Fee or free: When should firms charge for online content?

摘要

With the increase in online advertising revenues, the future of the news industry depends on monetizing online content. However, charging for online content is difficult as paywalls decrease viewership resulting in lowered advertising revenues. High demand consumers will subscribe and thus generate advertising and subscription revenues and vice versa. Moreover, a pricing policy works if consumer valuations stay constant over time or if the ratio of valuations of low and high demand consumers remains. Thus subscription and advertising revenues means that charging for all content rarely benefits firms and has led many to try and combine both revenue streams. The demand also seems to differ in terms of news offered such as sports, politics or weather, for example. The article provides a theoretical motivation for an online content provider's choice of revenue model, accounting for both advertising revenues and subscription revenues from yearly contracts. It can be optimal for a firm to charge for content during periods of low demand but offer content free of charge during periods of high demand, a strategy that is termed as countercyclical offering. The key characteristics of demand are that consumers have heterogeneous valuations, where valuations vary across time and across consumers. The results were tested using unique data from the online sports website ESPN.com, which offers the majority of its content for free but charges a fee for access to a subset of articles. Results showed that the firm indeed counter cyclically adjusts its offering. (31 refs.)