تجزیه و تحلیل اقتصادی از خدمات پخش موسیقی آنلاین

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.

The past decade has witnessed a sharp increase in the use of unlicensed P2P file sharing networks. As a consequence, the music industry has experienced a severe decline in revenues due to digital piracy. Therefore, opening up new sources of income from digital markets has gained tremendous importance for record companies. Their share of global revenues obtained through digital channels was approximately 29% in 2010 and grew by approximately 6% compared to 2009 (see (IFPI, 2011). In the US, the volume of digital music sales grew from $0.2 billion to $3.1 billion from 2004 to 2009 (see RIAA, 2010). Obviously, the music industry is in the midst of a massive transformation process.1 Although music downloads remain the most important source of digital revenues, up-and-coming streaming music business models have gained ground. Services such as Deezer, Rdio and Simfy have expanded significantly over the past 2 years. Probably the most striking development is that of the digital music database Spotify, which was launched in Sweden in 2008. The service is used by over 10 million subscribers across Europe and is the largest digital retailer in Norway and Sweden. 2Spotify has recently entered two of the most important music markets by launching its business in the US and Germany and has inaugurated a strategic partnership with the social network platform facebook. It concluded agreements with the four major labels and is reported to be their second most important source of digital revenues after Apple’s iTunes. The catalog currently contains over 16 million songs. The underlying concept of streaming services relies on inducing music consumers to listen to streaming music on demand. The most common business model offers two types of services. The first is free of charge and supported by advertising. The second (premium) service charges users a monthly flat-rate fee and provides additional benefits such as unrestricted access to the catalog, offline listening and applications for mobile devices. The IFPI Digital Music Report 2011 calls this business model the ‘two-tier freemium model’. This paper presents a stylized theory of such a two-tier freemium model. It can be argued that due to the uniqueness of these new business models and jurisdictionally determined characteristics, such as the regional legal frameworks, most services are considered monopolists in the provision of music. Thus, this paper investigates a single provider’s strategic decision of whether to launch two vertically differentiated services. The advertising supported service, which can be used at no cost, is of low technical quality, and the charged service is of high technical quality. Users’ attitudes regarding advertising are considered an important determinant of the equilibrium outcome. This leads to an essential feature of this modeling approach that links the negative externality of advertising in a two-sided market with a vertically differentiated product space that is served by a monopolist. The analysis addresses market failures with respect to the level of commercials and the flat-rate price, which stem from the monopolist’s incentive to exploit its market power over advertisers and users. In the current debate on digital piracy and copyright protection issues, streaming music services are often evaluated as legitimate alternatives to illegal P2P file sharing networks. The present analysis enriches this debate and investigates whether streaming music services are effective means of combating piracy. A relevant implication drawn from the analysis is that advertising supported and costless music provision generates high revenues, as users are highly tolerant of commercials. If both types of services are launched, the monopolist charges a high price for the high-quality service to boost demand for the low-quality, advertising supported service. As a consequence, users’ surplus decreases as advertising becomes less of a nuisance. Depending on the nuisance cost of advertising, a socially optimal outcome is derived either by providing all users free access to the high-quality service or closing the high-quality service and providing a positive level of commercials in the low-quality service. Therefore, launching a monopolistic, two-tier freemium model never leads to a socially desirable outcome. If users are highly tolerant of commercials such that only the costless, advertising supported service is launched, the monopolist tends to provide an excessive amount of advertising if there is a sufficient number of potential advertisers in the market. If users are given the opportunity to download unauthorized works from P2P networks at a cost in the form of possible detection, then endogenizing the quality of the advertising supported service shows that digital piracy could be foreclosed given a sufficient level of intellectual property rights protection. The paper contributes to the nascent literature on the music industry’s revenue strategies. One strand of research emphasizes the trend toward the exploration of revenue sources from complementary products and services. This includes ticket sales for live performances and merchandising.3Gayer and Shy (2006) develop such a model and show that the provision of free music, namely piracy, increases an artist’s popularity and therefore bolsters demand for products and services that are complements to the artist’s music. In addition to an increase in the sales of complementary goods, the costless provision of music can have a positive effect on revenues due to sampling. Peitz and Waelbroeck (2005b) develop a model where potential customers are allowed to prescreen the variety of music in which they are interested. Next, they are assumed to be willing to pay for the original material if they find a perfect match between a piece of music and their preferences. Duchêne and Waelbroeck (2006) called this strategy, where listeners expend effort to acquire information about music and then make a purchase decision, an ‘information-pull technology’. In contrast, the aim of this paper is to show that providing music for free generates revenues through advertising and to examine one of the music industry’s most promising attempts to raise revenues.

This paper presented a theory of a streaming music business model. The investigation focused on a monopolist that offers users a two-tier freemium model consisting of two types of services. The first service can be used costlessly, while the second service charges users. Both services are differentiated by quality. The nuisance cost of advertising determines whether the monopolist vertically segments the market or exclusively launches either the free-of-charge or the flat-rate service. If both services are launched, advertising funding is highly profitable, as the nuisance cost of advertising is so low that the monopolist demands a high flat-rate price to stimulate demand for the free and advertising supported service. This results in larger benefits for advertisers, which are then captured by the monopolist at the expense of users. Accordingly, the aggregate benefit received by users and the monopolist’s equilibrium profit diverge as the extent that users find advertising a nuisance decreases. A monopolistic two-tier freemium model that offers both a free-of-charge and a flat-rate service never leads to a socially valuable equilibrium. If the nuisance cost of advertising exceeds the critical value that ensures the concavity of the welfare function in both strategic instruments, a market failure arises because an optimal allocation is only derived if all users are provided free of charge access to the high quality service. Thus, advertising and a positive user charge generate lower social benefits. If the nuisance cost of advertising is small such that no flat-rate service is launched, the advertising level can be either too high or too low depending on the number of advertisers in the market. The fewer the potential advertisers, the lower are the benefits from advertising. Consequently, the analysis demonstrates that the monopolist might then benefit from also charging users. Regarding the debate on the benefits for the music industry, the model is limited to the analysis of the downstream market. Subsequent research might emphasize the production side of the music industry and address the question of whether streaming music businesses sufficiently compensate property right holders such as artists and record labels. Therefore, the impact of streaming music businesses on revenues from more conventional distribution channels, such as music CDs, should be of particular concern. However, the music industry’s most important goal in the digital age has been the mitigation of the damage caused by the unauthorized reproduction of intellectual property. Regarding this debate, endogenizing the quality of the free-of-charge service makes it possible to formulate a model where both types of services, the free-of-charge and the flat-rate service, tackle P2P file sharing networks in a vertically differentiated product space. This allows conclusions to be drawn regarding the optimal intellectual property rights enforcement and the efficiency of the free-of-charge service’s quality scheme in combating digital piracy. In such a model, a monopolist always chooses the highest available quality for the free-of-charge service, and hence digital piracy is foreclosed. Thus, the results from this analysis show that advertising funding may not necessarily lead to low revenues. Moreover, advertising supported music provision is an appropriate policy to combat digital piracy.