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Edited by Jeff Muskus
● The company’s lackluster video tab still has a lot to prove to both viewers and advertisers
Three long years ago, when the world knew little about Cambridge Analytica and laughed off the specter of fake news, Mark Zuckerberg had a very different kind of problem. Facebook wasn’t adding many users in key ad markets, so it needed to fig- ure out how to wring more money from its existing
audience. Although the company accounted for an impressive 45 minutes of its average user’s day, that wasn’t in chunks big enough to send them the ever-growing number of ads at the heart of the company’s business model. The average Facebook session lasted less than 90 seconds, according to people familiar with the matter—while you were waiting in a checkout line, trying to avoid eye con- tact between subway stops, or sitting on the toilet. Zuckerberg and other executives decided to try to boost that number by pushing their way into a much older kind of advertising model: TV. Like a lot of ILL
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Bloomberg Businessweek February 4, 2019
Facebook Watch Isn’t Living
Up to Its Name
◼ TECHNOLOGY Bloomberg Businessweek February 4, 2019
21
things at Facebook these days, it’s not going great. You’re probably not watching much Facebook
Watch. The company committed about $1 bil- lion last year to buying shows for its stream- ing video tab, reasoning that even a single hit could leech a significant piece of the average two hours Americans spend in front of the TV, or the Facebook-level amount of time they spend on Google’s YouTube. It hasn’t produced a hit like the Netflixes, Amazon Primes, and Hulus of the world. So far, some of its biggest names have been network castoffs (MTV’s Loosely Exactly Nicole) and refugees from other streaming services (Comcast Watchable’s I Want My Phone Back). When Facebook reported its quarterly earnings on Jan. 30, investors and analysts were mostly listen- ing for news about ad sales for its messaging apps and the stories feature it copied from Snapchat. (Bloomberg Media produces a show funded by Facebook for the Watch platform.)
While researcher EMarketer estimates that Facebook as a whole will take in nearly double YouTube’s $4.3 billion in video ad sales this year, it expects Watch to account for a single-digit percentage of that figure. “I don’t think it’s yet become a must-buy for brands,” says Abbey Klaassen, chief marketing officer at New York mar- keter 360i. “They are in a stiff competition for this kind of advertising and inventory.” Last summer, a year after Watch went live in the U.S., half of consumers hadn’t heard of it and three- quarters hadn’t used it, according to media researcher Diffusion Group.
“I think we’re making a ton of progress,” says Matthew Henick, Facebook’s head of content strat- egy and planning, who just pitched the service to advertisers at this year’s CES, the annual consumer electronics show in Las Vegas. He’s making the case that a product more like TV or even YouTube, where people choose what they’re watching more than they do scrolling through Facebook’s news feed, makes it easier to target them with ads. Seventy-five million people use Watch every day, Henick says. About 1.5 billion use Facebook daily.
The stakes are higher for Facebook than they were a few years ago. This past July, the com- pany warned investors to expect slowing revenue growth and narrower margins over time, because it’s already signed up most humans with an internet connection, its service has fundamental problems that would be very costly to fix, and it’s spend- ing a lot on initiatives like Watch. The announce- ment wiped out a record-breaking $120 billion of Facebook’s market value in a day. All told, the company lost 26 percent of its value in 2018.
It’s perhaps less of a surprise, then, that Watch is so thirsty. An annoying, persistent red notification dot over the Watch icon on Facebook’s home screen produces an itch-you-can’t-scratch feeling, one that isn’t much alleviated by the thin lineup if you do click through. The videos start playing automatically—allowing Facebook to bolster its statistics but without helping its case to advertisers that people are watching them intentionally. And the tab is packed with adver- tising, including banner ads that appear below videos while they’re playing and, in some cases, pre-roll ads that play before they start.
This wasn’t quite what Zuckerberg had in mind back in 2016. He considered Watch a direct com- petitor to YouTube, which in some markets was starting to beat Facebook in terms of time spent, says a person familiar with the matter. When Watch was conceived, the CEO insisted, among other things, that there be no pre-roll ads, espe- cially given how short the sessions on Facebook tend to be, according to another person familiar with the matter.
Now Facebook and its advertisers are tak- ing a kitchen-sink approach to Watch revenue, including making branded videos and selling subscriptions, as the company struggles to per- suade people to lounge with its social network at night. “We just haven’t figured out how to make it a superpower of ours,” Henick says.
Watch can still be successful if Facebook hews to a modest view of what success looks like— snatching ad dollars from cable and YouTube on the margins. Unlike big spenders such as Netflix, Facebook has said it doesn’t intend to pay upfront for shows in the long term. Its idea is that shows will be able to attract enough viewers on Watch so that the producers’ share of Facebook ad revenue will account for their compensation.
That’s assuming, of course, that people are watching. Facebook still has a lot to prove on that front, says Jeff Ratner, chief media officer at ad agency iCrossing. “It’s been up and running for a while now, but there’s no indication it’s getting major traction from users,” says Ratner. And as Mark Wagman, a managing director at consult- ing firm MediaLink, notes, even Facebook can’t coast on its size if it can’t differentiate itself from all the other streaming TV options online. The big question for advertisers, says Wagman: “Am I buying into something I can’t get anywhere else?” �Sarah Frier, with Gerrit De Vynck
● Awareness of Facebook Watch among Facebook users
Never heard of it 50%
Heard of, never used 24%
Use it 20%
Use it daily 6%
THE BOTTOM LINE A year and a half in, Facebook Watch, the company’s would-be YouTube killer, is a jumble of ads with no hit shows and a tiny slice of overall video revenue.
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