Tech giants have all been rushing to expand into original TV content, and Facebook (NASDAQ:FB) is about to make its own debut in the arena. Investors have been hearing quite a bit about the social network's plans over the past year or so.
Facebook's Ricky Van Veen, the co-founder of CollegeHumor who Facebook recruited last year to head content strategy, told Recode last year that Facebook was "exploring funding some seed video content, including original and licensed scripted, unscripted, and sports content." Earlier this year, the company launched a Facebook Video app for smart TV platforms. Next up: a new dedicated video section of Facebook's desktop site.
Bringing the fight to YouTube
Bloomberg reports that the first of these shows are expected to be released in mid-August, which just a few weeks away now. There have been a few delays with launching a dedicated video hub. The first batch of content is expected to be "short-form, inexpensive" shows, with the more expensive productions to follow at a later time.
Facebook's efforts will be a direct challenge to Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) subsidiary Google's YouTube, which remains the dominant destination for free, ad-supported online videos. YouTube has been trying to grow its YouTube Red subscription business, which launched in 2015 for $10 per month, but has had limited success. The Verge reported in November that YouTube Red had garnered just 1.5 million subscribers as of "late summer" 2016, citing anonymous sources.
Facebook's new service, which will presumably be called something like "Facebook Video" (mirroring the smart TV app) or "Facebook TV," is not expected to use a subscription model. In other words, it won't be attempting to compete directly with paid subscription services like YouTube Red, Netflix, or Time Warner's HBO. It will predominantly compete with YouTube's platform for free, ad-supported videos.
That's a tall order to fill, but doable
Given YouTube's sheer dominance, this is going to be an uphill battle. But Facebook has a shot at making a dent, since it has been investing heavily in the infrastructure necessary to handle video bandwidth for several years now, and CEO Mark Zuckerberg has demonstrated that he can execute on long-term strategies.
User comments on YouTube are also notoriously noxious. Google once attempted to combat abuse and harassment by tying Google Plus accounts to YouTube accounts (with an ulterior motive of encouraging Google Plus usage), but that effort failed spectacularly. There was considerable user backlash, and no one uses Google Plus anyway. Facebook generally has less abuse and harassment than other social platforms that allow anonymity, due to its real name policy. That could help create a relatively safer place.
People are already accustomed to viewing videos on Facebook, but mostly within the confines of the News Feed and interspersed with other content. That's why creating a centralized hub will be so critical, as it will establish the platform as a destination for video content. Facebook has the scale to present a viable challenge. YouTube took the rare step of sharing user metrics last month, announcing at VidCon that YouTube now has 1.5 billion logged-in monthly active users (MAUs). The total audience is larger when including users that are not logged in. At the end of the first quarter, Facebook had 1.94 billion MAUs worldwide. (Facebook reports after the bell today and will share user metrics for the second quarter.)
I think it's quite possible that if we fast-forward five years, Facebook's video hub will be holding its own against YouTube in the market for ad dollars.
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 NFLX. Evan Niu, CFA has the following options: long January 2018 $120 calls on Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and NFLX. The Motley Fool recommends TWX. The Motley Fool has a disclosure policy.