Estimating the Substitutability Between OTT Services and Traditional Broadcasting Media

This study examines consumer preferences for over-the-top (OTT) services and traditional broadcasting media (TV) to provide a novel way to derive substitutability between the two services. With a nested CES utility function specification, we derive demand functions for OTT and TV in terms of the time spent on the media and quantity used, and estimate the parameters using Korea Media Panel data. The resulting elasticity of substitution between OTT and TV was estimated at approximately 1.174. Next, we show that the two goods are gross substitutes, and provide policy implications from the perspective of two-sidedness and advertising revenue.