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Optimal Advertorial Allocation and Contract Design of a Multichannel Networks Company on Video Sharing
Platforms

advertisements are displayed before, after, or in the middle of the videos. YouTube shares
the advertising revenue with creators (Miller, 2010). Besides, creators may also create
videos to specifically market a brand or a product in exchange for advertorial fees (Wu,
2016). According to Stephanie Horbaczewski, the founder of the fashion MCN Style
Haul, sponsored activity is a more valuable revenue source than advertising revenue
sharing since the former is non-Google dependent. Moreover, since sponsored activities
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often express deeper brand messages and secure higher consumer eyeballs, they are more

lucrative (Lobato, 2016). There are many forms of sponsored activities, among which
making advertorial content is the most common one on YouTube. Therefore, we focus on
advertorial activities throughout the study.
As the intermediaries between creators and business owners (sponsors), it is
challenging for MCNs to set the revenue sharing percentage and allocate the opportunities
for advertorials to maximize profit. First, MCNs, creators, and business owners all care
about their own profit, thus having misaligned profit incentives. Second, the revenue

sharing percentage and the advertorial allocation decision are intertwined and should not
be determined separately. Third, creators have different popularity and may exert different
effort levels. An MCN must estimate how its decisions may affect its creators’ effort
decisions, making it even more difficult to determine who to take charge of the advertorial.
These make an MCN’s contract design and advertorial allocation problem challenging.
In this study, we would like to investigate the following questions: (1) How should
MCNs allocate the advertorial? (2) How should MCNs set the revenue sharing proportions
with the creators? (3) Who benefits from the existence of MCNs? (4) How the industry
structure affects the equilibrium decisions? With the aim of tackling these problems, we

build three game-theoretic models considering three structures of interaction among an
MCN and multiple effort-exerting creators with different abilities. The major purpose of
our research is to study the profitability of feasible advertorial allocation strategies, figure
out factors that affect MCN’s equilibrium choice, and compare the differences among
different industry structures. Our findings may provide managerial implications for both
MCNs and creators.

2 The advertising revenue sharing program, called Google AdSense, is run by Google, the parent com-
pany of YouTube.

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