As I was watching Monday Night Football, I couldn't help but notice the advertisements for Facebook (NASDAQ: FB) Watch, the new video platform found within its flagship app. It might not be a coincidence that Facebook decided to advertise its new product to NFL fans. The next morning, the company announced a multiyear deal to stream game highlights as well as three weekly series productions from NFL Films.
This isn't the first time Facebook has teamed up with the NFL. It briefly tested showing game highlights at the end of the 2014 season, attempting to monetize them with post-roll ads. The NFL abandoned Facebook for the following two seasons, working more closely with Twitter (NYSE: TWTR). Twitter also has a current deal with the NFL to live-stream a 30-minute show four times a week. Amazon (NASDAQ: AMZN) won the rights to stream 10 Thursday Night Football games this season for $50 million.
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Despite declining TV ratings, the NFL still commands a ton of attention from people all over the world. Adding highlights and other football content to Watch could attract the attention Facebook is seeking to get Watch off the ground.
Seeding the ecosystem
The NFL deal is just one of many high-profile contracts Facebook has signed in recent months. It's signed deals with other sports leagues like Major League Baseball and with major media companies to produce original content. Facebook is paying for the content upfront, but eventually it hopes to split advertising revenue with content makers.
But Facebook isn't just seeding the content -- it's apparently also seeding viewership. Last I checked, advertising time during Monday Night Football isn't cheap. But Facebook likely sees television commercials as a long-term investment to seed the ecosystem for creators. After all, a video platform that promises to share ad revenue isn't very appealing to content producers without a lot of viewers.
Investors shouldn't expect Facebook to continue spending to promote Watch. Facebook wants Watch to be like YouTube, and you don't see commercials for YouTube. Facebook grew to be as successful as it is because it successfully leveraged the network effect. Getting to that point isn't as easy when there's a much larger incumbent, though.
Differentiating the product
Content like the NFL also differentiates the Watch product. While Twitter and Amazon each have their own NFL content, Facebook's deal still sets itself apart from other major video platforms like YouTube. It's not just the NFL; as noted, Facebook is working with major media companies, and it's also reportedly working on big-budget original shows. Overall, the content on Watch should be of higher quality than on YouTube or other noncurated platforms.
While Watch might not provide better content than Amazon, it has a couple of big advantages. Facebook Watch is free, and it has 2 billion potential users. They won't generate as much as Amazon Prime members, but then again Facebook doesn't need to worry about getting millions of packages to people's doorsteps within two days.
Not only is Facebook aggregating unique and high-quality content, it has the user data needed to provide a better viewing experience. That's something Twitter can't touch. Twitter users need to be on Twitter at the right time and have the right interests for Twitter's live-streaming shows to have the most appeal. Facebook has the capabilities so that whenever users click on the Watch icon, they see interesting content immediately.
Ultimately, that can provide a better viewing experience leading to users watching for longer and coming back more often. With literally billions of people logging in to Facebook, it could provide a significant amount of revenue from ads. If broadcast television could survive on an ads-only model for decades, Facebook's video platform could as well.
Watch what happens
To be sure, Facebook hasn't already scored a touchdown with Watch. Not by any means.
After all, its record with television advertising isn't great. While people consume hundreds of millions of hours of video on Facebook every day, Facebook has yet to prove that it can convert that into visitors to a special video feed.
But video consumption continues to shift online. And Facebook has the capital to spend on establishing a premier destination for online video. It's a bet worth taking, and one worth keeping an eye on over the next couple of years as Facebook works to grow Watch.
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