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Content acquisition by streaming platforms: premium vs. freemium

Author

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  • CARRONI Elias

    (Universita di Bologna)

  • PAOLINI Dimitri

    (Universita di Sassari, CRENoS and CORE, UCL)

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.

Suggested Citation

  • CARRONI Elias & PAOLINI Dimitri, 2017. "Content acquisition by streaming platforms: premium vs. freemium," LIDAM Discussion Papers CORE 2017007, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2017007
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2017.html
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    Cited by:

    1. Ramadan Aly-Tovar & Maya Bacache-Beauvallet & Marc Bourreau & Francois Moreau, 2020. "Why would artists favor free streaming?," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 44(2), pages 255-280, June.
    2. Elias Carroni, 2018. "Behaviour-based price discrimination with cross-group externalities," Journal of Economics, Springer, vol. 125(2), pages 137-157, October.
    3. Zennyo, Yusuke, 2020. "Freemium competition among ad-sponsored platforms," Information Economics and Policy, Elsevier, vol. 50(C).

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