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How a Time Warner-Snapchat Deal Could Drive Ad Revenues

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Features of the deal

To drive its digital ad business and boost its DTC (direct-to-consumer) model, Time Warner (TWX) struck a deal with Snapchat (SNAP) in June 2017 to create original shows for the messaging service provider for the next two years.

Time Warner will develop and produce shows between three and five minutes in length, for which it will invest nearly $100 million. In order to target younger audiences and promote its Turner, Home Box Office, and Warner Bros business units, the company will advertise on Snapchat.

The deal with Snapchat should help the messaging service step up shows from one to three per day. In August 2017, Time Warner’s CNN also launched a new daily news show for Snapchat.

The comScore Report

According to a comScore (SCOR) report in June, Snapchat happens to be the third-most-popular app, after YouTube (GOOGL) and Facebook (FB), among people aged 18 to 24 years. It is also ahead of FB Messenger and Instagram, though it’s behind FB Messenger and Instagram in terms of mobile app penetration among app audiences.

The rising use of smartphones among young generations combined with the availability of faster Internet services have encouraged users to watch videos on mobile devices. The deal with Snapchat could thus help TWX target these audiences.

At the end of June 2017, Snapchat had nearly 173 million daily users globally, and so it should be a great platform for the media giant to expand its video services among Snapchat users. The ad revenues earned during shows may be split between Snap and Time Warner, driving both companies’ ad businesses.

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