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NTU Management Review Vol. 33 No. 2 Aug. 2023

There are two revenue sources for a video: (1) the advertisement revenue paid by
a video sharing platform (e.g., YouTube) and (2) the advertorial fee paid by a business
owner. The MCN company, delegated the advertorial task from a business owner, must
determine two things: (1) how to set the revenue sharing proportions with the two creators
respectively, and (2) how to allocate the advertorial fee to the two creators. The revenue
percentages left for the high-type and low-type creators are ϕ and ϕ , respectively, where
H
L
i ∈{H,L}; while the advertorial share given to the high-type creator is x and 1-x is given to
the low-type, where x ∈ [0,1]. These two decisions both affect the creators’ decisions on
k
exerting costly efforts. For the type-i creator’s effort level to be e , she/he pays as the
2
e
i
i
2
cost, where k > 0 is an exogenous parameter.
The amount of advertisement revenue earned from the sharing platform is determined
by the number of views and the per-view payment γ provided by the sharing platform.
The number of views is determined by three things: (1) the natural traffic a, which is
determined by the number of the sharing platform’s users, (2) the effort level e that type-i
i
creator puts on the video, and (3) the ability β of the type-i creator to attract audiences,
i
where β > β . Increasing any of these three items increases the expected number of views.
H
L
Collectively, the total amount of advertising revenue paid by the sharing platform for a
video is (a+e )β γ.
3
i
i
Advertorial fee A from business owners works differently. To pay for an advertorial,
a business owner would request a certain performance threshold (e.g., views or clicks),
which may or may not be met. The probability for a video to meet the threshold is
determined by both the creator’s effort level e and ability β . The higher the effort level
i
i
or ability, the higher the probability of meeting the threshold. Moreover, the effort level
and ability are complementary: exerting effort is more effective for a creator with higher
ability. Thus, the probability of meeting the threshold for type-i creator is β e , while the
i i
failed one is 1-β e . The business owner pays the advertorial fee if and only if the threshold
i i
4
is met by at least one creator or nothing otherwise. The three scenarios with at least
one creator meeting the threshold, their probabilities of occurrence, and the advertorial

3 The additive format of the effect of effort exertion and the convex setting of its cost have been widely
adopted in literature, including Lal and Staelin (1986), Chen (2005), and Zhu and He (2017), among
others.
4 In practice, a creator may obtain a certain amount of compensation based on the performance of the
video. To avoid tedious analysis, we omit this possibility.

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