Facebook Changes its News Feed Algorithm

What it Means for Media Companies:

  • It will become more expensive for media companies to reach FB audiences
  • FB will likely increase focus on FB Watch
  • The short-medium term FB business impact is unclear but FB’s moat against government regulation and future competition is strengthened
  • Media companies will struggle to reduce dependency on FB

 

FB said it will start to show users more posts from their friends and family in the News Feed, a move that means people will see fewer posts from publishers and brands. Recode

What this Means for Media Companies:

The likely most significant impact of this change on the media industry will be on media companies’ social reach cost, FB’s focus on Watch, and FB’s moat.

  1. Media Companies’ Social Reach Cost

FB prioritizing friends and family interactions over posts from publishers and brands means that fewer organic posts from media companies will reach followers. In the same announcement, FB stated that they expect time spent in the app to decrease.

This announcement follows FB telegraphing last year that it will stop growing, and potentially reduce, ad loads (Recode).

Considering these points together, it’s clear that FB’s inventory for organic and paid media posts is shrinking. Demand for this inventory, however, is likely to continue growing since FB’s targeted, self-serve platform is one of, if not the most, effective digital marketing channels. The result would be an increase in the price media companies pay to reach FB users, whether they follow the media companies’ FB page or not.

Therefore, media companies should expect the following activities to become more expensive on FB:

  • Maintain relationships with their Facebook followers
  • Acquire users for subscriptions services
  • Distribute content (branded or otherwise)

In a desperate search for silver linings, the following repercussions could be seen as beneficial to established media companies:

  • Media companies with influencer networks may see these networks as an effective way to break through FB’s news feed algorithm
  • It will be more difficult for media startups to find initial traction without FB as an open network (e.g. Buzzfeed could have never flourished in this environment), leading to fewer sources of competition in the future
  • Valuations of FB dependent digital media companies may become more attractive for acquisition’s sake
  1. FB focus on Watch

Since FB’s ad load is now essentially maxed out, their growth levers are limited to increasing prices and growing other businesses. One of the businesses that is likely to increase in priority as a result is FB Watch.

FB is already planning to invest $1B in FB Watch original programming in 2018 (TechCrunch). So far, it’s not clear that FB Watch has been able to gain traction among viewers. If it ever does, it would not only take viewer attention share from media companies but also the advertising dollars that follow that attention. In this hypothetical situation, FB’s hyper-targeting abilities could be viewed as extra incentive to move video ad dollars to the platform, since linear ad targeting abilities are likely to trail behind.

FBWatchTrends1

FBWatchTrends2

  1. FB’s Moat

While FB’s motivations for prioritizing personal interactions over brand posts are not completely clear, the move could help them defend themselves against current scrutiny that the platform is bad for people and society. Whether the move makes the platform less toxic or not, it at least communicates a somewhat altruistic message that FB cares about its impact on the personal lives of its users and is willing to take initiative for that cause. In my view, this move reduces FB’s risk of government regulation.

An argument could also be made that the aspects of the platform that FB is prioritizing, the social graph and the interactions that come out of it, are also the aspects of the platform that benefit most from network effects, and are therefore most difficult to replicate. While the prioritization’s short-term impact on FB’s business is questionable, FB’s moat against future competition could be strengthened.

In conclusion, while FB’s news feed algorithm change is probably a net detriment to media companies, it’s unlikely that that industry will be able to reduce its dependence on the platform.

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s