In the latest example of new media meeting old(er) media, Snapchat owner Snap (NYSE: SNAP) and Time Warner (NYSE: TWX) have signed a collaboration agreement worth $100 million.
For its investment, Time Warner will get to air up to 10 original programs, produced by its Turner Broadcasting TV arm and Warner Bros. film studio, over the next two years on Snapchat. Ad revenue from the shows will be shared 50/50 between the partners. $100 million is a lot of money, even for a company as large and sprawling as Time Warner. Here's why Time Warner thinks it's a good investment.
First and probably foremost, it's a good time to expand presence on a hot young medium. Snap, like Facebook's (NASDAQ: FB) Instagram, is attempting to move beyond its app's core functionality, which is its ephemeral photo and video messaging service.
The company has already signed deals with a number of traditional big media players. This growing list includes Comcast, whose NBCUniversal will provide Olympic-themed content for the upcoming 2018 winter games in South Korea.
Like the Olympics, Time Warner has plenty of intellectual property and personality it can leverage for Snapchat -- moviedom's DC Extended Universe, Conan O'Brien, and so on. And there shouldn't be any cannibalization, as Snapchat's current show offerings are three- to five-minute bites, as opposed to hour-long TV dramas or two-hour feature films.
In the press release heralding the deal, Time Warner's executive vice president of corporate marketing and communications, Gary Ginsberg, said that "[p]artnering with Snap will help drive this compelling new format, exposing its user base to innovative and engaging video from brands and characters they trust and enjoy."
If done effectively, that could expand the audience for Time Warner's traditional TV and film offerings. "We're confident this partnership will help drive larger audiences to our shows and to the new direct-to-consumer platforms we continue to roll out," Ginsberg added.
This Fool's take
Snap is a young, struggling company, so any tie-up that'll bring in money is a positive. Better, another partnership with a long-established media giant is a confidence booster for investors. Not only does it show that the company can swing deals with the top names in TV and movies, but it also proves that Snap has something these entities crave -- in this case, a big user base that's heavy on the attractive 18-to-24 age demographic.
That doesn't mean it's about to win the war for eyeballs, though. Facebook's introduction of the Snapchat-ish Instagram Stories ripped a page from Snap's book; ever since, Stories has seen much higher user growth than Snapchat. A few new shows probably won't change that dynamic much. Snap will have to continue to find ways of distinguishing its offerings to compete more effectively against its monster rival.
As far as Time Warner is concerned, for a company with its size and scope, this isn't a blockbuster deal. Still, it gives the old boy a firm toehold in what's still a trendy platform for the younger set.
Ultimately, I think the deal is a potential winner for both companies. I wouldn't go snapping up (pun intended) shares of either based solely on their new arrangement, but still I think both should be granted a brief round of applause for agreeing to it.
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