Snap Inc. (SNAP) wants to become a hub for TV-style video content.
A string of recent original show deals, the latest announced on Monday, suggests that media giants are beginning to buy into the social media company's vision. Time Warner Inc. (TWX) on Monday said it had entered a two-year partnership with Snap to produce up to 10 original shows per year. The deal is valued at $100 million, a person familiar with the matter told TheStreet.
"This partnership is another exciting step as we continue to branch out into new genres, including scripted dramas, comedies, daily news Shows, documentaries, and beyond," said Nick Bell, vice president of content for Snap, in a statement.
The media giant's Turner cable channels and Warner Bros. Studios will create shows that cover a variety of genres, including scripted drama and comedy, the companies said. Like Snap's other original content deals, the shows will be produced in Snap's vertical format, running three to five minutes long. Snap said it airs about one original show on Snapchat each day, but hopes to air three shows per day by the end of this year.
The deal sent shares of Snap climbing 1.9% to $17.88 on Monday, marking a reversal from when the stock fell to its IPO price of $17 on Thursday. Snap shares have slid 26.9% so far since the Snapchat parent company went public in early March. Investors have grown more and more concerned that it might not be able to reignite sluggish user growth or prove that it has a place in the digital ad market, which has increasingly taken on the form of a duopoly between Alphabet Inc.'s (GOOGL) Google and Facebook Inc. (FB) .
As part of the agreement, Time Warner will also buy ads on Snapchat for its HBO, Warner Bros. and Turner networks. Snap keeps 50% of the ad revenue from original content deals, while its media partners hold on to the other half, according to The Wall Street Journal. That's compared to when Snap would keep 30% of ad revenue in ad deals on its Discover platform, the Journal noted.
In response to investors' concerns, Snap has tried to reassure Wall Street that the company's users (most of which are in the 18- to 24-year-old cohort) are more engaged on it than any other platform. Building a library of original shows should help users stay on the app even longer, said Drexel Hamilton LLC analyst Brian White. So far, Snap has signed content deals with Disney Enterprises Inc.'s (DIS) ABC, Comcast Corp.'s (CMCSA) NBCUniversal, BBC, A+E Networks and Discovery Communications Inc., among others.
On the company's latest earnings call, CEO Evan Spiegel said the platform's original shows are attracting audiences of more than 8 million users.
"I think [the deal] validates what this platform is trying to do," White explained. "If you can keep users engaged, the advertising dollars will follow. To get a deal this size with a well regarded media company like this is a huge deal."
Facebook, meanwhile, has also landed sizable content deals with Vox Media and BuzzFeed Inc., as well as smaller media companies including ATTN: and Group Nine Media. The social media giant doubled down on that focus when it secured two key hires for its video service: former MTV executive Mina Lefevre and Ricky Van Veen, former co-founder of IAC-owned CollegeHumor.
Facebook has proved to be a formidable rival for Snap, said Eric Kim, managing partner at venture capitalist firm Goodwater Capital. The rivalry has largely centered around the companies competing Stories products, but has now broadened into advertising and original content markets. The deal comes at a critical juncture for Snap, Kim said, as it tries to scale out its user base and ad business.
But the deal also adds some legitimacy to the platform at a time when brands and media companies may still consider Snapchat to be a part of their experimental budgets.
"They are starting to treat Snap as a real distribution partner for original content," Kim explained. "For Snap, this will hopefully allow them to graduate into the mainstream advertising budgets of large corporates, who have traditionally been focused on TV and more traditional forms of media."
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