Pricing Strategies for Bundling OTT Content with Internet Access

Current practice in the market shows that majority of the users buy Internet subscription from Internet Service Provider (ISP) to access Over-the-top (OTT) services like video, and music. While some fraction of OTT content can be consumed free of cost on the Internet, a user needs to buy OTT service separately for full access to the content. Many ISPs offer Internet subscription plans bundled with OTT services. In this work, we study the effect of bundled OTT services on an ISP's profit by modeling the interaction between users and ISP as a two stage Stackelberg game. We study the user and ISP behavior in two settings- first when users buy Internet only to consume OTT content, and second, when users consume both OTT and non-OTT content on the Internet. We derive the optimal profit and corresponding prices for Internet, bundle and hybrid (ISP offering both Internet and bundle) subscription plans which depend on ISP's cost to offer Internet and bundled services. We characterize the cost regions in which it is beneficial to offer hybrid plan and show that the hybrid plan degenerates to bundle plan as cost to provide basic Internet service increases. We also study the effect of fraction of free OTT content available on Internet on the user behavior and ISP's market share.