content analysis finds that there is a significantly lower level of advertising in the hit-radio market compared to the somewhat comparable market comprising P4 and Radio Norge. We explain this by the presence of NRK in the hit-radio market and that advertising quantities are strategic complements. 4 Contents ACKNOWLEDGEMENTS ................................................................................................................. 2 ABSTRACT .......................................................................................................................................... 3 CONTENTS .......................................................................................................................................... 4 FIGURES .............................................................................................................................................. 8 TABLES ................................................................................................................................................ 9 1. INTRODUCTION ................................................................................................................... 10 1.1 MOTIVATION AND PURPOSE .................................................................................................. 10 1.2 RESEARCH QUESTION ............................................................................................................ 11 1.3 OUTLINE ................................................................................................................................ 11 2. ABOUT THE NORWEGIAN RADIO MARKET ................................................................ 12 2.1 LISTENER HABITS .................................................................................................................. 12 2.2 MARKET STRUCTURE ............................................................................................................ 13 Agents ......................................................................................................................... 13 Size ............................................................................................................................. 15 Positioning ................................................................................................................. 15 2.3 THE ROLE OF NORWEGIAN CULTURAL POLICY ..................................................................... 17 2.4 MARKET CONDITIONS ........................................................................................................... 18 Public service broadcasting reqiurements ................................................................. 18 Restrictions on advertising ......................................................................................... 20 Transmission technology ............................................................................................ 20 2.5 RADIO AS AN ADVERTISER MARKET ...................................................................................... 21 2.6 RADIO BROADCASTING AS A TWO-SIDED MARKET ............................................................... 22 2.7 REACTIONS ON NRK’S ROLE IN THE RADIO MARKET ............................................................. 22 5 2.8 THE WAY FORWARD ............................................................................................................... 23 3. THEORY ................................................................................................................................... 24 3.1 THE RELEVANT MARKET ....................................................................................................... 24 Two dimensions ........................................................................................................... 24 Market shares.............................................................................................................. 25 Diversion ratios .......................................................................................................... 26 3.2 PRODUCT DIFFERENTIATION .................................................................................................. 27 Spatial Competition: The linear city (Hotelling) ........................................................ 27 The principle of differentiation – maximal or minimal differentiation? ..................... 29 3.3 TWO-SIDED MARKETS ........................................................................................................... 30 3.4 AMERICAN STUDIES ON MERGERS IN THE RADIO MARKET .................................................... 32 4. SPATIAL COMPETITION IN A TWO-SIDED RADIO MARKET .................................. 34 4.1 BASIC MODEL ........................................................................................................................ 34 Listeners ...................................................................................................................... 35 Advertisers .................................................................................................................. 40 Radio stations.............................................................................................................. 40 Preliminary sum-up .................................................................................................... 41 4.2 THEORETICAL ANALYSIS ....................................................................................................... 42 Four commercial stations ........................................................................................... 43 One non-commercial and three commercial stations .................................................. 46 Comparison and Discussions ...................................................................................... 49 5. DATA AND METHODS .......................................................................................................... 52 5.1 CONTENT ANALYSIS ............................................................................................................... 52 5.2 DOUBLE COVERAGE ............................................................................................................... 53 5.3 SURVEY.................................................................................................................................. 53 6 Questionnaire ............................................................................................................. 53 Validity and reliability ............................................................................................... 55 Aided vs. unaided awareness ..................................................................................... 56 Descriptive statistics .................................................................................................. 58 6. EMPIRICAL ANALYSES .....................................................................................................