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Revenue Sharing and Subscription Platforms for Digital Content Distribution

We analyze distribution decisions by content creators for digital information goods like books and music. There are two creators (low and high quality) that sell content through the same platform, and may choose whether to distribute their content a la carte, via a subscription service, or both. Each creator may set the price of her a la carte offerings, while the platform keeps a percentage of revenue from each sale. The platform determines the subscription service fee and what fraction of revenue to distribute to content creators, who are paid proportional to the revenue share chosen by the platform and the percentage of total “use” that they generate on the subscription service (e.g., their fraction of total pages read in a month). We show the platform cannot induce only the high quality creator to list on the subscription service; thus, subscription offerings are always weakly lower in quality than a la carte offerings. Moreover, we find that in many cases, to maximize profit, the platform should either induce only the low quality creator to sell via subscription, or it should shut down a la carte sales altogether; inducing high quality on the subscription service is excessively costly, a result which may help to explain the relative low quality of product offerings on these services in practice. We also show that this effect can be mitigated — and inducing high quality on the subscription service can be optimal for the platform — in the presence of a large “subscription only” consumer segment.