Facebook Inc. May Be Television Networks' Biggest Competition

By Markets Fool.com

In the age of over-the-top video streaming services, it's no surprise that traditional television ratings have been declining over the last few years. For young viewers between the ages of 18 and 34, the trend is much more noticeable. Nielsen reported a 10.6% decline in viewership during the period between September and January. The steep decline means there are about 20% fewer young viewers watching prime time TV compared to four years ago.

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That young viewer demographic is the most valuable to television advertisers.

Facebook video ads are key to the company's growth. Source: Facebook

And while media companies might blame Netflix or Amazon for the decline in time spent watching TV (streaming is up 60% year over year), those companies don't take ad dollars. Fewer people think about the amount of time spent on mobile devices as a potential reason for the decline in television viewership among young people. At the very least, they're attracting the attention the big brand advertisers seek.

That means companies that dominate brand advertising on mobile like Facebook -- and to lesser degrees Twitter and Google -- are poised to take ad share from old television media companies.

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Pay attention now
The average American spends nearly five hours watching television per day. That number skews higher for older demographics and lower for younger demographics. For viewers between 18 and 24, the average is just 2.6 hours per day. Over the last four years, time spent watching TV has fallen by about one hour for that key demographic.

Interestingly, the average Facebook user in the U.S. spends 39 minutes per day on Facebook and another 21 minutes per day on Instagram, for a total of one hour per day on Facebook properties. As such, Facebook accounts for an increasingly significant share of Americans' media time as time spent on its platforms continues to rise while television viewership declines.

With Facebook's ability to segment its audience even more accurately than television, it's only a matter of time before ad dollars shift toward Facebook.

The one thing people do more on mobile devices than check Facebook
There is one thing more popular for mobile users than checking Facebook or Instagram: games. Last year, mobile gaming accounted for nearly one-third of all time spent on mobile, nearly twice as much as Facebook.

Facebook has taken steps to reach out to developers and help advertisers place ads in other companies' apps. Facebook competes in this business with Twitter's MoPub -- which claims to be the world's largest mobile ad server -- and Google's DoubleClick.

Facebook came late to the game with its mobile ad tech, but it's come on strong. It developed an ad exchange with Facebook Audience Network to let advertisers display their Facebook ads in other apps. It bought LiveRail to help developers fill video ad inventory, and recently announced that it would extend LiveRail's capabilities to display ads.

Most notably, it relaunched Atlas as a demand-side platform for advertisers, providing unique tracking capabilities to test ad efficacy. Each of these tools brings something to the table that the competition cannot -- Facebook's audience and/or data -- which makes them more appealing for both developers and advertisers.

As such, I expect Facebook to grab share from Google and Twitter in mobile advertising by partnering with more developers. Moreover, I expect that market to expand as advertising dollars shift from television to mobile, where consumers are spending more time.

Waiting for the shift in spending
With $80 billion in annual television advertising spend, there's huge potential for Facebook. If ad dollars follow that 20% decline in young viewership and are looking for the place where that demographic spends its time, Facebook is the obvious place to wind up in some form or other. That could mean an additional $5 to $15 billion in annual revenue for the company down the road.

The article Facebook Inc. May Be Television Networks' Biggest Competition originally appeared on Fool.com.

Adam Levy owns shares of Amazon.com. The Motley Fool recommends Amazon.com, Facebook, Google (A shares), Google (C shares), Netflix, and Twitter. The Motley Fool owns shares of Amazon.com, Facebook, Google (A shares), Google (C shares), Netflix, and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.