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Facebook Inc Is Gunning for YouTube, not TV — The Motley Fool

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By Danny Vena.

For all the talk about Facebook taking on TV and streaming video, the answer is much simpler — and potentially lucrative.

When social media giant Facebook (NASDAQ:FB) announced it would debut a hub for original video content, much ink was spilled that the company was preparing for an all-out assault on television. This would be an easy conclusion to draw since the platform, called Watch, would feature programs that will appeal to a wide variety of its users, including live sports, cooking shows, and children’s programming.

While there’s always potential for quality content to lure viewers away from live TV, it’s more likely that the company is pursuing a much broader strategy as it launches a video platform. Facebook likely has one competitor in mind — YouTube, a subsidiary of Alphabet‘s (NASDAQ:GOOGL) (NASDAQ:GOOG) Google, and Facebook’s most direct competitor in the online advertising space.

Facebook Watch has its sights set on YouTube. Image source: Facebook.

It “ads” up

In a recent blog post, YouTube CEO Susan Wojcicki revealed that more than 1.5 billion viewers visit the site every month and that viewers spent over an hour watching video. That many eyeballs generate a significant share of YouTube’s ad revenue.

In 2016, digital advertising in the US grew by 22% year over year, amounting to $72.5 billion, and an increasing portion of that growth is being divided between Google and Facebook. Estimates suggest that the two accounted for as much as 89% of digital advertising growth in 2016, with Google commanding 49%, while Facebook garnered 40%.

Estimates by eMarketer indicate that Google enjoys a 41% share of all U.S. digital ad revenue, while Facebook accounts for 20%. By increasing its focus on video, the latter hopes to increase its share of digital advertising revenue at YouTube’s expense.

Watch out!

Facebook introduced Watch as “a new platform for shows on Facebook”, which is personalized to help users find new content of interest to them and organized around their friends. The platform would feature categories, including “Most Talked About”, “What’s Making People Laugh”, and “What Friends Are Watching”. The company’s experience with Live taught it that user interactions were an important aspect of the experience, so it’s also organizing shows around communities.

New programs will include Virtual Dating where strangers will use virtual reality as the medium for a blind date and Tastemade’s Kitchen Little, “a funny show about kids who watch a how-to video of a recipe, then instruct professional chefs on how to make it.” As you can imagine, those recipes don’t always turn out as intended. Facebook had previously announced a deal with Major League Baseball to livestream 20 games on its site this season.

Screenshot of Facebook Watch, showing Featured shows.

Facebook believes video will continue to grow user engagement. Image source: Facebook.

Facebook described Watch as “a platform for all creators and publishers to find an audience, build a community of passionate fans, and earn money for their work,” though that definition works equally well for defining YouTube.

There has been a massive increase of mobile video consumption, and it’s estimated that video will account for 82% of all internet traffic by 2021, up from 51% in 2016, so Facebook is wise to stake its claim now.  There are also limits to how much advertising the company can place in its Newsfeed before users revolt, and the company has addressed this by adding additional platforms like Messenger, WhatsApp, and Instagram. The debut of Watch will provide the company with additional real estate for both user engagement and advertising, and stealing share from YouTube would be icing on the cake.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena owns shares of Alphabet (A shares) and Facebook. Danny Vena has the following options: long January 2018 $640 calls on Alphabet (C shares) and short January 2018 $650 calls on Alphabet (C shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. The Motley Fool has a disclosure policy.

               

By Danny Vena

(TMFLifeIsGood)

Daniel W. Vena, CPA, CGMA is long-term investor searching for intangibles that provide explosive growth opportunities in his investments. He served on active duty with the US Army and has a Bachelors degree in accounting.

Sourced from The Motley Fool

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Time Inc. to sell assets amid push to move beyond print

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Sourced from CRAIN’S New York Business

Time Inc. is planning to sell some magazines or other properties as the struggling publisher tries to push ahead with a digital strategy and move past months of talks with potential acquirers.

The owner of Sports Illustrated and People will look to offload “relatively smaller” titles in its portfolio and other “non-core” assets, chief executive Rich Battista said Wednesday on a conference call. He didn’t name the assets.

Battista added that Time is open to joint ventures with other companies and interested in an outside investor who could provide capital “for a particular opportunity.”

Last month, Time announced that it was sticking with its online strategy rather than sell itself after months of negotiations with potential suitors, including Meredith Corp. and a group including Pamplona Capital Management and Jahm Najafi. New York-based Time was said to be holding out for more than $20 a share.

The shares slumped as much as 19% to $12.20 on Wednesday. The magazine publisher reported first-quarter revenue of $636 million, missing the $642 million average of analysts’ estimates. Its net loss widened as print advertising sales declined 21%. It also cut its dividend. Like other magazine publishers, Time is struggling to transform itself as print advertising dries up and the lion’s share of digital advertising dollars goes to Facebook Inc. and Google.

The magazine owner has spent months restructuring its business and replacing senior management, hoping to persuade advertisers to pour money into its magazine titles. This fall, Time plans to introduce a Sports Illustrated online video service with documentaries and insights from the magazine’s reporters, part of its growing push into video. Some of Time’s smaller titles include Sunset magazine and What’s On TV, which is based in the U.K.

Investor challenge

On an earnings conference, one of its investors demanded more detail about Time’s strategic plan.

“You constantly refer to this strategic plan, but you provide no numbers for the shareholders to basically grasp what this company will look like in two or three years,” said Leon Cooperman, of Omega Advisors Inc., which owns 3.9% of the magazine publisher, according to data compiled by Bloomberg.

“I think it’s incumbent upon the company to share with the shareholders, the people that have the money invested, what the strategic plan would yield,” Cooperman said. “Because I’m pretty confident that this company can be sold today at at least $18 a share.”

Cooperman urged the company to hold an analyst day and reveal its strategic plan in more detail. “Then we can make an intelligent decision whether we should agitate for a sale or be patient and give you guys a chance to do your magic,” he said.

Battista replied that Time hired an adviser to cut costs and believes it can reach $1 billion in digital revenue, but did not provide a timeline. In an interview, Battista said the company would provide some profit guidance going forward and “other insights when appropriate.”

“We feel really excited and confident in our plan,” Battista said.

Sourced from CRAIN’S New York Business

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