Collaboration and Competition in Media Markets: The Strategic Interaction among Publishers and the News Aggregator

Abstract

News aggregators, such as Google News and Apple News, are posing an existential threat to news publishers. This paper examines on how a competing publisher should react to the entry of a news aggregator: (1) Should the publisher join the aggregator, (2) What content, if any, should the publisher share with the aggregator, and (3) How should the publisher modify its price structure in reaction to the news aggregator. We address these questions using a duopoly model where each publisher offers two articles on two diverse topics. First, we find that in the absence a news aggregator, inter-publisher competition is high because of publishers’ inability to unbundle their articles. Second, joining a free aggregator becomes attractive to the publishers only when the aggregator generates new traffic. Then, depending on the advertising revenue accruing from each consumer eyeball, publishers let the aggregator access a) articles on different topics, in which case both inter-publisher and publisher-aggregator competitions coexist, or b) articles of the same topic in which case inter-publisher competition is fully eliminated. Third, if the aggregator permits publishers to collect micropayments, both publishers join the aggregator but offer qualitatively different content. Even in the absence of additional traffic, publishers find it profitable to join a free aggregator that permits micropayments because such an aggregator enables publishers to unbundle their articles, soften inter-publisher competition, raise subscription prices and engage in price discrimination. Lastly, even a powerful aggregator that dictates the terms of the revenue-sharing arrangement with the publishers, earns positive profits without hurting the publishers’ surplus.