Poking my head in this conversation because I enjoyed reading up to this point
The cost-benifit could most likely be balanced properly by adding an expiration system to locked chapters.
At one point I saw a novel with 500+ locked chapters, and to be honest who would pay for such a novel as the cost would start to approach 4-5 novels of equivalent volume at some local bookstores.
I would personally have a system where past a certain amount of time a locked chapter gains the "watch add to unlock" option.
Lets take "Release That Witch" for example. At the time of writing the number of locked chapters is approaching 100, and this does not look good for anyone looking at the catalog. For a demographic primarily conditioned to free entertainment, mass pay-locked chapters is bad optics. Free alternatives will always exist irrespective of legality and in order to retain your userbase the alternatives can't be so objectively superior to your own model.
Lets say I want to create a service to stream TV shows, and for whatever reason i am able to legally present this material for free.
Now lets say I chose to make an episode "free" 1 month after it aired.
1. I already missed the prime "hype" timeframe.
2. I have just alienated my primary drivers of new users "free users"
3. Anyone who would pay for TV shows has already done so on other services and they will not overlap with those who are on my service looking for that specific show.
To solve this issue I would have to specialize in being the best free service or being the best paid service.
From my observations of webnovel they are trying to be both while claiming to be the prior.