"We've definitely got YouTube envy," Netflix (NFLX) CEO Reed Hastings admitted on his company's Q1 earnings call. He was talking about how the Alphabet/Google-owned (GOOGL) video giant's viewing activity, now above a billion hours per day, still dwarfs Netflix's, which is slightly above a billion hours per week.
Mark Zuckerberg hasn't said anything similar about YouTube, but judging by the comments that he and other Facebook (FB) execs have been making about their company's video plans, and the reports that have been coming out about them, he may as well have. While the specifics of Facebook's attempts to become a major professional video hub suggest the efforts won't be a major threat to Netflix and its subscription streaming peers, it could be a larger headache for YouTube, and perhaps also some smaller ad-supported online video platforms.
On Wednesday afternoon, Reuters reported that Facebook has inked deals with Vox, BuzzFeed and other "millennial-focused" content providers to create original, ad-monetized, video shows. The company is reportedly paying up to $250,000 per episode for scripted shows lasting 20-to-30 minutes; for scripted and unscripted material lasting 5-to-10 minutes, Facebook will pay $10,000 to $35,000 per show, and also give creators a 55% ad revenue cut (on par with YouTube's).
Facebook execs have insisted that over the long run, they don't want to pay for video content, but instead focus on doing ad revenue-sharing deals with creators. In the near-term, however, they see some value in paying for content in order to get the ball rolling.
Reuters' report follows one three weeks ago from Business Insider stating that Facebook plans to launch about two dozen original shows that will appear in its core app's Video tab, and on its recently-launched app for living room streaming devices such as Apple TV set-tops and Amazon.com's (AMZN) Fire TV stick. It added Facebook was interested in "teen-centric shows" and live sports -- a deal to stream 20 MLB games this year was announced last week -- and that Facebook has "tapped A-list celebrities to star in some of [its] shows."
BI reported that Facebook was planning to launch its initial content slate in mid-June. But since then, Re/code has reported that the effort has been delayed, and that the first shows "likely" won't launch until late July or early August. It noted that Facebook is still "figuring out" where its original content will reside on its app, outside of the Video tab.
Facebook's ultimate goal: To become, like YouTube, a place that its users visit specifically to watch both long and short videos from their favorite creators. While Facebook's core news feed sees billions of daily video views and thus provides some indirect competition to YouTube, most Facebook users don't load its app with the goal of seeing videos from one creator or another. Rather, they choose to watch some of the videos (typically short-length) produced by friends, followed accounts and advertisers that are placed on their news feeds by an algorithm.
Moreover, as an exec for The Atlantic just pointed out while discussing his publication's decision to make YouTube the heart of its video strategy, Facebook news feed videos are frequently watched with the sound off (a user typically has to click or tap on a video for sound to start playing). And Facebook's efforts to promote user content sharing have led it to tweak its news feed algorithm to make brand and publisher content appear less often relative to content produced by a user's friends.
All of that gives Facebook good reason to create dedicated places on its platform to showcase quality video content from the many big video publishers using it. And which would motivate many of these publishers to either create more content specifically for Facebook -- including the kinds of longer videos that aren't viewed that often on the news feed, or at least use Facebook to distribute more of the more material currently distributed via YouTube or a publisher's own properties.
Throw in Facebook's plans to finally create a formal video ad revenue-sharing program for creators, and the stage is set for the company, whose scale and advertising strengths allow it to make a powerful sales pitch to video publishers and marketers alike, to become a much more credible threat to YouTube. With Facebook claiming over 1.28 billion daily active users that spend over minutes per day between its core services, Messenger and Instagram, getting even, say, a quarter of its users to become avid viewers of professional video played with the sound on would lay the foundation for a new 10-figure ad business.
Of course, inertia is very much on YouTube's side in this battle: The video giant's billion-plus active users have spent a lot of time discovering and following channels they enjoy, and YouTube (aided by Google's machine learning chops) has gotten pretty good at recommending videos that they'll enjoy seeing. But Facebook could pitch users on a superior viewing experience: Unlike YouTube, Facebook won't show "pre-roll" ads that appear before a video starts, and will only monetize them via "mid-roll" ads that appear later. And Facebook is no slouch itself when it comes to personalizing and recommending content.
The video efforts of social media peers such as Twitter (TWTR) and Snap Inc (SNAP) are also in the crosshairs here, perhaps even moreso than YouTube's since they have much less scale. Twitter especially seems vulnerable here, since many of its recent content deals involve longer shows that can be costly to produce and which might not appeal to users accustomed to jumping in and out of Twitter's app in a few minutes. Snap, whose video deals involve shows that are just 3-to-5 minutes long, appears relatively better-positioned.
While YouTube and Twitter should watch Facebook's moves closely, there isn't much about its actions that should worry a Netflix or Amazon. The fact that subscription streaming services show full-length TV shows and movies ad-free will remain a big differentiator. And the big-name studios, directors and actors that have struck lucrative deals with Netflix or Amazon are quite unlikely to jump ship in the name of putting ad-monetized content on Facebook's Video tab.
Facebook seems to get this. Hence its initial focus on sports and millennial-targeted videos from online content creators (a YouTube and Snapchat staple), rather than material that might go head-to-head with House of Cards or The Man in the High Castle.
To an extent, one could also argue that Facebook's video success doesn't have to come at YouTube's expense. As video viewing and ad dollars keep shifting to online/mobile channels, there could easily be room for YouTube to continue seeing strong growth even if Facebook's video tab and app one day claim several hundred million well-monetized DAUs. The average American still watches over 4 hours of TV per day -- time that online video players in general have a lot of room to eat into.
But considering the overlap between what Facebook and YouTube are trying to do, the latter needs to take the former's actions seriously. Particularly given the resource that Facebook can bring to the table.