×
You will be redirected back to your article in seconds

How Facebook’s Move to Video Will Fundamentally Change Its Business

Eventually, Mark Zuckerberg had enough.

Early into the company’s Q2 earnings call this past Wednesday, Facebook’s CEO had made an offhand remark about wanting to move “a little faster” on making money with Messenger. Analysts on the call quickly went into overdrive, and hammered him with countless questions about the potential to make money with Messenger ads.

After patiently answering a number of these questions, Zuckerberg put his foot on the brake. “Over the next couple of years or a few years, the much bigger driver of the business and determinant of how we do is going to be video, not Messenger,” he said.

And then he added another hard truth: Video will not just be additive to Facebook’s bottom line, but actually transform how the company does business. “The economics are quite different from the current feed-based businesses that we have today,” he said.

Facebook has more than 2 billion monthly users. These have helped it to generate more than $9.3 billion in revenue during its most recent quarter alone, with most of this money coming from ads. The company has seen some stellar revenue and user growth for the past couple of years, but its executives have frequently warned investors that these curves won’t go up forever.

This week, Zuckerberg and Facebook CFO David Wehner signaled that the company’s increasing focus on video will be one reason for impending changes. For one thing, there is a risk that Facebook’s users won’t necessarily spend as much time browsing the company’s newsfeed if they start to watch more longer-lasting videos. “That’s going to have an impact on impression rate growth,” said Wehner. “So there is, in that sense, a cannibalistic effect of sort happening there.”

That alone is already noteworthy, especially in light of Zuckerberg’s earlier remarks that the majority of content on Facebook will be video by 2021.

But there’s more. Video isn’t just changing the way people consume ads on Facebook, it comes also with a completely different cost structure. “The margin structure will be different,” Zuckerberg explained Thursday. “This business will likely be — not likely I think, almost certainly will be — a lower margin source of revenue than the current thing that we do.”

Up until now, Facebook has largely relied on its users to publish content on the platform — content that is essentially coming to Facebook for free, whether it is vacation photos or links to stories hosted elsewhere. Facebook has made some efforts to give publishers revenue opportunities through initiatives like Instant Articles, but only its move to video really forces the company to start paying for content on a much more significant scale.

Case in point: Facebook is expected to launch a slate of serialized short-form videos from studios and other content partners as early as next month, and follow up with TV-length fare later this year. The company has yet to officially announce any of these projects, but Wehner already warned investors Wednesday that spending video expenses will “contribute to operating expense growth in the second half of 2017.”

In other words: Facebook is spending some significant cash on those originals.

Facebook executives have in the past signaled that they view these expenses as a way to kick-start their video efforts, and that the long-term goal is to move from upfront licensing fees to revenue-sharing agreements. Still, video comes with significant costs for Facebook, and a Facebook centered around video won’t have nearly the same margins as the service’s current incarnation.

That’s a hard truth that Zuckerberg and Wehner tried to prepare analysts and investors for this week — even if analysts would have rather talked more about Messenger.

Popular on Variety

More Digital

  • Neilsons Measurment Problems TV Digital

    AT&T's Ad-Tech Unit Xandr Buys Clypd To Help Place TV Commercials More Precisely

    Xandr, the AT&T ad-technology unit, has purchased a new company that helps advertisers use data to place commercials in front of the audiences most likely to want to watch them The AT&T division said Friday it had acquired clypd, a company that helps advertisers move forward in a growing desire by Madison Avenue to run [...]

  • AT&T Logo Building

    AT&T TV Now Price Hike Coming Next Month, Base Package to Cost $65

    AT&T is instituting a substantial price hike for its live TV streaming service AT&T TV Now: Customers who have subscribed to the service’s basic “Plus” package will see their bill go up by $15, to a total of $65 per month, starting next month. The telco has started to inform existing subscribers about the price [...]

  • Disney-Family-Movies

    Disney Family Movies SVOD Service Is Shutting Down Ahead of Disney Plus Debut

    After 11 years, Disney is pulling the plug on Disney Family Movies On Demand — with the service’s shutdown coming just days before the launch of the Mouse House’s Disney Plus. Disney Family Movies, which cost between $5-$10 per month, has been available via pay-TV providers in the U.S., including Comcast Xfinity, Charter Communications, Verizon [...]

  • Amazon Orders ‘All or Nothing: Tottenham

    Amazon Orders ‘All or Nothing: Tottenham Hotspur’ Soccer Doc Series

    Amazon has greenlit a new “All or Nothing” sports documentary series, this time following London-based soccer team Tottenham Hotspur. “All or Nothing: Tottenham Hotspur” will follow a year in the life of the team, charting the ongoing 2019-20 season. The squad made it to the final of the European Champions League last year, losing to [...]

  • Jeffrey Katzenberg

    Jeffrey Katzenberg's Quibi Picks T-Mobile as Wireless Launch Partner

    Quibi, the short-form mobile TV service founded by Jeffrey Katzenberg, announced a pact with T-Mobile to be the official telecommunications partner for its April 2020 launch. T-Mobile will be the exclusive wireless distributor when Quibi launches next spring. However, the arrangement doesn’t mean only T-Mobile customers will be able to subscribe to Quibi: Anyone will [...]

  • Steve Kornacki

    Steve Kornacki, Chris Matthews Stand at Center of New NBC News Podcasts

    After vowing to press ahead more directly into the world of podcasts, NBC News is readying the launch of three additional audio shows centered around politics. “Article II: Inside Impeachment” will help listeners understand the impeachment process. The program, new episodes of which are slated to debut Mondays, Wednesdays and Fridays as people head for [...]

More From Our Brands

Access exclusive content