Breaking Down Facebook’s Entertainment Strategy

This week’s rumors about a possible Facebook hookup with Spotify and Mark Zuckerberg’s recent comments at e-G8 illustrate that Facebook is a company thinking hard about its role in the world of entertainment. The company, which is already a recommendation and curation force (it drives a significant number of pageviews for video content both inside and outside its own walls), is likely to see its entertainment strategy evolve significantly this year and next; music is only one part of it.
So how evolved are Facebook’s various content strategies, and, perhaps more importantly, how big are those opportunities? Below is a graphic showing my estimates of how far along Facebook’s strategies are for photos, gaming, music, TV/movies and e-books, and the potential opportunity size.
Photos aren’t a huge monetization opportunity (they’re more of a core part of the service and a large part of its basic appeal), though it’s worth looking at where they stand in the spectrum of various types of content.
Now let’s examine the rest of these content types for potential strategies:
Of all the entertainment types offering significant opportunity, the most evolved today is gaming. To be certain, Facebook is the biggest platform for social gaming, allowing players such as Zynga to grow their fortunes. Gaming will continue to be a massive opportunity for Facebook, particularly now that the company seems to have won the currency war for social gaming.
What are some future directions for Facebook’s gaming business? While there are already MMOs on Facebook, I expect that increasingly, more real-time multiplayer gaming environments will flourish on Facebook. Another big potential opportunity is a unified gaming community layer (think Xbox Live for Facebook) that would bring together the gaming community and create more monetization through paid services.
This week’s news about a potential Spotify integration, while just speculation, is not surprising. Facebook knows that its strongest position in a thorny licensing market like music is as a platform rather than as a first-party content aggregator, so I expect it will partner with companies like Spotify, or even Rhapsody, to get into paid music content.
Another option for Facebook would be to bolster its social music capabilities, either with an offering similar to SoundCloud‘s or flat out acquiring the service. To me, SoundCloud is doing what Facebook should in music: allowing for the creation and viral distribution of music, with rich tools such as in-track commenting and browser-based recording and share capabilities.
TV and Movies
Facebook is only beginning to scratch the surface in the video entertainment space, one that I see as possibly the biggest of all the opportunities. While I’ve written quite extensively about how Facebook could essentially become part of TV’s next-generation EPG, I think there are significant opportunities in a similar platform strategy with third-party players not only for Facebook Connect integration (which it is already doing) but also as a delivery channel. Given Facebook’s growing importance as an authentication engine, why not simply be the entry point for watching videos themselves on any screen?
Though I think it could change in the future, Facebook doesn’t have any cohesive e-book strategy. Why not? E-books are becoming inherently more social, and not having a strategy in this area leaves a big gap in key content for Facebook. One potential partner for Facebook is Microsoft, given that it, like Facebook, doesn’t have an e-book offering, and the two have shown they can work closely on strategic initiatives like search. Together they could be powerful allies, with Microsoft offering devices and a storefront and Facebook adding the universally distributed log-in and authentication layer.
In a sense, Facebook owns entertainment recommendation and curation today. But it could grow into a universal “social entertainment delivery layer,” where it acts not only as a curation engine but also as a delivery engine for entertainment content. To be certain, direct monetization as a delivery platform is a much harder sell, though it’s a route that Facebook will likely go down for more content types in the near-to-medium term.

Question of the week

Do you think Facebook will offer paid entertainment services like video, music and e-books in the next few years?