The Creator Economy: Managing Ecosystem Supply, Revenue Sharing, and Platform Design

Abstract

Many digital platforms give users a bundle of goods sourced from numerous creators, generate revenue through consumption of these goods, and motivate creators by sharing of revenue. This paper studies the platform’s design choices and creators’ participation and supply decisions when users’ (viewers’) consumption of goods (content) is financed by third-party advertisers. The model specifies the platform’s scale: number of creators and content supplied and magnitudes of viewers, advertisers, and revenues. I examine how the distribution of creator capabilities affects market concentration among creators and how it can be influenced by platform design. Tools for ad management and analytics are more impactful when the platform has sufficient content and viewers but has low ad demand. Conversely, reducing viewers’ distaste for ads through better matching and timing—which can create win–win–win effects throughout the ecosystem—is important when the platform has strong demand from advertisers. Platform infrastructure improvements that motivate creators to supply more content (e.g., development toolkits) must be chosen carefully to avoid creating higher concentration among a few powerful creators. Investments in first-party content are most consequential when the platform scale is small and when it has greater urgency to attract more viewers. I show that revenue sharing is (only partly) a tug of war between the platform and creators because a moderate sharing formula strengthens the overall ecosystem and profits of all participants. However, revenue-sharing tensions indicate a need to extend the one-rate-for-all creators approach with richer revenue-sharing arrangements that can better accommodate heterogeneity among creators. This paper was accepted by David Simchi-Levi, information systems.