Charging readers for online content during periods of low demand, and providing more content for free during periods of high demand, feels counter-intuitive but could actually be more profitable, according to new research co-authored by a London Business School expert.
Anja Lambrecht, Associate Professor of Marketing, London Business School, and Kanishka Misra, Assistant Professor of Marketing, University of Michigan’s Ross School of Business, argue that when a firm earns both subscription and advertising revenues it may be optimal to offer free content during periods of high demand – when a site has a large audience – and to offer less free content during periods of low demand.
“Classic economic theory suggests that increasing prices during periods of high demand should be the most profitable approach to charging for online content,” says Dr Lambrecht. “In reality, however, this may not be the case.
“Providing more free content when there is more demand may feel counter-intuitive, but it can actually help balance the trade-off between subscription and advertising revenues.”
Research co-authored by the pair explains that the demand for news varies substantially throughout the year – it is highly cyclical. In business, the cycles are quarterly as they relate to earnings reports; in politics the cycles are four-yearly to coincide with the US Presidential elections; in sport, demand is unequivocally higher when it is ‘in season.’
“It relies on the fact that when demand for content is high, for example when a sport is in season, there is a large audience willing to visit the site though still unwilling to pay for content. This presents a window of opportunity for businesses to generate more advertising revenue, rather than subscription revenue, thanks to high viewership.”
In fact, the number of unique visitors to relevant websites more than doubles when a sport is in season, that is the time period when games are played. By contrast, when a sport is not in season the number of unique visitors to a website drops by about 50 per cent.