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Is your netflix a substitute for your telefunken? Evidence on the dynamics of traditional pay TV and OTT in Latin America

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  • Jung, Juan
  • Melguizo, Ángel

Abstract

Are audiovisual over the top (OTT) services in Latin America substitutes for the traditional Pay TV services (cable or satellite), complementary or independent? To respond to this question, we develop a simple theoretical model based on a CES utility function and estimate simultaneously, using non-linear least squares, demand functions for both audiovisual services. Our results, based on original database covering 17 Latin American countries from 2011 to 2020, suggest no substitution of Pay TV for OTT. However, during the more recent period (2015–2020), we find evidence of gross substitution (i.e., similar enough, although not completely equivalent for consumers) between these audiovisual services. This confirms, although only partially, the existence of the so-called cord-cutting and cord-saving phenomena, due to the expansion of fast internet and the richer OTT offers, and their relatively lower prices. These results suggest regulators should include OTT services in their scope and produce in-depth analysis on the country level to update and optimize regulations, as well as implement regulatory sandboxes to advance towards smart regulation, as shown in the financial industry.

Suggested Citation

  • Jung, Juan & Melguizo, Ángel, 2023. "Is your netflix a substitute for your telefunken? Evidence on the dynamics of traditional pay TV and OTT in Latin America," Telecommunications Policy, Elsevier, vol. 47(1).
    • Handle: RePEc:eee:telpol:v:47:y:2023:i:1:s0308596122000994
    DOI: 10.1016/j.telpol.2022.102397
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    References listed on IDEAS

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    1. Juan Jung & Angel Melguizo, 2022. "Rules, institutions, or both? Estimating the drivers of telecommunication investment in Latin America," Journal of Cyber Policy, Taylor & Francis Journals, vol. 7(1), pages 5-23, January.
    2. Fudurić, Morana & Malthouse, Edward C. & Viswanathan, Vijay, 2018. "Keep it, shave it, cut it: A closer look into consumers’ video viewing behavior," Business Horizons, Elsevier, vol. 61(1), pages 85-93.
    3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    4. Jeffrey Prince & Shane Greenstein, 2017. "Measuring Consumer Preferences for Video Content Provision via Cord‐Cutting Behavior," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(2), pages 293-317, June.
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    Cited by:

    1. Park, Sungwook & Kwon, Youngsun, 2023. "The Content Genre, Audience Share, and Presence of Public Sector Broadcasters in an Era of Overflowing OTT Services," 32nd European Regional ITS Conference, Madrid 2023: Realising the digital decade in the European Union – Easier said than done? 278115, International Telecommunications Society (ITS).

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    More about this item

    Keywords

    Audiovisual market; OTT; Pay TV; Cord-cutting; Latin America;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • N86 - Economic History - - Micro-Business History - - - Latin America; Caribbean

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