Content acquisition by streaming platforms: premium vs. freemium

Elias Carroni and Dimitri Paolini

No 2017007, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We analyze the optimal decision of a monopolistic streaming platform. The platform obtains contents from copyright owners (artists) who are paid with a per-user royalty. Advertisers pay a per-user fee to display their commercials. Users value the variety of contents and are heterogeneously bothered by ads. We show that when commercials generate an intermediate nuisance and the size of the potential market is large, the platform finds it optimal to offer only a paying subscription without displaying any ads. In contrast, a small potential market results in the offer of a menu of subscriptions, with ad-intolerant users paying a positive price and moderately-averse users opting for a free-of-charge solution. The second (first) solution is always preferred when commercials generate a strong (weak) nuisance. We also show that there may emerge a misalignment of the platform’s and artists’ interests.

Date: 2017-03-01
New Economics Papers: this item is included in nep-com, nep-mic and nep-pay
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