Facebook Chases TV’s Advertisment $70 Billion Stash With Its Own Video Series

With the $70 billion TV advertising market in its sights, Facebook Inc. is starting to bankroll the creation of video series that will begin to appear on the world’s largest social network later this year.

Facebook is closing deals for its first batch of shows, including two that the Hollywood Reporter unveiled earlier this week -- reality competition series “Last State Standing” and a second season of comedy “Loosely Exactly Nicole,” which first appeared on MTV. The shows will be available via a new video tab on Facebook that hasn’t been released.

By funding a slate of original programs, Facebook hopes to entice more production companies to upload premium video, which Facebook will then use to siphon advertising dollars away from television. The lucrative advertising market inspires TV networks to create hundreds of shows and newer media companies, teenagers and aspiring filmmakers to upload billions of hours of video a day to YouTube, Snapchat and other online portals.

Facebook isn’t trying to compete with the highest end of that market -- paid services Netflix, HBO and Showtime. It has its sights set on cable networks and advertising-supported online services with young viewers.

“Funding video is a way for Facebook to figure out its greater advertising program,” said Matthew Segal, chief executive officer of ATTN, a digital media company that publishes video to Facebook. “It’s clear they want to be a bigger player in the space; they want to eclipse TV.” 

Facebook has been hosting video for a few years, and two years ago began sharing advertising revenue with some companies that uploaded clips. While many of those companies found large audiences on the social network, few generated enough advertising revenue to treat Facebook as a primary distribution outlet for high-end video.

Facebook executives have compared funding original videos to priming the pump at an oilfield, giving creators a financial incentive to upload more video, get a taste of the large audiences they can attract, and come back for more. Facebook has paid celebrities to use its live video feature, and encouraged TV networks and movie studios to stream live events and trailers on the social network for free promotion.

Facebook is funding two kinds of programs -- a handful of more expensive series from established TV producers that will take a few months to produce (hero shows, they are called) and a bunch of shorter, cheaper videos from publishers like Vox Media Inc. and BuzzFeed Inc. (called spotlight shows). All shows will be episodic and designed to spur conversation among Facebook users.

For the hero shows, Facebook is willing to spend a couple hundred thousand dollars an episode, according to people familiar with the matter, budgets that compare favorably with many cable networks. The shows will be exclusive to Facebook, which has expressed a desire for programs that appeal to young women (think “Pretty Little Liars” or “The Bachelor”), said the people, who asked not to be identified discussing private information.

For spotlight shows, Facebook is giving publishers a minimum guarantee of $10,000 to $20,000 an episode up front, and will have exclusive rights to the program for a period of time before the videos can be made available elsewhere, the people said. Facebook will share advertising revenue with the publishers, who can start to sell their own advertisements after a brief period.

Facebook has been assembling a team of executives to shepherd its entree into Hollywood, starting with Ricky Van Veen, co-founder of comedy site College Humor. The company has since hired Netflix Inc. executive Sarah Madigan to acquire video programs and former MTV executive Mina Lefevre to oversee the development of new shows. Now Van Veen is looking to hire a head of unscripted development to work under Lefevre, people familiar with the matter said.

Facebook is also developing a second tab that will be devoted to the more high-end programming, the people said. Facebook prefers not to put details of the video product in writing and will only discuss it by phone, according to people who have dealt with the company. Facebook has also rankled some potential partners by insisting on selling advertising itself and inserting ads into the middle of live broadcasts, the people said.

Facebook has a small staff handling original programming, not enough to manage a robust operation. Facebook would rather share money from advertising sales than pay for content in the long term.

“The sustainable model is some sort of revenue sharing,” Fidji Simo, Facebook’s head of video product, said in an interview. “The goal is really to get a lot of different partners to come to Facebook share their content and find success. It’s very hard to find that over the long term by funding.”

That approach appeals to companies uploading short-form videos, but it may not make sense to high-end creators accustomed to large budgets. TV networks typically pay a licensing fee for a show and then keep revenue from the ads they sell. The studios still often retain the right to sell the program overseas, or sell reruns to other networks, which benefits writers and actors as well.

Live sports, an area of growing interest to Facebook, is also very expensive.
Facebook has added live feeds of baseball games and soccer matches through deals with different leagues, and previously pursued the rights to stream Thursday Night Football games. For now, leagues are using Facebook to test how many viewers they can reach on the site. They also hope early experiments will convince Facebook to spend big on future rights.

Facebook’s interest in funding video tantalizes Hollywood, where producers drool at the thought of another deep-pocketed patron alongside fellow tech giants Amazon.com Inc., Apple Inc. and Alphabet Inc. Other new players, like Verizon Communications Inc., have had a harder time, often committing less money to less ambitious shows.

With 2 billion people checking their news feed every month, Facebook reaches more people than any TV network. “Not only do nearly 100 percent of people under 35 have an account, but they are spending over 1,000 minutes a month on Facebook,” said ATTN’s Segal.

Yet some elements of Facebook’s video strategy are still uncertain, according to employees and partners. Facebook hasn’t detailed how advertisements will be displayed on the programming it’s funding, and has yet to show many of its partners a demo of its new video tab, which is also called Spotlight. Publishers and producers are eager for Facebook to create a new destination for video since most users don’t watch clips in the news feed for more than a minute or two.

“Getting people past 90 seconds is still a challenge,” Segal said.

The debut of Spotlight was supposed to be earlier this year, was later pushed to June, and may now not happen until the fall, the people said. Facebook had successfully bid to host a live stream of singer Katy Perry around the debut of her new album, but had to forfeit the rights due to the delay of Spotlight, they said. The four-day event, Witness Worldwide, aired on YouTube last weekend.

Source: Bloomberg