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Fee or Free: When Should Firms Charge for Online Content?

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  • Anja Lambrecht

    (London Business School, London NW1 4SA, United Kingdom)

  • Kanishka Misra

    (Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

Abstract

Many online content providers aim to compensate for a loss in advertising revenues by charging consumers for access to content. However, such a choice is not straightforward because subscription fees typically deter customers, and a resulting decline in viewership further reduces advertising revenues. This research examines whether firms that offer both free and paid content can benefit from adjusting the amount of content offered for free. We find that firms should offer more free—and not paid—content in periods of high demand. We motivate theoretically that this policy, which we term “countercyclical offering,” may be optimal for firms when consumers are heterogeneous in their valuation of online content and this heterogeneity varies over time. Using unique data from an online content provider, we then provide empirical evidence that firms indeed engage in countercyclical offering and increase the share of free content in periods of high demand.

Suggested Citation

  • Anja Lambrecht & Kanishka Misra, 2017. "Fee or Free: When Should Firms Charge for Online Content?," Management Science, INFORMS, vol. 63(4), pages 1150-1165, April.
    • Handle: RePEc:inm:ormnsc:v:63:y:2017:i:4:p:1150-1165
    DOI: 10.1287/mnsc.2015.2383
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    References listed on IDEAS

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    Cited by:

    1. Shijie Lu & Koushyar Rajavi & Isaac Dinner, 2021. "The Effect of Over-the-Top Media Services on Piracy Search: Evidence from a Natural Experiment," Marketing Science, INFORMS, vol. 40(3), pages 548-568, May.
    2. Chutian Wang & Bo Zhou & Yogesh V. Joshi, 2024. "Endogenous Consumption and Metered Paywalls," Marketing Science, INFORMS, vol. 43(1), pages 158-177, January.
    3. Adithya Pattabhiramaiah & Eric Overby & Lizhen Xu, 2022. "Spillovers from Online Engagement: How a Newspaper Subscriber’s Activation of Digital Paywall Access Affects Her Retention and Subscription Revenue," Management Science, INFORMS, vol. 68(5), pages 3528-3548, May.
    4. Robert Rußell & Benedikt Berger & Lucas Stich & Thomas Hess & Martin Spann, 2020. "Monetizing Online Content: Digital Paywall Design and Configuration," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 62(3), pages 253-260, June.
    5. Kristian López Vargas & Julian Runge & Ruizhi Zhang, 2022. "Algorithmic Assortative Matching on a Digital Social Medium," Information Systems Research, INFORMS, vol. 33(4), pages 1138-1156, December.
    6. Vilma Todri, 2022. "Frontiers: The Impact of Ad-Blockers on Online Consumer Behavior," Marketing Science, INFORMS, vol. 41(1), pages 7-18, January.
    7. Inyoung Chae & Jihyeon Ha & David A. Schweidel, 2023. "Paywall Suspensions and Digital News Subscriptions," Marketing Science, INFORMS, vol. 42(4), pages 729-745, July.
    8. Hong Huo & Quanxi Li, 2022. "Influencing Factors of the Continuous Use of a Knowledge Payment Platform—Fuzzy-Set Qualitative Comparative Analysis Based on Triadic Reciprocal Determinism," Sustainability, MDPI, vol. 14(6), pages 1-15, March.
    9. Hongshuang (Alice) Li, 2022. "Converting free users to paid subscribers in the SaaS context: The impact of marketing touchpoints, message content, and usage," Production and Operations Management, Production and Operations Management Society, vol. 31(5), pages 2185-2203, May.
    10. Shunyao Yan & Klaus M. Miller & Bernd Skiera, 2020. "How Does the Adoption of Ad Blockers Affect News Consumption?," Papers 2005.06840, arXiv.org, revised Aug 2021.
    11. Li, Xin & Balasubramanian, Hari & Chen, Yan & Pang, Chuan, 2024. "Managing conflicting revenue streams from advertisers and subscribers for online platforms," European Journal of Operational Research, Elsevier, vol. 314(1), pages 241-254.

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