Dear Economist

Commercial breakdown

Dear Economist,

During the World Cup, I was struck that everyone I know prefers the BBC’s football coverage to ITV’s, because the BBC carries no commercials. Yet ITV continues to win the rights to cover international matches. Assuming this is the majority view, is it a market failure that customers’ preferences are not coming first – and what can we do about it?

Suman Ziaullah, by email

Dear Suman,

No doubt you would prefer advertisers to subsidise your viewing without you going to the bother of watching their advertisements. I am afraid this is how the world works, although as other couch-potatoes watch the commercials, you can free-ride on that subsidy and pick up a good novel whenever the ads for cars come on.

The market failure, in fact, is not the one you think. The real problem is that television broadcasting is imperfectly competitive. In an ideal world you would be able to choose between thousands of perfectly tailored packages of programmes, pay as you watched, and also be able to accept a discount in exchange for sitting through the advertisements.

You may have boundless choices when it comes to choosing a restaurant meal or a book, but television broadcasters have to offer more standardised packages. You must simply accept whatever package comes closest to what you would prefer, even if the BBC’s top pundits are not part of it…

Continued on ft.com

29th of July, 2006Dear Economist • Comments off