Choosing a Digital Content Strategy: How Much Should be Free?


International Journal of Research in Marketing

June 2014, vol. 31, n°2, pp.192-206

Departments: Marketing, GREGHEC (CNRS)

Keywords: Information Goods, Sampling, Content Pricing, Advertising, Dorfman- Steiner Condition

This paper studies content strategies for online publishers of digital informationgoods. It examines sampling strategies and compares their performance to paidcontent and free content strategies. A sampling strategy, where some of the contentis offered for free and consumers are charged for access to the rest, is knownas a “metered model” in the newspaper industry. We analyze optimal decisionsconcerning the size of the sample and the price of the paid content when samplingserves the dual purpose of disclosing content quality and generating advertisingrevenue. We show in a reduced-form model how the publisher’s optimal ratio ofadvertising revenue to sales revenue is linked to characteristics of both the contentmarket and the advertising market. We assume that consumers learn about contentquality from the free samples in a Bayesian fashion. Surprisingly, we find that itcan be optimal for the publisher to generate advertising revenue by offering freesamples even when sampling reduces both prior quality expectations and contentdemand. In addition, we show that it can be optimal for the publisher to refrainfrom revealing quality through free samples when advertising effectiveness is lowand content quality is high