Will Facebook’s $50 Million Gamble Pay Off?

In 2011, YouTube paid more than $100 million to celebrities, social influencers, and media companies to create 100 exclusive channels on the video platform. Sound familiar?

On June 21, The Wall Street Journal revealed that Facebook, which for the past two years has been waging war to break into digital video, paid more than $50 million to about 140 media companies and celebrities in exchange for them to create content on Facebook Live, the social network’s live-streaming platform.

Since March, Facebook had been planning on paying creators, but the exact numbers released by the Journal give greater insight into the scope of the operation. For example, we know that media companies like BuzzFeed, The New York Times, and CNN negotiated the largest deals. Each contract was handled separately with its own terms and lengths, according to a Facebook spokesperson.

some more numbers on what Facebook is paying media companies/celebs/athletes to do FB Live https://t.co/Gqaujftimp pic.twitter.com/s2rxGuqi7F

— Steven Perlberg (@perlberg) June 22, 2016

The news also shows the breadth of creators Facebook wants to attract. Per the Journal:

The list reviewed by the Journal also includes the Metropolitan Museum of Art and American Museum of Natural History in New York; internet celebrities like Logan Paul, Andrew Bachelor and Lele Pons; dance music DJs Armin Van Buuren and Hardwell; and sports teams such as FC Barcelona.

The move makes a lot of sense. For Facebook, it’s an easy, cost-effective way to boost Facebook Live’s profile—$50 million is nothing to a company that made $5.2 billion in Q1 of 2016. For the creators, it’s a low-risk way to experiment with a platform that could prove lucrative.

But beyond these contracts—which only last for 12 months—there’s no long-term financial incentive in place for anyone to create Live videos. More than a year ago, Facebook announced that it was working with “select partners” on a revenue sharing model similar to YouTube, which takes a 45 percent cut. There haven’t been any updates since, though a Facebook spokesperson told me that the company will experiment with the partners under contract to find a sustainable model.

In other words, assuming Facebook doesn’t renegotiate contracts next year, Facebook will need some sort of monetization system in place if it wants partners to keep creating video native to Facebook.

In 2011, when YouTube paid out $100 million, YouTube’s revenue-sharing model had already been in place for four years. Facebook’s current partners, on the other hand, don’t know what their monetization options are beyond these short-lived contracts.

Besides, even though YouTube paid creators more and had a revenue-sharing system in place, the experiment wasn’t exactly a success.

http://twitter.com/joshuatopolsky/status/745344073444302848

YouTube had to re-up certain partners only a year later, and it’s difficult to say whether it has accomplished the original goal of bringing TV’s prestige and ad dollars online. Today, the biggest channels on YouTube are not celebrities or media companies; they’re online personalities like PewDiePie, Smosh, and Jenna Marbles. People don’t go to YouTube to watch traditional TV; they go there to watch YouTube videos.

Facebook has made it clear it wants Live to be different. It wants ad-friendly media companies and celebrities to create content just for Facebook Live so it can keep users on the platform and drive higher revenue.

But that’s a very difficult ask. For one, live streaming is idiosyncratic. Thus far, live-streaming platforms like Twitch have only seen success with web-specific formats like Let’s Play gaming videos. And as Brian Feldman of New York magazine argues, “One of the great consumer-friendly qualities of the internet is that it’s asynchronous. You can catch up with media consumption at your leisure. The current mode of live-video implementation flies in the face of this.”

For media companies used to creating a certain kind of video content, old formats aren’t going to work. For now, it’s still difficult to say what does. Reports from The Information suggest that celebrities—not the media companies Facebook is paying the most—are the ones dominating Live.

Newsrooms lose out to celebs on Facebook Live https://t.co/Iw7syx6MNy #journalism @coryweinberg

— Matt Carroll (@MattCData) June 22, 2016

Eventually, creators will want a piece of the pie, and Facebook has set the stage for a face-off once these contracts expire. Even if Facebook adopts a revenue sharing system, YouTube’s failure to bring celebrities and media companies onto its platform suggests that 55 percent of ad revenue is hardly worth it for high-profile creators.

If this $50 million dollar experiment can’t solve these issues, don’t be surprised when the partners so eagerly filling your feed with Facebook Live videos take their content elsewhere.