It is instructive to see the formal setup how a news aggregator can deal with news from
different categories. Each of two media platforms cover a continuum of categories [0, 1].
Each platform chooses a subset I
i
of categories for which it offers high-quality news. We
can then associate the quality of the media platform with the measure of high-quality
news issues q
i
¼μ I
i
ðÞ, where it is assumed that μ 0, 1½ðÞ¼1.
19
Users are identical with
respect to their valuation of high-quality coverage.
In addition to differences in high-quality coverage, platforms are horizontally differ-
entiated, where differentiation may reflect different political views or different styles
(such as using British or American English). This horizontal difference applies to each
news category. Users are heterogeneous with respect to these horizontal platform char-
acteristics. This is formalized following the standard Hotelling representation with plat-
forms being located at the extreme ends of the [0, 1] interval and users being uniformly
distributed over this interval. A user located at x incurs a disutility of τx if she consumes all
news from platform 1 and τ(1 x) if she consumes all news from platform 2. Then, the
utility of a user x choosing platform 1 is v
1
xðÞ¼u
0
+ q
1
τx, where the marginal utility
from increasing high-quality coverage is normalized to 1. Correspondingly, the utility of
x choosing platform 2 is v
2
xðÞ¼u
0
+ q
2
τ 1 xðÞ. In the absence of a media aggregator,
users face a discrete-choice problem between two media platforms.
Platforms obtain revenues from advertising.
Jeon and Nasr (2013) assume that plat-
form revenues are proportional to the amount of time users spend on a platform, which is
implied by a constant advertising price per exposure and exposure being proportional to
the amount of time spent on the platform. It is assumed that users spend a total of one unit
of time on low-quality media. High-quality coverage makes them investigate a category
longer, increasing the time spent on news consumption by δ per category. Hence, a user
who consumes news only on platform 1 spends time 1 + δq
1
on platform 1. Each unit of
time spent on the platform generates ad revenues A. Denoting the number of users of
platform 1 by D
1
in the absence of a news aggregator, the profit of platform 1 is
π
1
I
1
ðÞ¼AD
1
1+δμ I
1
ðÞðÞC μ I
1
ðÞðÞ;
where the cost of increasing high-quality coverage is convex (in particular, CsðÞ¼cq
2
for
q 1=2 and infinity for larger q). Here, the parameter c is assumed to be sufficiently large
such that in all environments, platforms choose high-quality coverage with q
i
strictly
lower than 1/2.
In the absence of a media aggregator, platforms simultaneously choose their high-
quality coverage I
i
across news categories. Then, users make a discrete choice between
the two media platforms. Because users cannot combine news from different platforms,
for any given q
i
, each media platform i is indifferent to which particular category it offers
19
The cost of quality provision is assumed to satisfy the condition that a media platform always chooses a
policy with μ 0, 1½ðÞ1=2.
464
Handbook of Media Economics
high quality. Straightforward calculations show that qualities are strategic substitutes; i.e.,
if the competing platform increases its amount of quality coverage, the best response by
the media platform is to decrease its own quality coverage. One can then show that in a
symmetric equilibrium, quality coverage is decreasing in the differentiation parameter τ,
while profits are increasing. In other words, if users consider platforms as weak substi-
tutes, media platforms invest less in quality coverage. This finding is in line with the basic
intuition that more differentiation makes competition less intense.
How does the presence of a news aggregator affect competition between media plat-
forms? Its presence changes the picture considerably because the aggregator proposes a
mix of news from different platforms. In this respect, users see the news aggregator as
a device to multi-home—that is, it allows them to, indeed, mix across platforms.
20
In the presence of a news aggregator, media platforms are no longer indifferent about
which particular category contains high-quality news, as it is relevant whether there is
duplication of high-quality coverage for the different categories. In particular, if platforms
fully specialize—i.e., I
1
I
2
¼∅—we have that μ I
1
I
2
ðÞ¼0. By contrast, if platforms
choose maximal overlap, we have that μ I
1
I
2
ðÞ¼min μ I
1
ðÞ, μ I
2
ðÞ
fg
.
To illustrate the functioning of a news aggregator, suppose that there are six (instead
of a continuum of ) news categories. Furthermore, suppose that platform 1 offers the vec-
tor (1,0,1,1,0,0), where 1 stands for high quality and 0 for low quality, while platform 2
offers (0,1,0,1,1,0). By choosing maximal quality, the news aggregator then offers
(1,1,1,1,1,0), where, in the case of the same quality, we postulate that each media plat-
form is listed with probability 1/2. Thus, the news aggregator provides higher quality
than each individual media platform. From the user’s perspective, while the aggregator
offers higher quality, using the aggregator comes at the cost of a worse fit for consumers
(with x 6¼1=2).
Returning to the model with a continuum of categories, a user located at x who
obtains news through the news aggregator receives utility
v
12
xðÞ¼u
0
+ μ I
1
[I
2
ðÞη
1
τ x η
2
τ 1 xðÞ;
where η
i
is the fraction of news items that are linked to media platform i. This fraction is
the sum of the fraction of categories with exclusive high-quality news items on media
platform i, μ I
i
ðÞμ I
1
I
2
ðÞ; one-half of the fraction of news categories with two
high-quality news items, 1=2ðÞμ I
1
I
2
ðÞ; and one-half of the fraction of news categories
that do not contain any high-quality news items, 1=2ðÞ1 μ I
1
[I
2
ðÞðÞ. Thus, we can
write
v
12
xðÞ¼u
0
+ μ I
1
[I
2
ðÞ
τ
2
+ τ x
1
2
μ I
2
ðÞμ I
1
ðÞðÞ:
20
For an analysis of the effect of multi-homing users on advertising revenues, see Section 10.4.
465
The Economics of Internet Media
A user x < 1=2 prefers the news aggregator to media platform 1 if v
12
xðÞ> v
1
xðÞ. This is
equivalent to
μ I
1
[I
2
ðÞμ I
1
ðÞ> τ
1
2
x
1+μ I
2
ðÞμ I
1
ðÞðÞ:
The left-hand side contains the gain due to higher quality from the news aggregator and
the right-hand side the loss due to the larger preference mismatch with respect to hor-
izontal characteristics. Whenever there are some categories for which only platform 1
offers high quality and some others where the reverse holds, a user at x ¼1=2 strictly pre-
fers the mix provided by the news aggregator over the offers by the two media platforms.
Hence, users fall into up to three sets: users around 1/2 rely on the news aggregator, while
users at the extreme points tend to rely on the respective media platform. By contrast, if
I
1
¼I
2
, there is no room for a news aggregator.
It can be shown that media platforms either choose full specialization such that
μ I
1
I
2
ðÞ
¼0, or that they provide maximal overlap such that μ I
1
I
2
ðÞ
¼
min μ I
1
ðÞ, μ I
2
ðÞ
fg
. In any symmetric equilibrium with μ I
1
ðÞ¼μ I
2
ðÞ¼μ, media platforms
choose full separation if exposure due to high-quality news is sufficiently large, δμ > 1. It can
then be shown that, for large δ, there is a unique symmetric equilibrium in which platforms
choose full separation and the news aggregator is active. In this environment, qualities are
strategic complements, and the market-expansion effect due to higher quality dominates
the business-stealing effect. In the reverse case, the business-stealing effect dominates the
market-expansion effect, and there are equilibria in which media platforms choose the same
categories for high-quality newsitems.Thissuggests that theviabilityof the news aggregators
depends on the demand expansion of high-quality news items.
When the media platforms fully separate their high-quality coverage, users benefit from
the presence of the news aggregator. While the effect on media platforms’ profits is ambig-
uous, total surplus is also higher. Thus, to the benefit of society, the presence of news aggre-
gators can give incentives to media to specialize their high-quality coverage, which in turn
leads to an overall wider high-quality coverage of news items and categories.
The overall message that emerges from the analysis of news aggregators is that they
affect the media platforms’ incentives to invest in the quality of content. The above-
discussed works have identified situations in which the presence of news aggregators
is beneficial for society; however, the opposite result may well hold true, in particular
since the news aggregator is an additional player extracting—also at the margin—rents
from the market.
10.3.4 Search Engines and Media Content
Search engines are an important entry point for readers. Readers may be interested in a
certain topic or event and simply use Google or some other search engine (e.g., Bing,
466 Handbook of Media Economics
Baidu in China, Yandex in Russia, or Naver in South Korea) to click on a particular news
item. This traffic generates profits for the search engines, as it allows them to place ads
together with the organic search results. As news items are linked, a click by the reader
on a particular news item moves the reader to a particular news site. When searching on
Google, for example, the reader receives information on the news provider (e.g., the
Internet site of a newspaper or television channel) and a snippet from the news item,
which provides some context in which the search item appears. The distinction between
a search engine and a news aggregator is, in some cases, a bit blurred, as a reader may use
Google or Google News to access news, where we would label the former a search
engine and the latter a news aggregator. An issue in both cases is, first, whether search
engines have the right to provide links or need an explicit agreement from the website
owner to provide a link and, second, whether search engines have an obligation to treat
all content in a transparent and “non-biased” way.
Concerning the former, some interested parties have asked to be compensated for the
extraction of snippets. For instance, the industry association of German newspapers has
asked to receive payments. We note that, before this request, Google had already offered
newspapers the option to delist their content. In this case, neither snippets nor links are
provided in the organic search results on Google. Newspapers see themselves as provid-
ing content to Google without receiving any monetary payment, allowing Google to
make money on advertising. Google, by contrast, claims to deliver additional traffic to
newspapers and does not charge directly for the service. Following this logic, newspapers
can derive benefit from this traffic (e.g., via advertising, pay-per-view or offering sub-
scriptions). Therefore, it is not clear which economic mechanism would warrant public
intervention to satisfy the newspapers’ demands for payments by Google. Under a new
law,
21
a group of German media companies hopes to extract license fees from Google for
making snippets available (it is apparently unclear what length of the snippet would justify
such a license fee). Essentially, this group of media companies aims to sustain a positive
price vis-à-vis Google by coordinating their actions; this would not be possible if they
acted independently.
The second issue has been analyzed in the context of search neutrality. While we
are not aware of academic work on the first issue, several contributions have
considered search neutral ity, which applies not only to searches for news items, but also
to broader searche s, including those for products. We discuss search neutrality in
Section 10.4.2.
21
This is the ancillary copyright for press publishers (Leistungsschutzrecht fu
¨
r Presseverleger), which came
into force on August 1, 2013. In its initial draft, it was intended to introduce a fee even for short snippets,
but this has been removed from the final version.
467
The Economics of Internet Media
10.3.5 ISPs, Net Neutrality, and Media Content
To enjoy media content, users need an Internet connection. Thus, a user obtains her
consumption utility from jointly consuming both the content and the connectivity ser-
vice. If the user is not using public wi-fi, she typically will have a contract with an ISP.
This ISP offers her download and upload services at a contractually agreed-upon speed.
When content travels from the content provider to the consumer, the provider
accesses the Internet via its ISP. Content is then sent through the Internet to the con-
sumer’s ISP. Traditionally, the content provider makes payments to its ISP. The ISP then
ensures that content is delivered to the consumer’s ISP. The consumer pays her ISP for
the access product. There are no payments from the content provider to the consumer’s
ISP. In addition, all material is treated equally according to the best-effort principle.
Due to the explosion in data volume, a new issue is congestion, which leads to delays
at certain times or to the breakdown of some services. Internet media are part of the con-
gestion issue; according to
Sandvine (2014) , real-time entertainment, which includes
media, constitutes a large fraction of the traffic. For instance, on mobile networks in
Europe, YouTube contributes 20.62% and Facebook 11.04% to downstream traffic;
as reported in
Section 10.2.1, a large fraction of this traffic stems from news accessed
by users. The OECD predicts that video streaming and IP-based television will increase
traffic volumes (
OECD, 2014).
Congestion issues are particularly relevant with mobile access where capacities are
lower, but may also take place on landlines (DSL, cable). Some content providers have
opted for the possibility of bypassing the public Internet and the risk of delay at intercon-
nection points by operating content-delivery networks. Also, some ISPs offer media
products (e.g., TV) that are treated differently from other content. Furthermore, as part
of the net neutrality debate, there is discussion about whether a consumer’s ISP can also
charge on the content-provider side, thus introducing two-sided pricing. In addition,
ISPs may inspect the data that they are handling and decide—based on the characteristics
of the data in question—which type should receive priority treatment (deep packet
inspection). Furthermore, as a number of countries are currently considering, content
providers might self-select into different service classes, as ISPs offer both a slow and a
fast lane. Such tiering would be legal according to the European Commission’s proposal.
Content providers could pay for prioritized access (while the “slow” lane is typically con-
sidered to be free). It has become mostly a political question whether these more flexible
approaches should be allowed.
Proponents of strict net neutrality want to rule out such approaches, forcing ISPs to
obtain all their revenues on the consumer side and not allowing them to deviate from the
best-effort principle, which treats all traffic symmetrically. Critics of strict net neutrality
point out that a one-sided price structure in a two-sided market tends to lead to rents on
one side while reducing rents on the other. In particular, ruling out payments by content
468 Handbook of Media Economics
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