Quantity and Quality in a Video On-Demand Service

Abstract

Entertainment television today is being increasingly consumed via online video on demand (VOD) services. A VOD service is less constrained compared to the traditional (linear) TV in terms of the number of programs it can simultaneously offer, allowing its viewers to watch a program at a time of their choice. On the one hand, offering more programs can dilute the quality of the offered programs; while on the other, the service benefits from the time flexibility that viewers now have on their side. In this paper, we theoretically study how the ‘on-demand’ feature affects the number of programs and the investment in their qualities (by a monopolist) when viewers are heterogeneous in their keenness to watch television programs, their preferred genre (taste preference) and, importantly, their preferred time to watch the programs (time preference). We first show that, when offering the same number of programs, while the linear TV service offers them at the same quality, the VOD service can offer them at different qualities. When the VOD service offers more programs---utilizing its capacity advantage to better cater to viewer tastes---the offering can comprise both higher and lower quality programs compared to the linear TV. While a shift to VOD increases consumer welfare, it is not always Pareto-improving when the VOD service make asymmetric investments in programs. Results on quality are driven by the heterogeneity in viewer time preferences, and are in line with real world observations about the content of popular VOD platforms.