Just a pointed to an interesting new paper by Anja Lambrecht and Kanishka Misra who examine ESPN’s online paywall.
Plummeting advertising revenues have lead many online content providers to experiment with additional sources of revenues. Most often, firms aim to compensate for a loss in advertising revenues by charging consumers for access to online content. However, such a choice is not straightforward since subscription fees typically deter customers, further reducing advertising revenues. As of yet, academic research offers little guidance on whether firms indeed benefit from charging for content and, in particular how firms should optimally implement such a “fee” model.
In this research, we examine whether and how firms should charge for access to online content. We build a unique data set from the sports website ESPN.com to empirically study this question. ESPN.com offers the majority of content for free but charges a membership fee for a subset of articles. We collect data on the number of free and paid articles per day and sport, as well as demand for each type of article per day and sport over a 13 months period.
We estimate how the number of free and paid articles affects viewership of the site and empirically quantify a firm’s trade-off between advertising and subscription revenues. Our approach controls for a wide range of demand shifters and possible endogeneity of the number of articles the firm offers on any day. We find that, on average, the firm should not adjust the amount of paid content. However, we find strong differences across sports’ seasons: the marginal paid article increases revenue in the off season but decreases revenue in regular season. Our results suggest that this variation over time is largely due to a change in the number and type of unique visitors to the site. A more general implication of our finding is that firms can increase revenue by flexibly adjusting the amount of content they offer against a fee instead of setting a static paywall as most often is the case.
I’d be a little more cautious about this conclusion than the authors have been. Their notion is to provide more free content in season than off-season. However, this is based on a marginal analysis and I wonder how many readers at ESPN.com make marginal decisions. An alternative is that they alter their entire consumption over the course of the year. Thus, they are not selecting articles at the margin at all. That said, this may be a rationale for a more extreme adjustable paywall that goes free on-season and paid off-season. However, this may be infeasible and may also provide insight as to why sites don’t like varying content as part of providing a partial paywall.