Strategic Differentiation by Business Models: Free-To-Air and Pay-TV

Abstract Broadcasting markets are marked by the coexistence of outlets with radically different business models, some offering content free of charge and relying on advertising, others charging for access and airing few ads. We develop a model with competing broadcasters that leads to endogenous differentiation in business models. Differentiation is not driven by the heterogeneity of agents as in classic works. Rather it relates to the ‘two-sided’ nature of these markets. A key driver is a strong form of strategic substitutability induced by natural properties of technology that allows advertisers to reach viewers.