Pricing and Investment for Online TV Content Platforms

Online television (TV) market has been expanding rapidly over the last few years and provided TV studios with a cost-effective and reliable channel for the delivery of high-quality TV content. To maximize profit by setting up an online TV content platform, two major challenges are faced by the platform owner: what is the optimal investment (e.g., how many hosting servers, bandwidth acquisition) and how to price TV content producers who utilize the platform as a channel to distribute their content. To address these two challenges, we first derive the optimal pricing policy based on the widely-adopted “pay-per-usage” model, and then formalize and solve the optimal investment decision problem. Rationality of self-interested TV content producers and audiences is also taken into account. Specifically, we first use a model with a representative content viewer to determine how many times a TV content with a certain quality is watched. Then, by modeling the content providers as self-interested agents making independent production decisions, we show that for any price charged by the platform, there always exists a unique equilibrium in the content production stage, which makes it possible for the platform owner to maximize its profit without uncertainties because of the unique outcome in the content producers´ decision stage. Finally, we develop an algorithm to derive the optimal price and then formalize the investment decision problem to maximize the platform´s profit.