Snap has signed a deal with Hollywood studio Time Warner estimated to be worth $100 million. Time Warner will create up to 10 original shows a year for Snapchat in a range of genres including scripted dramas, comedies, and documentaries. These shows will run three to five minutes in a mobile-friendly vertical format. Currently, there is one new show airing per day and Time Warner expects to increase this to three shows per day by the end of this year. As part of the deal, Time Warner will also commit to investing in ads from Time Warner properties like HBO, Turner and Warner Bros. on Snapchat over the next two years. Ad revenue will be split evenly between the two partners.
Snap is the owner of messaging app Snapchat. Six years after inception, the company went public in March 2017. In its first financial report released in May 2017, the company reported $150 million revenue and global daily active user base of 166 million.
Time Warner reported revenues of $17.25 billion in 2016. In October 2016, Time Warner was acquired by US telecommunication company AT&T for $85.4 billion; the acquisition is pending Department of Justice approval.
The partnership strengthens Snap’s video offering
The latest deal is part of ongoing efforts by Snap to grab a larger share of ad dollars from its peers Facebook, Google and Twitter. The deal will not only boost Snapchat’s video offering and retain (longer) user engagement on the platforms, but also attract new users to the platform amid a deceleration of user growth.
By focusing on short form original videos for mobile, Snap will not face competition from Netflix, Amazon Video and YouTube Red. Conversely, Facebook’s video investment covers long (30-minute scripted) and short (five to ten minutes scripted and unscripted) videos, both original and licensed.
However, Snap’s ambition to be the Facebook and Google/YouTube alternative is evident. The partnership came just less than two weeks after Snap’s self-serving tool Snapchat Ad Manager went live at the beginning of June. The new tool makes ad buying easier and allows advertisers to manage ad campaigns more effectively. Together with the Snap Publisher coming in July, a tool that allows advertisers to create video ads quickly, both initiatives will help Snapchat to attract small advertisers from Facebook, which IHS Markit deems critical to bolster online ad revenue growth for the platform.
What is in for Time Warner (and AT&T)?
Time Warner’s advertising revenue declined year-on-year in Q4 2016 and Q1 2017, by 1.6% and 1.8% respectively. Though advertising is not the only revenue stream for the US major, advertising sales generated from this deal could be a bonus for Time Warner's overall revenue growth.
If the AT&T buyout succeeds, the telco will find the Time Warner/Snap partnership a strong entry point to the video ecosystem. AT&T could potentially be the first to enter the video space head-on-head with the incumbent players by leveraging the wealth of mobile user data it already owned.
In line with the soon-to-be parent company’s strategy, we also expect Time Warner to further increase content investment on digital initiatives, especially mobile. Time Warner’s digital ambition was evident from the investments it made last year, including video platform DramaFever, Hulu, Chili.TV as well as mobile livestreaming app Kamcord.
Snap is a probable alternative to the Facebook and Google duopoly
Snap had signed a series of deals with Turner networks, A&E Networks, BBC, Discovery Networks, Comedy Central and Vice since 2016. However, this deal with Time Warner is by far the largest. The partnership reflects Time Warner’s interest in the young demographic on Snapchat, which over 60% of its active users are under 25, as well as the confidence Time Warner has in the young company.
Providing Snap with Time Warner’s premium video content might divert video supply from Facebook and YouTube. Advertisers could potentially consider Snap and its video offering in equal terms to Facebook and YouTube, especially amid growing impatience over the lack of transparency and measurement issues of advertising with the two giants. Such a partnership is conducive to the development of an alternative to the Facebook and Google duopoly.