Is Web Video Really Hurting TV?

By Melissa Lafsky

The current conventional wisdom is that the rise of Internet video may mean the end of television as we know it — a view that extends to the music industry as well, as we’ve seen before. Viacom’s $1 billion copyright infringement suit against the Google-owned YouTube continues to lumber on, and the TV writers’ strike has led to speculation that the lull in new TV content could drive more viewers to the Web.

As Forbes recently pointed out, much of the TV industry’s anxiety is based on the assumption that entertainment viewership is a zero-sum game — i.e., if more people are watching programming online, then fewer are left to watch TV. But not much data has been offered to prove that sites like YouTube are actually responsible for declining TV ratings. As Koleman Strumpf showed in his paper “The Effect of File Sharing on Record Sales,” the deleterious effects of the Internet on entertainment industry models have a tendency to be overblown. Some evidence even points to Web clips enhancing TV viewership, as programs like The Daily Show see their popularity increase through viral Web distribution.

The Wharton economist Joel Waldfogel (who has a new book out, The Tyranny of the Market) examines this issue in a new working paper, “‘Lost’ on the Web: Does Web Distribution Stimulate or Depress Television Viewing?” He tries to measure the effects of online TV clips, both authorized and unauthorized, on television viewing between 2005 and 2007, using a survey of viewers’ tendencies. To isolate the typical Web viewer (i.e., young people), he restricted his subjects to 287 people on the University of Pennsylvania campus. Here’s what he found:

While I find some evidence of substitution of web viewing for conventional television viewing, time spent viewing programming on the web — 4 hours per week — far exceeds the reduction in weekly traditional television viewing of about 25 minutes. Overall time spent on network-controlled viewing (television plus network websites) increased by 1.5 hours per week….

The effect of web availability depends on whether users watch programming they would already have watched (i.e. if their valuations exceed the “price”). If viewers watch on the web in instances in which their valuations exceed the price, web distribution will cannibalize conventional viewing. On the other hand, if web viewings is drawn from the region of the viewer demand curve where valuations fall short of the price p0, then web distribution will raise consumption without reducing television viewing.

Because of the serial nature of many programs, watching an episode (or an excerpt) on the web can stimulate interest in watching other episodes of the same show on television. This shifts the demand curve out, perhaps raising the number of instances in which people “pay” for conventional television.

Waldfolgel’s reasoning makes perfect sense: the brevity and accessibility of Web clips can raise awareness of a show, give viewers a taste of its content, and thereby entice more viewers to catch the show when it airs on a network. These findings are contrary to the entire modus operandi with which networks have approached Web video, and could provide an entirely new perspective on the future relationship between the two media — not to mention provide a valuable argument for YouTube in its case against Viacom. After all, if those 100,000 unauthorized clips served to stimulate interest in Viacom programs, who’s to say they caused any damage?