UCL School of Management is delighted to welcome, Wilfred Amaldoss, Duke University, to host a research seminar discussing ‘Media Platforms’ Content Provision Strategy and Source of Profits’
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, Tubitv) 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 strategy and its implications for the profits of media platforms as well as content suppliers, taking into account the cross-side effects of a multi-sided 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. Our analysis shows that in a perfectly competitive content market, though consumers’ desire for content raises the willingness to pay, it hurts platforms’ profits because it motivates platforms to offer more content and host less advertising, thus raising content provision cost and lowering ad revenue. Moreover, advertisers’ desire for consumers reduces a monopoly content supplier’s profits under a paid-content-with-ads strategy because it prompts platforms to offer less content, leading to a weaker demand for the content supplier. Yet when content suppliers compete, this result is reversed because a weaker demand induces the content suppliers to refrain from over-investing in shaping consumers’ preference. In a perfectly competitive content market, counter to our intuition, platforms’ profits can increase with the cost of procuring content. Interestingly, a monopoly content supplier cannot extract all the profits from competing platforms whereas competing content suppliers can do so. Furthermore, competing content suppliers may even charge a higher price than that of a monopoly content supplier. Finally, we extend the model to allow for consumers’ dislike for advertising and asymmetric preference for content suppliers, and examine additional strategic issues.