How Facebook's plan to attack TV is taking shape (FB, NFLX, GOOG)

Facebook Watch (wide)

Watch, Facebook's three-month-old hub for original shows, has yet to produce any commercial hits.
The Facebook-funded shows that have been renewed for second seasons all share the same trend of initial spikes in viewership followed by steep declines.
Facebook is judging the success of shows largely based on the repeat viewers that come back to watch subsequent episodes, rather than the sheer number of views the shows garner.
Facebook is still on the hunt for hit shows and is green-lighting longer shows with bigger budgets, multiple Watch partners told Business Insider.

To get a show renewed for Facebook Watch, the social network’s three-month-old hub for episodic video, one metric you won’t be judged by is your show’s sheer number of views.

Nearly all of the Facebook-funded shows in Watch that have been renewed for second seasons enjoyed explosive views of their first episodes followed by a more than 50% drop in views for subsequent episodes, according to public Facebook data.

Instead of chasing the millions of views that viral videos often attract in the News Feed, Facebook is renewing shows that attract relatively small batches of viewers who watch through a season, multiple partners with shows featured in Facebook's special Watch tab told Business Insider. And now that the first slate of launch shows in Watch have run their course, Facebook is looking to fund longer shows with bigger budgets, the partners said.

“They’re trying to create TV-like consumption habits on the platform where people are encouraged to be habitual watchers versus one-off watchers,” said one partner with multiple Watch shows who asked to not be identified discussing Facebook’s strategy.

Facebook sees fostering TV-like viewing habits as a way to boost user engagement and eventually rake in the billions of advertising dollars currently spent on linear broadcast TV programming. But by paying for episodic shows, Facebook is veering from the basic formula responsible for its success in video to date.

“While it is still early days, one of the great things we have learned is that video publishers and creators can build an engaged and predictable audience for their shows on Watch," Facebook VP of Product Fidji Simo told Business Insider in a statement.

"Having a loyal audience who comes back to watch every episode is the foundation for building vibrant communities, which is at the core of Watch," she said. "We’re already seeing this happen, with people planning to watch shows they care about, getting drawn into the storylines and forming communities. When we fund content or share best practices with partners who want to create these shows, finding ways to build that audience loyalty, and develop an active community is a huge part of what we are trying to do."

According to its media partners and industry observers, Facebook will need to spend more money on high-wattage celebrities and professional production if it hopes to have the hit show that makes it a scripted video destination. And even then, Facebook will be playing in a hit-driven business where even the most experienced companies see their investments vanish as quickly as they are made.

Creating TV-like consumption habits

bi_graphics_facebook watch chart_02_1024

Facebook first announced Watch in early August with commitments for dozens of shows from partners like Tastemade, ATTN, and a handful of live events like Major League Baseball games (Business Insider has multiple shows in the Watch tab as well). After a test with a small percentage of US Facebook users, Watch was made available to the rest of the country in late August.

One of the debut show partners for Watch was A&E’s “Bae or Bail,” a self-described “reality TV game show where couples face their fears.” The show’s first episode in early August garnered 32.5 million views despite the fact that Watch was only available to a subset of US Facebook users at the time. But none of the following four episodes managed to crack 3 million views.

“Pretty much every show saw the same pattern,” Paul Greenberg, who led the development of “Bae or Bail” at A&E, told Business Insider of the show’s initial spike in viewership. “It was good to see that everybody saw that drop but we were still higher than most of those shows.”

A&E is still pleased with the reception “Bae or Bail” received on Facebook, according to the network’s president of international and digital media, Sean Cohan. “Our expectations going into this are fundamentally different than a linear show anyway,” he said. “The core of this is research and development.”

He noted that for "Bae or Bail" the "consumption was actually pretty robust” compared to A&E’s shows that air linearly on broadcast TV. A&E's most popular show, "The Walking Dead," garnered an average of 11.4 million views per episode last season, according to Variety.

While Facebook has yet to give any numbers that speak to the early usage of Watch aside from the public view counts it shows on its site, outside analysis suggests that shows in the tab are already leading people to spend more time on Facebook. The average watch time per episode is over 50% higher than Facebook’s self-reported average of 16.7 seconds for autoplaying videos in the News Feed, according to a study of 250 Watch episodes by Facebook media partner Delmondo.

Facebook is still experimenting with the right mix of shows for Watch before it decides to aggressively market the feature like to did for live video in late 2016, multiple Watch partners said. The Watch tab is prominently displayed in Facebook’s mobile app in the US and on its desktop website. But the tab is still restricted to the US and Facebook has done little to promote in the News Feed or elsewhere.

“I think this is a space where everyone likes to walk before they run,” media analyst Rich Greenfield of BTIG told Business Insider. “You’ll know that Facebook is serious about the Watch tab when they start telling you to go to the Watch tab.”

The search for a hit

Strangers Facebook Watch screengrab

When Facebook began soliciting pitches for shows late last year, the company indicated in closed-door discussions that it was seeking scripted shows at the production caliber of ABC’s “Scandal” along with budgets similar to shows on YouTube’s Red subscription or Verizon's go90 service.

Facebook declined to discuss the financial terms of its shows, but the company is reportedly planning to spend as much as $1 billion on funding video in 2018. During Facebook’s most recent earnings call with investors, CFO Dave Wehner said that funding original video would contribute to a “significant” increase in spending next year.

Facebook executives have repeatedly said they don’t intend to spend at the same level as HBO or Netflix for content, the latter of which plans to spend $8 billion on original video in 2018. But Watch shows are increasingly becoming attached to A-list actors.

In recent weeks Facebook has pitched celebrities like billionaire “Shark Tank” star Mark Cuban to host shows for Watch, and Hollywood figures like Kerry Washington, Zooey Deschanel, and Bill Murray, have all agreed to star in shows since Watch first debuted.

The effort to reel in big names and attach them to bigger-budget productions could lead to a hit show that stirs widespread interest in Watch, multiple show partners suggested. The Hollywood Reporter said last week that Facebook was shifting its strategy to buy more shows outright.

Facebook Watch Apple TV

Wall Street's tolerance for Facebook's big-budget video aspirations will not be endless. Spending $1 billion wouldn’t cause much concern among shareholders, RBC Capital Markets tech analyst Mark Mahaney told Business Insider. “More than $1 billion, and I think people would be concerned unless there was evidence of real traction,” he said.

Mahaney said that Watch will be seen as successful if it boosts engagement on Facebook and if the shows are able to build sustained viewership over time. And a mainstream hit show could help lead people to discover other shows on the platform. “Netflix works because eventually one or two of these series catches fires and expands,” he said.

Facebook is directly funding what it internally calls "hero" shows for Watch, but the company hopes to eventually let partners monetize their content through ad breaks.

“Long-term, our hope is that the business here will primarily be through revenue shares of videos that normal creators and businesses put into the system rather than ones that we proactively go out and license ourselves,” CEO Mark Zuckerberg said during Facebook’s last earnings call. “But first we need to build this behavior where people want to come intentionally to engage with this content.”

The Watch shows that Facebook pays for currently air on a weekly schedule, similar to traditional TV programs. After a show airs for the first time, people can re-watch it on-demand. But at time when younger viewers are accustomed to binge-watching Netflix shows, Facebook's decision to schedule shows is a risky move that's still unproven. (Netflix CEO Reed Hastings is a Facebook board member.)

While early Watch partners are content to experiment with making shows now, the initiative needs to transition from the research and development phase to producing meaningful revenue, according to A&E exec Sean Cohan.

“I wouldn’t say anyone is betting the farm on these things,” he said. “But I think we’re optimistic that these platforms will find ways to compensate creators in meaningful ways.”

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