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Social TV still struggles to turn eyeballs into cash

The two leading social media platforms have generated quite a lot of buzz around TV themselves recently, but they are still making precious little money out of it. That is party the reason for the buzz, as both Facebook and Twitter jostle for position in the sector in the hope of converting their dominance of the second screen into revenues.

There is an irony in that the traditional TV advertising market is growing strongly again in North America and Europe at a time when people are becoming more distracted by their second screens, engaging via Facebook and Twitter in activities sometimes related to the programs they are viewing and sometimes not. Global outlay on TV advertising was $160 billion in 2012 and set to reach $200 billion this year, according to Swiss-based publishing and business conference company Informa, while the total earned by Facebook and Twitter from TV related activities was just a few million dollars. This is despite the huge user bases of both. Facebook has 699 million active users on a daily basis, or 1.15 billion signing in at least once a month, while Twitter has about 550 million active registered users.

Both companies have been trying to infiltrate their way into the TV value chain, through acquisition of analytics companies and generating data about TV buzz and viewing by mining their sites with the objective of working with broadcasters and pay TV operators on projects that exploit this. Both sites have the advantage of direct relationships with customers that broadcasters lack, with different strengths but also challenges to overcome. Twitter provides more immediate feedback with greater potential for exploiting metrics in real time, say to make pertinent recommendations or even target adverts to devices the tweets are coming from. But as CBS recently pointed out, tweets are less representative of the viewing population than Facebook data and, therefore, a less reliable source of feedback for full audience research. Young women tend to tweet more than any other demographic group and so an analysis based on Nielsen’s Twitter ratings service might overestimate their numbers.

Yet while Facebook has a broader active user base, it may still yield skewed data because analyzing activity such as “likes” and comments is far from being an exact science. At the same time, it may even be that with suitable weighting applied, it becomes possible to turn Twitter data into accurate and instant feedback. Be that as it may, there is clearly a lot of work for both Facebook and Twitter to do before they can provide accurate and insightful analysis of TV viewing and buzz.

A more immediate prospect though is to syphon off some of that TV advertising activity. Even if they could get just 1 percent of that $200 billion pot, it would make a significant impact on the bottom line, especially for Twitter, which has been struggling to convert tweeting activity into revenue at all, never mind around TV.

For its third quarter ending September 30 2013, Twitter’s revenue was $169 million, up 17 percent from the previous quarter and 51 percent from the same quarter a year earlier, but it still made a loss on that of $65 million. This equates to a monthly ARPU (Average Revenue Per User) of just 14 cents. Facebook is in a much stronger financial position, notching up $1.81 billion in revenue and net income of $333 million for Q2 2013, the latest reported so far. This equates to 53 cents monthly ARPU, which is still below Google’s by at least an order of magnitude, depending on how the latter is measured.

The point is that video and TV represent the great hope and opportunity as yet almost untapped for both parties, both from the data they can provide to broadcasters and opportunities for delivering video ads either in synchronization with TV programming in second-screen mode, or independently. On the latter front, Facebook is again better placed, with plans to introduce video ads to its platform. Launch plans have been dogged by hoaxes suggesting that video ads would interrupt sessions or delay the start, just as they do intermittently, but increasingly often it seems, on YouTube, which touches a raw nerve because Facebook CEO Mark Zuckerburg has stated his concern that they should be unobtrusive, optional and avoid annoying users at all costs. Nevertheless, analyst sentiment is highly positive, with London-based Morgan Stanley suggesting video ads could generate $1 billion for Facebook in 2014, or 1 percent of the total U.S. TV ad budget. Morgan predicts this will rise to $5.5 billion by 2019.

While such forecasts look to be at the top end of the spectrum and depend on Facebook getting the user experience right quickly, they give an idea of the potential given the captive audience. Twitter on the other hand is likely to have to exploit the power of its real-time data for analytics, with less scope for video advertising.