PAY-TV VERSUS FREE-TV: A MODEL OF SPORTS BROADCASTING RIGHTS SALES

摘要

The questions addressed in this paper are why sports programming in the U.S. is primarily occurring through free-TV as opposed to pay-TV in Europe and which type of broadcast is preferable from a welfare point of view. The model presented to shed light on these questions consists of a free-TV and a pay-TV network where the free-TV station is constrained regarding pricing decisions. The model shows that the probability of free-TV airing of major sports increases with (ⅰ) a less restrictive price cap, (ⅱ) a higher sensitivity of sponsoring fees to viewer ratings and (ⅲ) a higher price sensitivity of consumer demand. We have argued that the model is consistent with previous explanations in the literature which stated that free-TV sports broadcasts in the U.S. are predominantly due to (ⅰ) the existence of larger substitution effects due to the availability of more than one major sport, (ⅱ) economies of scale of free-TV stations due to the larger national market and (ⅲ) FCC legislation which is acting as a disincentive for pay-TV entry. Subsequently, we have argued that differences in discounting across the two continents may be an additional explanation resulting in pay-TV being the networks of choice in Europe. If the revenue streams of sponsors materialize in periods later than the league's decision as to whom to sell the broadcasting rights, then discounting will obviously be a relevant factor.