This paper studies the eﬀect of advertising on content diﬀerentiation on YouTube, the second-most visited website in the world. I demonstrate that an exogenous increase in the feasible advertising quantity leads to a considerable decrease in the YouTubers’ probability to duplicate mainstream content, i.e., the type of content that attracts the largest number of views. The result is driven by an intuitive mechanism: Mainstream content is provided by many competing YouTubers; thus, viewers who perceive advertising as a nuisance – and therefore as an implicit price they have to pay – could easily switch to a competitor if a YouTuber increased her advertising quantity. Switching is less likely, however, if the YouTuber diﬀerentiates her content from the mainstream, gains market power in a niche, and thereby softens competition in the ad “price."
advertising content differentiation economics of digitization horizontal product differentiation long tail media diversity user-generated content YouTube