Dynamic Product Positioning in Differentiated Product Industries: The Effect of Fees for Musical Performance Rights on the Commercial Radio Industry.
This article predicts how radio station formats would change if, as was recently proposed, music stations were made to pay fees for musical performance rights. It does so by estimating and solving, using parametric approximations to firms’ value functions, a dynamic model that captures important features of the industry such as vertical and horizontal product differentiation, demographic variation in programming tastes, and multi-station ownership. The estimated model predicts that high fees would cause the number of music stations to fall significantly and quite quickly. For example, a fee equal to 10% of revenues would cause a 4.6% drop in the number of music stations within 2 1 2 years, and a 9.4% drop in the long run. The size of the change is limited, however, by the fact that many listeners, particularly in demographics that are valued by advertisers, have strong preferences for music programming.