The upside of Facebook's unprecedented power

The writer is a vice president at General Atlantic, which is an investor in Vox Media, the parent company of Recode.

"Digital media companies do five things. They create, host, curate, distribute and monetize content. Facebook now does four of them."

That was how Chartbeat founder Tony Haile opened a recent essay on Facebook, published here on Recode. The implications of his statement aren’t subtle. Facebook dominates — at least, seemingly — so many core elements of the media value chain that it represents a kind of terrifying world destroyer to content producers.

Facebook dominates — at least, seemingly — so many core elements of the media value chain that it represents a kind of terrifying world destroyer to content producers.

Derek Thompson, a senior editor at The Atlantic, describes Facebook as "a media company, but more than that, it is a utility, an integral piece of information infrastructure ... a super-powered cable operator for the mobile future." Yikes. How can anyone cope against such reckless and unchecked power?

Clearly, Facebook ranks today as the most important digital distribution partner for media companies. This importance is likely to wane over time as Google, Apple and Amazon increase their focus on building media distribution (to compete for consumer attention) and as platforms such as Snapchat continue to grow rapidly.

Today, however, as Thompson contends, "Facebook’s power is unprecedented." Many focus — and fairly — on the potential negative ramifications of such supremacy. However, the unprecedented nature of Facebook — and, more broadly, increasing smartphone ubiquity and global broadband connectivity — proves to be an incredible positive in many ways. Indeed, Facebook has helped create perhaps the most exciting time to be in the news, content and entertainment business.

Consider this:

Facebook provides content owners the ability to reach over one billion users who each spend 50 minutes on average on the platform every single day. As a point of reference, daily newspaper circulation peaked in the U.S. at about 60 million households and today, cable television reaches approximately 100 million households. Bottom line: An unprecedented global distribution opportunity.

Media companies can realize massive distribution scale without spending much, if anything, on physical production or marketing. In 2000, when the annual revenue of the New York Times peaked at $3.5 billion, the company spent over $360 million on "raw materials" (literally "newsprint and super-calendared paper"). Its daily circulation then was about one million. In 2016, digital-only media companies can reach over a billion people daily without spending a single dollar on "raw materials" and without paying for the acquisition of these users. Bottom line: an unprecedented unit economic and cost efficiency opportunity.

Facebook, social media and smartphones are permanently growing the media consumption market. People are consuming more media than ever before — what do you think you are doing on your phone all day? According to data from comScore, the time spent with digital media in the U.S. increased 49 percent between 2013 and 2015 and time spent with digital media on smartphones skyrocketed 90 percent during the same period. Per Barclay’s research, in 2011-2015, people added over an hour of total media consumption daily, driven all by digital growth. Bottom line: People are dedicating an unprecedented amount of time to media consumption.

So, yes, Facebook can be a scary organization in many ways. But it also happens to be a platform that empowers media and content businesses to grow and scale in unimaginable ways. It birthed a "golden age of content" for consumers around the world.

And, yes, "digital media companies do five things. They create, host, curate, distribute and monetize content. Facebook now does four of them."

Don’t ignore the positives, however. Media companies also once had a smaller market opportunity, limited distribution and structurally higher production and marketing costs. Facebook helps media companies address each of these challenges. Not all is lost. Opportunity to build large businesses abounds for content owners who can execute and consistently deliver value for consumers, advertisers and employees in the media ecosystem.

Zack Kaplan is a vice president at General Atlantic focusing on investments in the Internet & Technology sector, based in the firm’s New York office. Reach him @ZJKaplan.

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