Major video streaming distributors are investing heavily in producing first-party (original) content, yet the economic viability of this high-cost strategy remains a subject of intense managerial debate. This paper develops an analytical model to investigate the optimal first-party content production strategy for asymmetric competing distributors. The analysis shows that two critical factors, existing content overlap and market price rigidity, affect their optimal strategies. In markets with high price rigidity, where subscription prices remain constant, increased existing content overlap may give distributors stronger incentives to invest in original content production. The equilibrium outcome can be both, only one, or neither producing first-party content. Conversely, in markets characterized by low price rigidity, where distributors can adjust subscription prices flexibly, high existing content overlap weakens their content production incentives. Importantly, compared to constant pricing, when prices are optimally adjusted, first-party and third-party content transition from substitutes to complements, and a win-win-win outcome can occur for distributors, third-party producer, and consumers. These findings challenge conventional wisdom regarding content competition and provide a strategic framework for managers to optimize content production investments based on their resource asymmetry and prevailing market pricing dynamics.
Qin et al. (Mon,) studied this question.
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