Advertising and Content Differentiation: Evidence from YouTube

Title: Advertising and Content Differentiation: Evidence from YouTube

Abstract: Many media outlets depend on advertising revenue to finance their operations, but the causal effect of advertising on media outlets’ content choice is largely unexplored. This paper exploits two institutional features from YouTube to show that an exogenous increase in advertising quantity induces YouTubers to differentiate their video content from their competitors. A plausible mechanism is that YouTubers wish to avoid competition. Viewers typically perceive advertising as a nuisance and therefore as an implicit price they have to pay, thus, they could switch to a competitor if a YouTuber increased her advertising quantity. This 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".