The social network is developing a
video-centric app for television set-top boxes, including Apple Inc.’s
Apple TV, people familiar with the matter said, giving it a home for video
content as well as a new vehicle for video advertising.The app is one of
several Facebook projects aimed at making it a “video-first” company that
can compete for television ad dollars. The social giant has been marketing its
live-streaming capabilities, testing a new video ad product and integrating
more videos into Instagram, its photo-sharing app.
Facebook is also in discussions with media
companies to license long-form, TV-quality programming, people familiar with
the situation said. A set-top box app would be a natural way to distribute that
“premium” content and make it accessible on TV sets. Facebook is already the
second-biggest player in digital advertising, after Alphabet Inc.’s
Google. But the social-media giant said last November that its main source of
revenue, the news feed, was running out of room for more ads.
As a result, executives warned that revenue
growth would “come down meaningfully” starting in the middle of this year.
Facebook is due to report its fourth-quarter earnings on Wednesday, and
analysts expect revenue to have increased 46% the slowest rate of growth in
five quarters to $8.5 billion, according to Thomson Reuters.
Tapping more of the $70 billion U.S. TV
advertising market could help offset its growth plateau. Video ads command a
premium over text- and image-based ads within the news feed. Though video ads
already contribute to Facebook’s growth, deep-pocketed advertisers still spend
the bulk of their marketing budgets on television ads.
Facebook has competition from other tech
companies. YouTube, part of Google parent Alphabet Inc., and Snap Inc.’s
Snapchat are also angling to get more TV advertising. Google said last week
that ads it sells on YouTube generally cost less than its search-engine ads.
Snapchat is pushing more toward a content-licensing model, a move that media
executives say Facebook has noticed.
Facebook started emphasizing video in 2014,
reflecting the belief internally that video is becoming a central part of how
people communicate. Late last year, some employees at Facebook started referring
to the platform’s future as a type of “mobile TV,” one of the people said. The
social network is hoping to cut into the time Americans spend watching live
television around four hours a day on average, according to media measurement
firm Nielsen.
Facebook’s users world-wide spend an average
of 50 minutes a day on its products, regardless of the type of content,
according to the company. The company’s video priorities have evolved, from
on-demand video to videos broadcast live, and now to higher-quality videos.
Facebook has been known for short-form video
clips. But media companies say they are in talks with Facebook to provide it
with long-form “TV-like” content upward of 10 minutes in length. That content
could include scripted shows and sports and entertainment content created
specifically for the platform, according to media executives familiar with the
discussions.
Nearly every product team at Facebook is
working to incorporate more video across its features and apps, according to
people familiar with the matter. Last week, it began testing “Facebook
Stories”, a photo- and video- montage feature that is a carbon-copy of a
popular feature on Instagram.
Facebook has vowed to avoid pre-roll video
ads, the spots popular on YouTube, because it believes it would turn users off.
Earlier this month, Facebook began testing “mid-roll” ads a format that
recalls a typical TV spot in the middle of live videos, and plans to introduce
them in all videos. The ads will be 15 seconds long, and will only appear after
a video is played for at least 20 seconds, according to media executives
briefed by Facebook.
Last week, Facebook also tweaked its
news feed to boost the visibility of videos over 90-seconds long. The move
could result in more advertising space for Facebook to sell, publishers briefed
on the project said. Facebook has told publishers that it plans to share
revenue from mid-roll ads with them.
The set-top box app under development would
offer another, potentially more promising route for Facebook to seize a larger
portion of TV budgets, the people familiar with its app development said.
Facebook has been contemplating some version of a video-focused set-top box app
for years, but the effort was revived last summer when Facebook executives
decided to double-down on video for the second half of 2016. In October,
Facebook introduced a feature allowing users to stream videos from the Facebook
app to their TVs through devices like Apple TV or Google Chromecast.
The new app would go further than other
set-top box apps that Facebook has developed with companies like Roku, Inc.,
because one design Facebook was mulling wouldn’t contain any “non-video
content,” said one person briefed on the app. The existing Roku app allows
users to view photos and videos.
The app would be a home for video content,
including the original, premium content that Facebook currently is trying to
attract from major studios, the people said. Facebook eventually would sell ads
against that content, giving it another way to generate growth to offset the
expected decline in ad growth in its core news feed. “If there’s good video
content, you’ll actually watch a couple thirty-second video ads,” one person
familiar with the efforts said.
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