A game-theoretic analysis for creative mid-roll ads on a content platform

The accessibility of pre-roll ads (PAs) has significantly diminished due to the privilege of skipping ads for paid members. Leading video platforms have introduced a new type of streaming ad, the creative mid-roll ad (CMA), which reduces consumer aversion to ads by tightly integrating them with video. Moreover, paid members are also a target group for CMAs, which may conflict with their interests and potentially reduce their viewing volume. We develop a game-theoretical model to examine the platform's advertising pricing and the advertiser's mode selection process. Counterintuitively, the CMA fee rate at equilibrium decreases as video attractiveness and the CMA's ad conversion ability increase because higher video attractiveness and ad conversion ability enhance the advantages of lowering the CMA fee rate. We find that the advertiser will balance conversion efficiency and price gaps between the two ad modes when making decisions. As increased conversion ability prompts advertisers to invest more, a significant gap in conversion efficiency results in higher equilibrium investment in PA mode compared to CMA mode. A low proportion of paid members results in a better consumer surplus in CMA mode than in PA mode, which is because the CMA mode targets paid members with its advertisements.