On 26th June, I was on my flight to Lisbon reading an article in the Wall Street Journal about Facebook talking to Hollywood studios and agencies about producing TV content with a plan to have original programming by the end of summer, with a budget of US$3 million per episode.
Moving into a film and TV business has become the key trend emerging from tech platform giants, and Facebook’s move is one of the most important ones in the history of content production. Here are a few observations why Facebook does it, what it means for its competition, and how it should be done.
First, this is a very risky strategic move in the direction of organic diversification and revenue growth to monetise Facebook subs base. Two billion users is an incredible operational asset and negotiation collateral without a need to acquire audience, as Facebook plans to build a content library around very focused young demographics community base. So it’s targeted, and a “targeted audience” is very important when it comes to ad revenue growth.
In a traditional media/content production model, audience has to be acquired. In comparison, Facebook has an advantage of owning so much data about its user base behaviour, which can be used to inform its content acquisition teams and money spend. Datasets – very powerful and I read, Facebook plans to share its datasets with Hollywood in exchange for entry! I read some initial investors comments and frankly, they are stupid. Datasets is a very powerful tool so please do not underestimate Facebook’s power when it goes to Hollywood. Due to this organic audience asset, I have been advocating the importance of content production for Facebook for seven years.
My old description of this content strategy move was around looking to diversify revenue streams and use its user base and behavioural datasets as a collateral to generate a new line of revenue on its P&L. To date, Facebook’s growth has very much relied on acquisition of other compatible companies such as Instagram and Oculus, both in the direction of “audio-visual” formats push and user stickiness. Its own product innovation has been limited over the past few years so this move into content production is very bold cliff jump into the shark infested waters of Hollywood but the one which could, if executed well, make Facebook a serious content financing player; and Earth has more supply of creative power than money to finance it. So dear investors, please do take Facebook’s move seriously. It’s the only company on Earth which owns datasets on what we like.
Second, Facebook is going to compete with Netflix and Amazon, big cash cows and now established streaming media content giants. The question for Facebook is – will it be able to match and justify Netflix spend of over $6 billion and Amazon over $4 billion on content? It is a hyper competitive world and market entry into Hollywood does come with a huge risk and upfront spend which does not promise a return, and is a very different type of business compared to what Facebook has done to date. However, Netflix and Amazon will face a new entrant with, again, an organic power of content producer, which knows its audience.
So Facebook’s entry into Hollywood will make it hypercompetitive, and this is good news for both creative talent and new format innovation. Competition is always good, isn’t it, and I’d like to think more money in content production and creative product is always a good thing for content industries.
Finally, it will be interesting how Facebook plans to extend its content strategy on international markets. In my experience, when American tech giants launch new content business, they underestimate the power of international revenue segment and think “domestic P&L” only (by domestic I mean US revenue). However, an early focus on international market is the most critical part of the success of Facebook content strategy rollout. Given its global audience base, Facebook has an organic competitive advantage internationally provided it finds a way to engage locally especially in Europe where there is a lot of creative capital, agencies and brands.
A good example is a recently announced partnership between Facebook and Blend Media to push and to produce a 360-degree video, focusing on development of a "creator community" of experts. I highlight this example to back my view that Facebook should not focus on Hollywood. It should explore relationships with Blend Media type of companies and virtual reality players. Facebook’s content strategy can only be successful if it focuses on innovative, emerging and highly immersive video content which will focus on a deeper engagement and stickiness of two billion Facebook audience collateral.
Bottom line: good move but its success will very much depend on the acquisition strategy being highly linked to its user base datasets analytics and international content moves. We invite Facebook to focus Europe, much more space for growth, innovative and immersive content formats, cheap talent and profitable creative partnerships.
Aleksandra Bosnjak is Strategic Planning Director, Multiplatform Content Distribution, ISLA ANALYTICS LTD.