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There is no doubt that streaming content services add great value to the internet ecosystem but how the investment to enable these services and the arising revenue should be split is a persistent dilemma (Stocker & Knieps 2021). The purpose of this paper is to investigate, in a discrete model, the effect on the broadband market when an over-the-top subscription content product is introduced. Does it necessarily increase or decrease profitability of the broadband product when it (a) boosts the utility of broadband but (b) imposes additional costs to deliver the broadband service? The short answer is – it depends. We introduce a model with a small number of consumers to show how the outcomes depend on the structure of the consumer valuations. The different scenarios that we choose to illustrate this, demonstrate that in many cases the broadband and content providers can jointly benefit from coordination on how the content product is priced. This coordination might involve a financial consideration, of course. This is in contrast with the case where the broadband provider attempts to unilaterally reprice its product to reflect the increased cost of delivering the content product – which is not always possible |
