The digital content market has grown dramatically in recent years. Many platforms show ads when consumers watch the content on their platforms, and they share ad revenue with content creators to incentivize them to create and share content. These platforms generally adopt either a uniform-advertising format or a differentiated-advertising format. This paper shows that, regardless of the ad format, an increase in substitutability of content creators on the platform can increase the content creators’ profits and the consumer surplus. By contrast, an increase in substitutability of content creators can benefit the platform under uniform advertising but not under differentiated advertising. Moreover, the equilibrium ad revenue-sharing rate, content quality, and the number of ads shown for each content will be lower under differentiated advertising than under uniform advertising. The platform’s profit and the consumer surplus are also lower under differentiated advertising than under uniform advertising. However, depending on the substitutability of content creators, the content creators’ profits can be higher or lower under differentiated advertising. In an extension, we also analyze an emerging ad format in which the platform allows content creators themselves to decide the number of ads on their content. Interestingly, we show that this new ad format can make all the market participants (i.e., the platform, the content creators, and the consumers) worse off.
