Can content providers charge fees for online content?: A two-sided market approach
Abstract
The first essay examines whether online companies can charge fees for online content. We investigate this issue for an online gaming company which decided to move from free subscription to paid subscription. In essence, this company decided the optimal strategy in a two-sided market where it collects revenue from advertisers and from subscribers. The demand model is a random coefficient logit system and the supply model is a forward looking system. The company makes its decision based on the demand that it observes, i.e., the demand model is estimated first and then the demand parameters are used to project the market in the supply model. This study finds that the online gaming content is an area where consumers are willing to purchase. If the advertising revenue is insufficient, the company is better off by being a paid subscription provider, on the other hand the company should remain a free subscription provider if the advertising revenue is sufficiently high. The advertising revenue level for this threshold point is about $0.60 per week by a subscriber. In a paid subscription system, paid subscribers value paid subscribers for gaming activities and free subscribers value free subscribers for communities and sharing of information. Therefore, it is important to have a good gaming offering for the paid subscribers and good non-gaming offerings for the free subscribers. The second essay examines tradeoff between the benefits of long term commitment and the uncertainty of short term commitment. We study an online company that offered various subscription terms that had different commitment lengths. We use the two-stage estimation of the discrete-continuous choice model to investigate this issue. The discrete choice was whether or not the subscriber purchased subscription plans or gaming items and the continuous choice was the number of purchases for these gaming items. We notice that the two mid-term commitments do not have preferable values over the shorter or longer commitment plans. Thus, the subscribers for our focal online content do not seem to take advantage of the long term contracts. Although there are no price advantages for longer commitment lengths, the usage of gaming items show similar decreasing purchase patterns since the initial purchase among commitment lengths. The heterogeneity variables show significance for the subscription plans but show no significance for subscription length, i.e., the company is not correctly segmenting the subscribers. Therefore, the tradeoff between long term vs. short term commitment does not seem to be aligned for both gaming item usage and subscription length of subscribers.
Degree
Ph.D.
Advisors
Kalwani, Purdue University.
Subject Area
Marketing|Web Studies
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