Investors have been hearing bits and pieces of Facebook's (NASDAQ: FB) strategy to create original content in an effort to bolster video on the social network. The company has spent years and billions of dollars building up its infrastructure specifically in order to accommodate more video traffic that requires significantly more bandwidth than sharing photos of your lunch, so now it wants to take full advantage of that infrastructure.
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Over the weekend, The Wall Street Journal provided some more details as to what Facebook is looking for.
Content is king
Facebook has had negotiations with several talent agencies and is willing to cover up to $3 million per episode for high-quality original TV content, according to the report. We could even start to see some of this content released by as early as "late summer," although this time frame is flexible. The company is said to be more interested in shows that cost "mid-to-high six-figure-per-episode range."
The company is also interested in short-form, unscripted content to supplement longer-form, scripted shows. Facebook head of media partnerships Nick Grudin told WSJ that the company is supporting a handful of partners and content creators, allowing them to test out the type of content that "you can build a community around." That's in line with Facebook's newly tweaked mission statement, which CEO Mark Zuckerberg detailed just a few days ago: "To give people the power to build community and bring the world closer together."
In terms of demographics, Facebook is targeting the 13 to 34 crowd, particularly the 17 to 30 subset. That just so happens to be the core demographic for Snap's (NYSE: SNAP) Snapchat, which is also partnering with large media companies to produce original content; the latest deal is with Time Warner, who has reportedly committed $100 million to producing original shows and ads on Snapchat.
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However, Facebook doesn't want any shows that are about children or young teens, and it also wants to steer clear of political drama, news, or any show that includes nudity or adult language. In other words, Facebook wants the most inoffensive type of content, which also fits within its broader content policies.
A new deal
Facebook wants to own the content outright instead of merely licensing the rights to it, according to the report. Hollywood, on the other hand, typically prefers to own the content and license it out, creating a longer-lasting revenue stream.
But Facebook has something else it can use as a bargaining chip: user data. The company says it is willing to share viewership data with Hollywood, a stark contrast to peers. For example, viewership data is one of Netflix's (NASDAQ: NFLX) most prized possessions, and the dominant video streamer notoriously keeps that information very close to the chest. Netflix doesn't really need to share this data, though, especially given it shuns advertising.
The economics are still murky
Original content is all the rage these days, as many tech companies see it as a way to differentiate their services. The tricky part is that each of these rivals has different goals and models. Netflix leverages original content to sell ad-free subscriptions; Apple hopes to do the same, except the value of bundling original video content into a music streaming service is a bit dubious; Snap is betting that original content will perform well on Snapchat since the platform has always been heavily geared toward photos and videos.
Facebook's shows will include ads, and sharing that ad revenue will be the primary monetization method for content creators. Therein lies a fundamental disconnect, though: Supporting high-cost, high-quality TV content exclusively through ads is extremely difficult unless you reach massive scale. Unless Facebook makes the uncharacteristic step of charging for the service, the economics might not be sustainable.
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Evan Niu, CFA owns shares of AAPL, Facebook, and Netflix, and has the following options: long January 2019 $20 puts on Snap Inc. and long January 2018 $120 calls on Facebook. The Motley Fool owns shares of and recommends AAPL, Facebook, and Netflix. The Motley Fool recommends TWX. The Motley Fool has a disclosure policy.