For most companies, TV remains the primary means of advertising, with commercials accounting for 40% of global advertising spending. However, increasingly, the TV industry is facing fierce competition from new media channels, as well as advances in technology that allow viewers to skip commercials all together. It is therefore imperative for the industry to understand how commercial breaks affect their viewership and hence strategically manage the timing of these breaks.
A recent study by Song Yao, Wenbo Wang, and Yuxin Chen sought to determine how TV viewers make channel-switching decisions during commercial breaks when facing uncertainty over the programming of regular shows and commercials on alternative channels. They also explored the strategic decisions of TV channels regarding the timing of commercial breaks in response to viewers’ switching activity.
The general idea, is that at any given moment, the viewer has uncertainty about the programming on other channels to the one they are watching. To resolve this uncertainty the viewer must change channels. However, this disrupts the watching of the programme and as a result, viewers often refrain from searching. That said, during a commercial break, channel searching does not affect the viewing experience; thus, the break may be a natural opportunity for the viewer to search and switch to alternatives. Subsequently, the timing of commercial breaks is a crucial decision for TV channels, as it directly impacts their advertising revenues.
To construct the empirical model, detailed rating, programme-scheduling, and individual channel-switching data from the Chinese TV market was used. A unique feature of the data is an exogenous policy shock, which dramatically changed the distribution of commercial breaks during programming. During the research period, the Chinese government banned all in-show commercials during episodic TV series. This created a quasi-natural experiment that allowed the authors to observe TV-viewing behaviour before and after the regulations.
From the model created, the study showed that the effects of commercials vary across channels. A viewer watching a channel of low interest is likely to search for alternative channels with higher interest levels during a commercial break because the gain from searching is high. Without a break, the viewer is likely to refrain from searching because it leads to disruption. In contrast, if the viewer is watching a preferred channel, the return from searching for alternative channels is low, even during a break.
Strategically speaking, this means that low-rated channels should synchronize their commercial breaks with high-rated competitors to prevent their own viewers from searching and leaving during the breaks, since other channels will be airing commercials at the same time. High-rated channels, on the other hand, should try to differentiate their breaks from competitors, as they can capture viewers from other channels during the competitors’ breaks. High-rated channel viewers are also less likely to leave during commercial breaks because of the lower expected return of searching.
Not only has the study advanced the literature on consumer TV-viewing behaviour but it also provides TV channels with valuable managerial insights regarding the timing of their commercial breaks.