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Optimal Pricing Model of Digital Music: Subscription, Ownership or Mixed?
Author(s) -
Li Shengli,
Luo Qiuyue,
Qiu Liangfei,
Bandyopadhyay Subhajyoti
Publication year - 2020
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/poms.13131
Subject(s) - stylized fact , digital audio , music industry , the internet , reservation , advertising , revenue , pricing strategies , value (mathematics) , business , service (business) , computer science , marketing , telecommunications , economics , world wide web , music education , art , computer network , speech coding , accounting , machine learning , visual arts , macroeconomics , audio signal
Traditionally, consumers purchase physical music (often in the form of CD s or cassettes) from local retailers. With the development of Internet technology, the market share of digital music has grown rapidly in recent years. Unlike physical music, digital music is provided by several emerging digital music providers through the Internet to consumers. Pricing models of digital music are also drastically different from those of physical music. In this study, we identify three common schemes for selling digital music: ownership, subscription and mixed pricing models. Under the ownership model, consumers purchase and download their preferred songs and enjoy music using their local devices. Under the subscription model, music is provided through an online streaming service. The mixed pricing model is a combination of the previous two. Our paper explores and compares the three pricing models. Through a stylized model, we find that several factors, including the advertisement revenue rate and consumers’ reservation value for the music service, have crucial effects on the comparison of the three pricing models.