Analysis on Switching Cost Versus Bundling Price Under Consumer Adoption for Choosing Smart TV Over Pay TV

Posted: 28 Mar 2014

Date Written: March 28, 2014


The emergence of smart TV device encourages the reconsideration of the customer’s subscription on the pay TV so that the phenomenon of cord-cutting evokes the other dimension of MVPD (Multi-Channel Video Programming Distribution) industry itself. Two major paths to adopt the new platform in MVPD market cover the switching cost and effect for the new platform such as smart TV and restrain the discount price by bundling triple-play which is one provision over a single broadband connection of two bandwidth-intensive services such as high-speed Internet access and television, and the latency-sensitive telephone.

The research question over this SEM model exhibits that rate of customer subscription affects with more attention from demand-pull phenomenon by the high switching cost versus bundling price for multiple play service. The hypothesis investigates the incentive mechanism has positive effect from the discount rate by tying the product bundling within MVPD service provision.

Shapiro and Varian (1998) examine some of the business strategy implications of switching costs at a lay reader level. The switching cost results in the lock-in effect and takes scale economies of demand side. Farrell and Shapiro (1989) mention that once they are locked in, they can be a substantial source of profit whether it is substation or not. Also customer left the current service due to that cost. The prerequisite for switching cost investigate the product complexity (Gatignon and Robertson, 1992; Klemperer, 1995), heterogeneity of supplier in market (Schmalensee, 1982), the product diversity from the supplier side (Blattberg and Deighton, 1996; Klemperer, 1995; Ram and Jung,1990), the level of modification in consideration of customer demand (Bhardawaj et al.,1993), the experience of alternatives (Bhattachary et al., 1995), the experience of switching choice (Bhattacharya et al., 1995; Nilssen, 1992), and time limitation of selection pressure or individual characteristic of risk aversion (Jackson, 1985) could be the factor to reorganization of switching cost by customer. Previous literature tries to explore the path and find out the factors which effect on the customer’s switching behavior.

In terms of previous finding, this study categorizes the major factors by adoption of smart TV over Pay TV consist of four dimensions; the economic factor, technology driven factor, content variety factor and characteristic factor by individual customer. The most important measurement factor by adoption of new platform service can be the economic factor; switching cost and bundling price directly and indirectly.

The survey data is conducted by KISDI (Korea Information Society Development Institute) from 2010 to 2013. Recent panel data have 10,000 individual subscribers and 4,000 household with subscription fee of MVPD and the adoption of smart TV device by household. The data indicate the personal characteristics of using information goods and how various they adopt the media content, how often they spend the time with smart device, and total amount of time. From the technology push driven can predict the TV everywhere market in the pay TV and Smart device market.

The result highlights the insight to predict current trend of new device platform as well as the adoption of customer purchase and adoption within the price scheme. This finding is appropriate the telecommunication firms’ new business model target is for bundling discount price scheme or lower switching device cost. This structural model analyzes how they interact between the indirect and direct path for the adoption. Also it is being developed and tested the current cord-cutting phenomenon. This conclusion activates the government support system for technology push trend within the demand pull as well. The creation of ecosystem in smart TV over Pay TV meets the customer’s satisfaction.

Keywords: Pay TV market, Switching cost, Bundling price, Smart TV, Structural Equation Modeling

JEL Classification: L22, L82

Suggested Citation

Hong, Ahreum, Analysis on Switching Cost Versus Bundling Price Under Consumer Adoption for Choosing Smart TV Over Pay TV (March 28, 2014). Available at SSRN:

Ahreum Hong (Contact Author)

Seoul National University ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

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