Abstract
This paper investigates the interplay between dynamic tariff structures and consumer churn within the Subscription Video-on-Demand (SVoD) industry using a dynamic discrete choice structural framework. As digital entertainment markets reach saturation, platform operators increasingly transition from traditional flat-rate tariffs to multi-tier dynamic pricing schedules, including ad-supported hybrid plans and annual commitment options. We construct a forward-looking structural model of consumer subscription behavior that explicitly disentangles price sensitivity, content catalog valuation, and structural switching costs. Estimating our model on a rich household-level panel dataset spanning 24 months and 45,000 subscribers, we find substantial structural switching costs: consumers face an estimated friction of $14.20 when unsubscribing completely and $7.85 when transitioning between tiers within the same platform. Counterfactual simulations reveal that while introducing a low-cost ad-supported tier expands total subscriber acquisition by 18.4%, it simultaneously increases monthly tier-switching velocity by 24.1%, altering long-term subscriber lifetime value. Furthermore, targeted retention discounts are shown to generate 12.6% higher net revenue than uniform price freezes due to consumer inertia. These results provide strategic guidance for digital service providers designing dynamic pricing architecture in competitive platform markets.
