Thomson Reuters
Zuckerberg said that, despite chatter about longer videos, short-form video would be the focus for Facebook.
This makes sense, according to Pacific Crest analysts led by Andy Hargreaves.
"Short-form video strategy maximizes Facebook's competitive advantages," Pacific Crest wrote in a note distributed Thursday. "It should allow the company to take advantage of its massive user base and personalization tools to drive consumption in a way that fits with how people use the platform."
In short: it fits in with how people use Facebook.
It's no Netflix
The focus on short-form video distances Facebook from the likes of Netflix, HBO, and cable TV. But Zuckerberg did say he thought there was a big future for "premium" video on Facebook, which signals he is eyeing the large pool of money dedicated to advertising on TV.
And it could work.
"The biggest incremental budgets up for grabs are the massive TV budgets," Pacific Crest wrote. "Given declining viewership, we believe TV advertisers are hungry for alternate forms of scaled video ad inventory." A key here, according to Pacific Crest, is having good monetization produce a flywheel that gets longer and better video onto Facebook over time.
The barrier to that is the way Facebook wants video creators to make money: a share of the ad revenue.
"Facebook seems mainly focused on video revenue share agreements rather than acquiring/licensing rights (more like YouTube than Netflix)," Morgan Stanley analysts led by Brian Nowak wrote on Thursday. It's not going to be easy for Facebook to get TV-quality programming on its platform by just splitting the ad revenue. It's much more likely to get the type of "premium" content that lives on YouTube, which sits somewhere in-between an amateur production and a TV show. And that kind of video is not as attractive in stealing away TV ad dollars.
The other option for Facebook would be to go out and buy TV-quality shows to put on its platform, as Netflix, Hulu, and Amazon do. But Facebook CFO David Wehner threw cold water on this path on Wednesday's earnings call by saying Facebook wasn't looking to do "big deals," and that insofar as it would license shows, it would just be to seed the ecosystem.
An attack on YouTube
Still, sticking to splitting ad revenue has its advantages. "This revenue share model is important because it limits the near-term margin pressure as FB continues to work to build this business (they only pay if it monetizes)," Morgan Stanley wrote. Facebook only has to pay up when it gets paid.
This strategy is "likely to increase FB's direct competition with YouTube for ad budgets," Morgan Stanley continued.
So will it work?
"Facebook's video opportunity for a legitimate YouTube competitor is a significant one," Macquarie analysts wrote on Thursday. "And we would expect should it be successful, for the new video tab to eventually morph into its own standalone app similar to Messenger."