Why Facebook Will Start Sharing Revenue With Its Content Partners
Facebook wants you to think it’s going to be a leader in drones and VR, distracting you from the reality that its business model is just a newfangled Comcast, or a sibling of Netflix – a content distribution platform fighting for the attention and dollars of consumers and/or advertisers.
There have been a lot of stories lately that, when combined, paint a picture of what Facebook actually is, which isn’t what the company wants you to think it is. This is what Facebook wants you to think it is.
Social! Sharing! Messaging! Pictures! Virtual reality! Wow!
This is what Facebook actually is – a massive content referral platform, the best in the world:
Content referral is becoming a more and more important part of their business as organic sharing of personal content declines.
Original sharing of personal stories – rather than posts about public information like news articles – dropped 21 percent year over year as of mid-2015, The Information, a tech news site, reported Wednesday.
As personal sharing declines and article sharing increases, and Facebook continues to grow, it stands to reason that Facebook will come to rely upon the biggest content platforms in the world to keep its users engaged. So who are they? The usual suspects.
Hey, Buzzfeed! Second-most pageviews in the world! How are they doing? Oh, not so great?
Buzzfeed missed its $250 million revenue target last year, according to the Financial Times, and generated only $170 million.
Because of this, Buzzfeed has also halved its revenue prediction for next year from $500 million to $250 million.
There’s another digital media company that got its start by acquiring cheap content created by others, and then, as it got bigger, the supply of that content available to it started to shrink and it was forced into a company-altering pivot.
Netflix’s pivot involved shifting from content created by others to content that it created and controlled. It hasn’t been cheap.
Another direction it could go in is to look at what its dinosaur peers did – the cable companies. Comcast et al are content distribution platforms. Consumers pay Comcast a monthly fee to access content that Comcast either owns (its cable channels) or buys from others (ESPN, etc), for which it pays networks an affiliate fee. Also not cheap.
The bottom line is that the current trajectory of Facebook seems to be unsustainable. Personal sharing is down, Facebook is relying upon the content of Buzzfeed et al more and more, and yet, as those companies struggle to achieve the revenue growth they were hoping for (and their VC’s/investors need for the business models to work), those companies will be forced to cut back their production of content.
At least one of three outcomes is probably inevitable:
-Facebook starts buying content companies (Buzzfeed, Vox, Business Insider, etc).
-Facebook starts investing in its own organic content.
-Facebook, which is better at advertising than its content partners, from whom it’s arguably stealing ad spend, starts sharing revenue with those content partners to support them and invest in their growth.
In any case, the mid 2010′s could end up representing a peak in Facebook’s profit margins, at least for awhile, as it starts to invest in the content on which it depends.
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