Do You Guys Know How to Post Videos to Facebook? Why Mark Zuckerberg Should Buy a Sports Network

Posted by    |    August 5th, 2012 at 5:30 am

As we watch coverage of events at the Olympics that occurred 8 hours ago, social media websites such as Facebook and Twitter happen to be among the largest beneficiaries of the London games. Whether it’s complaining about NBC callously deleting a tribute to victims of terrorism from the Opening Ceremony (and then continuously digging themselves into a deeper hole again and again and again trying to justify the decision) or lauding the record-breaking Michael Phelps, we’ve seen further proof that what was once considered to be a solitary activity of sitting on a computer or checking a smartphone has actually been powered by large events that many of us experience together. Indeed, Bill Simmons asked Mark Cuban a few months ago at the MIT Sloan Analytics Conference about whether social media is eroding TV viewership, to which Cuban responded with a strong negative and used a line that ought to be plastered all around Silicon Valley: “Television drives social media.”

The irony in a world that is increasingly geared toward on-demand viewing and the use of time-shifting devices such as DVRs is that the events that are shown live and can draw large aggregate audiences watching them all at the same time have skyrocketed in value despite overall TV ratings being down. As I noted last year, sports leagues have arguably gained the most from this phenomenon since they not only draw large live audiences, but get the hardest-to-reach (and therefore most valuable) demographic of age 18-34 males. Advertisers still pay a significantly greater premium to reaching a lot of people in the same place, which is something that on-demand services and online streaming websites haven’t been able to replicate.

On the flip side, there’s suddenly a whole lot of bearish attitude toward the revenue generating capabilities of social media sites, particularly Facebook. Yesterday, Facebook’s stock dipped below $20 per share for the first time and is hovering around 50% of its initial public offering price. A large part of Facebook’s problem is that its most valuable asset (the exhaustive treasure trove of wide-ranging personal information of its users) cannot be fully and effectively leveraged on the Facebook website itself. Targeted ads based on information that you plug into Facebook always sounded great in theory, but the issue is that clients such as General Motors haven’t found such ads to be very effective. At the core, we don’t log onto Facebook seeking to click on Internet ads, buy products or even glance at banner messages, so no matter how targeted a particular ad might be, it’s ultimately a shot in the dark as to whether we will even notice it. Contrast this with Google, where its ads that pop up in connection with search terms has shown to be fairly effective and profitable since people that are searching for products are often looking for ads. The much smaller social media player of Yelp! has been rewarded by investors on a similar basis, where its content of restaurant and business reviews by users naturally draws in people who are going to notice advertising.

The upshot is that Facebook’s asset of user information is actually more valuable for advertising platforms other than Facebook itself. Hmmmm. What’s the one advertising-delivery technology that we have found to be inextricably linked to the use of social media webstites? Television. Holman W. Jenkins, Jr. of the Wall Street Journal made the argument even before Facebook’s IPO that Mark Zuckerberg’s baby ought to buy ABC, CBS and NBC based on a number of the arguments that I outlined above. I’d take that one step further and say that Facebook’s optimal purchase would be a sports network where live events are able to drive a disproportionate amount of (a) watching commercials as they are aired as opposed to avoiding them via a DVR and (b) social media engagement on Facebook itself, which in turn creates more valuable personal information for Facebook to leverage and creates a self-sustaining profit cycle. As the Internet increasingly becomes the mechanism to deliver programming to television sets as opposed to cable and satellite*, Facebook would receive a further advantage by being able to use its information to have targeted TV advertisements that will surely be coming down the pike and can’t easily be avoided during games (unlike ads on the Facebook site).

(* To be clear, this needs to be distinguished from on-demand viewing and streaming. What I’m talking about here is “form” as opposed to “substance”, where the pipes that actually deliver television channels to your home will increasingly be via the Internet. That doesn’t mean that the Internet will eliminate television channels themselves, but rather your cable and Internet bills will effectively merge together into one at a higher price if you want to receive premium content. This is already an explicit goal of the Google Fiber project in the Kansas City area that will create Internet connections that are 100 times faster than what are currently in most American households. As much as chord-cutting and a la carte options have gained in popularity, those episodes of Mad Men or Breaking Bad that you might be watching on NetFlix or Hulu would never have been produced in the first place if there wasn’t the basic cable subscriber fee model that exists today. Therefore, if we want to continue to receive the content that we see on TV today, it isn’t going to come for free. Those TV program producers will have to raise the same amount of revenue if they want to create that type of content, so I’d envision a shift to “channels” along the lines of ESPN3 that are websites that charge Internet providers a subscriber fee similar to today’s basic cable subscriber fees. At the end of the day, we’re going to have to end up paying the same amount whether it’s for cable or the Internet for the same amount and quality of content.)

Jenkins noted that AOL cashed in its chits to buy “old media” company Time Warner back in 2000. It’s really quite amazing that all of those AOL trial disks that I used for beverage coasters back in college ended up paying for properties such as Batman, Bugs Bunny, CNN, HBO, TNT, TBS, the Warner Bros. studio and the Atlanta Braves. As we well know, AOL went from the most dominant force on the Internet to the Ariana Huffington-run blogger sweatshop that it is today in fairly rapid fashion, so it certainly made the right choice to use its sky-high valuation to buy tangible media assets when it did. With the way that the price of Facebook stock has been plummeting lately, Mark Zuckerberg ought to pounce on Disney (ESPN), News Corp. (Fox Sports) or Comcast (NBC Sports) while he still has the chance.

(Follow Frank the Tank’s Slant on Twitter @frankthetank111 and Facebook)

(Image from The Hollywood Reporter)