Recent research examines a number of different revenue models where the dynamic nature of advertising levels and subscription fees is variable.  Social networking website Classmates.com demonstrates that the “the membership fees pay for the costs of maintaining the site and for marketing, while the ad revenue brings in the profits” (Conrads qtd. in Kumar; Sethi, p. 925, 2008). Our research confirms that the most beneficial strategy for all parties involved in online distribution of television is a dynamic hybrid revenue model involving a fixed subscription fee and variable advertising levels. Kumar and Sethi conclude that “[t]he content provider may want to build the customer base by keeping the ad level low in the initial periods and then capitalize on the large customer base by increasing the ad level in later periods” (p. 942, 2008).

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A dynamic model can also suit the advertising policy of a subscription service itself. For services such that consumer interest rate is low, “advertising heavily early on to help build a large base of consumer adopters” is suggested (Mesak; Bari; Babin; Birou; Jurus, p. 646, 2010). As positive word-of mouth increases between consumers and they learn how to best utilise service technology, spending on subscription advertising can be reduced. Similar to the hybrid model above, high consumer interest rates call for low advertising spending in introductory periods before “increasing ad spending monotonically… as market acceptance of the new service becomes increasingly certain” (ibid.). Finally, “in the presence of customers’ disadoption”, level of advertising can become more fluid with the ebb and flow of subscription numbers (ibid.).

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Under a subscription/advertising hybrid revenue model, advertisements promoting the content provider’s service or a third party’s products can be placed at a number of locations. DAL-like online space that iTV advertisements offer are technically available for use in other forms of advertising – particularly as, as mentioned in the ‘Borrowing from Broadcast’ section, the option of a second tab or window is possible whilst browsing online. Advertisements could also be viewed via a second screen – the likes of which can be seen on  smartphones and tablets, such as the iPhone and iPad respectively. These products could house official subscription service apps that feature additional information on a number of the content provider’s programs, as well as sponsored advertisements from third parties.

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REFERENCES:

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Kumar, S; Sethi, S. 'Dynamic pricing and advertising for web content providers​​' in European Journal of Operational Research, 2008, p.924-944

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Mesak, H; Bari, A; Babin, B; Birou, L; Jurkus, A. 'Optimum advertising policy over time for subscriber service innovations in the presence of service cost learning and customers’ disadoption' in European Journal of Operational Research, 2010, p.642-649