Competition for Content in Distribution Markets With Locked-in Customers

Abstract

We study competition for content rights in the presence of locked-in customers in the distribution market. The literature shows that when the content provider's revenue stems only from the lump-sum fee(s) collected from the distributors, the content provider never multihomes. We show that this result does not hold if the mass of locked-in customers in the distribution market is sufficiently high. When exclusivity occurs, the content provider sells high quality content to the larger distributor and low quality content to the smaller distributor (as long as the market split is not too asymmetric). Finally, we show that competition over content access can reduce the value of having a large customer base and therefore distributors do not necessarily benefit from a large customer base.

Keywords: Distribution of Content, Exclusivity, Switching Costs, Consumer Lock-In, Customer Base

JEL Classification: D43, L11, L14