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How Facebook Could Put Pressure on Netflix

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Facebook videos on the big screen

Facebook (FB) is stepping up its hunt for video advertising funds. The release of a Facebook video app for streaming devices such as Amazon’s (AMZN) Fire TV, Samsung’s (SSNLF) Smart TV, and Apple’s (AAPL) Apple TV is part of the push to improve video engagement on the social network and attract more digital ad spending.

Tying up with set-top boxes enables Facebook’s 1.9 billion users to have a better view of videos shared on the social network on a bigger screen. Beyond playback videos, Facebook is also expanding into live streaming and bringing its video app into television sets so it can appeal to more viewers with live videos.

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Advertising landscape is shifting

TV ad spending in the United States (SPY) is forecast to be $72.0 billion in 2017. That’s below the $77.4 billion forecast for total US digital ad spending in 2017, according to eMarketer. That suggests that digital video services such as those rendered by Facebook will continue to take away from traditional TV providers. The above graph illustrates the forecast ad distribution.

Potential victims of Facebook’s video push

Facebook’s aggressive video push combined with live content could cause havoc to traditional pay-TV providers that are already struggling with shrinking subscriptions. Not only does Facebook threaten to further weaken their subscription revenues, but it will also stir up competition for video marketing budgets.

Facebook’s overall video ambition will likely put more pressure on Netflix (NFLX) since content acquisition costs could rise faster than Netflix expected, leaving it to cope with higher operating costs.

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