ADVERTISING IN MEDIA MANAGEMENT AND ECONOMICS
Advertising in Media Management and Economics
the advertisements and buy the advertised product instead of paying for the media content directly. It has become the lifeblood of media with the largest audiences, such as broadcast TV networks and social media. The free or very low price further increases the reach of the media. The large audience of editorial media is what attracts advertisers to pay for the advertising space or airtime. Consequently, the media industries become the drivers of popular culture (Anderson & Gabszewicz, 2006).
Media managers can choose their revenue model, relying on either indirect payment income, such as advertising, sponsorship, commission on sales or government and organizational funding, or direct payment income, such as subscription fee or single copy sales or a mix of both.
The importance of advertising as the income revenue for the media industry is paramount in capitalist markets, such as the United States, Japan, and South Korea. Government-owned media are more a niche service in these markets. Corporations are the major sponsor of media content. In the United States, advertising expenditure in 2017 was estimated to reach 210 billion U.S. dollars (eMarketer, n.d.). All major media either are funded solely by advertising income, such as broadcast TV and radio, or have a substantial portion of income coming from advertising, such as newspapers, magazines, and basic cable TV. The maximization of the value of the advertising inventory and advertising sales management are important topics for media management. Advertising inventory is perishable and can be available only once, similar to a seat on an airplane. Furthermore, if the advertising space is unsold, the media organization must fill it with editorial content and lose revenue. The lost sale of the unused advertising space cannot be recuperated at a later time. Although these topics are not commonly found in published research, media managers have their own internal training on how advertising value can be maximized by putting a premium on space and airtime with the highest demand and filling the rest with a low advertising price.
Apart from being the primary source of funding for commercial media, advertising is also part of the media content. In television, there are paid programs and infomercials that fill the fringe airtime of television. The Sunday inserts of newspapers with coupons and shoppers are what attract people to buy Sunday newspapers. The amount of advertisements determines the amount of newsholes (news editorial space) to fill for newspapers and other news media ( Jones & Carter, 1959; Lacy, Robinson, & Riffe, 1995).
This chapter will focus on research about advertising’s influence on editorial content and its implications for media management. Research on this broad topic can be subdivided into five categories: (1) the economic nature of media, (2) importance of advertising revenue in different media, (3) revenue models of media, (4) ommercial pressure on media and influence of advertising on editorial content diversity and independence, and (5) dvertising clutter and perception of editorial quality.
Economic Nature of Media as Goods
The study on the economic nature of media sheds light on how media product and services should be provided to the public. There are three forms of goods: public goods, mixed goods, and private goods (Blümel, Pethig, & von Dem Hagen, 1986). Not all forms of media products are the same in economic nature. Broadcast and online media are public goods or near public goods because they are non-rival in consumption and are almost non-excludable (Hoskins, McFadyen, & Finn, 2004; Owen & Wildman, 1992). Non-rival consumption means that someone consuming a broadcast TV program will not diminish another person consuming the same program at the same time. Everyone can simultaneously consume the same program without additional cost.
Broadcast radio and TV are also non-excludable because anyone with a receiver will be able to receive the terrestrial broadcast within its footprint. Online content is basically the same as broadcast. As long as people have Internet service, they can access the online content without diminishing others’ use of the digital content because the Internet service provider does not control what content is accessed by the users. To exclude omeone from accessing online content for free requires extra effort and cost to the content provider, such as a paywall or authentication system that blocks people from using it, similar to cable TV. Cable TV makes the program ervice excludable through the set-top box’s scrambling of the cable transmitted signals. Movies shown in cinemas and pay cable are mixed goods because consumers can consume the content at the same time (non-rival) but they are excludable through the ticket admission and cable subscription and provision of set-top box to display the TV signals. Online entertainment content, such as Netflix, can more easily achieve online subscription because of the on-demand convenience, binge watching possibilities not available offline, exclusive original shows, and much lower price compared to high cable subscription fees and movie tickets. Print books are private goods as one individual can read only one book at a time and others have to read another hard copy of the book. Typically, people cannot share a book at the same time. Based on the economic nature of the media product format, for public goods such as broadcast TV and radio, the government is the natural funding source because of the difficulty of excluding people from use and also the strategic importance for the government of having a mass medium to communicate with the public. But government is a natural monopoly.
Many government-funded media become the propaganda machine for the government.
If we want competition of media products and diversity of content, and to have the media serve a watchdog function for the public to monitor the government’s performance, then they have to be provided by private sectors. Public broadcast networks, such as the BBC, are a still monopoly because public revenue such as broadcast license fees cannot support multiple public broadcasters competing for the same revenue pool. If the private sectors are to provide public good types of media product formats, they have to use an indirect form of consumer payment to compensate for the cost because no one will pay for the service as broadcast and online content is non-excludable and non-rival in consumption. Advertising becomes the best form of funding support or revenue for these media forms because the public nature of these media means they will reach a large number of audiences at no additional cost to the media. They can charge advertisers a high price for access to the large audience. Advertisers themselves lack the independent editorial content and the audience base of TV networks and popular web sites. They have to pay for that access to audiences. The extremely high price of Super Bowl broadcast TV commercials in the United States is an example of the provision of a highly popular sports game to give advertisers simultaneous reach to the largest national audience with a very high profit margin for the network that owns the broadcast right. The protection for the broadcast TV network is the exclusivity as the only source for the commercial airtime and the live broadcast for all audiences.
In general, people are unwilling to pay for media content when there are substitutes available for free, even though those substitutes may be of lower quality. Ha and Zhang (2017) discussed the parity readers or audiences who care less about the quality and the importance of public good property of news content, especially online content, when access to free alternatives is easy for Internet users. The rise of free tabloids and free newspapers in the United States and other parts of the world which are totally supported by advertising shows that the concept of free news content is well accepted by consumers (Gabszewicz, Laussel, & Sonnac, 2012;Tennant, 2014). These free newspapers operate on a public good basis to serve parity news readers. Although these newspapers probably are perceived as lower quality than the elite newspapers, they are seen as functional substitutes for news to many mass audiences. Despite readers’ annoyance about advertising, they would still rather get information and entertainment for free than pay a high price. Chyi’s (2012) study of U.S. adults online regarding news payment found that how users are charged does not make much difference—whether they are charged does.
Bleyen andVan Hove (2010) examined the revenue models of different Western European online newspapers and found that elite quality papers more likely to charge subscription fees online than the popular press. Similarly, in the United States, the newspapers that reported success using subscription models for online newspapers are limited to the elite papers, such as the Wall Street Journal and the New York Times. Most paywalls of U.S. newspapers were not successful (Ha & Zhang, 2017; Mutter, 2015). In fact, the media market will be much smaller if the direct pay model dominates because only a few news media outlets are able to command a price people are willing to pay directly.
Importance of Advertising to Different Media
Because of the different economic properties of media formats, the importance of advertising is different for different media. To those media formats that are more of a public good in nature and for which it is easy to find substitutes, such as broadcast television, radio and online media, advertising is the most important source of income. Peitz and Villeti (2008) show how broadcast TV stations that have no mechanism to collect money from consumers and have to rely totally on advertising resulted in an advertising nuisance, while pay-TV, such as cable, can have dual sources of revenue and is less likely to have market failures. Advertising is supplemental and not the primary income for cable TVservice . Pay-TV service already compensates the welfare of the viewers with highly differentiated programs and the role of public broadcasting is deemed unjustified to correct market failure. Evans (2009) explicates how online advertising provides two potentially significant economic efficiencies:
online advertising allows the economy to reduce the amount of resources devoted to creating content for aggregating and sorting potential buyers. Online advertising increases the accuracy of the match between the buyer and the seller with user data so that the seller has greater ability to target consumers who are likely to buy, and the consumer is more likely to receive useful messages and less likely to receive time-consuming but irrelevant messages. Based on these economic functions, advertising should be the primary source of income for online media. Using a Marxian critical approach, Robinson (2015) explains the success of Facebook and Google as a nonpaying sphere coexisting with a capitalist enterprise by how the relationships with other capitals together with the loyalty of their users are crucial factors in their ability to accumulate capital to be attractive to advertisers. Their dependence on advertising income means they create value produced elsewhere in the economy
instead of charging the users.
One important question for media managers is what factors affect advertising revenue. In an early study on newspaper advertising, Glover and Hetland (1978) found circulation is the most important predictor of advertising revenue, more than the advertising rate. Although studies such as Kalita and Ducoffe (1995) found no impact of advertising revenue on the price of magazines, they cannot deny the importance of advertising as an income for consumer magazines. These results show only that magazine price is independent of advertising income. Depken II and Wilson’s (2004) study of 95 U.S. magazines found mixed results. For about half the magazines, advertising intensity correlates with higher magazine price and higher number of subscriptions, but for some other magazines, advertising intensity lowers the cover price and the number of subscriptions. Entertainment magazines
benefit the most from advertising. Indeed, the price of consumer magazines now is very hard to study because of the deep discount practices of magazines in selling their subscriptions and the great difference between single copy and subscription prices. Most importantly, some trade magazines totally rely on advertising. In addition to the magazine’s readership size, Wirtz, Pelz, and Ullrich’s (2011) study of German magazines demonstrated that advertising revenue performance can be substantially affected by the advertising marketing competence of the magazine.
Kind, Nilssen, and Sørgard’s (2009) economic analysis shows that the scope for raising revenues from consumer payment is constrained by competition which offers close substitutes. They proposed that the less differentiated the media firms’ content, the larger the proportion of their revenue from advertising. However, when the number of competing media products is large, the firm’s ability to get revenue from advertising is lowered and would facilitate the growth of direct payment. For many traditional media, their online websites are still just a complementary service of existing traditional media (the clicks and bricks) of broadcast and cable TV, playing just a supportive role Louisa Ha 148 rather than a full-blown content service or a primary revenue generator (Chan-Olmsted & Ha, 2003,Ha & Chan-Olmsted, 2004). By operating on an additional online platform, the advertising income from the offline traditional media supports both the offline and online operation because typically
online advertising does not generate sufficient income for the websites.
Revenue Models of Media
Because the media industry has dual product markets, revenue models of media products highly vary. They can range from completely free to consumers (supported fully by advertisers) to completely paid by the consumers, such as premium cable service, like Home Box Office (HBO). Advertising allows people who cannot afford or are unwilling to pay for media content access to information and entertainment. Free content can maximize audiences because there is no monetary risk to the audience. So, for media that strive to achieve the largest audience, the free model supported by advertising is the best way to go. This indirect payment revenue model is a win-win situation for the two sides of the media markets—the advertisers, who need to find ways to communicate to a large or specific audience, and the audience, who wants to get content for free. Media get profits from advertising and serve both advertisers and audiences as customers. Several studies on the “free” model of media content payment supported such benefits of advertising as the revenue source of media. Halbheer, Stahl, Koenigsberg, and Lehmann’s (2014) econometric analysis of free, sampling, and full paid content models of online newspapers shows that a paid content strategy is optimal only if advertising effectiveness is sufficiently low compared to prior quality expectations. For intermediate levels of advertising effectiveness, the publisher should use a sampling strategy. The publisher should switch to a free content strategy once advertising is sufficiently effective compared to posterior quality expectations. The free sample strategy (metered paywall) should be kept even if paid content is used to engage the readers. Kesenne’s (2012) study shows that media companies earn more by charging advertisers rather than consumers in sports programming, entertainment content, and news. After analyzing the business practices of 48 leading webcasters in the United States and South Korea, Ha and Ganahl (2004) found that both clicks-and-bricks and pure-play webcasters in both
countries have a similar reliance on advertising as their major source of revenue, even though they employ different content strategies to their own media’s advantages. Ha and Ganahl’s (2007) study of the business models of webcasters worldwide found that indirect consumer payment is most prominent in all types of leading webcasters in their study of 16 countries and the Arab region. Those that do not receive a parent organization subsidy or government support rely on advertising to provide the free webcast service. Very few of the leading webcasters were able or willing to charge consumers for their content except in download and exclusive entertainment content. This is especially important for all new media services as free content reduces risk perception and encourages trial. Consumers have more latitude for technical problems and other issues when it is free.
In online media where no geographic protection is afforded to the media content providers, content providers compete on offering unique content and better packaged content. Podcasts and mobile apps use the same free
trial concepts to maximize trial and use. In fact, more than 90% of mobile apps are free and many are advertising- supported (Ruiz, Nagappan, Adams, Berger, Dienst, & Hassan, 2016). Basically, all popular social media run on a primarily advertising-supported model to maximize their audience. The only exception is LinkedIn, a professional social media site, which uses a combination of advertising (recruiting service for companies) and subscription at the premium level.
Media managers have to face the reality of finding revenue or funding support for their media content. Although Waterman and Ji (2012) painted a gloomy picture of overall revenue decline of the U.S. media industry as a percentage of GDP and the shift toward direct market payment of media products and services from advertising, other scholars see media technologies bringing new business models and opportunities for media companies.
Kumar and Sethi’s (2009) study of web content providers concludes that pure revenue models, such as free-access models and pure subscription feebased models, are not sufficient to support the survival of online information sellers. They advocated hybrid models based on a combination of subscription fees and advertising revenues to replace the pure revenue models. Using the optimal control theory, they identify optimal levels of subscription fees and advertisements for web content over time. It is especially important for a monopolist or market leader to choose a hybrid model to capture the market (Lin, Ke, & Winston, 2012).YouTube, the largest video portal, now employs a hybrid model, offering YouTube Red, which is free of advertising for U.S.$10 a month, and regular YouTube with advertising for free. It was reported that six months after its launch it was able to get 1 million paid subscribers, and another 1.5 million subscribers were on free trial. The bulk of its audience is still the free users (Singleton, 2016). This is following Anderson’s (2009) freemium model, in which digital products can be provided as free at a basic level and also at a premium for those willing to pay for them with higher-quality or exclusive content. As Tag (2009) shows, companies that allow a package without advertising provide a good-quality experience for their subscribers, but those consumers who chose to have the free ad- supported version received an increased quantity of ads, which created a bad experience for consumers. These tactics were employed to drive them to the ad-free version. Pauwels and Weiss’s (2008) study of an online service provider changing from a free to fee model concludes that the failure was caused by pushing for the change before the momentum in fee subscriptions has materialized, when they set prices higher than the level the consumer is willing to pay for their content, when they are up against a dominant competitor with better (perceived) content and/or lower price levels, when they charge fees for all (previously free) content, and when they fail to ramp up marketing communication efforts and execute them effectively. Should media managers just choose between two extremes—an extremely annoying ad-supported media environment and a clean ad-free environment—or can we find a good compromise? More importantly, should advertisers be denied a healthy and credible editorial media to communicate their messages to their consumers? Finding the right balance is a challenge for media managers and advertisers.
Variations of Advertising (Sponsored Messages)
Due to public skepticism toward advertising and audiences’ skipping and avoidance of commercials and advertisements, advertisers try to attract attention to the brand and advertising messages via integrating with editorial content (hybrid advertising formats), such as product placements and sponsored content (von Rimscha, Rademacher, Thomas, & Siegert, 2008). Product placements can take the form of prop placement putting the brand product in the background or planned integration into the editorial content. Sponsored programs attach the brand name to a TV/radio program. In 2014, product placement revenue reached 6 billion U.S. dollars and is expected to grow to 11.5 billion by 2019 (Lafayette, 2015). But many of these product placement packages include commercial spots. These variations of advertising are all sponsored messages that have a commercial intent to promote a brand or a product. These sponsored contents are not skippable or blockable by adblocker programs and DVR skipping functions. They become forced brand message exposure to the audience.
But in von Rimschaet al.’s (2008) interviews of 20 advertising industry experts, including agency executives, advertisers, and media company executives, they did not think these hybrid forms of advertising were as effective as traditional TV commercials because of the many limitations of using those formats and advertising creativity was very limited. These hybrid forms were seen as useful supplementary materials to reinforce the product commercials. Surprisingly, the media companies were more eager than the advertisers and agencies to offer integration of editorial content and advertising messages. Their study shows that both advertisers and media company executives believe that advertising should be editorial content itself in a longer form so that commercials themselves are attractive to the audience and do not rely on editorial content to support them. Ham, Park, and
Park’s (2016) national study of 21,944 U.S. consumers found their responses to product placement in television and movies highly varied from apathetic, negative, entertainment, information value to ambivalent with mixed feelings. Those who are more positive toward product placement are also those who are positive toward advertising. Hence product placement does not mitigate the negative attitudes toward advertising. It is still preaching to the choir.
Native ads, also known as sponsored content (Wojdynski & Evans, 2016), are getting more and more traction as people avoid advertising in editorial media, especially online. Business Insider estimated U.S.$4.1 billion was spent on native ads and forecast that 74% of all digital advertising revenue by 2021 would be from native ads, which include native in-feed ads on publisher properties and social platforms (Boland, 2016). Wojdynski and Evans’s (2016) experiment found very few participants can distinguish native ads from editorial content. They also found that a middle-positioned disclosure attracts greater visual attention and likelihood of fixation compared to top- and bottompositioned disclosures, which have been believed to have stronger attention. Nonetheless, recognizing the advertising disclosure negatively affected the credibility of the native ad as a news story. But
in general, most people did not know the content was sponsored. The persuasive effect is also low for sponsored content. Their study results indicate the need to develop sponsor disclosure standards based on empirical evidence to avoid lowering the credibility of the media. Carlson’s (2015) case study on a controversial Church of Scientology native advertisement on the Atlantic website shows that the acceptance of native ads is not just a desperate attempt for online sites to receive sufficient advertising support or about how to properly label the sponsored content, but it also presents a challenge to publishers and advertisers to provide native content that matches and blends well with accompanying editorial content. The nature of native ads is still a philosophical debate about whether advertising should be part of the editorial content.
Commercial Pressure on Media and Influence of Advertising on Editorial Content Diversity and Independence
Because the advertiser’s interest is to gain access to its target audience to push for its products and the media’s interest is to satisfy such needs of the advertisers to reach the largest audience (popular content) or the most profitable consumers (young or affluent consumers), media executives have been accused of not trying to develop innovative content and of going for the least objectionable programs and “dumbing down” programs to appeal to the masses (Brown & Cavazos, 2005; Eastman & Ferguson, 2013). Blasco and Sobbrio (2012) called this commercial media bias the inherent limitation of advertising-supported media.
Does commercialized content result in lower quality or diversity of content? Many studies on mass media blamed advertising for homogeneous and mass appeal programs and media content. Einstein’s (2004) study of U.S. commercial broadcast networks’ programs found advertising drove the program development of these networks and reduced the diversity of program content. Picard’s (2004) study on commercialism’s impact and newspaper quality found advertising-supported newspapers lower their quality by emphasizing content of social value less and appealing to sensationalism and other questionable practices. Lischka’s (2014) study of German newspapers shows those which have more advertising revenue are more likely to report less about the economic crisis and unemployment problems than those which have less advertising. Nonetheless, Pires (2014) purports
that the size of the market determines if advertising promotes diversity in political ideology in news media. When the market size is small, advertising will reduce the diversity, but when the advertising market size is large, news media compete with multiple political ideologies to capture readers and adapt more to the political preference of the audience.
In contrast to the common perspective of advertising’s negative effect on content, there are other studies that show that improvement in diversity and content actually attracts more advertisers. Li and Thorson (2015) found that when newspapers increase the proportion of news content and diversity, they improve both subscription and advertising revenue. Sun and Zhu’s (2013) study compared the change in content of blogs with ad revenue and those did not adopt ad revenue sharing programs and showed that those blogs participating in the ad revenue sharing program indeed shifted toward popular topics, such as the stock market, salacious content, and celebrities, to attract audiences and advertisers. But they did not find a decrease in quality. They found the quality also increased with popularity. So, advertising as a revenue actually professionalizes media content by improving quality as well as popularity.
In addition to advertising effects on editorial quality, advertising’s negative effect on editorial independence and self-censorship practice has been studied quite extensively by researchers. Soley and Craig’s (1992) survey of news editors who perceived pressure from advertisers showed that 90% of them reported advertisers’ attempts to influence their news coverage. Yet most of them would still report news that is negative about the advertisers. Another study by An & Bergen (2007) from the perspective of advertising directors of newspapers shows similar pressures from advertisers, especially at small newspapers and chain-owned newspapers. Germano and Meier (2013) found that newspapers are more likely to not cover negative news about their advertisers through self-censorship.
Rinallo and Basuroy’s (2009) study of newspapers and magazines in the United States and several European countries shows that advertisers indeed have an advantage in positive news coverage of them in the news media and publishers that depend more on a specific industry for their advertising revenues are prone to a higher degree of influence from their corporate advertisers than others. But is the advertiser’s pressure that high on news reporting? Price’s (2003) study of U.S. TV networks’ news correspondents found only 7% of the respondents felt pressure from advertisers. Owners’ pressure is more important than that of advertisers but still in general they perceived they have a high degree of autonomy in their reporting. Colistra’s (2014) study on TV reporters demonstrated that pressures from advertisers predicted reporters’ perceived instances of agenda cutting (reducing coverage or omission of items) in news decisions. So, these studies show that advertisers’ influence on news editorial content depends on how much the newspapers rely on the specific advertisers and the autonomy of the editorial staff. Front-line news people seem to be less susceptible to influence from advertisers than the advertising sales staff and editors. In general, advertisers are found to be a threat to editorial independence. Usually the editorial staff is unwilling to compromise while the advertising sales staff is torn between clients and editorial colleagues.
However, studies on business news coverage show the press is much more independent from advertisers or the business sector than those studies that examine the influence of advertising on editorial content. Zhang’s (2014) study on the food industry’s news coverage in the United States found that major firms in the food industry have all been reported about negatively in regard to food safety. Another study on the negative coverage of the BP oil spill (Watson, 2014) and a recent CBS report on the Ford Explorer’s exhaust leakage on 60 Minutes and CBS News (CBS News, 2017) seem to indicate news media give higher priority to public interest than protecting businesses in news coverage. Although these studies did not focus on advertiser pressure on editorial content or measure the advertising spending of these large firms on the newspapers under study, these large firms under
study are all large advertisers for news media. Negative reports on them risk losing their advertising support. So, these are counterexamples of commercial pressure on news media. Public interest and inter-media agenda setting can override the advertiser’s pressure on news coverage.
Advertising Clutter and Perception of Editorial Quality
Advertising clutter has been defined as the “a large amount of non-editorial content in an editorial medium” (Ha & McCann, 2008, p. 570). It is more about the density rather than the quantity of such noneditorial content. Goldstein, Suri, McAfee, Ekstrand-Abueg, and Diaz’s (2014) experiment studied the economic and cognitive costs of annoying online display advertisements and concluded that media lose their audiences by accepting annoying ads. As Ha and McCann (2008) pointed out, advertising clutter can be the objective physical presence of advertising (actual amount of advertisements) and the subjective perceived amount of advertising (which varies by individuals). Different people have different expectations or acceptance level of advertising. The advancement in digital technologies allows a more sophisticated way of presenting and customizing advertisements based on
location and other user data. To media managers, advertising clutter is both an evil (possible irritation to the audience) and a blessing (more advertising revenue and indication of a high demand for advertising for the media company).
Based on prior studies on advertiser pressure on news media mentioned earlier and newshole and press performance studies which assume that a larger amount of advertising will lower the readers’ perceived editorial quality (e.g., Lacy & Fico, 1991), Ha and Litman (1997) examined whether an increase in advertising clutter in consumer magazines results in a decline in circulation and diminishing returns in advertising revenues of those magazines using a longitudinal analysis. They indeed found diminishing and negative returns of advertising clutter for circulation of leading consumer magazines in the United States, which may reflect consumers’ perception of lowered editorial quality when the magazine has too many ads and consumers’ lower inclination to buy the magazine. They recommended media companies set a maximum amount of advertising based on the optimal point
before diminishing returns for circulation, which is about half of the total pages for entertainment oriented magazines.
Ha’s (1996) experiment on the three dimensions of magazine advertising clutter found only negative effects of perceived quantity and intrusiveness on readers’ attitudes toward the advertising in the media. Schumann, von Wangenheim, and Groene (2014) found lower click-through rates among consumers who reported higher ad clutter in their experiment. Lee and Cho’s (2010) experiment found that for a highly cluttered web page, frequency of the target ad facilitates the memory but not recognition of banner ads. Bellman et al.’s (2012) study found that there was a marked decline in online ad recall and recognition beyond three minutes of commercials within the prime-time shows online. Zanjani, Diamond, and Chan (2011) confirmed that online information seekers are more likely to feel intruded on by ad clutter than surfers. Ha (2017) points out that the increasing consumer avoidance of advertising with the aid of technology such as digital video recorders (DVRs) to skip advertising and other adblocker software is a serious warning for advertisers and media managers to create a healthy advertising environment. They have to make advertisements more informative and entertaining for the consumers.
Ads may not be perceived as clutter when consumers are the one who requested the information/ads (pull), such as a product search on Google. But when ads are unsolicited (push), then they are easily perceived as clutter unless they offer consumers other value, such as entertainment. An optimal advertising environment should make advertising available on demand and offer entertainment and information value to consumers.
Research Agenda for the Next Decade
Advertising is a moving target as a research subject because it continues to evolve in format with the advancement in technologies and acts as an indirect payment for many editorial media. This author proposes five topics on advertising that are important for media management and economics researchers to study in the next decade: (1) Is blurring or mixing editorial content and advertising a good thing for advertisers, media, and consumers? (2) Is advertising the culprit or scapegoat for editorial quality/integrity problems in media? (3) What is the audience’s receptiveness toward new forms of advertising in different media? (4) Should advertising still be the primary source of revenue for commercial media or is direct payment a better way to ensure quality content in the consumer’s interest? (5) Regarding advertising clutter, what is the optimal amount of advertising and acceptable
advertised product types in editorial media?
Is Mixing Editorial Content With Advertising a Good Thing?
The foregoing discussion on the latest trends in advertising format variations points to advertisers’ worry about dwindling exposure to advertising when people can skip ads and are skeptical of traditional advertising formats.
The effectiveness of such advertising variations remains to be seen and empirical studies actually point to the ineffectiveness of native ads on brand recall and preference. In fact, empirical evidence shows that consumer attitude toward product placement is similarly as negative as it is in advertising. This trend of mixing editorial content with advertising to increase exposure and credibility is quite troubling. On the one hand, making ads more like editorial content means that they should be more informative (advertorial/native ads) and true to the actual use of products (as in product placement) and relevant to the editorial content consumption. On the other hand, by hiding the advertising purpose of the content, this runs into the ethical question of deceit.
Why do advertisers hide their advertiser identity if they have legitimate products to promote? The revival of branded TV programs, such as Redbull TV, and custom publishing of branded magazines, such as Rhapsody (for United Airlines), is another trend for researchers to study. Are they effective in building brands? Are consumers receptive to the concept of content created by advertisers only? The experimental study by Cole and Greer (2013) shows consumers rated branded magazines as having lower credibility than non-branded magazines. But more research is needed on TV programs and different types of branded content. The inherent promotional nature of advertising of native ads and branded content apparently contradicts the impartiality expectation of third-party editorial media.
The more advertising is mixed with editorial content, the more likely editorial content of media may lose credibility, which will damage their reputation and lower the support of the audience. These are important media management questions that media managers should weigh in on, and researchers should provide guidance with empirical research from both ethical and pragmatic perspectives to determine who the true benefactors of native advertising in the short and long term are.
Is Advertising the Culprit or Scapegoat for Editorial Quality and Integrity Problems in Media?
While there is ample research evidence of advertisers putting pressure on editorial media to gain positive coverage or minimizing negative coverage of themselves, and the inclination toward content with mass appeal to maximize audience, advertising is not the only culprit for unsatisfactory media performance in society. The increasing distrust in media and concern about media bias probably indicate a bigger issue (Tsfati & Cappella, 2003). If advertising is the only culprit for lower editorial content quality, then all state-owned or non-advertising-supported media should have the highest editorial quality. More importantly, who determines editorial content quality? The elites and the intellectuals? Or the media managers and editors who serve as gatekeepers for media organizations? Or the consumers at large, who have different interests and backgrounds?
We want to make sure that advertising does not become the easy scapegoat for media’s own problems and that advertising provides a win-win solution to providing media content to the largest audience with choices for the audience. If media are only favoring advertisers, then they will lose credibility and audience, which is to the detriment of advertisers and media ultimately. Advertisers need editorial media that have the trust and support of their audiences. So, researchers should identify specific conditions when advertisers cross the line between the church and the state distinction between editorial content and advertising and when advertisers have unruly influences on content that jeopardize the trust of audiences and perceived bias of media. Most importantly, how the audience perceives these interfering advertisers has not been studied. Putting the audience into the equation will help advertisers and media managers understand that they are running the risk of losing the audience. In addition, those studies that examine advertising’s (negative) effect on editorial quality should control for other structural and organizational factors, such as a media organization’s investment in the newsroom, number of large advertisers (advertiser concentration), ownership of the media, the editorial staff’s perceived autonomy, journalistic norms, and competitive environment in the market. Defining editorial quality and integrity clearly with consistent measures for both information and entertainment media is an essential step toward this direction.
Audiences’ Receptiveness Toward New Forms of Advertising in Different Media
As discussed regarding the different media forms and research on clutter, audiences’ receptiveness toward advertising in each form of media varies. This may be due to tradition and expectations.
However, new forms of advertising are not within the common expectations of the consumers.
How receptive they are to those new forms of advertising, such as native advertising, programmatic advertising, and location-based advertising, is still largely unknown. Promoted tweets resemble regular tweets and how consumers respond differently to regular tweets and promoted tweets is not fully understood. Product placements integrate the advertised product with editorial content and directly influence the content through the use of the products in editorial content. However, for unknown brands, product placement has minimal effects because consumers cannot recognize the brand in the placement. But for well-known brands, product placement is a good way to remind consumers that popularity of the brand is a part of the prop of the program. Would consumers welcome a disclaimer that the product placement is paid for in the program credits rather than the natural use of the product in the program? Would consumers have a positive or negative attitude toward paid product placement if they knew about it? How much can consumers learn about the product in product placement? There are certainly limitations in product placements as a form of advertising. How about paid explicit endorsement of products by YouTubers who are popular personalities? These are all important questions for researchers to answer in studying audience’s receptiveness toward new forms of advertising.
Should Advertising Still Be the Primary Revenue Source for Commercial Media?
Although prior research has shown that direct payment will lead to more customer satisfaction providing either niche or exclusive premium content that consumers cannot get otherwise, media managers still have the option to capitalize on the dual product market of media. Media managers have to choose whether they provide content free to consumers using advertising (broadly defined as any sponsored content, including infomercials and home shopping channels), charge consumers a highly subsidized low price (charging consumers, but below cost and subsidized by advertising), or offer a metered use with free samples or fully paid by the consumers directly.
Each type of payment model has found success. However, as the media environment is getting more and more competitive with more entrants to the markets online as either user-generated media, mobile apps, or over-the-top (OTT) streaming, the landscape may be tilted more toward a fully advertising-supported model and other forms of indirect payment as these news digital media entrants are all by nature public goods, as discussed earlier. As media consumers can be broadly divided into parity consumers, who do not care so much about exclusive and unique content, and non-parity consumers, who care about the quality of the experience, media managers should increasingly consider a hybrid model that serves both types of audiences differently if they want to maximize the impact of their media content while preserving an advertising-free environment for those consumers who have high demands and resent advertising. Because of the unwillingness to pay for online content in general and the higher willingness to pay for entertainment content by consumers (Yang, Fang, Abuljadail, & Ha, 2015), the
perceived substitutability among different types of online news content versus entertainment and reasons for such perception will be an important study area. Media management researchers should study managers of different media regarding their beliefs about the type of model most profitable or best suited to the media form and how such beliefs influence their content strategies. Content analysis comparisons of different media forms with different revenue sources can also assess the impact of advertising on content quality and content diversity.
Advertising Clutter, Optimal Amount of Advertising, and Types of Acceptable Advertised Products in Different Types of Editorial Media
As long as editorial media still accept advertising, advertising clutter will continue to be a concern because consumers consider it not as part of the editorial content and as interfering with their editorial content consumption. Advertising clutter can affect their perception of editorial content quality and resentment toward advertising. Traditional media, such as television, radio, and newspapers, still heavily rely on advertising as income; then the task for media managers is to study the optimal amount of advertising in their type of media. Ha and Litman’s (1997) study shows entertainment-oriented and information-oriented magazines have different thresholds of diminishing and negative returns of clutter for circulation and advertising revenue. We need more research on other media to find out the optimal amount of advertising to maximize the exposure to the advertising while maintaining editorial quality perception for the consumers. Comparing the optimal amount of advertising in different types of media will be a fruitful way to help media managers set their advertising limit policy and for legislators and industry associations to set up guidelines for industry to follow. More research should also be done on advertising inventory management and how media companies optimize the advertising rates to ensure a healthy amount of advertising. In addition, consumers should be educated on the contribution of advertising to the provision of free media content. As Schumann et al.’s (2014) study demonstrates, once consumers are reminded of such benefit, their negative attitude toward advertising is greatly reduced. Apart from setting the maximum amount of advertising, developing norms for types of products and services and execution quality that are acceptable for advertising should also be explored. Advertising executions that are annoying and below standard quality should not be accepted. Products that are hazardous to health or advertisers that have bad records in the Better Business Bureau should not be allowed to advertise. Such standards may vary by the type of media. User-generated media and mobile media may be the focus media in future studies as they contain the most consumer information for advertisers and media managers have the least control of when and how ad content is shown because many ads are programmatic and automatically fed to the screen. These proposed research topics will
ultimately foster the development of an optimal media environment for advertisers, media companies, and the audience.
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