Just Watch – Facebook’s about to change TV and film for ever
FaceBook (NASDAQ: FB) has now joined the stampede to purchase on-demand video content. It’s a gamechanger for this sector, simply because of Facebook’s scale.
Facebook Watch is the new Facebook product, now being predicted to overtake YouTube as the main way viewers access film, TV and video, although Facebook only launched Watch in August. So are these predictions exaggerated? Not according to industry watchers. And Facebook’s move will have the video and film production companies cracking open the champagne because it will lead to exponential growth in the demand for quality content from the sector.
Facebook’s strategy aimed at overtaking YouTube
Of course, Facebook has offered video for some time. But when they launched Watch, it was immediately clear that a far-reaching strategy was being implemented. Watch is clearly a brand in itself, with a separate Watch logo and app.
Mark Zuckerberg has told BuzzFeed that he expects most people using Facebook in five years’ time will be doing so by watching and sharing video. The numbers are staggering – in 2015, Facebook’s daily views of video grew from four to eight billion over six months. There’s no reason to think this rate of growth has done anything but accelerate since. YouTube has one and a half billion users while Facebook has two billion active users. It’s easy to see where the video views are going to grow fastest.
Facebook’s formidable advertising machine will promote video content
Major brands are likely to start choosing Facebook over YouTube for several reasons. First, they are less likely to find their advertising next to undesirable content. Second, Facebook can now offer a fully integrated offering for marketing spend. Third, Facebook can focus video views to relevant consumers because it knows so much about its users. And lastly, Facebook is prioritising video over all other content in its feed algorithms.
No one wants to watch ads. But they’ll put up with ads that are part of immersive and compelling content. Problem: Facebook is going to need content – a lot of it. Answer: pay for it.
It’s going about this in several ways. On the one hand, it’s offering to contribute to production costs. This makes a film or TV project a lot less risky and will help to attract investors. Facebook is also buying content outright and licensing content for viewing on its site, as well as sharing ad revenue.
The fact that both YouTube and Facebook have realised that content is the key to their future growth and that they need to compete for great series and films, is nothing but good news for the media, TV and film sector. And what’s more, Facebook is specifying that only 50% of the video can be live – so there’s definitely an emphasis on creativity.
Investing in the content boom
Facebook (NASDAQ: FB) stock is trading pretty near its all-time high. A five year chart tells you everything you need to know – a virtually straight line increase in the stock price. The company’s Q3 results included a prediction that operating expenses would rise by up to 60% in 2018. However, the company’s revenue rose 47% to $10.3bn, so Facebook isn’t going to be short of funds anytime soon. Indeed it could be that the rise in costs is related to the company’s planned content investments.
Substantial growth is clearly also on the cards for those media companies that are able to take advantage of the extraordinary opportunities being offered by Facebook Watch. Many smaller film and TV production companies are privately owned. Obviously, investors who can buy up or take a chunk of those companies are beginning to look seriously at investing. Smaller investors looking to position themselves to take advantage of what has all the makings of a significant growth story, will need to stick to stock purchases in the larger media companies.
An increase in the amount of video content also means more business for companies which provide facilities and ancillary services to the creative industries, so they are also worth a look.
Facebook’s strategy will change this sector completely, removing much risk and providing huge opportunities for the creative industries and their service companies.
Facebook amplify content team
Mark Zuckerberg as CEO and Sheryl Sandberg as Chief Operations Officer (COO), continue to be a winning team. Zuckerberg still holds an open Q&A session with his employees every week. Facebook continues to have a reputation among its staff as a good place to be employed.
With video content a clear part of its strategic plan, the company has recruited Mina Lefevre as its Head of Development; she was formerly executive vice president of MTV. David Wehner continues as Chief Financial Officer (CFO), a position he’s held since 2014, after joining the company in 2011.
Lured from PayPal to scale up the Facebook Messenger platform, David Marcus, Vice President of Messaging Products, has grown regular users of the service from 300 million to 700 million.
Facebook comfortably beat consensus earnings per share (EPS) forecasts, reporting $1.59, whereas the forecasts were for $1.28. However the company warned that spending on security, to fight fake news and fraud, was going to increase and would impact profits next year. The security effort will involve hiring a lot of new people, and the company is planning to add another 10,000 employees by the end of next year.
Facebook easily beat its revenue forecasts too. Quarterly revenue was $10.33bn as against expectations of $9.84bn. That’s a year-on-year (YoY) increase of 47%. However, revenue growth is falling, and the company expects this trend to continue.
There are now 6 million advertisers paying for Facebook’s services. The company was able to increase its charges per ad by 35% YoY. When it comes to maintaining and lifting ad rates, daily and monthly active users are key figures. Monthly users rose from 2.01 billion in Q2 to 2.07 billion in Q3 and daily users from 1.32 billion in Q2 to 1.37 billion in Q3. However, Facebook admitted that whereas it had estimated that 6% of those 2 billion monthly users were duplicate accounts, it now realised that the number was closer to 10%.
The current price / earnings ratio is about 35 – low for this kind of firm. Facebook’s free cash flow is $14bn – double Amazon’s and Facebook has zero debt whereas Amazon, for example, owes $25bn. Return on Investment (ROI) more than doubled in 2016, to 16.41 – another sign of a well-managed company.