Compensating Online Content Producers: A Theoretical Analysis

The digital content industry is rapidly growing, and many platforms host a vast amount of content that is produced by independent producers. A major source of revenue for these platforms is advertising. However, advertising revenue depends on the number of active customers who visit the platform and enjoy content created by content producers. Therefore, major platforms provide incentives for content producers to encourage high-quality content creation. A commonly used incentive is ad revenue sharing. In this paper, we study how such sharing incentives are affected by the nature of competition among various producers, the size of customer base, and the type of customers. We also examine the implications for profits and welfare and extend the analysis to consider the case when the platform allows consumers to directly donate to the producers. Our results show that increased producer competition can lead to higher compensation for the producers, higher content quality, and higher producers’ profits. We also show that allowing consumers to donate to producers can lead to a higher commission rate and better-quality content. However, increased consumer generosity may lead to lower profits for content producers. In addition, we find that asymmetry among producers can sometimes benefit the platform. This paper was accepted by Matthew Shum, marketing.