Is Facebook the Next Netflix?

SMITH BRAIN TRUST – It looks like Facebook has been sending friend requests to Hollywood.

The Wall Street Journal is reporting this week that Facebook has been talking with Hollywood studios and agencies about creating original television content to launch on the social-media platform by late summer.

And this could be a big deal. The news comes as Facebook has crossed another stunning milestone, notching 2 billion active monthly users.

With that kind of reach, Facebook's original programming would seem destined to be an instant smash success. Consider this: Netflix only has about 100 million monthly users worldwide.

Facebook is reportedly willing to spend as much as $3 million per episode, a respectable budget for a high-end scripted television program. And it's also looking for programming at a lower price point, somewhere in the high six figures, according to the Journal.

Facebook would be entering an already crowded streaming market, where Netflix, Amazon Prime Video, Hulu and others vie for viewer attention and for creative content. Apple is another player who's busily lining up original TV programming.

With demand rising for original content, prices have been going up, says P.K. Kannan, the Ralph J. Tyser Professor of Marketing Science at the University of Maryland's Robert H. Smith School of Business. And that's been welcome news for content producers, who for years have seen content piracy chip away at revenue.

"Any initiative in this direction will be expensive," says Kannan. "But Facebook has a deep pocket and can afford to spend the money to be a strong player in this field."

Entertainment seems a logical fit for Facebook. Facebook users, who as of last year were reported to spend an average of 50 minutes per day on the platform, generally turn to Facebook to relax, connect with friends and for other non-business activities. "So watching a sitcom or movie could be seamless transition," Kannan says, and "will, in fact, increase the time an average user spends on Facebook."

Still much about a potential Facebook TV offering remains unknown. For example, how will Facebook monetize the programming?

The social-media giant could adopt a subscription model, similar to what Amazon, Netflix and Hulu have, Kannan says. But, he adds, "if that is the case, why should users switch from those to Facebook content?"

Facebook could use programming to increase its advertising revenue, Kannan says. "But if it is monetized through ad views, then you are no better than TV – or the old ad-supported Hulu model, which users did not care for much," he says. Kannan says mid-show ad interruptions would likely prove a turnoff for viewers, even if the shows are offered up for free.

Facebook's best move, Kannan says, would be to infuse the TV programming with the thing that Facebook does best: social networking.

"Facebook could make watching a social event," Kannan says. "A bunch of friends watching a show on Facebook and texting/commenting as they watch it, like you are watching a live game – this could have some traction."

It's a single-screen experience that could set Facebook streaming apart from the crowd, Kannan says.