Could Facebook be the next threat to Netflix?

March 11, 2011: 12:20 PM ET

Warner Brothers Digital Distribution head Thomas Gewecke says the Facebook "Dark Knight" movie-streaming experiment changes the future of online video.

Thomas Gewecke, WDDB president. Photo: Warner Brothers Digital Distribution

Earlier this week, Warner Brothers, a division of Time Warner (TWX) (parent company of Fortune), made a splash when it offered up Batman: The Dark Knight for viewing on its Facebook fan page. Users who "Liked" it and shelled out 30 Facebook Credits, or $3, could watch a Standard Definition stream in the U.S. for up to 48 hours after the initial purchase.

Fast and furious speculation focused more on what the move meant longer-term than the movie itself. Goldman Sachs (GS) analyst Ingrid Chung said Facebook does not pose an immediate threat to Netflix (NFLX) on a short-term basis, but that could eventually change if and when other movie studios follow suit.

Warner Brothers Digital Distribution President Thomas Gewecke doesn't view Facebook as the next big video content provider -- at least not yet. In the company's overall digital strategy, Gewecke refers to it as a test project, an addition to its current strategy, which is to capitalize on the increasing numbers of users consumer media on both Internet-connected TVs, PCs, Macs, and mobile devices. Are they pegging the future of digital media on the backs of Facebook's 600 million or so users? Far from it. Think of it more of as an addition to the company's current offerings.

That said, the studio see Facebook as a platform too powerful to ignore.

"I think that it's kind of a wide open frontier on which things can be built, and so there's a huge opportunity," he says. And while Facebook remains a ripe testing ground at the moment, he doesn't discount the real possibility that video streaming on Facebook could take off.

"Look at what happened with social gaming," he says. "You have a community that didn't exist a few years ago and that has emerged as a result of the company doing some very interesting things and creating new kinds of entertainment experiences, leveraging the tools that Facebook has sort of made on its platform." He's talking of course about Zynga, the wildly successful casual game maker that publishes its products exclusively on Facebook. Its most recent offering, the city-building simulation CityVille, is now the largest online game of any kind, with over 95 million active monthly users.

Just as casual gaming serendipitously exploded on the social network, it's not a stretch to think that the same thing could happen with video content. In some ways the process of socializing the movie-viewing experience and thereby adding value to video properties, old and new, could be smoother on Facebook.

"It's very hard to build social around something else, to take an existing stand alone offering and sort of build a social experience around it," says Gewecke. "This is an example of trying to build a great entertainment experience into an existing social environment and leveraging Facebook's assets."

The most famous example of a company that tried to wrap a social element around a core entertainment experience -- and failed -- may be Netflix. For five years, the company had a feature called "Friends" which let users connect with other Netflix users, view each other's queues, recommend movies, and compare starred movie rankings. The only problem was that no one used it -- less than 2% of users, according to Netflix.

"No company has unlimited resources and we decided to move engineering development time and resources from a little used feature to support and maintain the things that benefit all Netflix members as the service evolves -- more devices for streaming and better encoding, for example," Todd Yellin, Netflix's VP of Product Management, explained last year.

It'll be a while before Facebook proves to be a video content platform. Warner Brothers remains the only studio to offer movies on the social network, and at this point, it's just The Dark Knight. Gewecke says the company expects to offer more movies at a pretty quick pace over the next few months, but no decisions have been made about when the next flick will be offered and even what it will be. They're also taking some time to study the results of their first experiment.

As of publication, only 1,649 of the The Dark Knight's nearly 4 million fans "Like" the movie app, a prerequisite to watch the movie itself. So assuming that all of those 1,649 users also went ahead and rented it -- highly unlikely -- that means sales of $4,947, chump change compared to the rest of the movie's impressive numbers: $1 billion worldwide in theatrical gross $255 million in DVD sales, and a production budget of $185 million. A humble start, to be sure.

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About This Author
JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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