National Media and the Market for Local Products

1
National Media and the Market for Local Products

• Lisa George
• Department of Economics
• Hunter College and the Graduate School, CUNY

5th Workshop on Media Economics University of
Bologna October 2007
2
Introduction

• The product using TV most successfully to date is
  beer.
• -- Sponsor Magazine, 1948
• The angel of death for the brewing industry was
  the television tube. It changed the whole nature
  of the beer industry. You had Pabst coming in
  with their Friday night fights, all kinds of
  stuff like that, and the little guys were just
  overwhelmed.
• -- Interview with William Coors, Modern
  Brewery Age, September 13, 1999

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Introduction

• What happens when the cost of distributing
  information declines?
• Within media markets
• Better, more specialized media available
  everywhere
• Consumers may lose interest in local media
• Beyond media markets
• Social networks?
• Political behavior?
• Product markets?
• Mechanisms Content, Advertising

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Context and Question

• Question Did the Spread of Television Contribute
  to the Decline of Local Breweries?
• Context
• Rapid expansion of television (96 access by
  1960)
• Shift from local to national advertising
• Extensive national beer advertising (84 in 1952)
• Consolidation of brewing industry
• Trends
• Brewery Consolidation
• Beer Advertising
• Television Penetration

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Independent Mass-Producing Brewers, 1950-2000
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Brewing Industry Concentration, 1950-2000
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Brewing Industry Concentration, 1950-2000
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Television Penetration, 1945-1960
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Beer Advertising Expenditure, 1950-2000
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Television Advertising, 1949-1969
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Literature

• Industry Concentration
• Decreasing Costs
• Peltzman (1977, 1979) -- 165 industries
• Strategic Advertising
• Scherer (1979) consumer vs. intermediate goods
• Brewery Consolidation
• Production Scale Economies
• Elzinga (1982)
• Advertising Scale Economies
• Greer (1971, 1981)
• Television Advertising
• Beer Advertising
• Peles (1971)
• Endogenous Advertising Expenditure
• Sutton (1991)

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Local Producer Dilemma

• Product Market Newspaper TV Market
• Advertising Cost avnp an aq
• Product Market lt TV Market
• Advertising Cost avtv 2an 2qn
• Effective Ad Price Higher for Local Producers
• As viewers watch more and read less, local firms
  with product market lt TV market face higher
  prices than national firms

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Beer on TV

• 1945 Narragansett Beer sponsors first telecasts
  of Boston Red Sox games
• 1947 Hyde Park brewery St. Louis runs first
  prerecorded beer ad with Albert The Stick Man
• 1947 Regional Sponsorships
• Griesedieck Beer in St. Louis
• Goebel Beer in Detroit
• Keeley, Peter Fox and Canadian Ace in Chicago
• National Bohemian Beer in Baltimore
• Sunshine Beer in Reading
• 1950s Advertising Growth
• Carling, LaBatts, Blatz Beer
• 1960s Local vs. National Beers
• Koehler Beer in Erie Uncle Jacksons Watching
• Burger Beer in Cincinnati Don't be bamboozled
  by out-of-town beers.
• Some beers come from Milwaukee Some come from
  over the sea But I'm not bamboozled, cuz my beer
  is Burger My beer's from the same place as me.
• Ortliebs Beer in Philadelphia In the beer
  business, when you bump another brand out of a
  bar, it's called 'knocking off a spigot.' Those
  big guys can knock off my spigots, but they can't
  knock off my taste.

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Data

• Television Penetration (Television Factbook)
• 1945-1965 TV Stations
• DMA Population with TV Access
• TV Pop, 2-TV Pop, TV Fraction, 2-TV Fraction
• Brewery Data (American Breweries II)
• 1945-1965 Brewery Locations Owners
• All Breweries, Local Breweries, Local Brewery
  Fraction
• Production Data (The US Brewing Industry)
• Local Brewery Output
• Data Limitations

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Empirical Strategy

• Goal Measure the effect of TV penetration on
• Number of local breweries in a market
• Fraction of local breweries in a market
• Local brewery output
• Estimation Strategies
• Basic Fixed Effects
• (1) NMt a0 a1TVMt vt gM eMt
• Time Trend
• (2) NMt a0 a1TVMt a2t a3 TVMt_t gM
  eMt
• FCC Licensing Freeze

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Sample Statistics
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Effect of TV on Local Breweries (Fixed Effects)
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Effect of TV on Local Breweries (Time Trend)
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Local Brewery Declines in Freeze Markets
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Local Breweries in Freeze and Non-Freeze Markets
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Local Brewery Output
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Results -- Summary

• Adding 0.2 million viewers (TV increase 1950-55)
• Increases non-local breweries by 0.014 (7)
• Reduces local breweries by 0.05 or (1.1)
• Adding 0.64 million viewers (TV increase 1945-50)
• Increases non-local breweries by 0.043 (20)
• Decreases local breweries by 0.16 (3.5)
• Moving 0 to 100 TV penetration reduces local
  share by 0.023 (3)
• Spread of TV explains about 18 of the total
  decline

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Conclusion

• The expansion of television appears to be
  associated with the decline of local breweries
• The industrial organization of media markets
  appear to matter in product markets
• Current implications?
• Niche markets and mass customization?
• Media outsiders
• Markets
• Restaurants
• Pharmaceuticals