Media Platforms’ Content Provision Strategies and Sources of Profits

Abstract

Some media platforms earn their profits from both consumers and advertisers (e.g., Spotify, Hulu), whereas others earn their profits from either advertisers only (e.g., Jango, Tubi) or consumers only (e.g., Tidal, Netflix). Thus, media platforms adopt divergent strategies depending on how they allocate the limited space or bandwidth between content and advertising. In this paper, we examine media platforms’ content provision strategies and their implications for the profits of media platforms as well as content suppliers, taking into account the cross-side effects of a multisided media market and the nature of competition in the content supplier market. To facilitate the analysis, we propose a model where media platforms interact with three sides: content suppliers, consumers, and advertisers. First, our analysis of a perfectly competitive content market shows that though consumers’ desire for content raises the willingness to pay, it can hurt platforms’ profits. Second, counter to our intuition, platforms’ profits can increase with the cost of procuring content. Third, advertisers’ desire for consumers reduces a monopoly content supplier’s profits under a paid-content-with-ads strategy. Fourth, a monopoly content supplier cannot extract all the profits from competing platforms. Furthermore, competing content suppliers may even charge higher prices than a monopoly content supplier. Finally, we highlight how the nature of competition in the content market shapes platforms’ choice of a no-ad strategy.