Optimal advertising strategy for streaming platforms: Whether to purchase external consumer data

Abstract

By utilizing consumer behavioral data, targeted ads can enhance the click-through rates (CTRs) but, at the same time, cause consumer privacy concerns. In this paper, we investigate whether a streaming platform should purchase external consumer data to improve ad-targeting levels, whereby it gain revenue from cost-per-mille (CPM) and cost-per-click (CPC) advertising. We explore how advertising intensity and consumer advertising fatigue interactively determine the data purchase decision and the optimal ad-targeting level of the streaming platform. Our findings indicate that the platform with low advertising intensity or high consumer advertising fatigue is more likely to purchase external consumer data because the ad-driven CTRs are low in these cases. An unexpected finding is that the amount of consumer data purchased by the platform increases with the intensity of privacy concern when advertising intensity is low or when both advertising intensity and fatigue level are high. In these scenarios, the privacy invasion effect resulting from purchasing external consumer data is low due to the low ad-driven CTRs. After purchasing consumer data, to compensate for the privacy invasion effect of targeted ads on consumers, the platform should lower the advertising intensity if and only if the advertising fatigue level is low. Furthermore, we demonstrate that if the platform simultaneously decides on advertising intensity and ad-targeting level, purchasing external consumer data results in a Pareto improvement when the organic CTR is low, benefiting both consumers and the streaming platform. Our findings highlight the importance of balancing advertising precision and consumer privacy on a streaming platform.