Abstract

New digital technologies are deeply changing all media industries. The Italian broadcasting industry is based on 3 business models: the public business model (Rai) in which citizens pay a fixed tax every year; the free-to-air business models (Mediaset) in which firms are financed only with advertising; the pay-tv model (Sky) in which subscribers pay a monthly fee. Even if we are very far from a long run equilibrium in the industry, in these last 8 year we assisted at a large increase in the number of channels due to both the introduction of digital terrestrial television and to a large development of pay-tv. The large increase in the volume of advertising deeply affected the average price per minute of advertising of all major channels of public and free-to-air broadcasting networks. As second step, the decrease in price decreased revenues from advertising. This process is amplified by the fact that television industry con be studied as a two-sided market that shows strong externalities between the two sides: consumers (viewers) on one side and firms investing in advertising on the other. The more revenues from advertising decrease, the more the quality and the contents of information transmitted can decrease and therefore also viewers will decrease. Therefore, the free-to-air business model of television seems to suffer more then the other two business models of this situation. In the future, will free-to-air television be still sustainable and of the same quality as it was in the past?