One of the biggest complaints of creators when it comes to Facebook’s video platform has been that copied and pirated versions of their content frequently garner lots of views on the platform without accruing any revenue for the original creator. Facebook has been slow to take these videos down, partly because it hasn’t had a great system in the past for identifying them (though that’s now starting to change), and as a result the damage has often been done by the time it fixes things. Facebook is now going to allow the original owners to claim the pirated videos and then receive the royalties from them, which should help assuage those concerns somewhat. But of course ideally Facebook would shut the infringing videos down in a timely fashion so that the original owner could receive the views in the first place, because this issue isn’t just about what for today are fairly minimal video ad revenues. It’s also about the original channel capturing the views and thereby growing its audience. Hopefully having the content identification technology in place will give creators the option to do that. I’m also guessing this won’t help with the live video copyright issue Facebook also has.
Comcast reported Q1 2017 results this morning, and in keeping with past trends, the numbers were generally good. It saw another rise in TV subscribers as the cable companies continue to take share from the telcos, despite the overall trend of cord cutting, and it also saw strong growth in broadband subscribers, which now significantly outnumber its TV subs. Interestingly, it also began placing more emphasis on its home automation and security business this quarter, and reported that it has almost a million subscribers, or around 4% of its broadband base. The big theme that’s emerging from this quarter’s earnings reports from these providers is bundling – Comcast continues to see the percentage of customers taking more than one product rise over time (it’s now reached 71%), while AT&T suffered precisely because it can’t offer broadband/TV bundles to DirecTV customers. The wireless-TV bundles it can offer aren’t the ones consumers are looking for, which makes Comcast’s push into wireless somewhat questionable too. At NBCU, we’re seeing many of the same trends we’ve seen before too – subscriber numbers and viewing are down, but contractual rate increases with MVPDs are driving revenue growth anyway (of course those rate increases are rising costs on the cable side). Ad revenue was down in the cable networks business but up slightly in the broadcast business despite lower ratings because prices have been rising, though my analysis across the TV industry suggests the rate of price increases is slowing dramatically. Comcast continues to be a powerhouse across the categories where it competes (which also includes movies through Universal) but it’s facing some significant headwinds in the form of cord cutting, ratings declines, and rising content costs, which are going to take an increasing toll over the long term.
Note: you can see all my earnings posts or all Q1 2017 earnings posts specifically by clicking on the relevant tags below.
Twitter Aiming to Broadcast Live Video Full Time in Future (Apr 25, 2017)
This is an interesting announcement to make the night before earnings. Twitter broadcast 800 hours of live video in the first quarter, but it’s aiming to broadcast 24/7 eventually, which would be a roughly threefold increase in video just to have a single stream full time, let alone to give people options. And though this piece talks up the idea of being the equivalent to CNBC in airports, the whole value proposition of the latter is that you have nothing better to do. For Twitter to do well with live video, it needs compelling content, not just ambient content. And that’s tough to do when the vast majority of sports rights are sewn up for years to come and Twitter just lost one of the few available packages to Amazon. Beyond sports, there’s not much live content that’s compelling enough for people to tune into deliberately and importantly to watch through a commercial break. Color me skeptical that this effort will make a big difference to Twitter’s user base or its ability to monetize it. Live video still feels like an interesting complement to Twitter’s core value proposition rather than being central to it, and I don’t see that changing anytime soon.
Apple Delays Carpool Karaoke Launch (Apr 25, 2017)
Netflix Agrees to License Content to Baidu Subsidiary iQIYI (Apr 25, 2017)
Facebook is Now Paying Companies to Produce Non-Live Video (Apr 22, 2017)
Apple Acquires First Movie at Tribeca Film Festival (Apr 20, 2017)
I’m at Facebook’s F8 today and one of the two big announcements from the first day keynote is this Camera Effects Platform, which is Facebook’s first big push into AR. That’s a good thing, because Facebook has so far made its big bet on its narrower cousin, VR, through Oculus. AR has the potential to be much bigger, and Facebook getting into this space will only accelerate adoption and awareness. Sensibly, though, I don’t think any of this will be described as AR in most user-facing settings – it’ll have more user friendly names like Camera Effects, Frames, and so on. But building a platform for AR experiences including some pretty sophisticated ones means Facebook is finally serious about AR both from a first-party and developer perspective, which is a good thing. The stuff shown off on stage today looked much cleverer than what Snapchat launched this morning, and although it won’t all be available right away I suspect Facebook is actually going to be ahead here, especially when it comes to the rear-facing camera. In fact, there’s a possible scenario in which Snapchat continues to do AR better for the selfie camera, while Facebook provides better AR experiences for the outside world. More broadly, this means Facebook will now be a serious player in a field which includes not just itself an Snapchat but also Microsoft, and will soon include Magic Leap, Apple, and many others too. There are therefore big questions to ask about who will be able to attract developers and help them get a return on their investment with good monetization. I would expect to see some similar stuff from Apple at WWDC in June and possibly even more in September with new iPhone hardware too.
Note: this is my first piece of commentary on Q1 2017 earnings. The Q1 2017 tag attached to this post will eventually house all my earnings comments for this quarter, just as the Q4 2016 tag does for last quarter and the earnings tag does for all past earnings comments. Netflix is also one of the dozen or so companies for which I do quarterly slide decks as part of the Jackdaw Research Quarterly Decks Service. See here for more.
Netflix today reported its earnings for Q1 2017, and the results were mostly good, with a few possible red flags. This year, the new season of House of Cards will debut in Q2 rather than Q1, and that makes some of the year on year comparisons tough. One of the results was much weaker Q1 subscriber adds this year than a year ago in the US, worsening what’s already been a trend of slowing growth for several years. Netflix is projecting something of a recovery next quarter, however. In some ways, the biggest news was the first quarterly profit for the international business, which has neared profitability in the past but been plunged deeper into the red by market expansions every time it did so. Now that Netflix is in essentially every country it can be, that won’t be the case anymore, so although it’s projecting a return to small losses next quarter, it’s now saying it wants to be judged partly on growing revenue and margins globally over time, which is a big shift (previously it wanted to be judged on sub growth and domestic margins only).
There were a couple of mild admissions of failure: customer satisfaction in Asia, the Middle East and Africa is not what it could be, and the company’s Crouching Tiger sequel didn’t achieve its goals for original content. Marketing spend will be up at least a little in 2017, and content obligations continue to grow. The company also made clear that the big free cash flow losses caused by its investment in original content will continue for “many years”, though it also said that it will eventually throw off significant cash when it hits a “much larger revenue base”, giving I think the clearest indication yet of what a long-term project positive free cash flow will be. In the meantime, it will continue to borrow to fund that growth. Domestically, profits are growing very rapidly, and the theory continues to be that eventually the International business will reach that level of maturity too and deliver decent margins. But in the meantime, a bet on Netflix continues to be a bet on continued high growth, something which certainly isn’t guaranteed in the US and may end up being tough long term internationally too.
Facebook Takes 3 Hours to Remove Video of Murder (Apr 17, 2017)
A Facebook user apparently committed a murder on Sunday and claimed to be in the process of committing several more while streaming on Facebook Live video, but Facebook failed to take the video down for three hours afterwards. This certainly isn’t the first time something gruesome has been live streamed on Facebook, and the company has dealt with past situations both poorly and inconsistently. On the one hand, it’s clearly against its policies to broadcast something as disturbing as this, so taking the videos down should be simple from a policy perspective. But in some cases, it’s been accused of taking down videos which – despite their content – were enormously newsworthy, and therefore engaging in censorship. In this case, it seems baffling that Facebook didn’t take the video down much sooner, but it raises much bigger issues about how to police live video, which by definition has often done its damage before anyone at Facebook is even aware of it. Given YouTube’s recent struggles with monitoring non-live video for inappropriate content, one can only imagine the challenges involved in monitoring video in real time. Certainly, Facebook needs better tools for flagging such content and faster response times when videos are flagged, at the very least.
Update: Facebook has now responded, and says it’s going to do exactly what I said in that last line: that is, improve its flagging tools and shorten response times. It also posted a complete timeline. Worth a read.
Twitter today announced Custom Hearts, an equivalent of sorts to Snapchat’s Sponsored Filters product for advertisers. Advertisers can now use the Custom Hearts product to replace the standard heart icon that users use to show appreciation for a live video stream in Periscope or Twitter with a brand image of some kind. The example used here is the movie franchise The Fast and the Furious using “F8” as an alternative to promote its eighth film, which premiered over the weekend. It’s a lot subtler than Snapchat’s Sponsored Filters, and it doesn’t have the same social multiplier effect of users applying a sponsored filter to a picture or video and sharing it with their friends, but it’s good to see Twitter innovating to find new forms of advertising given its recent struggles with growing ad revenue. More importantly, it’s also doing more with analytics, something I’ll cover in a second post shortly.
I wrote a piece last week for Techpinions about the fragmentation in the TV market as everyone launches their own streaming services, and here comes yet another example of that. It sounds like Comcast is working on a service that would combine content from NBC and the NBCU cable networks into a single subscription package, although the conditions on the Comcast-NBCU merger make it unlikely that it will debut in the next 18 months or so. But we’ve already seen the premium cable networks (HBO, Starz, and Showtime) go over-the-top, along with broadcaster CBS and NBC itself with a comedy subscription service called Seeso. As cord cutting and cord shaving eat into cable network subscriber numbers, we’re going to see lots more of this direct-to-consumer stuff. In principle, that sounds great for consumers, who will now be able to pick and choose just the content they want, but in practice they’re likely to end up spending more and dealing with multiple bills, user interfaces, and content models to get it, which is in turn going to lead to an opportunity for re-aggregation down the road.
This is the first real quantification we’ve had of live video which puts it in context of Facebook’s overall video volumes, and on the face of it looks pretty good. For one fifth of all video shared on the platform to be live is impressive. On the other hand, I’m not sure how much video I see shared on Facebook by my own friends, but it’s not that much, so perhaps between regular users and brands and so on that makes a certain amount of sense. I’d be far more curious to know what percentage live makes up of video consumed on Facebook, because I suspect that’s a far smaller number, and arguably that number matters a lot more than what’s uploaded. After all, Facebook only really benefits from the viewing end of the equation.
It looks like the embargo on reviews of YouTube TV lifted this morning and a slew of those reviews have now emerged. On balance, the reviews seem positive about the user interface and features (notably the DVR), but note limitations across content, including the complete absence of Turner and Viacom channels, geographies (the service is only available in five cities to start, due to local broadcast rights), and devices (only Chromecast and Google Cast-enabled TVs, no Apple TV or Roku). I’ll link back here to my first take on YouTube TV following the launch event, because my overall sense of this service hasn’t changed. But it does seem as though the app does better on some key concepts than the other offerings already out there, notably that DVR feature and the way it taps into favorite shows and sports teams. As you’d expect from a brand that’s always stood for ease of use and discovery in video consumption, it’s good at those things. But those limitations are going to mean it’s not a viable competitor in the vast majority of the country for now. The limitations are, in fact, probably a good thing in that they’ll allow YouTube TV to avoid some of the scaling issues suffered by DirecTV Now when it launched last fall, but it’s going to need to find a way to go national sooner rather than later, which means working out those complicated local affiliate rights which have bedeviled everyone else in this business too.
AT&T hasn’t bought Time Warner yet, but that’s not stopping it from doing deals involving Time Warner properties, including this new promotion with HBO. AT&T had already been using HBO as a lure for driving DirecTV Now subscriptions, as it’s bundled the channel first at a discounted rate and then free for subscribers. But now AT&T is also giving away HBO for free to its higher-tier unlimited wireless data customers. Though the merger hasn’t closed yet, there’s a good chance that future prospect has been part of the companies’ closer relationship on this side recently, and it’s easy to imagine more of this kind of thing should the deal go through. It’s never made sense that AT&T would seek to limit distribution of Time Warner content following the merger because that would be counter-productive for the content business even if it benefited wireless subscriber numbers. But zero rating and bundle discounts make a lot more sense, as they lock customers into a much higher total spend and likely lower churn at a fairly low customer acquisition cost, and of course once TW is part of AT&T the cash cost of deals like this will be minimal. And AT&T’s real goal with the merger isn’t so much synergies from owning content and distribution as it is simply owning content, because that’s where the real value is long term.