Sponsored Data : New Alignments Between Content Provider and Content Buyer in Digital Content Market

AT&T and Time Warner have recently sealed a historic merger agreement, but debate continues to swirl around the purported benefits arising from the vertical integration of a content provider (CP) with an Internet service provider (ISP). In this paper, we discuss sponsored data (also called zero-rating) – one of the primary considerations of vertical integration – by developing a game-theoretic model involving an ISP, CPs, and consumers. The results of our model analysis show that an ISP that has merged with a less competitive CP will allow its own CP to offer zero-rating contents if consumers have a weak preference for specific content. However, if consumers have a strong preference in this regard, the ISP generates higher revenue by allowing only the rival CP to offer zero-rating content. Our analysis extends to consumer surplus and social welfare considerations, and carries implications for policymakers as well as ISPs, CPs, and consumers