Netflix CEO Joins Facebook Board: Next Step, Entertainment Domination!

Last Updated Jun 23, 2011 5:02 PM EDT

Companies often trumpet their board picks, though usually no one cares outside of institutional investors, hedge funds, and other organized piles of money. But the addition of Netflix (NFLX) CEO Reed Hastings to Facebook's board is more than an exercise in corporate governance.

A partnership between the two -- or even an eventual acquisition of Netflix by Facebook -- would be a powerful combination. Facebook would gain more importance in video, adding muscle to compete with Google (GOOG). Netflix could expand its market share and become a force that studios could not afford to cross. A strong alliance could also permanently shift how consumers around the world get access to video entertainment. Having Hastings on the board only makes these developments more likely.

Facebook likes video
Facebook is already a major location for people to watch video. The only question is just how important the site is. In May, Nielsen and comScore ranked Facebook as either the third or fourth most visited video site, with 29.2 million or 48.2 million unique visitors respectively. (The two metric companies significantly disagree on all their video viewership numbers.) You can see the results in the tables below (click to enlarge):

Netflix, too, has become vital to online video. At least one study says that Netflix is responsible for nearly 30 percent of peak Internet traffic to North American homes -- even than Web surfing. Furthermore, the consumers that use Netflix pay for the privilege.

Put the two outfits together and you have one formidable video giant. In fact, that's what the companies have been working on for some time. Last month, Facebook CEO Mark Zuckerberg admitted that Facebook and Netflix had been in talks about a content partnership.

A double payoff
The benefits for each are enormous. Facebook wants to increase the amount of time people stay on the site, because that drives more ad views and resulting revenue. Also, it could give Facebook a foot in the door of video ads. Currently, according to comScore, it isn't even in the top 10. (Neither is Google, for that matter.)

Netflix doesn't show ads on streamed content, but Facebook might find a way to add a short opening video spot, or "pre-roll," which would mean additional revenue. A partnership might also help combat concerns that Facebook's core audience may be dropping. Clearly, knowing what videos people watch also adds to Facebook's collection of personal data.

At the same time, Netflix wants to nail down its position as the streaming video leader. Facebook has between 600 million and 700 million accounts. Even if only a portion of them are frequent users, that's an enormous number of potential Netflix subscribers. A Netflix tie-up could also slow Facebook's efforts to develop partnerships directly with video studios. Beyond a certain point, all this could eventually make Netflix so important to video distribution that content producers can't afford to freeze it out in favor of cable companies.

The appearance of Hastings on Facebook's board only underscores how much Facebook wants to become an entertainment hub and how important it considers Netflix as a possible partner.


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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.