The jury is still out as to whether or not Netflix, Inc. (NASDAQ:NFLX) shareholders and Hulu’s owners should worry about the fact that Facebook Inc (NASDAQ:FB) is increasingly encroaching on their video territory. Some say that the programming FB reportedly has in mind isn’t a threat to the likes of Netflix, Hulu, and the relative newcomer to the on-demand arena, Amazon.com, Inc. (NASDAQ:AMZN). Others say that any online television venue could find formidable competition from the social networking giant.
One thing is for sure, however. That is, whatever Facebook decides to do with video, it’s apt to be a boost to the value of FB stock.
Facebook’s Video Ambitions
The latest in the saga: Facebook is reportedly spending as much as $250,000 per episode for a handful of 30 minute shows to be outright owned by the company. While the full lineup is still a mystery, and the expected launch date has been pushed back from this month to July or August, it’s not difficult to get a sense of what the company is aiming for.
It’s inked content deals with BuzzFeed and Vox Media, which not only implies at least some news and commentary-based programming, but also suggests Facebook is focusing on the under-30 crowd.
It’s a considerable departure from the video business model the company was pushing just a few months ago, which sought to garner curated content and split revenue with that content’s creator… a la YouTube.
That’s why more than a handful of onlookers believe that even the establishment of a standalone video repository — one that even sits behind some sort of pay wall — won’t necessarily prove disruptive to players like Amazon or Netflix. It’s not the same kind of content, and even for the commissioned television shows, $250,000 per episode isn’t going to get Facebook much compared to the more-than-$4-million per episode Netflix is spending just to make one episode of its “House of Cards” series.
That logic, however, overlooks a key aspect of the under-30 demographic — a group that’s about to enter their high-earning/high-consumption years — that advertisers so desperately want to address.
It’s difficult for anyone under the age of 40 to imagine, but there was a point in time when you couldn’t access an infinite amount of video content on the web. Indeed, the sub-25 crowd struggles to digest the fact there was a time not too long ago when wireless internet wasn’t even a thing.
The over-40 crowd still remembers a time when Amazon.com didn’t sell a little of everything, and what it did sell didn’t always show up the day after it was ordered.
To that end, as unusual as the premise of buying groceries, gifts, electronics and on-demand videos all from one supplier seems to the… oh, say, over-35 crowd, to most consumers under the age of 35, such mental distinctions don’t exist.
Ditto for video content. That is to say, while today’s young adults certainly understand that pay-television programming content piped into your home by a coaxial cable is different than the short five and ten minute diversions that have popularized YouTube, that crowd doesn’t value one over the other.
Indeed, millennials continue to turn off traditional television, and power up their internet-connected devices. YouTube has supplanted traditional television as the go-to entertainment source for this age group.
And, although YouTube’s alternative to cable TV hasn’t been a jaw-dropping success, it hasn’t been a failure, either. It has, however, pointed to the continued blurring of the line that’s separated mainstream television broadcasts and internet-based videos produced by amateurs and pros alike.
That crowd (and younger) just doesn’t distinguish or rank different kinds of digital content delivery.
Bottom Line for FB Stock
With that as the backdrop — and this is the part that should excite owners of FB stock — it doesn’t entirely matter whether Facebook is looking to take aim at Netflix with its original content, or instead is looking to be more like YouTube and co-market short snippets. It can, and likely will, do both — and both are more than marketable.
Where Facebook could really extract value from adding video to its mix, however, is in pushing its existing user base of nearly 2 billion monthly users to its video venue. Conversely, it could use its video content to send people back to its more familiar social media pages.
That’s where Netflix is missing the boat, and where Amazon isn’t. Netflix only sells one product, and lives or dies by the sword. Amazon and Facebook, however, both have several ways to monetize their members.
In that light, Netflix and Hulu aren’t inherently losers should Facebook get traction with its digital video effort. There will come a point in time, however, when consumers can, and will, make a choice between commoditized television content. The good news for FB stock holders is that Facebook is slowly but surely positioning itself to be that first choice. What it is today won’t be all it is a year from now.
NFLX owners should be worried.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.