|Title:||An economic analysis of online streaming music services|
|Author(s):||Thomes, T. P.|
|Citation:||Thomes, Tim Paul. An economic analysis of online streaming music services. Information Economics and Policy 25.2 (2013): 81-91.|
|Link(s):||Definitive , Open Access|
|Key Related Studies:|
|About the Data|
|Data Description:||This study analyses the usage of two types of streaming music service: a free-to-use model with advertising and a premium subscription model. The study uses sales data from 2009 to 2011 from the International Federation of Phonographic Industries to assess the effects of the music streaming service models on music piracy.|
|Data Type:||Secondary data|
|Secondary Data Sources:|
|Data Collection Methods:|
|Data Analysis Methods:|
|Cross Country Study?:||Yes|
|Government or policy study?:||No|
|Time Period(s) of Collection:||
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.
Main Results of the Study
- This paper examines a monopolistic streaming music business model with two vertically differentiated types of services.
- The low-quality service offers free access and is advertising based, while the high-quality service is fee based.
- High tolerance of advertising benefits the monopolist and harms users.
- Launching both types of services never leads to a socially desirable outcome.
- Such a streaming music business model may be an effective means to combat digital piracy.
Policy Implications as Stated By Author
- Streaming music services such as the 'two-tier fremium' model can act as effective mitigation of digital piracy.
- A successful streaming service is likely to have a monopoly or near-monopoly but the provision of different services to different consumer markets by vertically bisecting the service (into free and advertising supported and high quality advertising free subscription models) means that there is still a choice for the consumer.
Coverage of Study
|Level of aggregation:||Music streaming services|
|Period of material under study:||2009-2011|