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An economic analysis of online streaming music services

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  • Thomes, Tim Paul

Abstract

Streaming music services represent the music industry’s greatest prospective source of revenue and are well established among consumers. This paper presents a theory of a streaming music business model consisting of two types of services provided by a monopolist. The first service, which offers access free of charge, is of low quality and financed by advertising. The second service charges its users and is of high quality. The analysis demonstrates that if users are highly tolerant of commercials, the monopolist benefits from advertising funding and hence charges a high price to users of the fee-based service to boost demand for the advertising supported service. The analysis addresses the welfare consequences of such a business model and shows it is an effective policy for combating digital piracy.

Suggested Citation

  • Thomes, Tim Paul, 2013. "An economic analysis of online streaming music services," Information Economics and Policy, Elsevier, vol. 25(2), pages 81-91.
    • Handle: RePEc:eee:iepoli:v:25:y:2013:i:2:p:81-91
    DOI: 10.1016/j.infoecopol.2013.04.001
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    Citations

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    Cited by:

    1. Luis Aguiar & Jörg Claussen & Christian Peukert, 2018. "Catch Me If You Can: Effectiveness and Consequences of Online Copyright Enforcement," Information Systems Research, INFORMS, vol. 29(3), pages 656-678, September.
    2. Gambato, Jacopo & Sandrini, Luca, 2024. "Not as good as it used to be: Do streaming platforms penalize quality?," ZEW Discussion Papers 24-045, ZEW - Leibniz Centre for European Economic Research.
    3. Bazen, Stephen & Bouvard, Laurence & Zimmermann, Jean-Benoît, 2015. "Musicians and the Creative Commons: A survey of artists on Jamendo," Information Economics and Policy, Elsevier, vol. 32(C), pages 65-76.
    4. Youming Liu, 2023. "Competition for Exclusivity and Customer Lock-in: Evidence from Copyright Enforcement in China," Staff Working Papers 23-43, Bank of Canada.
    5. 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.
    6. Sim, Jaeung & Park, Jea Gon & Cho, Daegon & Smith, Michael D. & Jung, Jaemin, 2022. "Bestseller lists and product discovery in the subscription-based market: Evidence from music streaming," Journal of Economic Behavior & Organization, Elsevier, vol. 194(C), pages 550-567.
    7. Marc Bourreau & Germain Gaudin, 2022. "Streaming platform and strategic recommendation bias," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(1), pages 25-47, February.
    8. Pongnumkul, Suchit & Motohashi, Kazuyuki, 2018. "A bipartite fitness model for online music streaming services," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 490(C), pages 1125-1137.
    9. Gambato, Jacopo & Sandrini, Luca, 2023. "Not as good as it used to be: Do streaming platforms penalize quality?," ZEW Discussion Papers 23-032, ZEW - Leibniz Centre for European Economic Research.
    10. Casidy, Riza & Phau, Ian & Lwin, Michael, 2016. "The role of religious leaders on digital piracy attitude and intention," Journal of Retailing and Consumer Services, Elsevier, vol. 32(C), pages 244-252.
    11. Carroni, Elias & Paolini, Dimitri, 2020. "Business models for streaming platforms: Content acquisition, advertising and users," Information Economics and Policy, Elsevier, vol. 52(C).
    12. Tobias Kretschmer & Christian Peukert, 2020. "Video Killed the Radio Star? Online Music Videos and Recorded Music Sales," Information Systems Research, INFORMS, vol. 31(3), pages 776-800, September.
    13. Kim, Jiwhan & Nam, Changi & Ryu, Min Ho, 2017. "What do consumers prefer for music streaming services?: A comparative study between Korea and US," Telecommunications Policy, Elsevier, vol. 41(4), pages 263-272.
    14. Christian Peukert, 2019. "The next wave of digital technological change and the cultural industries," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 43(2), pages 189-210, June.
    15. Hiller R. Scott & Walter Jason M., 2017. "The Rise of Streaming Music and Implications for Music Production," Review of Network Economics, De Gruyter, vol. 16(4), pages 351-385, December.
    16. Daniel Kaimann & Ilka Tanneberg & Joe Cox, 2021. "“I will survive”: Online streaming and the chart survival of music tracks," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 3-20, January.
    17. Zennyo, Yusuke, 2020. "Freemium competition among ad-sponsored platforms," Information Economics and Policy, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    Advertising media; Music industry; Streaming music;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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