Who Pays "Premium" in the Age of Free Services? Findings from a Media Website

The challenge for many media websites is converting users from free to fee. In order to encourage user participation and engagement with the websites many of them have provided consumers with a virtual community wherein the user can create an on-site identity, make friends, and interact with other consumers. We study the interplay between users’ functional and social behavior on media sites and their willingness to pay for premium services. We use data from Last.fm, a site offering both music consumption and social networking features. The basic use of Last.fm is free and premium services are provided for a fixed subscription fee. While the premium services mainly improve the content consumption experience, we find that willingness to pay for premium services is strongly associated with the level of social activity of the user, and specifically, the community activity of the user. Our results represent new evidence of the importance of introducing community and social activities as drivers for consumers' willingness to pay for online services.