An Economic Analysis of Online Streaming: How the Music Industry Can Generate Revenues from Cloud Computing

44 Pages Posted: 17 Jun 2011

See all articles by Tim Paul Thomes

Tim Paul Thomes

affiliation not provided to SSRN

Date Written: 2011

Abstract

This paper investigates the upcoming business model of online streaming services allowing music consumers either to subscribe to a service which provides free-of-charge access to streaming music and which is funded by advertising, or to pay a monthly flat fee in order to get ad-free access to the content of the service accompanied with additional benefits. By imposing a two-sided market model on the one hand combined with a direct transaction between the streaming service and its flat-rate subscribers on the other hand, the investigation shows that it can be highly profitable to launch a business which is free-of-charge for subscribers if advertising imposes a weak nuisance to music consumers. If this is the case, and by imposing an endogenously determined level of advertising which is provided by homogeneous advertisers, we find that a monopolistic streaming service increases the price for its flat-rate subscribers in order to stimulate free-of-charge demand and to capture higher revenues from advertisers. An extension of the model by illegal file-sharing shows that an increase in copyright enforcement shifts rents from music consumers to the monopolist.

Keywords: Advertising media, Music industry, Online streaming, Piracy

JEL Classification: D42, L12, L82

Suggested Citation

Thomes, Tim Paul, An Economic Analysis of Online Streaming: How the Music Industry Can Generate Revenues from Cloud Computing (2011). ZEW - Centre for European Economic Research Discussion Paper No. 11-039. Available at SSRN: https://ssrn.com/abstract=1866228 or http://dx.doi.org/10.2139/ssrn.1866228

Tim Paul Thomes (Contact Author)

affiliation not provided to SSRN ( email )

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