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11 - Switching to digital television: business and public policy issues

Published online by Cambridge University Press:  22 September 2009

By
Norbert Maier  and
Marco Ottaviani
Edited by
Shane Greenstein  and
Victor Stango
Norbert Maier
Affiliation:
London Business School
Marco Ottaviani
Affiliation:
Associate Professor of Economics London Business School
Shane Greenstein
Affiliation:
Kellogg School of Management, Northwestern University
Victor Stango
Affiliation:
Tuck School of Business, Dartmouth College
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Summary

Abstract

This paper investigates the incentives of broadcasters to use subsidies and sunset dates to affect the viewers' decisions to switch from analog to digital television. It is shown that when viewers have identical preferences for digital television, it is never optimal for the broadcaster to subsidize just a fraction of viewers. When instead viewers have different valuations, broadcasters might want to induce viewers to switch gradually. Implications for welfare and effects of universal service requirements on equilibrium outcomes are also discussed.

Introduction

Television is currently undergoing a major transformation. The old analog standards are being replaced by new digital standards, widely perceived to be technologically superior. Digital television (DTV) makes possible the delivery of a signal virtually free of interference, with better image and audio quality and improved interactivity. In addition, data compression technologies allow for a more efficient use of bandwidth. Not only does DTV provide the flexibility of increasing the quality and number of channels, but it also frees up bandwidth for alternative uses.

These benefits can be realized only if broadcasters as well as viewers are willing to invest in the new technology. On the supply side of the market, broadcasters need to invest in digital transmission equipment and make content available on the digital platform.

Type
Chapter
Information
Standards and Public Policy , pp. 345 - 371
Publisher: Cambridge University Press
Print publication year: 2006

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