Facebook Coming to Your TV and More

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1Q 2017 | IN-4442

Even as fresher social networks appear and popular outlets like Snapchat prepare for an IPO, Facebook continues to grow and dominate the market. Facebook has over 1.8 billion monthly active users (MAU), up from just over 1.2 billion MAU in 2013. Mobile, once a concern from a monetization standpoint, now represents over 60% of the MAU user base; this figure is up from just 24% in 2013, and that’s mobile only users.

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Facebook Will Offer Long-Form/Episodic Content on Connected Device

NEWS


Even as fresher social networks appear and popular outlets like Snapchat prepare for an IPO, Facebook continues to grow and dominate the market. Facebook has over 1.8 billion monthly active users (MAU), up from just over 1.2 billion MAU in 2013. Mobile, once a concern from a monetization standpoint, now represents over 60% of the MAU user base; this figure is up from just 24% in 2013, and that’s mobile only users.

Revenue growth is particularly strong due to high increases in ARPU (average revenue per user), which has more than doubled since 2013, the annual ARPU was $6.03 in 2013 and has increased to $15.54 as of 2016. While it is natural to look at new avenues for growth, the exceptional success Facebook has experienced over the past five years might lead some to question the push into video and other markets. Google/Alphabet has their “Moonshots” as part of the company’s “other bets, ” but it scaled back resources as the Alphabet looks to evaluate operating segments through a stricter financial lens. Facebook, due to the nature of their business must remain nimble, but the company branched out into similar higher risk opportunities e.g. Oculus. Video is a key pillar of Facebook’s future, which considering the company’s historical core competencies might look like a peculiar choice. This is especially true when one considers the strong presence of cable providers and streaming services like Netflix, Hulu, and Amazon. There is more to the numbers than just strong growth if we break up the worldwide figures by regions, we see just how important the North American and European markets are to Facebook’s success.   

The North American and European markets constitute only 31.2% of Facebooks MAUs in 2016, down from 43% in 2013. These two regions, however, account for just over 74% of total revenue, which is down from 77.2% in 2013. Clearly a substantial portion of the MAU growth is coming from Asia and RoW (rest of world); however, the considerably lower ARPUs of these net-adds makes them far less valuable than the existing base of users from the Western markets, especially North America. 

Premium video will help Facebook maintain ARPU growth in the more mature/saturated markets, while potentially giving a boost to Asia and RoW market where ARPU remains considerably lower; shifting some of the burden off the Western markets to maintain Facebook’s overall revenue growth prospects. What impact will Facebook’s vast user base have on the OTT video market?

There’s Only so Much Time in the Day

IMPACT


Facebook has yet to disclose too many details about this future service, but regardless it will compete with incumbents like Netflix, Hulu, Amazon, and YouTube. Facebook is also looking to pair live content e.g. sports with original programming, so it is possible the company could launch a service similar to Sling TV or Sony’s PlayStation Vue, in the future. This would pit Facebook against cable providers as well. However, this is perhaps a leap from the news and live content that it is known for today. Assuming Facebook’s TV service competes with the aforementioned OTT services, this will do more to alter the market share landscape than drive overall OTT viewing higher. Changes to consumer behavior often occur more gradually than we think and video viewing is no different. In addition, households only view so much video per week, and Facebook’s entrance likely won’t do much to alter these values. If we look further down the road and Facebook launches a truer pay TV substitute, would this dramatically alter the video landscape?

Probably not, unless Facebook is able to secure content rights at dramatically lower prices, which is unlikely based on the experience of other video providers, Apple and Google couldn’t accomplish this. So, Facebook’s entrance into the market, regardless how it evolves will likely do more to impact its new competitors than change the OTT video landscape; unless Facebook pushes 360 video and VR experiences, which could accelerate this facet of the market. With only a third of Facebooks 1.8 billion MAUs come from North America and Western Europe, so the higher revenue rates for premium video are only applicable to a relatively small segment of Facebook’s overall base; video ARPUs in Asia and other regions are often considerably lower (even for premium video) than these Western markets.

Facebook Is No Longer a Social Network

COMMENTARY


While we continue to classify Facebook as a social network, such a label belies what the company has become and where it is going; this is akin to saying Google/Alphabet is a search engine company. Yes, most revenues still come from these core business units, but there is much more to these companies’ operations and aspirations than just dominating their respective markets, Amazon is another prime example. It’s no longer good enough to excel at just one market, rather like a good financial portfolio, diversification is often the prudent choice.

Facebook is positioning itself as a future hub, not just for video, but for many more aspects of their users’ lives. Facebook at work will help bridge the divide between one’s personal and professional lives; Facebook is also home to a vast array of chatbots and has dabbled in with personal assistants (Facebook M) like Siri, Cortana, Alexa, and Google. Facebook’s entrance into the VR space could help augment these activities with virtual meetings (both personal and professional), tourism, gaming, and commerce;  virtual assistants and chatbots could one day have virtual bodies to go along with virtual storefronts. Video is a way to grow revenue as the installed base matures, but it is Facebook’s wider activities that will carry it into the future.

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