Facebook wants its pay-per-view model to expand across sports

Facebook has a plan to turn its live online events product into a pay-per-view option for sports leagues broadcasting games on the platform.

It’s feature Facebook says will help businesses, including sports companies, make more money in a changing content consumption landscape.

The social media giant envisions high school sports teams and smaller leagues using the feature that allows users make money for virtual for attendance, and keep ticket profits – for now. And Facebook plans to invest in paid online events, the live streaming feature that lets you pay for a virtual “ticket” to watch, sort of like pay-per-view on cable.

For decades, media networks like HBO and Showtime have used the pay-per-view fees, especially for boxing. WWE and mix martial arts company UFC also monetized from pay-per-view events. And the business model is precisely that – paying to watch an event, no subscription needed.

“I think pay-per-view is by no means on any verge of extinction,” said Rob Shaw, Facebook director of sports media and league partnerships, in an interview with CNBC. “I think this is something that helps breathe new life into it. People are willing to pay to experience a moment.

“One thing I’ve noticed, though,” he added. “I don’t think people are willing to immediately start with a subscription.”

Since launching last August, Facebook said paid online events is available in 44 markets globally, including in the U.S. In its earnings report last month, Facebook reported 2.85 billion monthly active users and 1.8 billion daily active users. Hence, Facebook has a built-in audience to make this feature work.

Facebook said users request access to host an event and first have to pass integrity checks. Once approved, Facebook will also monitor events to prevent explicit content. Businesses and users can host live streams for moments, including course-like events such as cooking, gaming tournaments and introducing new products.

Second and third-tier sports leagues and high schools can also use the paid feature to attract attendance. Facebook said it saw positive results in March for Challenge Miami, a professional triathlon event. Users purchased tickets for $2.99 each, and the event drew over 17,000 people. That’s more than the event draws in-person, and 70% of the people watched from outside the U.S.

Yoav Arnstein, Facebook’s director of product management, said the race was when the company knew paid online events had growth potential along with the benefit of allowing event hosts to make money globally.

“That goes to show the ability of sports infusion – to go and extend the reach beyond the current locale of the event, which is tremendous,” Arnstein said.

And Facebook further witnessed the success of live streaming on its platforms throughout the pandemic with events like Verzuz, which pairs notable musical stars in a battle-style event on Instagram. After building the live streaming audience, Verzuz sold to streaming company Triller, which has spent over $250 million in the last six months acquiring streaming platforms and content, according an individual familiar with their acquisition. The person spoke to CNBC on condition of anonymity as they weren’t authorized to speak publicly about Triller’s deal. Also, additional platforms like OnlyFans further prove the appetite is there for users to monetize peer-to-peer content. And now Facebook is looking behind the pandemic with its live streaming products.

Shaw called paid online events “another tool in our suite of monetization products that allows you to monetization your content directly.”

Neil Patel is the chief marketing officer at NP Digital, a marketing agency that works with companies including Facebook, Google and NBCUniversal, the parent company of CNBC.

To test paid online events, Patel said NP marketed events offering a similar live streaming product. The company targeted consumers for the same event, sending half to a third-party site and others to Facebook. He said paid online events generated 28% more revenue for content creators than third-party services.

“The conversion rates are higher. It makes your [return on investment] much higher as a content creator, and you’re more likely to leverage it,” Patel said. “Who wouldn’t want 28% more revenue? This is just a better, more economical way you can reach way more people.”

Paid online events also has a replay feature, allowing users who missed the live session to pay and watch later. Arnstein said Facebook needs to add more engagement features to differentiate paid online events from its free streaming products. Facebook is also testing a geofencing feature that can allow hosts to target specific regions where they want events to stream.

It’s here pro sports teams can benefit on the local level one day in the future.

Again, Facebook sees success with smaller sports companies who use the product like an indoor soccer company (Major Arena Soccer League). Broadcast media rights restrict top sports leagues like the National Football League and National Basketball Association to live streaming games on Facebook.

But while leagues are secured on the national front, locally, their clubs will need to get creative as the regional sports network business model needs to combat cable cord-cutters.

Attempting to bypass TV would endure lots of red tape, and RSN fees are still crucial for a pro team’s annual revenue. But Facebook’s geofencing would help, as sports clubs could limit live streams within its market reach to help target areas beyond North America.

And outside of games, clubs could monetize other content, like team practices and other behind-the-scenes videos. Shaw labels it “developing a new playbook” for future monetization.

“I think this will catch on to every league and media company,” Shaw said. “It’s going to be challenging to figure out how they can thread the needle to be able to do this. But once they do, on the other side, there is an ability to engage and interact with a completely different audience than those who would watch it on television.

“In the new marketer’s playbook,” he added, “it’s all about reaching and engaging with an audience which you are then able to drive business outcomes.”

Content creators receive 100% of revenue from tickets to a paid event for now. But unless an extension occurs, that will end by August. Facebook doesn’t currently charge fees, as Apple and Google have put a pause on the cut they take from the events to give hosts a break during the pandemic. But Facebook expects the tech giants to eventually attach in-app charges and pass the cost to users.  

Asked how charges would work, Arnstein told CNBC the company would provide updates about fees in the coming weeks, declining to elaborate further. And it’s not clear if Facebook could incorporate ads with its paid streaming. Arnstein reiterated the product is still in the early stages but said he’s “bullish” on the future of paid online events being a mainstay in sports consumption.

“Facebook is pushing hard on this, and I think they’ll end up becoming the leader [in paid live streaming]. What I’m seeing is, they are trying to go directly after television networks and channels,” Patel said. “They are trying to own the attention whether it’s online or offline — they want it.”