Online Content: Fee for Free?
Should online content be free or behind a paywall? Prof. Kanishka Misra’s research shows an optimal way to manage content.
ANN ARBOR, Mich. — Online content providers constantly grapple with how much to offer for free and how much to charge.
Pile on too many fees for content, and customers disappear and ad revenue declines. Give away too much, and you could miss out on subscriber revenue. Customers have been known to flee websites in droves over even the slightest of fees.
New research from U-M Ross Professor Kanishka Misra provides some guidance on how to better manage that tradeoff. In the paper "Pricing Online Content: Fee or Free?", he and co-author Anja Lambrecht of the London Business School empirically examine the tradeoff between paid articles and revenues. The authors note initially that firms have experimented with revenue models that range from giving away all content, charging for all content, and mixing free and paid content in various configurations.
"The industry norm is to follow a static rule regarding free content," Misra says. "But we find variation in demand. That suggests implementing a dynamic policy, where a provider adjusts the amount of paid content depending on circumstances. That way, media firms might be able to leverage 'digital' to their advantage."
To study this issue, Misra and Lambrecht built and analyzed a unique dataset from the sports news website ESPN.com. The website offers a large amount of free content, but also a subset of articles behind a paywall.
The dataset includes the number of free and paid articles offered every day as well as the unique visitors and page views for the free and paid sections. They focused their attention on six sports — college basketball and football, and professional baseball, basketball, football and hockey. The authors used the data to quantify the impact of the number of paid articles on the increase in the number of subscribers and the decrease in total page views. They then evaluated whether ESPN would benefit from adding an additional paid article.
They found interesting variations across seasons even though, on average, ESPN.com has about the right mix of free and paid content. The data show that audiences and the content they value vary depending on whether a sport is in its playing season or the off-season.
"It may seem counterintuitive, but ESPN.com can realize greater revenue from offering more paid content in the off-season and less during the regular season," Misra says.
That's because customers in the off-season are more die-hard fans who put a higher value on news and are willing to pay for content. The site may have more visitors during the regular season, which increases advertising revenue, but these individuals seem to value the paid content less and so are less willing to view it.
The important implication for managers is that firms should consider how the willingness to pay for their content can fluctuate as they evaluate whether to charge for it.
For example, the New York Times and the Wall Street Journal both lifted their paywalls during the 2012 election. Part of the reason, no doubt, was to give more readers access to election news. But, Misra says, "they might also have concluded that the additional advertising revenue from the sudden influx of non-subscribing customers would outweigh any loss in subscription income."
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