Video is a major element of Facebook's strategy moving forward, according to comments made by its CEO, Mark Zuckerberg, during the company's second-quarter earnings call. While he was optimistic about the potential for messaging applications Messenger and WhatsApp, he felt that video was likely to have even more of an impact over the next few years.
Noting that most of the questions on the call were about Messenger, he said that he wanted to ensure that he accurately conveyed what the company was thinking about as a business and that's why he was bringing up video. Video, in his opinion, offered the best opportunity to reach large scale and create new revenue models for the company, compared with the "feed-based businesses" offered currently.
Facebook has been developing its video strategy patiently because it is important for the company to get it right, according to Zuckerberg. But he was optimistic about its potential, anticipating that revenues will ramp up sharply in the next two to three years. In his opinion, video would be the "primary driver or one of the big drivers" of Facebook's business in coming years, followed by Messenger.
Facebook and Zuckerberg have been talking up the company's video strategy for two years or so now. While live streaming by individual users has been rolled out and adopted, it's probably moved a little more slowly than others in terms of offering licensed or original content. YouTube Inc. , for example, has already rolled out a skinny bundle while Twitter Inc. has signed up a number of premium content providers.
Still, as Zuckerberg says, it's better to do this right than fast, specially when you have more than 2 billion active users in the bag. According to Brian Fitzgerald, analyst at Jeffries LLC, "Facebook is the best positioned social platform today, connecting 2 billion-plus users worldwide to nearly every advertiser. Video across both Facebook and Instagram are the areas to watch as digital video consumption continues to take share from nearly every other form of media consumption. We think there is upside to both ARPU and MAUs driven by increasing engagement across all platforms and the opportunity to grow its digital video advertising business."
Fitzgerald also pointed out that Instagram and WhatsApp are both sizeable platforms with a billion-plus users, but have yet to effectively monetized by Facebook. Both have more than 250 million daily active users (DAUs) using the Stories feature to share digital video on the platforms.
Facebook reported a 45% annual increase in total revenue to $9.32 billion in the second quarter, with net income rising to $3.89 billion, up 71% over last year.
For service providers, Facebook's emphasis on video could mean a new competitor, though Facebook's relatively cautious entry into the space implies that it is not looking to create another skinny bundle. Instead it is carefully searching for the right formats and genres for its platform, rather than trying to replicate the pay-TV or even Netflix-like OTT experience. From other interviews, it seems that Facebook's video strategy is definitely mobile-first, so it's more likely to prioritize the types of content that suit the kind of engagement viewers have with the platform on mobile devices. As such, it will more likely compete with YouTube and Twitter for its original and licensed content services.
On the other hand, user-generated video content is also likely to ramp up on its various platforms. There Facebook will compete with more traditional social video rivals, Periscope and Snapchat. Again, the direct impact on pay-TV will be limited -- but it will have a significant impact on networks and bandwidth. In particular, mobile operators will need to cater to this activity. User-generated live streaming will create major traffic spikes during certain events, which often unpredictable. (See EE's Stagg Warns of Brewing 'Content Storms' and Social Video Could Be the Next Great Challenge for Network Operators.)
The other problem is that operators are going start to see more pressure on the uplink, as users upload content -- while operators have concentrated most of their capacity expansion efforts on catering to downstream traffic. They need to be careful that upstream bandwidth doesn't get choked due to sudden, unpredictable events that cause a live streaming frenzy.
— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation