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Will Consumers Actually Watch TV on Snapchat?

By Evan Niu, CFA - Jul 19, 2017 at 8:25PM

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Media companies continue to clamor for younger users.

After setting an all-time low yesterday, shares of Snap (SNAP -7.96%) bounced back a little today on news that it is partnering with Comcast's (CMCSA 0.18%) NBC News to broadcast a daily news show called Stay Tuned, which will air twice a day. The format will be short-form videos that are only three to four minutes long, which plays to Snapchat's strengths in short-form content. Each episode will have two 10-second ads.

Comcast participated directly in Snap's IPO in March, investing $500 million in the social media company. The show is NBC Universal's latest effort to cater to younger demographics on their preferred turf: mobile devices.

Snapchat logo

Image source: Snap.

Show me the money

NBC and Snap will reportedly split ad revenue, while NBC will cover production costs and has recruited a production team of 30 full-time employees, according to Recode. NBC will also handle ad sales. Advertisers are already expressing interest in the new show, a critical aspect of actually monetizing it, since the content will be free for users.

Investors similarly cheered last month when Time Warner Inc. announced that it would invest $100 million into original TV content on Snapchat. Snap has also partnered with the NBA for sports content and the BBC for its popular Planet Earth documentary series. In all cases, the emphasis remains on short-form clips.

Whether or not any of these media partnerships will pay off remains to be seen. Media companies and advertisers desperately want to reach younger demographics, but if those users don't acclimate to watching TV content on Snapchat, it will all be for naught. Alternatively, if viewership grows but the ads have poor returns for advertisers, the strategy will also fail.

Consumer behavior is hard to change

What's less clear is whether or not consumers, even younger ones, are ready to fully embrace watching TV shows on social media platforms. Alphabet subsidiary Google's YouTube remains the dominant destination for video content, and the major networks already release bite-sized news clips on that platform.

Facebook (META -3.84%) has been working on building out its video strategy for years, investing heavily in back-end bandwidth and ramping up video ad sales. Facebook is still trying to get more video content on its social network, including by seeding some original content of its own and even launching a new TV app. Despite being much larger, even Facebook has plenty of work cut out for it with changing consumer behavior regarding where and how they consume TV content. Facebook is still not widely considered a video destination; it should probably create a centralized hub, either within the core app and desktop interface or as a stand-alone mobile app. (The Facebook Video app released  in March is only available on TV platforms, not mobile platforms.)

Things look even more uncertain for Snapchat, given the relatively niche use cases of the ephemeral photo/video-sharing service.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Facebook and has the following options: long January 2018 $120 calls on Facebook and long January 2019 $20 puts on Snap Inc. The Motley Fool owns shares of and recommends GOOG, GOOGL, and Facebook. The Motley Fool recommends TWX. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Snap Inc. Stock Quote
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SNAP
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META
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Comcast Corporation
CMCSA
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