I’m following up on Russ’s post yesterday in which he takes issue with the comment in Robin Foster’s speech that “As any broadcasting economist will tell you, [advertising] also creates a very imperfect market”. Since I sometimes admit to being an economist I’ve given a little thought to whether the “very” makes sense in theory.

There seems to exist a view that a market that operates through an advertising business model, and lacks the direct cash payments from consumers to suppliers that we see in most markets, should be treated with suspicion, as something unnatural. This is unfortunate.

In the case of advertiser-funded TV, broadcasters make content available to potential viewers in order to attract eyeballs which are then sold on to advertisers. A viewer engages in an implicit transaction with the broadcaster: content in exchange for attention. Viewers “pay” with their attention. Programming decisions by profit-driven broadcasters will favour those viewers who offer the best deal to broadcasters: often these will be viewers whose attention is worth more to the broadcaster (e.g. viewers with high disposable incomes) and who are easiest to attract (e.g. viewers happy to watch cheap TV).

This seems a reasonable enough way for a market to work. As with any market, consumers who offer less to suppliers get less; they can seem under-served compared to consumers who “pay” more. Taking an example outside TV, consumers with a limited restaurant budget but with a taste for fine dining can find it difficult to meet their desires. There are consumers who do not get quite what they want on TV, because their value to advertisers is not sufficient to finance their programming desires; is this any different to consumers not getting the best restaurant food because they cannot afford it? Judged from a consumer perspective, I don’t think TV markets work any less well than markets for restaurant food.

This certainly does not mean that advertising-funded TV is perfect. For instance, making use of the distinction in the Communications Act between consumers and citizens, there are good arguments that advertiser-funded models cannot guarantee the right mix of services from the perspective of citizens. But this should not be confused with the ability of the market to work effectively for consumers. Whether intentional or not, a statement that advertising creates a very imperfect market will be seen as a statement on the inability of advertiser-funded models to work well for consumers. In my opinion, this view is only tenable if viewers paying with their eyeballs are treated as inferior consumers to viewers paying (or willing to pay) with their wallets.