Content-Hosting Platforms: Discovery, Membership, or Both?

Abstract

We develop a model that classifies platforms in the "creator economy"---e.g. Youtube, Patreon, and Twitch---into three broad business models: pure discovery mode (providing recommendations to help consumers search for creators); pure membership mode (enabling individual creators to monetize their viewers through direct transactions); and a hybrid mode which combines both. Creators respond to platforms' decisions by individually choosing to supply content designed along a broad-niche spectrum, which involves a trade-off between viewership size and per-viewer revenue. These design changes create a trade-off between advertising revenue and transaction commission revenue for the platform. In a monopoly platform benchmark moving from pure discovery to hybrid always increases platform revenue while making content weakly more niche. However, moving from pure membership to hybrid may reduce platform revenue if providing advertising is not sufficiently lucrative. In a duopoly setup these tradeoffs can change dramatically depending on the level of platform competition and homing behavior of creators and consumers.

Keywords: creator economy, user-generated content, platform design, consumer search, recommendation algorithms, multihoming

JEL Classification: D26, D4, L2, L5