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Saturday, September 28 • 5:20pm - 5:50pm
Measuring Consumer Preferences for Video Content Provision Via Cord-Cutting Behavior

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The convergence of video content provision is an ongoing process, and the path it follows will have wide-ranging effects in the American economy. Two recent events illustrate how the convergence is taking place: 1. The digital switchover and 2. The emergence of streaming network video content online. Consequently, in today?s telecommunications marketplace, consumers wishing to enjoy on-demand video content in their homes have three basic choices: Over-the-air (OTA) via digital antenna, paid subscription to cable or satellite, or online streaming (free or with a subscription).

In this paper, we aim to measure key determinants of consumers? choices across these video provision options. A question of particular interest is the following: Do consumers weigh video media characteristics (e.g., method of content delivery, content availability) when choosing among the three on-demand options, or is this decision primarily governed by financial means and Internet savvy? Related questions of interest include: Did the digital switchover affect demand for cable/satellite, and if so, along what dimensions? Which demographics have responded to the recent availability of online streaming network video, and to what extent do their choices depend on content availability? What is the role of income shocks in consumers? choices across these three media options? Said succinctly, our questions measure the importance of income, content, and lead user effects, and distinguish between their importance for user behavior and supplier strategy. To our knowledge, this is the first paper to attempt to measure consumer preferences across video provision methods that include online streaming.

To address these questions, we employ a rich dataset provided by Forrester Research. The data consist of independent cross sectional surveys of tens of thousands of American households each year from 1998 to 2010. These surveys collect information on technological purchases and preferences, as well as a wide range of demographic information (income, education, etc.) and location. We focus our analysis on the last few years of the survey, when the aforementioned shifts in the video content provision market occurred in the United States.

Our econometric analysis focuses on pay television dropping behavior, and how this behavior was influenced by changes in the telecommunications landscape. Our baseline model uses a binary variable indicating subscription to pay television in period t (our initial analysis will focus on 2008 or 2009) as the dependent variable. It looks as follows: TV_it= ?_0 ?_1*TV_(it-1) ?_2*X_i ?_3*I(t=2009) ?_4*I(t=2009)*TV_(it-1) ?_5*Content(i1t-1) ? ?_(k 4)*Content_(ikt-1) ?_(k 5)*I(t=2009)*Content_(i1t-1) ? ?_(2k 4)*I(t=2009)*Content_(ikt-1) ?_it.

Here, Xi is a set of time-invariant household characteristics for household i (e.g., education, location, family size, and income), I(2009) is an indicator variable for the second wave of data, and Contentijt-1 is a binary variable indicating whether household i viewed pay television content j at time t-1.

Using this model and estimation methods suitable for repeated cross-sectional data (as in Prince and Greenstein, 2013), we will be able to identify the change in overall pay television dropping rates (between 2008 & 2009) via the interaction term. Further we can identify the effects of prior content choice for both years. The structural shift in on-demand video provision (through newly available streaming content via broadband Internet and the digital switchover in over-the-air TV) suggests that prior content choice will have a differing impact on pay TV dropping behavior in 2009 as compared to 2008. This is because these two changes had differing implications as to the availability of content through alternative means. For example, the digital switchover primarily impacted the quality of network television, and local stations, available over the air; in contrast, the increase in streaming capability allowed for access to a subset of ?cable channels,? such as Comedy Central, much more easily over the Internet.

We believe our analysis will bring to light new knowledge about: how consumers compare different types of on-demand video content provision, key drivers of substitution across the main types of provision, and the demographic subgroups most responsive to changes in these types of provision.

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Saturday September 28, 2013 5:20pm - 5:50pm
GMUSL Room 221

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