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Why Facebook, Alphabet, and Apple Are Entering the Race for Original Content

It seems as though there's just too much content to possibly watch these days, from the 200-plus channel cable bundle to streaming services such as Netflix, to new "skinnier" offerings. However, more will soon be coming your way, courtesy of  Facebook (NASDAQ: FB), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), and Apple (NASDAQ: AAPL). 

Each of these deep-pocketed tech giants made big June announcements regarding high-quality, original content production. But is there a strategy behind it all, or is this a case of wasteful "me, too"-ism from executives with too much cash and no better uses for it? Let's take a look at each company's strategy and upcoming lineup.

Image source: Getty Images.

Facebook

On June 25, The Wall Street Journal reported (requires subscription) Facebook was in talks to produce TV-quality shows as early as this summer. Specifically, the company is seeking shows with no nudity, bad language, or politics -- probably a good idea, as Facebook recently had to deal with criticism over fake news, as well as unfortunate acts of violence streamed on Facebook Live. Facebook is aiming for the 13- to 34-year-old demographic, looking to create everything from short-form, non-scripted content all the way to high-end shows up to $3 million per episode (equal to high-quality cable shows).  

After having the luxury of free user-generated content for years, why is Facebook doing this? A few possibilities. First, with 2 billion users, Facebook collects huge amounts of data, which facilitates incredibly surgical ad-targeting. That data treasure trove may also give Facebook insight into making hit shows around which fan communities can be built, rather than the traditional trial-and-error practices of network executives.

Second, Facebook recently received criticism over the effectiveness of its ads, as brands don't necessarily know what content their ads will be featured with on Facebook Live. Television shows would fix that problem and potentially attract additional advertising dollars from pay TV and Youtube.  

Facebook also came under fire last fall for overestimating the length of time viewers spent actually watching video ads, so full-length shows with video ads between segments would help big advertisers get more comfortable.

Alphabet

Of the three, Alphabet has been at original content the longest -- almost two years. However, the company is upping its investment in 2017. Originally, YouTube Red, the company's $9.99-per-month service, carried shows produced by proven Youtube stars with established followings, such as Lily Singh and Joe Graceffa.

However, Bloomberg recently reported the company is now in talks to fund premium Red shows costing $3 million to $6 million per episode. Red has launched 37 original shows to date, with 40 more slated for this year.

YouTube will also start producing premium ad-based content featuring stars such as Ellen Degeneres and Kevin Hart. This is not only a way to lure bigger brand advertisers from TV, but also perhaps to get people interested in potential cable bundle-killer YouTube TV

With $92 billion in cash, Alphabet is trying to do it all: Defend its online advertising empire from Facebook, take aim at the ad-based TV networks, and compete with premium services like Netflix and HBO all at once.

Apple

Apple is late to the content game and is not an ad-based business like Alphabet or Facebook. Nevertheless, the iPhone giant started producing content in the past year. 

To date, the company has made relatively safe, small investments designed to promote services like Apple Music. Beats executive Jimmy Iovine has said the idea is to create "an entire cultural, pop-cultural experience," giving customers a reason to choose Apple Music over "freemium" services like Spotify. Specifically, the company invested in a Taylor Swift documentary, 16 new episodes of James Corden's Carpool Karaoke (licensed from CBS), and Apple's first-ever original series Vital Signs, a dark drama loosely based on Dr. Dre's life. Apple also produced Planet of the Apps, kind of a Shark Tank rip-off for app developers, geared toward inspiring young developers to build for the company's app store.

These may not be earth-shaking developments, but they are savvy moves that promote Apple's core franchises while also enabling Apple to learn the content game. Last quarter, Apple's services business, which includes Apple Music and the App store, grew 18% and generated over $7 billion in revenue -- larger than both Netflix and Amazon's Amazon Web Services combined.  

In June, however, Apple hinted it may be expanding its content horizons, hiring two top executives from Sony Pictures. Moreover, CEO Tim Cook has confirmed that "television has intense interest with me and many other people here," so look for Apple to make a bigger move in the future. 

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Billy Duberstein owns shares of Alphabet (C shares), AMZN, Apple, and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), AMZN, Apple, Facebook, and NFLX. The Motley Fool has a disclosure policy.