Optimal operational mode for the digital content platform considering freemium strategies and content acquisition

With the growing prevalence of the “paying does not mean ad-free” phenomenon, the interplay between freemium strategies and content acquisition agreements in platform operations remains underexplored. We develop a game-theoretic model of a digital content platform, a content provider, and consumers heterogeneous in content accessibility and ad aversion. We systematically compare the equilibrium outcomes and economic performance of supply chain participants across four operating modes arising from the interplay between freemium strategies (NM with ads for paying consumers vs. HL without ads for paying consumers) and content acquisition agreements (buyout vs. revenue-sharing). We show that the proportion of content accessible to non-paying consumers has a non-monotonic influence on both advertising intensity and the subscription price. Interestingly, moderately relaxing content access restrictions can enhance platform profitability, challenging the conventional belief that stricter content limitations necessarily lead to better outcomes. Further, we reveal that under the revenue-sharing agreement, the digital content platform sets a higher advertising intensity and subscription price. However, when the unit copyright fee is moderate, the buyout agreement enables both the platform and content provider to achieve a win-win outcome. In addition, the proportion of consumers with a high aversion to advertising plays a decisive role in determining the platform’s optimal freemium strategy. Our paper highlights that an ads-included membership freemium strategy, although controversial in practice, can be theoretically optimal and provides insights into the coordinated optimization of digital content supply chains in complex markets.