The Economics of Video Websites with Membership-Advertising Mode in Wireless Networks

Abstract: In this paper, we consider a novel business model of video websites via Membership-Advertising Mode in wireless network, where the video websites provide three video services for mobile users: \textit{VIP-Member} service, Regular-Member service and Non-Member service. The VIP-Member (Regular-Member) service provides the highest level (middle level) quality and non-advertising video service with high (low) price, while the Non-Member service provides the lowest level quality and advertising-containing video service for free. Meanwhile, the video websites sell their advertising spaces to the advertiser to create extra revenues. We formulate the interactions among the advertiser, video websites and mobile users as a three-stage Stackelberg game. Specifically, in Stage I, the advertiser decides the advertising budget; in Stage II, the video websites determine their advertising spaces selling strategies for advertiser and the membership pricing strategies for mobile users; in Stage III, the mobile users make their own decisions on video watching strategies for each video website. We analyze the equilibrium of each sub-game. Particularly, we derive the closed-form solutions of each mobile user's optimal video watching strategies, each video website's optimal membership price and the optimal advertising spaces selling number. In addition, we also investigate the piece-wise structure of the advertiser's utility function, and further propose an efficient algorithm to obtain the optimal advertising budget. Finally, numerical results show the impacts of different parameters' values on each entity's utility as well as the key indicators.