July 19, 2011 5:05 pm

Credit is due as media embraces Facebook

When musician David Gray secured the Dublin leg of his current Lost and Found tour, his manager Rob Holden began experimenting with some new social media paths of distribution, including live streaming the concert on Facebook.

A production team from the local arm of O2, the British telecommunications company which runs several concert venues, filmed the concert last month and made it available on Facebook, where customers could purchase the live stream for $5 using Facebook Credits, the site’s proprietary virtual currency. Mr Gray and O2 agreed to split the proceeds 50-50, but what Mr Holden didn’t know until speaking to the Financial Times was that Facebook took a 30 per cent cut first, as it does with all Credits transactions.

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Mr Holden said the figure was “extreme” and marked a disappointing about-face from the site that has been so focused on building membership and social connections.

“Now they’ve got to monetise it and they’re just turning out to be thieves,” he said.

Facebook still makes most of its money from its advertising business, and only recently made Facebook Credits the mandatory currency for game developers on the site. Only a handful of media companies have sold movies, television shows, or music on the site using Credits, including Warner Bros, which offered The Dark Knight film in March, and BBC Worldwide, which made 29 episodes of Doctor Who available on Facebook last week.

David Gray

The singer David Gray streamed the Dublin leg of his current tour on Facebook, which took an initial 30% cut on the transaction

“It’s a low-risk experiment,” said Dan Cryan, an analyst with IHS Screen Digest. “It’s highly unlikely that it will generate significant traction, at least in the near term.”

Facebook’s Credits team still uses the majority of its resources to support game developers, who sell virtual hay bales and donkeys in games like FarmVille, but is open to seeing how other businesses might use Credits.

“We are very excited to experiment with other verticals,” said Deborah Liu, Facebook’s product manager of Partner Insights. “It’s about seeing where the market will lead.”

Ms Liu said digital media companies that want to maximise their presence on Facebook might follow a similar evolution to social games.

First game developers built games and got people to play them, she said. Then they introduced the ability to invite friends into the game. And now it is at the point where friends are opponents or team-mates in the same game, aligned in the same mafia in Zynga’s Mafia Wars, or farming each others’ farms in Farmville.

PopCap Games is a prime success story in this area. The small gaming company started with a simple puzzle game, Bejeweled Blitz. When the company tapped into the social data on Facebook to add a list of players’ friends and their relative rankings to the game, its audience exploded. Last week, Electronic Arts acquired PopCap for more than $1bn.

These transformations take years, Ms Liu said, and it would take at least that long for movie and music producers to build a similar level of social interaction into media consumption, where friends are able to chat with each other while watching the same movie or concert. Or one person can leave a message for friends that pops up when they sign in to watch, or perhaps users will be able to cut a 30-second scene from a film and post it on Facebook for their friends.

The benefit to Facebook is clear.

“This is a great way to monetise,” said Jeremiah Owyang, an analyst with the Altimeter Group.

Because the company leaves it to third party developers to use their own resources in building the technology to host these media events and the social interactions around them, it can collect its 30 per cent of sales with minimal effort or investment. It can even sell advertisements to the same companies who want to promote their movies or concerts.

For now, media companies seem willing to part with the commission in the hope that Facebook will deliver hordes of new fans.

“Especially in music, where companies are desperately trying to make scale and get more users, Facebook is a major megaphone,” said Jed Williams, an analyst with BIA/Kelsey.

But the promise of new customers is unproven, and it is unclear whether media companies can really afford to give up 30 per cent of their sales for it.

“The music business has already managed to shoot itself in both feet simultaneously,” Mr Holden said. “I don’t think anybody knows what this all means, but it would be churlish to ignore it.”

Additional reporting by Tim Bradshaw in London

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