It looks as if Facebook Inc.'s (FB - Get Report) efforts to create a YouTube rival are still in the trial-and-error stage. And that the social media giant still needs to figure out a few things about crafting the right formulas to win over consumers and advertisers.
The glass-half-full view: Facebook has made it quite clear over the last few months that it's serious about making its core app a popular destination for watching ad-supported professional videos. And when it shows that kind of seriousness towards a new opportunity, it usually figures things out in time.
The latest news: Sports Business Journal reports Facebook is looking to hire an exec to negotiate major sports rights deals, and that whoever gets the job will have a budget of a "few billion dollars" to spend on global rights deals. The report comes a few months after Facebook made a failed $600 million bid for a 5-year deal to stream Indian Premier League cricket matches (Rupert Murdoch's Star won the deal for $2.6 billion).
As Re/code observes, rights deals for top U.S. sports leagues can be worth over $1 billion annually, so (depending on the timeframe involved) a few billion dollars spread out over multiple deals isn't necessarily enough to get exclusive rights to marquee packages. Nonetheless, SBJ's report indicates Facebook is hungry to ink much larger sports deals than the small-scale agreements it has signed with the MLB (20 games) and with NCAA rights owners (15 football games and 47 basketball games, none of them high-profile matchups).
Meanwhile, The Wall Street Journal reported in September Facebook is ready to spend up to $1 billion through 2018 on original shows for its Watch video platform, which is now available via Facebook's main app, its PC site and standalone video apps for living room streaming devices. Watch was launched in August to a decent amount of fanfare. Partners to date have included National Geographic, The New York Times (NYT - Get Report) , A&E and the NBA (video clips rather than games), as well as some celebrities and web-only content creators.
CEO Mark Zuckerberg and other Facebook execs have said their long-term goal for Watch is to -- much like Alphabet Inc.'s (GOOGL - Get Report) YouTube -- mostly rely on ad revenue-sharing deals for content rather than direct licensing and financing. But Facebook's reported content spending plans suggest it isn't wedded to that strategy, at least not over the short-to-medium term.
Part of the reason why Facebook is reportedly willing to spend a ton on content is that Watch is still a ways off from being a serious rival to YouTube and its 1.5 billion-plus monthly logged-in viewers -- many of which have are subscribed to dozens of YouTube "channels" and get highly personalized video recommendations courtesy of Google's machine learning algorithms.
Watch's base of professional creators still pales relative to YouTube's, and (subjectively speaking) content quality is a very mixed bag. Engagement rates also don't seem to be great: A study of 46 Watch videos by social video analytics firm Delmondo found an average viewing time of just 23 seconds.
On the advertising front, it also looks like Watch, which is monetized via "mid-roll" ads that appear during the middle of a video, has a lot of catching up to do. In October, Digiday reported hearing from a publisher that it only saw a CPM (price per thousand ad impressions) of $0.15 on mid-roll Facebook ads. Another that only counted video views lasting long enough to reach an ad break reported a $0.75 CPM -- better, but still underwhelming.
That said, Facebook's tremendous success with selling standalone video ads appearing in its news feed bodes well for its ability to eventually succeed at monetizing mid-roll ads. Particularly since its Watch ads can access a lot of the same targeting and measurement tools as news feed ads.
And though it's unlikely Watch's base of quality content creators will ever rival YouTube's, there's still a lot that Facebook can do to narrow the gap a bit. Particularly in terms of opening the platform up to the kind of amateur and indie YouTube creators who might be attracted to the additional exposure Watch can deliver.
Moreover, as Zuckerberg has noted, Facebook's social strengths can be a valuable selling point for Watch, in terms of enabling a platform where users frequently comment on, share or otherwise engage with videos, rather than passively consume them. And as Twitter Inc. (TWTR - Get Report) can vouch, live sports are a natural fit for such a platform.
There could be some parallels between Watch and the challenges Facebook saw for its Messenger bot platform after launching it in the spring of 2016. Though early Messenger bot experiences were underwhelming, the platform is now a fairly popular customer support and engagement vehicle for businesses, in part due to Facebook's efforts to make it easier for customers to discover bots and to provide additional ways to interact with them.
In that case, Facebook's persistence and engineering talent, together with the traffic it could deliver to partners thanks to its incredible scale, allowed what was a fairly flawed platform at launch time to gradually succeed. In 12-to-18 months, the same might hold for Watch.