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As Facebook goes public, Futurescape highlights the key issues in its relationship with the television industry, post-IPO.

  • Facebook’s roles for broadcasters and content owners
  • Their opportunities with the Facebook app store
  • Will Facebook launch its own Social TV app, post-IPO?
  • How it can look to TV to help diversify revenue streams
  • Will the TV industry compete more fiercely over Social TV?

Facebook for broadcasters – viewer engagement, at scale

Facebook is now a well-established partner for both broadcasters and TV content owners.

For broadcasters, Facebook provides a unique opportunity to initiate social engagement with TV viewers, at scale. In the USA, for instance, 50.9% of the whole population is on the social network. Facebook engagement may help save US television from its prime-time ratings slump.

Broadcasters routinely promote new programming via Facebook to pull in potential viewers and boost critical first episode tune-in.

US cable channel History is marketing its new Western drama Hatfields & McCoys, starring Kevin Costner, with a Facebook app that lets a user join one of the feuding families. Evan Silverman, SVP of Digital at A+E Networks, says that these forms of Facebook activity provide not only marketing for shows, but also “volume plays for our sponsors.”

Other broadcasters enhance their programming with social games run on the Facebook platform. These are meant to ensure viewers engage with TV shows not only while they are on air, but also between seasons.

Some are experimenting with facilitating paid-for and free viewer voting in talent shows, via Facebook.


Facebook for content owners – social distribution

For content owners, Facebook presents a unique opportunity: distributing content to hundreds of millions of users globally and for those users to amplify that distribution by sharing the content with their friends.

BBC Worldwide, the commercial arm of the BBC, leverages the Facebook platform to give users video-on-demand access to full-length TV shows. Fans of sci-fi drama Dr Who can rent classic episodes from the show to view them on Facebook, paying via Facebook Credits.

As the video entertainment market continues its migration from physical media to digital distribution, Facebook’s enormous scale makes it a potentially very powerful partner – if its users decide that it is a suitable venue for consuming premium video.


The critical mobile dimension and the Facebook app store

As demonstrated by the $1bn purchase of mobile photo sharing company Instagram, Facebook CEO Mark Zuckerberg is acutely aware that Facebook urgently needs to improve its service to mobile users. Post-IPO, there will also be a sharp new focus from shareholders on Facebook’s mobile performance.

What opportunities and issues does this raise for Facebook, TV companies and the fast-growing Social TV sector?

Shortly after the Instagram deal, Facebook announced that it is launching its own app store, along the lines of Apple’s iTunes and Google Play. Facebook partners are being encouraged to set up native Facebook apps for the social network’s users to download from the store.

This appears to be an ideal opportunity for broadcasters that aim to extend their TV programming with games and similar transmedia enhancements. They can offer apps specifically designed to entertain viewers via their mobiles and motivate them to share the entertainment experience with Facebook friends.

Content distribution can similarly benefit, particularly as the fast-growing numbers of tablet owners are increasingly using these devices as alternative TV sets and video viewing screens. Tablet owners accessing Facebook may feel more inclined to view entertainment video than when they are in front of a PC.


Will Facebook launch its own Social TV app, post-IPO?

The Social TV phenomenon, of viewers interacting digitally with and around TV content via a mobile device, can boost live TV viewing and viewer engagement with shows. (See our in-depth Social TV report.)

This makes it a focus of fierce competition between Facebook, social network arch rival Twitter, and dozens of Social TV startups. They all want to be the go-to social media partner for broadcasters and content owners, and the first service that online users access for interacting with television.

The launch of the Facebook app store means that the Social TV startups have good reason to roll out their own native Facebook apps in order to attract or retain users. However, this will tie them even more closely to the Facebook platform.

Facebook has so far lagged behind Twitter in one key dimension of Social TV – people communicating during live TV broadcast. Viewers are much more likely to tweet about what they are currently watching than to comment via a Facebook update. (Facebook’s launch of the short-form Ticker sidebar was intended to give it more of a real-time Twitter look and feel for such interaction.)

Social TV is a powerful use case for accessing a social network via a mobile device: millions of individuals repeatedly interact with each other about their favourite shows. There is therefore a strong motivation for Facebook to launch its own Social TV app, with Twitter-style functionality.

This would position it even more effectively against Twitter as an attractive partner for the TV industry and, at the same time, both give its mobile users a compelling new Facebook service and also reassure shareholders that it is taking mobile seriously.

A dedicated Facebook Social TV app could seriously affect Twitter’s strenuous efforts to partner with broadcasters and content owners. It would also crush many of the Social TV startup companies, unless they are already supported by TV industry investors (see below).

One likely route to a Facebook Social TV app would be an “aqui-hire” purchase of a Social TV startup for the company’s engineering and other talent. (It would also gain the company’s user base, though the startups are miniscule by comparison with Facebook.) Facebook bought Social TV company Hot Potato back in August 2010 in just this way.


Quarterly pressure to do more with TV for new revenue streams?

Facebook’s revenues rely on two sources, predominantly advertising. In Q1 2012, Facebook advertising delivered 82.4% of total revenue, while 17.6% came from “payments and other fees.” These payments are made by Facebook users when they buy digital goods for social games hosted on the Facebook platform. Facebook requires that the transactions are made via the Facebook Credits payment system and Facebook takes a 30% cut of revenue going to the games company.

A constant investor criticism of Google is that it still relies so heavily on advertising. Post-IPO, shareholders will similarly be looking for Facebook not only to grow its advertising revenue, but also to diversify by opening up more non-advertising revenue streams.

There is a general expectation that Facebook will turn to e-commerce as a major potential revenue source after advertising. TV show and movie rentals are an attractive form of digital e-commerce, as they can be integrated into the Facebook platform and Facebook users will share their viewing, boosting rental figures.

Television can also demonstrate the promise of new forms of transactional revenue outside gaming, as with paid-for voting, using Credits, in TV talent shows.

In the short term, Zuckerberg’s tight control over the company means that he will be able to resist pressure to address specific issues, such as diversifying revenue streams. He may nevertheless still feel the need to show that progress is being made with boosting non-ad revenue by closing more distribution and transactional deals around TV and movies.


Will the TV industry compete more fiercely over Social TV?

As we noted previously:

“Facebook claims to be an ideal partner for TV companies. It can help them market their shows and engage their viewers. Yet it competes with broadcasters for $196bn in worldwide TV ad spend.”

Facebook COO Sheryl Sandberg has been using top TV show American Idol as a reference point for prospective investors in the run-up to the Facebook IPO:

“In the United States, every day on Facebook is like the season-finale of American Idol – the most popular show on television – times two.”

The implication, that Facebook can deliver greater scale to advertisers than even the best in network television, could hardly be more explicit.

Will the IPO be the turning point at which broadcasters and other media companies feel they have no choice but to fight back and protect ad revenue with their own Social TV initiatives?

Major media owners including Time Warner, Hearst and News Corp’s BSkyB have already invested heavily in Social TV startups that aim to rival Facebook for TV engagement.

Will a post-IPO Facebook that seeks to grow its ad revenue have to face increasing levels of resistance from the TV industry?


Social TV (8th edition)

With over a billion Facebook, Twitter and mobile messaging users discussing their TV viewing on second screens, Social TV is crucial for ratings success and advertising effectiveness.

Futurescape’s Social TV report is the most comprehensive and authoritative analysis of this complex and vibrant digital sector, consulted by media executives worldwide.

It provides a full strategic context and data to plan Social TV activity, set targets and evaluate results, for broadcasters, producers, advertisers and agencies.

See Full Details and Table of Contents