It’s not that simple. Tracking doesn’t universally increase spend to all niche content, it reduces spend to some niche content and increases it to other niche content. So there would be some changes to which niche content is created but it’s not going away.

Just look at how much YouTube content is sponsored via an Ad inside the video. That isn’t tied to your personal history.

Certainly I wouldn't say that every single niche benefits from targeted advertising without exception. There are exceptions to every rule. But the vast, overwhelming majority of niche content would be worse off without targeted advertising, and this would overall have a strongly negative effect on the diversity of content produced.

Ok that I disagree with, if anything niche content in a world without tracking should attract a higher percentage of advertising.

If I manufacture say jigsaw puzzles and I can’t target individuals then I want to link to show up on a YouTuber with puzzle related content. But with tracking I shouldn’t care about the videos content as much and should be happy to show up on cat videos as long as tracking supports the association. That same logic would seemingly extend to any activity with associated products which is basically everything.

On the other hand soda manufactures are presumably less picky and could advertise on both.

Advertising soda is always worth it without targeting. But advertising jigsaw puzzles might not be. That jigsaw marketing money goes elsewhere, not YouTube, and YouTube jigsaw people don't have a lot of ads for their videos, because nobody else is choosing to specifically advertise on jigsaw videos. Maybe even if jigsaw people do advertise, they don't have a ton of money to spend on ads, so jigsaw content is still hurting. But with targeting, there are effective ads on every video, and content matters more than ad spend targeted at your niche. People choose the content they like by watching it, instead of advertisers choosing the content they like by steering their spending. Because there are far more people than there are advertisers, this promotes more diverse content.

We could continue to make up just-so stories about the effects of targeting on niche content. But I doubt we would convince each other. Is there any research on this topic?

Do you actually find that reasoning convincing or are you just trying to make a point?