Switching to digital television: business and public policy issues

doi:10.1017/CBO9780511493249.012

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

Published online by Cambridge University Press: 22 September 2009

Norbert Maier and

Marco Ottaviani

Edited by

Shane Greenstein and

Victor Stango

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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

DOI: https://doi.org/10.1017/CBO9780511493249.012 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2006

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