The Strategist

Snap aims to become a TV alternative for young audience

05/11/2017 - 14:41

Over the past few months, Snap, which runs popular mobile app Snapchat, signed content agreements with a number of media holdings - Vertical Networks, Turner, NBCUniversal, A + E Networks, ABC, ESPN, Discovery, BBC, Vice Media, NFL and Metro- Goldwyn-Mayer, writes WSJ. In addition, Snap is reportedly in talks with Fox and CBS, told the publication’s sources. Apart from that, the company is going to announce an agreement with another TV show producer - Scripps Networks Interactive, the owner of the TV channel Food Network. Among the most famous shows of this company are Chopped and House Hunters.

Maurizio Pesce
Maurizio Pesce
Snapchat expects to show its users two or three new series of various TV shows a day in the Stories section, where users are now uploading their video and photo collections. Each show will last 3 to 5 minutes.

Snap decided to create original content to keep 158 million users in the app and increase revenue from advertising. This is especially important since the company has recently become public, says WSJ. The growth in advertising revenues is a key factor that can support Snap’s market cap, estimated by the market at $ 25 billion (during the IPO in February 2017). TV shows could prolong Snapchat’s screen time, which now averages 25-30 minutes per day.

Snap started negotiations with TV content producers last summer. Yet, the company's management did not like ideas proposed, in particular, by NBCUniversal. The media company wanted to create a mini-show based on already existing popular shows. Snap decided that they would look just like commercials of "big" shows, which can already be found on the Internet. The company wanted something more original, a television-like premium content.

Instead, Snap and NBCUniversal created a version of Voice show specifically for Snapchat: the application’s users could send their own 10-second videos. The show’s creators received more than 20 000 clips, and the winner made a live broadcast. One of the service’s founders, 26-year-old Evan Spiegel, takes an active part in the process of choosing a TV show for Snap.

In addition to reality shows, Snap is interested in original scripts, news shows, documentaries, horror films, cartoons, etc. The company claims that it is ready to set the application up in such a way that the series shown can disappear within 48 hours.

While the media holdings have some disagreements with other Internet giants like Facebook and YouTube, the television companies are eager to launch a show together with Snap. WSJ explains this by the fact that Snap’s management, including the company's vice president of content Nick Bell, is well aware of values of the so-called old media. In particular, they relish premium content and give it preference over users’ content. Bell says that he is not going to be a television killer, his task is to grow new TV viewers, helping young audience to rediscover old mediabrands.

Unlike streaming services like Netflix, Snap provides media companies with complete information about how users watch their content - right up to when they stop watching a particular episode. Top managers of Snap have consulted A + E on all issues, including choice of actors and other details, told Executive Vice President of A + E Paul Greenberg. "We studies almost every scene together, trying to understand when the audience is leaving and why", he added.

Snap shares revenue from advertising with content producers, but does not pay for content directly. This suits the media industry, because so far it is a question of very short-term deals, says Henry Ahn, Scripps’ President for Content Distribution. In addition, shows for Snapchat have to be short, and therefore cheaper in production. One series of such a video may cost $ 6,000 to $ 45,000. Bell says that Snap plans to continue working on the advertising model. According to his forecasts, this model will become profitable for producers in 3-5 years, and some series are already profitable, he notes.

Snap gives its content partners 70% of revenue if they sell advertising in the TV show themselves. If Snap takes this responsibility, then partners receive half of the revenue. 

Snap’s revenue in 2016 was $ 404.5 million compared to $ 58.7 million a year earlier. Each user brought $ 1.05 to Snap in the fourth quarter of 2016, compared with $ 0.31 a year earlier. At that, the company remains unprofitable, its loss grew from $ 373 million in 2015 to $ 515 million in 2016.