Optimal Pricing Model of Digital Music: Subscription, Ownership or Mixed?

Traditionally, consumers purchase physical music (often in the form of CDs 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 digita...

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Bibliographic Details
Published in:Production and operations management 2020-03, Vol.29 (3), p.688-704
Main Authors: Li, Shengli, Luo, Qiuyue, Qiu, Liangfei, Bandyopadhyay, Subhajyoti
Format: Article
Language:English
Subjects:
ad‐sponsored
business model
Consumer behavior
Digital music
digital music pricing models
Ownership
Pricing policies
subscription
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Summary:Traditionally, consumers purchase physical music (often in the form of CDs 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.
ISSN:1059-1478
1937-5956
DOI:10.1111/poms.13131