After a very healthy earnings webcast this week, Facebook revealed its plans for heavily investing in video in 2017. The social networking behemoth boasted a 17% boost in users and beat expectations on revenue and operating margins for Q4, which further inspires the company to make the new year one for a lot of investment.
Now, the company aims to aggressively seize the online video market, announcing its intentions to build a community of content creators offering by offering a compensation model for the creators. Video makers would be paid upfront to produce and enjoy a share of the ad revenue, which the company sees as a viable model for kickstarting the ecosystem.
In CEO Mark Zuckerberg's words, video is "a megatrend" that he wants to capture. As user are already scrolling through their respective news feeds, Facebook sees an obvious opportunity to integrate video in a more meaningful way.
For now, the focus will be on shorter form content, but the game plan is to create longer pieces and, eventually, premium video. The algorithms already favor longer videos, an effort to boost ads that appear mid-roll (as opposed to YouTube's pre-roll function).
Pursuing a Red Stream Strategy
Facebook's focus on video is direct assault on YouTube and, to a lesser extent, Netflix, Hulu, and any other video streaming service. What makes this so painful for YouTube is that Facebook is almost directly copying their community model, but without the paid membership gateway of YouTube Red.
There's a great opportunity to carve deep into YouTube's viewership since Facebook's video content will likely be integrated natively into the news feed, making consumption far more convenient than using YouTube's search navigation.
Netflix and similar streaming services should remain largely unfazed by Facebook's video play until the social network starts rolling out premium and long form content. When Zuckerberg and his team are ready to move into that phase of the strategy, they should take a look at Vimeo, a video platform that long ago convinced users to pay for video content.
As mentioned previously, YouTube is particularly vulnerable here. YouTube Red has failed to take hold as expected, saddled with slow user growth and high overhead expenses thanks to the studios being built to produce much of the premium content.
In building this video attack plan, Facebook doesn't need to grow a new network or even stand up a separate business unit. It's merely a tactic to keep users on the platform for longer periods of time in order to deliver more value to the advertisers, Facebook's lifeblood. Given the lower overhead and likely better user engagement, YouTube Red could get crushed out of the streaming market.
In addition to YouTube, traditional multichannel video programming distributors (MVPDs) like NBC, MTV, and Comedy Central should be concerned. As Facebook moves upstream to longer content, users will be more unplugged from their televisions and more attached to their mobile devices, reducing the time they spend consuming traditional network content and the value of those ad buys.
If an MVPD was smart and enterprising enough, it would seriously consider a partnership with Facebook and offer to create content for this push on video. MVPDs already have the talent and infrastructure necessary to produce quality content, so, at a minimum, it would potentially open a new stream of revenue for an industry struggling to grow and thrive.
After a banner year for revenue and user growth, it's time for Facebook to put those dollars and eye to some good use. Expanding on video seems to be the right move at this juncture and it's certainly exciting to see how far the social giant will take it.