Media Platforms' Content Provision Strategy and Source of Profits

Abstract

We see media platforms earning their profits from both consumers and advertisers (e.g., the New York Times), advertisers only (e.g., the Huffington Post), or consumers only (e.g., Tidal). This paper theoretically investigates two important strategic issues confronting a media platform: what proportion of its limited bandwidth or space should a platform allocate for content (instead of advertising)? and what should be the source of a platform’s profits? To facilitate this analysis, we propose a model where a media platform interacts with three sides: content suppliers, consumers, and advertisers. In a perfectly competitive content market, our analysis shows that competing platforms will adopt a freecontent strategy even in circumstances where a monopoly platform adopts a paid-content-with-ads strategy. However, the result can get reversed if the content supplier is a monopoly. Counter to conventional wisdom, inter-platform competition helps a platform to earn more profits when they adopt a free-content strategy. Next, despite paying a lower price to content suppliers, a media platform may still get hurt. Furthermore, though advertisers’ higher valuation for consumers benefits a media platform, it can hurt a content supplier’s profits when a monopoly supplier sells content to a platform using paid-content-with-ads strategy or when duopoly suppliers can shape consumers’ preference at a low marginal cost and sell to a platform using free-content strategy. Finally, if advertising is quite annoying, even while a monopoly platform shuns the advertising market, duopoly platforms may cater to advertisers.