Optimal Hybrid Pricing Scheme of Internet Content Providers in a Duopoly Market

By offering both subscription and ad-supported content options, Internet content providers (ICPs) can monetize both sides of the market, generating revenue from subscribers for ad-free content and from advertisers targeting free users. This hybrid revenue model targets two user segments: subscribers and free users in the hybrid pricing scheme. This article investigates the equilibrium pricing strategies of two competing ICPs, examining the impacts of market characteristics, including subscription competition, users’ price sensitivity, advertising intensity, and the standalone-value difference, on users’ content choices and the interaction between subscription and advertising profits. We find that as subscription competition decreases, the ICP offering a greater standalone value can achieve a higher subscription profit by raising its subscription fee, especially when advertising intensity, users’ price sensitivity, and the standalone-value difference are relatively small. However, when the standalone-value difference is significant, the ICP with a lower standalone value can generate a higher subscription profit by raising its subscription fee, as subscribers switch from its rival to the lowerpriced option. In the context of lower subscription competition (or higher users’ price sensitivity), ICPs can reduce their advertising prices as some subscribers convert to free users, leveraging advertiser-side network effects to attract more advertisers and boost their total profits. In contrast, ICPs can raise their advertising prices with higher advertising intensity, while the conversion of free users to subscribers reduces their advertiser demands, particularly under relatively strong advertiser-side network effects, leading ICPs to focus more on the subscription segment.