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

Abstract

We propose a model that classies platforms in the so-called "creator economy", such as Youtube, Patreon, TikTok, and Twitch, into three broad business models: pure discovery mode (provides recommendations to help viewers to discover creators); pure membership mode (enables individual creators to monetize their viewers directly); and hybrid mode that combines both. Creators respond to platforms' decisions by individually choosing to supply content designed along a niche-broad spectrum, which involves a trade-o between viewership size and per-viewer revenue. Such endogenous responses create a link between two sources of platform revenue (advertising and transaction commission). Compared to the pure modes, the hybrid mode can lead to negative spillovers across the two sources of platform revenue so that it is not necessarily more protable. In the case of competing platforms, incentives to avoid the negative spillovers from competition in transaction commissions to advertising revenue results in platforms choosing dierent equilibrium business models.