Advertising-Sponsored or Freemium Strategy for Media Platforms in the Context of Consumer Advertising Aversion

The continued development of media platforms has given rise to alternative revenue models. Unlike the advertising-sponsored strategy, under which a media platform earns revenue exclusively from advertisers, the freemium strategy enables the platform to generate revenue from both consumers and advertisers by offering a paid ad-free subscription tier and a free ad-supported tier. This study develops a game-theoretic framework to compare these two revenue models while incorporating content quality into the analysis. We find that the platform adopts the freemium strategy when consumers’ price sensitivity is low, but prefers the advertising-sponsored strategy when price sensitivity is high. With respect to content provision, the freemium strategy does not necessarily lead to greater investment in content quality. Although subscriptions broaden the platform’s revenue sources, content quality exceeds that under the advertising-sponsored strategy only when the freemium strategy yields a sufficiently large profit advantage. From the advertiser’s perspective, the freemium strategy does not necessarily reduce profit. In particular, advertiser profit under the freemium strategy first decreases and then increases as consumers’ price sensitivity rises. When price sensitivity is low, it even exceeds that under the advertising-sponsored strategy. In terms of joint outcomes, the freemium strategy can increase profits for both the platform and the advertiser when consumers’ price sensitivity is low.