Fighting Free with Free: Freemium vs. Piracy
42 Pages Posted: 5 Aug 2014 Last revised: 2 Dec 2014
Date Written: November 29, 2014
Abstract
In this article, we show how new online music streaming services such as Spotify and Deezer can deter piracy. These new services monetize large audiences with low willingness to pay for music. We analyze a simple freemium model in which a firm offers both a free version and a premium version. The firm can restrict the use of the free version. Consumers can choose between the free and the premium version, but can also get a digital copy. More restrictions can increase the number of premium users but diverts other users to piracy. On the contrary, fewer restrictions deter online piracy. We therefore challenge the idea that without strong copyright laws, there is no market for online music. We also argue that there are market solutions to fight free with free that better segment consumers audiences according to their willingness to pay for digital music.
Keywords: Online piracy, versioning, freemium, streaming, copyright, music
JEL Classification: L12, L82, L86, O34
Suggested Citation: Suggested Citation
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