A study on China digital music channel mode and channel coordination

Abstract

Content providers, service providers and telecom operators in China digital music market compete expanding to upstream and downstream channel resource. The fierce channel competition between participants has impede user service level and the development of digital music market. This paper researches into two questions. The first one is how the participants compete in four different competitive channel modes, in which revenue and service level are influenced. The second one is how participants can optimize revenue in coordination rather than competition.

To answer to first question, firstly the participants, digital music service modes and channel modes are analyzed. Then considering the service level provided by telecom operator and service provider, two-partite and three-partite Stackelberg models are constructed to explore the four competitive modes, which are High Price without Service Provider (SP) Mode, "Low Price+Shared Revenue" without SP Mode, High Price with SP participation Mode and "Low Price+Shared Revenue" with SP participation Mode. Besides, optimal strategies in four modes are calculated and numerical analysis approach is adopted to explore the influence of different factors on the equilibrium results, which are digital music service production cost coefficient, revenue sharing ratio, user price sensitive factor and user service level sensitive factor.

To find out solution to the second question, cooperative channel without SP participation mode and cooperative channel with SP participation mode are built to maximum the revenue of digital music channel participants. Finally two-partite and three-partite revenue sharing mechanisms basing on the participants' bargaining power are explored to achieve the optimal channel system revenue.

This study finds that in the four competitive digital music channel modes, the participants competing with each other leads to revenue loss. Whether SP participates, digital music channel participants revenue and system revenue in High Price Mode are better than those in "Low Price+Shared Revenue" Mode. The optimal competitive mode is High Price without SP Participation Mode. To achieve channel coordination, if without SP participating, Telecom Operator (OP) and Content Provider (CP) formulate contract according to proportion k=1/4+?/4 to share revenue, otherwise CP, SP and OP share revenue according to proportion k,v.