Why Snapchat Is the new TV
In the registration filing for its initial public stock offering, Snapchat parent Snap Inc. said its competitors range from Google, Apple and Facebook to popular Asian messaging apps such as Kakao and Line. But it didn’t list any traditional media companies like Fox or Viacom.
That’s odd, because Los Angeles-based Snap is, fundamentally, a burgeoning media company. Snapchat may be a messaging app, but in many ways, it’s also a new kind of television.
The parallels with TV start with how people use Snapchat. In the filing, made Thursday, Snap reported its users view 10 billion videos a day, more than the 8 billion video views a day last claimed by Facebook in late 2015. It’s important to note that on Snapchat, “videos” are clips that are never longer than 10 seconds. They’re usually strung together into “stories” that often stretch several minutes.
It’s hard for people who aren’t teens with a million Snapchat friends to grasp, but once your network is sufficiently big, viewing stories can feel like the “lean back” experience of watching television, as opposed to the “lean forward” experience of engaging on social media. Snapchat’s swipe-based interface makes it easy to mindlessly cruise through the barrage of friends’ stories and messages, and it even has a mode where you can play through all the stories you like without interruption. It’s reality TV, starring people you know.
Since there’s no social feedback, the way there is on Facebook and Instagram, the pressure to judge and possibly share everything you see is off.
“People are using Snapchat as their down time,” says Mike Germano, chief digital officer of millennial-focused media company Vice and chief executive of Carrot Creative, a Vice-owned agency that creates ads for major social platforms. “In an age when if you look at your Twitter and Facebook feed and it’s depressing as all hell, Snapchat is this fun place where it’s a little bit of escapism.”
Snap uses actual humans to curate snaps from across the site into stories on anything of interest, ranging from scenes from the Coachella music festival to funny things grandmothers say. Content also comes from partnerships with celebrities and production studios that may split revenue with Snap, more like a traditional studio than a platform such as Facebook.
Comedy Central was a launch partner on the very first version of Snapchat’s Discover section, which allows media brands, from magazines like Cosmo and Complex to news outlets like CNN and, yes, The Wall Street Journal, to create curated stories of their own. Each ever-refreshing collection of highly produced, video- and animation-rich stories feels like its own TV channel.
“I kept referring to it as the millennial skinny bundle,” says David Bernath, general manager of Comedy Central. A “skinny bundle” is the growing trend in cable toward selling consumers a handful of channels for less than they’d typically pay for cable TV service.
“Twenty years ago you would create MTV2 or VH1 Classic,” says Mr. Bernath, but now that content goes to Snapchat.
Snapchat is also a great deal like television in its business model. Video ads that appear in the app are more like TV commercials than the pre-roll advertising that has failed to generate profit at YouTube. One reason is sheer quantity. While YouTube limits itself to 15- or 30-second pre-roll ads in front of every third video or so, Snapchat can cram three under-10-second ads into every one-and-a-half to two-minute story—without annoying viewers.
How does Snapchat achieve such density without serious backlash? The brief ads are often actually fun to watch. They have to be, since all Snapchat’s ads can be instantly skipped. Snap charges less for skipped ads than ones that are viewed, and full payment only comes when a user swipes up to see the ad in its entirety. Those features make them perfect for the kind of advertising that aims to increase brand awareness—in other words, TV ads.
Taco Bell, an early advertiser, knew from the beginning that “this level of engagement was a total game changer,” a spokesman says, adding that it plans to continue to advertise on Snapchat.
In a new form of product placement, advertisers can even customize Snapchat’s augmented-reality selfie “lenses.” Taco Bell says it worked with Snapchat on its Cinco de Mayo taco head lens for nearly six weeks; the feature garnered 224 million views.
When Twentieth Century Fox used superpowered lenses to promote the movie “X-Men: Apocalypse” last year, the campaign yielded 298 million views, according to Snap.
As advertisers take notice of Snapchat’s 160 million or so daily users, Snap has the opportunity to capture a portion of the $71 billion a year that goes to television commercials. Nielsen reported a 37% decline in the amount of time spent viewing television among 18- to 24-year-olds, Snapchat’s core demographic, between 2010 and 2016. And IDC projects that by 2020, advertisers will spend more money on mobile than they will on TV.
Snapchat reported $404 million in revenue in 2016, and aims to hit $1 billion in 2017. But that growth must be built primarily atop better ad targeting and deeper engagement from users, since it isn’t at all clear Snapchat will grow its user base the way Facebook did. Snapchat’s user growth actually slowed in the fourth quarter of 2016.
Snapchat is the most important social network for teens and people in their early 20s, according to a survey by Piper Jaffray. But investing in Snap means weighing its attraction against a litany of unknowns.
Robust competition from Facebook is foremost among them. The company has been rapidly copying Snapchat’s features in both Instagram and Messenger. Facebook also wants to be the next TV, and is spending some of its massive (mobile) ad revenues on original programming and new apps for set-top boxes.
Then there’s the concern that the Snapchat app is unlikely to ever capture a critical mass of users over 30. Even loyalists could age out of the app as they reach a point when social display and fear of missing out—two key drivers of Snapchat engagement—are no longer motivating forces. And Snapchat could be disrupted by whatever hip new app or service captures the attention of the next generation.
Of course, that hip new app could come from Snap Inc., which has maintained a furious pace of innovation in its core product, rolling out new features—and even hardware—at a rapid rate.
“Unlike Twitter, Snapchat is continuing to advance and deepen what you can do on mobile, and that’s attracting users and brands,” says Catherine Boyle, an analyst at eMarketer. An IPO adds more fuel to that fire.
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