Here’s Why Facebook Might Introduce A Television App
Facebook (NASDAQ:FB) has increased its focus on videos on its platform and is looking at several ways to increase video consumption and drive revenues from video advertising. The company recently started testing a mid-roll ad format which will allow video publishers to insert ads within their video clips. So far, Facebook has been innovating on its platform to make videos the default form of communication. However, reports now suggest that Facebook is developing an app for television set top boxes, including Apple TV, exclusively for its video content. This app will be different from its existing app for set top boxes, which is a wide screen version of its mobile app. This initiative will put Facebook in the same league as Netflix and Amazon Prime Video, where its video content can be watched on television via a dedicated app, on demand by viewers. However, the nature of content offered by Facebook and other players would be different. Netflix and Amazon have huge content budgets and are spending heavily on original programming. Facebook videos are usually shorter clips posted by users, but the company is reportedly in discussion with media companies to license TV quality shows on its app. While this strategy can drive advertising revenues for the company, the quality of videos offered via this app will be the key deciding factor.
See our complete analysis for Facebook
- Will United Airlines Stock Continue To See Higher Levels After A 20% Rise Post Upbeat Q1?
- Up 8% This Year, Why Is Costco Stock Outperforming?
- Down 7% In A Day, Where Is Travelers Stock Headed?
- What’s Next For Johnson & Johnson Stock After Beating Q1 Earnings?
- Should You Pick UnitedHealth Stock At $480 After A Q1 Beat?
- American Express Stock Is Up 17% YTD, What To Expect From Q1?
As Facebook pushes video content, one of the key challenges it needs to address is that users are unlikely to watch longer videos on the smaller screens of mobile devices. Larger screens make the viewing experience better, especially for sports events and drama shows. By creating a separate app for set top boxes where users can view videos available on Facebook, the company appears to be looking to solve for this challenge. An app available for television gives the company additional video advertising space, easing the pressure of its NewFeed where it is running out of ad capacity.
eMarketer estimates that the US digital video ad spending will see double digit growth annually through 2020. U.S. digital video ad spending is expected to reach nearly $17 billion by 2020. We expect Facebook’s advertising revenues from the U.S. and Canada to reach around $22 billion by 2020. If the company is able to capture a significant share in the digital video advertising market, these revenues can increase at a faster pace, impacting the valuation of the company positively.
While Netflix and Amazon Prime have a subscription based model, Facebook is banking on advertising revenues to monetize its video content. For this model to succeed, the company needs to have engaging content and higher viewership to attract advertisers. We do not expect Facebook to spend significantly on “premium content” but to continue with its revenue sharing agreements with video publishers to build a library of high quality videos on its platform. Licensing television shows appears to be another strategy of the company to increase high quality video content. We believe that, as user growth on its platform stagnates in the U.S., several ways of engaging the existing pool of users are essential for growth in its advertising revenues. A television app can provide an additional avenue for Facebook users to engage in its video content and drive revenue growth for the company over the long term.
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)