Facebook Watch publishers look for revenue sources beyond Facebook’s subsidies

Take, for instance, Inverse’s original science explainer series “Your Brain on Blank,” which airs on Watch and YouTube. Inverse produced two shows for Watch during Facebook’s first wave of funding, but decided to develop self-fund “Your Brain on Blank,” in part to retain ownership of the intellectual property. That way, if the series managed to attract an audience, Inverse would control how it could develop new revenue streams, whether through sponsorships, custom content, licensing the show to other platforms and even merchandise, according to David Spiegel, CRO of Inverse.

The first five episodes of “Your Brain on Blank” collectively have more than 56.2 million video views on Watch. And since the show is self-funded, Inverse has been able to make money from Facebook’s mid-roll ad breaks from the minute Facebook enabled that option, instead of having to wait for Facebook to recoup production costs before being able to split ad revenue. The show is already profitable based on Inverse’s cut of the Facebook mid-roll revenue, according to Spiegel. Now, Inverse is exploring how to franchise “Your Brain on Blank” through possible licensing deals as well as merchandising and commerce options, Spiegel said.

“The easiest thing to do is to sell [a show] to a platform or a single brand, but is there more upside to self-funding a successful franchise?” said Spiegel. “We’re already in talks about merch and retail products based on this franchise because [its success has created] interest in the market.”

It’s still unclear how long Facebook will continue funding shows for Watch. So far, Facebook has committed to spending $1 billion on content through 2018. And prior to launching Watch, Facebook’s CFO David Wehner said the company’s hope was to eventually create an ecosystem where ad revenue could fund Watch programming entirely, instead of Facebook fronting production costs. By now, publishers are used to Facebook ending subsidies programs, as Facebook has shown with initiatives like Facebook Live that its direct payments are not a long-term strategy.

But even as Facebook continues to subsidize some of the productions for Watch, the platform increasingly wants to take total ownership of the shows. This means that Watch producers can only make money off of production margins on the show — as well as small, back-end percentages based on the profitability of the show in some cases.

Early Watch partners such as Attn, Business Insider and Refinery29 were able to retain ownership of their short-form programs — back then, Facebook labeled these as “spotlight” shows — with Facebook generally requesting a two-week period of exclusivity. In renewal negotiations, Facebook has asked some partners for ownership over the program, multiple sources said. This has created a dilemma for partners that now have to choose between Facebook’s short-term guaranteed money or the chance to make more down the road. (This is similar to the dilemma TV producers face when working with Netflix.)

“We haven’t made the call yet,” said one early Watch partner of whether it would take Facebook’s renewal offers, which come with the stricter ownership terms. “There are shows that we are willing to do that with, but there are others we wouldn’t.”

By opting to self-fund Watch shows, publishers have the chance to license the show to other platforms if they’re proven to be successful, said Oren Katzeff, head of programming at Tastemade, which has made more than 12 Watch shows, including six Facebook-funded ones.

“I remain bullish about monetization opportunities on Facebook, but as we think about the next phase of the Watch shows that we created on our own, we’re looking at other platforms where monetization opportunities exist,” Katzeff said.

Other options that multiple Watch partners have said they’re exploring include pitching advertisers on sponsorships that would underwrite additional seasons of already successful Watch shows or selling advertisers on entirely custom Watch shows based on the publisher’s track record on Watch.

(It’s important to note that Facebook allows sponsored shows on Watch, but it does not allow Watch partners to sell advertising for Facebook-funded shows.)

“We are now going to clients and saying that we can develop Facebook Watch programming with them — and the response has been great,” said Nicholas Carlson, chief content officer for Insider Inc. In this case, the ability to show that Insider Inc. can drive millions of views per episode on Watch programming helps, Carlson said.

By self-funding Watch shows and retaining intellectual property rights, Watch partners hope to diversify Watch revenue at a time when the Facebook mid-roll video ad breaks program isn’t breaking the bank for anyone. There’s money to be made with Facebook mid-rolls, but that typically requires a significant volume of views in order for a meaningful percentage of viewers to hit the commercial break.

“[Mid-roll ad revenue on Watch] is nice; it’s good, but it needs to get higher,” Carlson said. “I think about mid-roll similarly to the way I think about programmatic on a website: It’s one revenue stream that contributes among many revenue streams.”

Spiegel said it’s possible to be profitable on Watch — it just requires a more sensible investment approach.

“I’m not saying go in and do a seven-figure documentary, but doing a low-investment digital pilot, making it profitable, figuring out what works [on Watch] and doing that a couple more times — suddenly, it becomes a very interesting platform for us,” Spiegel said. “You can start to do the math on the return that can turn this into a business — and we see that.”

For more research, analysis and interviews from the video business, subscribe to our weekly video briefing email.