How Much Does Ad Sequence Matter? Economic Implications of Consumer Zapping and the Zapping-Induced Externality in the Television Advertising Market

Abstract

It is well documented that TV viewers avoid advertisements by switching channels during commercial breaks (“zapping”). Ads with lower audience retention ability lead to more consumer zapping. Given that several ads are sequentially broadcast during a commercial break, an ad with a low retention rate will negatively affect the viewership of subsequent ads by decreasing their opportunities to be exposed to viewers. In this case, the ad imposes a negative externality on subsequent ads in the same commercial break. This externality is typically not priced in the TV advertising market; however, it may substantially affect the TV network’s profit. Based on a large and rich data set on TV viewing and advertising, we build a comprehensive model of consumer zapping and conduct various simulation studies to quantify the impact of the zapping-induced externality on the network’s revenue. Results show that our focal network may increase gross revenue up to 19.38% by reordering ads during a commercial break so that the negative impact of this externality is minimized.

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