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Why Facebook Watch Should Beware Disney+ and Netflix

Facebook Watch, Meta’s (NASDAQ: META) streaming video service, has grown exponentially since its launch in 2017. The ad-supported video-on-demand (AVOD) platform focuses on longer-form content, allowing Meta to sell marketing slots that don’t fit well across other parts of its platform. But there are looming signs Netflix (NASDAQ: NFLX) and Disney (NYSE: DIS) will soon move into ad-supported streaming, which could present a real threat to the future of Watch.
A significant number of Facebook users tune into Watch
Watch offers a slew of on-demand and live-streamed videos from a community of creators, along with Facebook Originals — exclusive shows produced in partnership with brands such as MTV and A&E Networks. 
Meta does not break out Watch numbers, so it’s impossible to know how much the firm has put into such programming over the years. However, around the time of the Watch rollout, The Wall Street Journal claimed Meta was spending approximately $1 billion on fresh content to get the service on its feet. 
That strategy seems to have paid off: In September 2020, Meta revealed it had reached 1.25 billion monthly viewers, placing it second behind YouTube (more than 2 billion) in North American AVOD rankings.
Image source: Getty Images.

Watch helps Meta sell longer, more lucrative ads
Meta researchers have found that viewers spend five times as long on Watch videos as they do on other content across the Facebook network. And, perhaps most important of all, the lean-back nature of Watch programming means Meta can sell ad slots that don’t work as well against its other offerings, such as Instagram Stories and Reels.
Meta says Facebook users demonstrate limited patience when it comes to the runtime of ads placed around clips they discover in the news feed. But with Watch, viewers treat the service as more of a destination, and are therefore more tolerant of marketing messages. Because of this, Meta has a policy of capping video ads at six seconds for clips hosted in the regular feed, while Watch content can typically carry ads of up to 15 seconds.
As a company, it makes sense for Meta to leverage video ads across as many of its products as possible because, as several studies have shown, they can be more effective than static equivalents. According to a Databox survey of marketers, almost 60% of respondents said they saw higher click-through rates for their video campaigns.
Of course, the idea that video advertising works is nothing new — commercials have served as the underpinning of the linear TV industry for decades. But as the premium subscription video-on-demand (SVOD) industry has grown rapidly over the last decade or so, AVOD services have blossomed right alongside it. And while SVOD and AVOD sign-ups are expected to continue on an upward curve for a while, there are already indications the streaming space is maturing.
Netflix and Disney+ need to reach new subscribers
Netflix currently has just north of 220 million subscribers, spread across more than 190 countries. But, in its latest earnings report, the firm disclosed a dip of approximately 200,000 users, with another 2 million expected to cancel their subscriptions before its next quarterly filing.
On the other hand, Disney’s situation is far from dire — it added 7.9 million Disney+ customers in fiscal Q1, but that was less than the 8.7 million subscribers it picked up in the same quarter a year prior. 
With this in mind, it makes sense for both companies to develop lower-cost ad-supported tiers to bring in new customers — or even bring back lapsed ones.
This is not Meta’s first rodeo
Meta, of course, is already used to facing competitors in the AVOD space. Free-to-watch services such as The Roku Channel from Roku and Tubi, which is owned by Fox Corporation, have been on the scene since Watch’s inception. Indeed, even premium services like Hulu, which is controlled by Disney, and HBO Max from Warner Bros. Discovery offer ad-supported tiers. Meta’s Watch has weathered the storm thus far — but of course, that was before Netflix and Disney+ decided to get into the arena.
For a company going all-in on the metaverse, an AVOD service might not even be that important in the future. Right now, Meta is still financing Facebook Originals such as Jada Pinkett Smith’s Red Table Talk (currently on its fifth season). But, though other shows presently highlighted on the platform seem in stasis: The second (and most recent) season of Sneaker Hustle debuted in late September 2019, yet it remains listed as a featured show. 
This mixed support for Facebook Originals could be a sign that Meta has decided to end the fight before it’s even begun.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Fool contributor Tom Wilton has business dealings with Netflix but holds no financial position in any companies mentioned. The Motley Fool has positions in and recommends Meta Platforms, Inc., Netflix, Roku, and Walt Disney. The Motley Fool recommends Warner Bros. Discovery, Inc. and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy. –

Facebook Watch, Meta‘s (NASDAQ: META) streaming video service, has grown exponentially since its launch in 2017. The ad-supported video-on-demand (AVOD) platform focuses on longer-form content, allowing Meta to sell marketing slots that don’t fit well across other parts of its platform. But there are looming signs Netflix (NASDAQ: NFLX) and Disney (NYSE: DIS) will soon move into ad-supported streaming, which could present a real threat to the future of Watch.

A significant number of Facebook users tune into Watch

Watch offers a slew of on-demand and live-streamed videos from a community of creators, along with Facebook Originals — exclusive shows produced in partnership with brands such as MTV and A&E Networks. 

Meta does not break out Watch numbers, so it’s impossible to know how much the firm has put into such programming over the years. However, around the time of the Watch rollout, The Wall Street Journal claimed Meta was spending approximately $1 billion on fresh content to get the service on its feet. 

That strategy seems to have paid off: In September 2020, Meta revealed it had reached 1.25 billion monthly viewers, placing it second behind YouTube (more than 2 billion) in North American AVOD rankings.

Image source: Getty Images.

Watch helps Meta sell longer, more lucrative ads

Meta researchers have found that viewers spend five times as long on Watch videos as they do on other content across the Facebook network. And, perhaps most important of all, the lean-back nature of Watch programming means Meta can sell ad slots that don’t work as well against its other offerings, such as Instagram Stories and Reels.

Meta says Facebook users demonstrate limited patience when it comes to the runtime of ads placed around clips they discover in the news feed. But with Watch, viewers treat the service as more of a destination, and are therefore more tolerant of marketing messages. Because of this, Meta has a policy of capping video ads at six seconds for clips hosted in the regular feed, while Watch content can typically carry ads of up to 15 seconds.

As a company, it makes sense for Meta to leverage video ads across as many of its products as possible because, as several studies have shown, they can be more effective than static equivalents. According to a Databox survey of marketers, almost 60% of respondents said they saw higher click-through rates for their video campaigns.

Of course, the idea that video advertising works is nothing new — commercials have served as the underpinning of the linear TV industry for decades. But as the premium subscription video-on-demand (SVOD) industry has grown rapidly over the last decade or so, AVOD services have blossomed right alongside it. And while SVOD and AVOD sign-ups are expected to continue on an upward curve for a while, there are already indications the streaming space is maturing.

Netflix and Disney+ need to reach new subscribers

Netflix currently has just north of 220 million subscribers, spread across more than 190 countries. But, in its latest earnings report, the firm disclosed a dip of approximately 200,000 users, with another 2 million expected to cancel their subscriptions before its next quarterly filing.

On the other hand, Disney’s situation is far from dire — it added 7.9 million Disney+ customers in fiscal Q1, but that was less than the 8.7 million subscribers it picked up in the same quarter a year prior. 

With this in mind, it makes sense for both companies to develop lower-cost ad-supported tiers to bring in new customers — or even bring back lapsed ones.

This is not Meta’s first rodeo

Meta, of course, is already used to facing competitors in the AVOD space. Free-to-watch services such as The Roku Channel from Roku and Tubi, which is owned by Fox Corporation, have been on the scene since Watch’s inception. Indeed, even premium services like Hulu, which is controlled by Disney, and HBO Max from Warner Bros. Discovery offer ad-supported tiers. Meta’s Watch has weathered the storm thus far — but of course, that was before Netflix and Disney+ decided to get into the arena.

For a company going all-in on the metaverse, an AVOD service might not even be that important in the future. Right now, Meta is still financing Facebook Originals such as Jada Pinkett Smith’s Red Table Talk (currently on its fifth season). But, though other shows presently highlighted on the platform seem in stasis: The second (and most recent) season of Sneaker Hustle debuted in late September 2019, yet it remains listed as a featured show. 

This mixed support for Facebook Originals could be a sign that Meta has decided to end the fight before it’s even begun.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Fool contributor Tom Wilton has business dealings with Netflix but holds no financial position in any companies mentioned. The Motley Fool has positions in and recommends Meta Platforms, Inc., Netflix, Roku, and Walt Disney. The Motley Fool recommends Warner Bros. Discovery, Inc. and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

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