A Twitter employee groomed by the Saudi government prompted 2015 state-sponsored hacking warning

An explosive report in The New York Times this weekend sheds new light on the apparent targeting of Twitter accounts by “state-sponsored actors” three years ago.

It comes in the wake of the confirmed death of Washington Post journalist Jamal Khashoggi on Friday, two weeks after he disappeared in the Saudi consulate in Istanbul. Khashoggi had long been a target of a Saudi troll army, according to the report, which employed hundreds of people to stifle the speech of government critics, like Khashoggi, who left the kingdom to live and work in the United States.

But the troll farm is said to be one part of a wider scheme by the Saudi leadership to surveil critics and dissidents.

According to the report, Western intelligence officials told Twitter that one of its employees, a Saudi national, was asked by the Saudi government to spy on the accounts of dissidents. The employee — an engineer — had access to account data on Twitter users, including phone numbers and IP addresses. Saudi officials are said to have convinced him to snoop on several accounts. Twitter fired the employee, despite finding no evidence that he handed data over to the Saudi government. The employee later returned to the kingdom and now works for its government.

After the dismissal, the Times reports, Twitter sent out warnings a few dozen users that their accounts “may have been targeted by state-sponsored actors.”

“As a precaution, we are alerting you that your Twitter account is one of a small group of accounts that may have been targeted by state-sponsored actors,” said Twitter in the email to affected users. “We believe that these actors (possibly associated with a government) may have been trying to obtain information such as email addresses, IP addresses, and/or phone numbers.”

Twitter didn’t say at the time what was the cause of the email warning, leading some to question what linked the affected accounts.

Around 20 users were affected, including privacy and security researcher Runa Sandvik, human rights activist Michael Carbone, and Austrian communications expert Marco Schreuder.

Several of the affected users also worked for the Tor Project, a non-profit that allows activists and researchers to browse the web anonymously — often to bypass state-level censorship and surveillance.

Facebook and Google also have similar alerts in place in the event of suspected state-sponsored attacks or hacking, though often the companies send out alerts out of an abundance of caution — rather than a solid indicator that an account has been breached.

When reached, a Twitter spokesperson declined to comment.

New ‘Dark Ads’ pro-Brexit Facebook campaign may have reached over 10M people, say researchers

A major new campaign of disinformation around Brexit, designed to stir up UK ‘Leave’ voters, and distributed via Facebook, may have reached over 10 million people in the UK, according to new research. The source of the campaign is so far unknown, and will be embarrassing to Facebook which only this week claimed it was clamping down on ‘dark’ political advertising on its platform.

Researchers for the UK-based digital agency 89up, allege that “Mainstream Network” — which looks and reads like a ‘mainstream’ news site but which has no contact details or reporter bylines — is serving hyper-targeted Facebook advertisements aimed at exhorting people in Leave-voting UK constituencies to tell their MP to “chuck Chequers”. Chequers is the name given to the UK Prime Ministers’s proposed deal with the EU regarding the UK’s departure from the EU next year.

89up says it estimates that Mainstream Network, which routinely puts out pro-Brexit “news”, could have spent over £250,000 on pro-Brexit or anti-Chequers advertising on Facebook in less than a year. The agency calculates that with that level of advertising, the messaging would have been seen by 11 million people. TechCrunch has independently confirmed that Mainstream Network’s domain name was registered in November last year, and began publishing in February of this year.

In evidence given to Parliament’s Digital, Culture, Media and Sport Select Committee today, 89up says the website was running dozens of adverts targetted at Facebook users in specific constituencies, suggesting users “Click to tell your local MP to bin Chequers”, along with an image from the constituency, and an email function to drive people to send their MP an anti-Chequers message. This email function carbon-copied an info@mainstreamnetwork.co.uk email address. This would be a breach of the UK’s data protection rules, since the website is not listed as a data controller, says 89up.

The news comes a day after Facebook announced a new clampdown on political advertisement on its platform, and will put further pressure on the social media giant to look again at how it deals with the so-called ‘dark advertising’ its Custom Audiences campaign tools are often accused of spreading.

89up claims Mainstream Network website could be in breach of new GDPR rules since, while collecting users’ data, it does not have a published privacy policy, or contain any contact information whatsoever on the site or the campaigns it runs on Facebook.

The agency says that once users are taken to the respective localized landing pages from ads, they are asked to email their MP. When a user does this, its default email client opens up an email and puts its own email in the BCC field (see above). It is possible, therefore, that the user’s email address is being stored and later used for marketing purposes by Mainstream Network.

TechCrunch has reached out to Mainstream Network for comment on Twitter and email. A WhoIs look-up revealed no information about the owner of the site.

TechCrunch’s own research into the domain reveals that the domain owner has made every possible attempt to remain anonymous. Even before GDPR came in, the domain owners had paid to hide its ownership on Godaddy, where it is registered. The site is using standard Godaddy shared hosting to blend in with 400+ websites using the same IP address.

Commenting, Damian Collins MP, the Chair of the Digital, Culture, Media and Sport Committee of the UK Houde of Commons, said: “We do not know who is funding the Mainstream Network, or who is behind its operations, but we can see that they are directing a large scale advertising campaign on Facebook designed to get people to lobby their MP to oppose the Prime Ministers’s Brexit strategy. I have been sent a series of emails from constituents as a result of these adverts, in a deliberate attempt to alter the outcome of the Brexit negotiations.

“The issue for parliamentarians is we have no idea who is targeting whom via political advertising on Facebook, who is paying for it, and what the purpose of that communication is. Facebook claimed this week that it was working to make political advertising on their platform more transparent, but once again we see potentially hundreds of thousands of pounds being spent to influence the political process and no one knows who is behind this.”

Mike Harris, CEO of 89up said: “A day after Facebook announced it will no longer be taking ‘dark ads’, we see once again evidence of the huge problem the platform is yet to face up to. Facebook has known since the EU referendum that highly targeted political advertising was being placed on its platform by anonymous groups, yet has failed to do anything about it. We have found evidence of yet another anonymous pro-Brexit campaign placing potentially a quarter of a million pounds worth of advertising, without anyone knowing or being able to find out who they are.”

Josh Feldberg, 89up researcher, said: “We have no idea who is funding this campaign. Only Facebook do. For all we know this could be funded by thousands of pounds of foreign money. This case just goes to show that despite Facebook’s claims they’re fighting fake news, anonymous groups are still out there trying to manipulate MPs and public opinion using the platform. It is possible there has been unlawful data collection. Facebook must tell the public who is behind this group.”

TechCrunch has reached out to both Facebook and Mainstream Network for comment prior to publication and will update this post if either respond to the allegations.

Smart home makers hoard your data, but won’t say if the police come for it

A decade ago, it was almost inconceivable that nearly every household item could be hooked up to the internet. These days, it’s near impossible to avoid a non-smart home gadget, and they’re vacuuming up a ton of new data that we’d never normally think about.

Thermostats know the temperature of your house, and smart cameras and sensors know when someone’s walking around your home. Smart assistants know what you’re asking for, and smart doorbells know who’s coming and going. And thanks to the cloud, that data is available to you from anywhere — you can check in on your pets from your phone or make sure your robot vacuum cleaned the house.

Because the data is stored or accessible by the smart home tech makers, law enforcement and government agencies have increasingly sought data from the companies to solve crimes.

And device makers won’t say if your smart home gadgets have been used to spy on you.

For years, tech companies have published transparency reports — a semi-regular disclosure of the number of demands or requests a company gets from the government for user data. Google was first in 2010. Other tech companies followed in the wake of Edward Snowden’s revelations that the government had enlisted tech companies’ aid in spying on their users. Even telcos, implicated in wiretapping and turning over Americans’ phone records, began to publish their figures to try to rebuild their reputations.

As the smart home revolution began to thrive, police saw new opportunities to obtain data where they hadn’t before. Police sought Echo data from Amazon to help solve a murder. Fitbit data was used to charge a 90-year old man with the murder of his stepdaughter. And recently, Nest was compelled to turn over surveillance footage that led to gang members pleading guilty to identity theft.

Yet, Nest — a division of Google — is the only major smart home device maker that has published how many data demands it receives.

As first noted by Forbes last week, Nest’s little-known transparency report doesn’t reveal much — only that it’s turned over user data about 300 times since mid-2015 on over 500 Nest users. Nest also said it hasn’t to date received a secret order for user data on national security grounds, such as in cases of investigating terrorism or espionage. Nest’s transparency report is woefully vague compared to some of the more detailed reports by Apple, Google and Microsoft, which break out their data requests by lawful request, by region and often by the kind of data the government demands.

As Forbes said, “a smart home is a surveilled home.” But at what scale?

We asked some of the most well-known smart home makers on the market if they plan to release a transparency report, or disclose the number of demands they receive for data from their smart home devices.

For the most part, we received fairly dismal responses.

What the big four tech giants said

Amazon did not respond to requests for comment when asked if it will break out the number of demands it receives for Echo data, but a spokesperson told me last year that while its reports include Echo data, it would not break out those figures.

Facebook said that its transparency report section will include “any requests related to Portal,” its new hardware screen with a camera and a microphone. Although the device is new, a spokesperson did not comment on if the company will break out the hardware figures separately.

Google pointed us to Nest’s transparency report but did not comment on its own efforts in the hardware space — notably its Google Home products.

And Apple said that there’s no need to break out its smart home figures — such as its HomePod — because there would be nothing to report. The company said user requests made to HomePod are given a random identifier that cannot be tied to a person.

What the smaller but notable smart home players said

August, a smart lock maker, said it “does not currently have a transparency report and we have never received any National Security Letters or orders for user content or non-content information under the Foreign Intelligence Surveillance Act (FISA),” but did not comment on the number of subpoenas, warrants and court orders it receives. “August does comply with all laws and when faced with a court order or warrant, we always analyze the request before responding,” a spokesperson said.

Roomba maker iRobot said it “has not received any demands from governments for customer data,” but wouldn’t say if it planned to issue a transparency report in the future.

Both Arlo, the former Netgear smart home division, and Signify, formerly Philips Lighting, said they do not have transparency reports. Arlo didn’t comment on its future plans, and Signify said it has no plans to publish one. 

Ring, a smart doorbell and security device maker, did not answer our questions on why it doesn’t have a transparency report, but said it “will not release user information without a valid and binding legal demand properly served on us” and that Ring “objects to overbroad or otherwise inappropriate demands as a matter of course.” When pressed, a spokesperson said it plans to release a transparency report in the future, but did not say when.

Spokespeople for Honeywell and Canary — both of which have smart home security products — did not comment by our deadline.

And, Samsung, a maker of smart sensors, trackers and internet-connected televisions and other appliances, did not respond to a request for comment.

Only Ecobee, a maker of smart switches and sensors, said it plans to publish its first transparency report “at the end of 2018.” A spokesperson confirmed that, “prior to 2018, Ecobee had not been requested nor required to disclose any data to government entities.”

All in all, that paints a fairly dire picture for anyone thinking that when the gadgets in your home aren’t working for you, they could be helping the government.

As helpful and useful as smart home gadgets can be, few fully understand the breadth of data that the devices collect — even when we’re not using them. Your smart TV may not have a camera to spy on you, but it knows what you’ve watched and when — which police used to secure a conviction of a sex offender. Even data from when a murder suspect pushed the button on his home alarm key fob was enough to help convict someone of murder.

Two years ago, former U.S. director of national intelligence James Clapper said the government was looking at smart home devices as a new foothold for intelligence agencies to conduct surveillance. And it’s only going to become more common as the number of internet-connected devices spread. Gartner said more than 20 billion devices will be connected to the internet by 2020.

As much as the chances are that the government is spying on you through your internet-connected camera in your living room or your thermostat are slim — it’s naive to think that it can’t.

But the smart home makers wouldn’t want you to know that. At least, most of them.

Facebook launches ‘Hunt for False News’ debunk blog as fakery drops 50%

Facebook hopes detailing concrete examples of fake news it’s caught — or missed — could improve news literacy, or at least prove it’s attacking the misinformation problem. Today Facebook launched “The Hunt for False News,” in which it examines viral B.S., relays the decisions of its third-party fact-checkers and explains how the story was tracked down. The first edition reveals cases where false captions were put on old videos, people were wrongfully identified as perpetrators of crimes or real facts were massively exaggerated.

The blog’s launch comes after three recent studies showed the volume of misinformation on Facebook has dropped by half since the 2016 election, while Twitter’s volume hasn’t declined as drastically. Unfortunately, the remaining 50 percent still threatens elections, civil discourse, dissident safety and political unity across the globe.

In one of The Hunt’s first examples, it debunks that a man who posed for a photo with one of Brazil’s senators had stabbed the presidential candidate. Facebook explains that its machine learning models identified the photo, it was proven false by Brazilian fact-checker Aos Fatos, and Facebook now automatically detects and demotes uploads of the image. In a case where it missed the mark, a false story touting NASA would pay you $100,000 to study you staying in bed for 60 days “racked up millions of views on Facebook” before fact-checkers found NASA had paid out $10,000 to $17,000 in limited instances for studies in the past.

While the educational “Hunt” series is useful, it merely cherry-picks random false news stories from over a wide time period. What’s more urgent, and would be more useful, would be for Facebook to apply this method to currently circulating misinformation about the most important news stories. The New York Times’ Kevin Roose recently began using Facebook’s CrowdTangle tool to highlight the top 10 recent stories by engagement about topics like the Brett Kavanaugh hearings.

If Facebook wanted to be more transparent about its successes and failures around fake news, it’d publish lists of the false stories with the highest circulation each month and then apply the Hunt’s format explaining how they were debunked. This could help dispel myths in society’s understanding that may be propagated by the mere abundance of fake news headlines, even if users don’t click through to read them.

The red line represents the decline of Facebook engagement with “unreliable or dubious” sites

But at least all of Facebook’s efforts around information security — including doubling its security staff from 10,000 to 20,000 workers, fact checks and using News Feed algorithm changes to demote suspicious content — are paying off:

  • A Stanford and NYU study found that Facebook likes, comments, shares and reactions to links to 570 fake news sites dropped by more than half since the 2016 election, while engagements through Twitter continued to rise, “with the ratio of Facebook engagements to Twitter shares falling by approximately 60 percent.”
  • A University of Michigan study coined the metric “Iffy Quotient” to assess the how much content from certain fake news sites was distributed on Facebook and Twitter. When engagement was factored in, it found Facebook’s levels had dropped to nearly 2016 volume; that’s now 50 percent less than Twitter.
  • French newspaper Le Monde looked at engagement with 630 French websites across Facebook, Twitter, Pinterest and Reddit. Facebook engagement with sites dubbed “unreliable or dubious” has dropped by half since 2015.

Of course, given Twitter’s seeming paralysis on addressing misinformation and trolling, they’re not a great benchmark for Facebook to judge by. While it’s useful that Facebook is outlining ways to spot fake news, the public will have to internalize these strategies for society to make progress. That may be difficult when the truth has become incompatible with many peoples’ and politicians’ staunchly held beliefs.

In the past, Facebook has surfaced fake news-spotting tips atop the News Feed and bought full-page newspaper ads trying to disseminate them. The Hunt for Fake News would surely benefit from being embedded where the social network’s users look everyday instead of buried in its corporate blog.

Facebook hires former UK Lib Dem leader, Nick Clegg, as global policy chief

Facebook has confirmed it has hired the former leader of the UK’s former third largest political party — Nick Clegg of the middle ground Liberal Democrats — to head up global policy and comms.

The news was reported earlier by the Financial Times.

Clegg is also a former UK deputy prime minister, after the Lib Dems entered government in the 2015 coalition with the Conservative party.

Facebook confirmed to TechCrunch that Clegg’s title will be VP, global affairs and communications, and that he starts on Monday — and will be moving with his family to California in the New Year.

Its prior global policy and communications chief, Elliot Schrage, who has been in post for a decade is staying on as an advisor, according to Facebook, and in a post announcing Clegg’s hire COO Sheryl Sandberg thanked Schrage for his “leadership, tenacity, and wise counsel ‑- in good times and bad”.

Facebook also told us that Sandberg and founder Mark Zuckerberg were both deeply involved in the hiring process, beginning discussions with Clegg over the summer — as fallout from the Cambridge Analytica data misuse scandal continued to rain down — and emphasizing they have already spent a lot of time with him.

The company also made a point of noting that Clegg is the most senior European politician to ever take up a senior executive leadership role in Silicon Valley. 

The hire certainly looks like big tech waking up to the fact it needs a far better relationship with European lawmakers.

In a post on Facebook announcing his new job, Clegg says as much, writing: “Having spoken at length to Mark and Sheryl over the last few months, I have been struck by their recognition that the company is on a journey which brings new responsibilities not only to the users of Facebook’s apps but to society at large. I hope I will be able to play a role in helping to navigate that journey.”

“Facebook, WhatsApp, Messenger, Oculus and Instagram are at the heart of so many people’s everyday lives – but also at the heart of some of the most complex and difficult questions we face as a society: the privacy of the individual; the integrity of our democratic process; the tensions between local cultures and the global internet; the balance between free speech and prohibited content; the power and concerns around artificial intelligence; and the wellbeing of our children,” he adds.

“I believe that Facebook must continue to play a role in finding answers to those questions – not by acting alone in Silicon Valley, but by working with people, organizations, governments and regulators around the world to ensure that technology is a force for good.”

In her note about Clegg’s hire, Sandberg lauds Clegg as “a thoughtful and gifted leader who… understands deeply the responsibilities we have to people who use our service around the world” — before also discussing the big challenges ahead.

“Our company is on a critical journey. The challenges we face are serious and clear and now more than ever we need new perspectives to help us though this time of change,” she writes. “The opportunities are clear too. Every day people use our apps to connect with family and friends and make a difference in their communities. If we can honor the trust they put in us and live up to our responsibilities, we can help more people use technology to do good.

“That’s what motivates our teams and from all my conversations with Nick, it’s clear that he believes in this as well. His experience and ability to work through complex issues will be invaluable in the years to come.”

One former Facebook policy staffer we spoke to for an insider perspective on Clegg’s hire, couched it as a sign Facebook is finally taking Europe seriously — i.e. as a regulatory force with the ability to bring big tech to rule.

“When I started at fb there were two people in a Regus office doing EU policy,” the person told us, speaking on condition of anonymity. “Now they have an army, and they’re still hiring.”

In Europe, the region’s new data protection framework, GDPR, which came into force at the end of May, has put privacy and security at the top of the tech agenda. And more regulations are coming — with the EU’s data protection supervisor warning today that GDPR is not enough.

“The Facebook/Cambridge Analytica revelations are still under investigation in Europe and America, but they are only the tip of the iceberg, a sign of a much wider problem and a symptom of many more problems still unnoticed,” writes Giovanni Buttarelli in a blog entitled: The urgent case for a new ePrivacy law.

Reshaping regional rules to account for and rebalance monopolistic platform power is where EU lawmakers are increasingly turning their attention. It looks like Facebook has finally caught on that they’re serious.

“They didn’t take it seriously and they’re catching up now. I think it also just sends a strong signal that they’re not a U.S. centric company,” the former Facebooker added of the company’s attitude to EU policy, dating their dawning realization that a new approach was needed to around 2016.

That was also, of course, the year that domestic election interference came home to roost for Zuckerberg, after Kremlin meddling in the US presidential elections. And after his famous failure to judge that detail important.

So no more ‘pretty crazy ideas’ from Zuckerberg where politics is concerned — Nick Clegg instead.

For Brits, though, this actually is a pretty crazy idea, given Clegg is the awkwardly familiar face of middle ground, middler performance politics.

And, more importantly, the sacrificial lamb of political compromise, after his party got punished for its turn in coalition government with David Cameron’s Brexit triggering Conservatives.

Our ex-Facebooker source said they’d heard rumors linking the former Labour MP, David Miliband, and the Conservatives’ former chancellor, George Osborne, to the global policy position too.

Whatever the truth of those rumors, in the event Facebook went with Clegg’s third way — which of course meshes perfectly with the company’s desire to be a platform for all views; be that conservative, liberal and Holocaust denier too.

In Clegg it will have found a true believer that compromise can trump partisan tribalism.

Though Facebook’s business will probably test the limits of even Clegg’s famous powers of accommodation.

The current state of the Lib Dem political animal — a party with now just a handful of MPs (12) left in the UK parliament — does also hold a cautionary message for Facebook’s mission to be all things to all men.

A target some less machiavellian types might judge ‘mission impossible’.

Add to that, given Facebook’s now dire need to win back user trust — i.e. in the wake of a string of data scandals, such as the Cambridge Analytica affair (and indeed ongoing attempts by unknown forces to use its platform for voter manipulation) — Clegg is rather an odd choice of hire, given he’s the man who led a political party that fatally burnt the trust of its core supporters and convinced them to punish it with near political oblivion at the ballet box.

Still, at least Clegg knows how to say sorry in a way that can be turned into a hip and shareable meme …

A ton of people don’t know that Facebook owns WhatsApp

Americans looking to reduce their reliance on products from tech’s most alarmingly megalithic companies might be surprised to learn just how far their reach extends.

Privacy-minded browser company DuckDuckGo conducted a small study to look into that phenomenon and the results were pretty striking.

“… As Facebook usage wanes, messaging apps like WhatsApp are growing in popularity as a ‘more private (and less confrontational) space to communicate,’” DuckDuckGo wrote in the post. “That shift didn’t make much sense to us because both services are owned by the same company, so we tried to find an explanation.”

DuckDuckGo gathered a random sample of 1,297 adult Americans who are “collectively demographically similar to the general population of U.S. adults” (i.e. not just DuckDuckGo diehards) using SurveyMonkey’s audience tools. The survey found that 50.4 percent of those surveyed who had used WhatsApp in the prior six months (247 participants) did not know the company is owned by Facebook.

Similarly, DuckDuckGo found that 56.4 percent of those surveyed who had used Waze in the past six months (291 participants) had no idea that the navigation app is owned by Google. A similar study conducted back in April found the same phenomenon when it came to Facebook/Instagram and Google/YouTube, though for Instagram the effect was even stronger (wow).

If you’re reading TechCrunch it’s probably almost impossible to imagine that average people aren’t tracing the lines between tech’s biggest companies and the products scooped up or built under their wings. And yet, it is so.

Even as companies like Google and Facebook suffer blowback from privacy crises, it’s clear that they can lean on the products they’ve picked up along the way to chart a path forward. If this survey is any indication, half of U.S. consumers will have no idea that they’ve jumped ship from a big tech product into a lifeboat captained by the very same company they sought to escape.

And for the biggest tech companies, it’s at least one reason that keeping satellite products at arm’s length from their respective motherships is advantageous for maintaining trust — especially while aggressive data sharing happens behind the scenes.

Some notable Facebook shareholders file (mostly symbolic) proposal to oust Mark Zuckerberg as chairman

Several major Facebook shareholders have submitted a proposal calling for CEO Mark Zuckerberg to step down as chairman of the company’s board. The filing is mainly symbolic, since Zuckerberg has almost total voting control, an arrangement that has earned the company’s board structure comparisons to a “dictatorship.” The proposal is still noteworthy, however, because of the investors involved.

The pension funds of New York City are joining activist shareholder Trillium Asset Management, which has wanted to remove Zuckerberg as Facebook’s chairman since its disappointing second-quarter earnings report in July, as well as the state treasurers of Rhode Island, Illinois, and Pennsylvania. The proposal will be voted on at Facebook’s shareholder meeting next year.

In an online statement, New York City comptroller Scott Stringer called on Facebook’s board to make its chair an independent position.

“Facebook plays an outsized role in our society and economy. They have a social and financial responsibility to be transparent—that’s why we’re demanding independence and accountability in the company’s boardroom. We need Facebook’s insular boardroom to make a serious commitment to addressing real risks—reputational, regulatory, and the risk to our democracy—that impact the country, its shareholders, and ultimately the hard-earned pensions of thousands of New York City workers,” Stringer said. “An independent board chair is essential to moving Facebook forward from this mess, and to reestablish trust with Americans and investors alike.”

The shareholder proposal was filed by the New York City Pension Funds, Illinois state treasurer Michael Frerichs, Rhode Island state treasurer Seth Magaziner, Pennsylvania treasurer Joe Torsella, and Trillium Asset Management.

Stringer, a Democrat who serves as fiduciary for the city’s five public pension funds, which are worth about $160 billion in total assets, has been a vocal critic of Facebook. In March, he asked Facebook’s lead independent director, Dr. Susan Desmond-Hellmann, to improve the company’s data privacy accountability after the Cambridge Analytica scandal, citing the 4.9 million Class A shares held by the city’s pension funds.

Another proposal to replace Zuckerberg as chairman was filed in April before his Senate testimony about Cambridge Analytica’s misuse of Facebook user data.

TechCrunch has contacted Facebook for comment.

Why IGTV should go premium

It’s been four months since Facebook launched IGTV, with the goal of creating a destination for longer-form Instagram videos. Is it shaping up to be a high-profile flop, or could this be the company’s next multi-billion-dollar business?

IGTV, which features videos up to 60 minutes versus Instagram’s normal 60-second limit, hasn’t made much of a splash yet. Since there are no ads yet, it hasn’t made a dollar, either. But, it offers Facebook the opportunity to dominate a new category of premium video, and to develop a subscription business that better aligns with high-quality content.

Facebook worked with numerous media brands and celebrities to shoot high-quality, vertical videos for IGTV’s launch on June 20, as both a dedicated app and a section within the main Instagram app. But IGTV has been quiet since. I’ve heard repeatedly in conversations with media executives that almost no one is creating content specifically for IGTV and that the audience on IGTV remains small relative to the distribution of videos on Snapchat or Facebook. Most videos on it are repurposed from a brand’s or influencer’s Snapchat account (at best) or YouTube channel (more common). Digiday heard the same feedback.

Instagram announced IGTV on June 20 as a way for users to post videos up to 1 hour long in a dedicated section of the app (and separate app)

Facebook’s goal should be to make IGTV a major property in its own right, distinct from the Instagram feed. To do that, the company should follow the concept embodied in the “IGTV” name and re-envision what television shows native to the format of an Instagram user would look like.

Its team should leverage the playbook of top TV streaming services like Netflix and Hulu in developing original series with top talent in Hollywood to anchor their own subscription service, but in it a new format of shows produced specifically for the vertically oriented, distraction-filled screen of a smartphone.

Mobile video is going premium

Of the 6+ hours per day that Americans spend on digital media, the majority on that is now on their phone (most of it on social and entertainment activities) and video viewing has grown with it. In addition to the decline in linear television viewing and rise of “over-the-top” streaming services like Netflix and Hulu, we’ve seen the creation of a whole new category of video: mobile native video.

Starting at its most basic iteration with everyday users’ recordings for Snapchat Stories, Instagram Stories and YouTube vlogs, mobile video is a very different viewing environment with a lot more competition for attention. Mobile video is watched as people are going about their day. They might commit a few minutes at a time, but not hour-long blocks, and there are distracting text messages and push notifications overlaid on the screen as they watch.

“Stories” on the major social apps have advanced vertically oriented, mobile native videos as their own content format

When I spoke recently with Jesús Chavez, CEO of the mobile-focused production company Vertical Networks in Los Angeles, he emphasized that successful episodic videos on mobile aren’t just normal TV clips with changes to the “packaging” (cropped for vertical, thumbnails selected to get clicks, etc.). The way episodes are written and shot has to be completely different to succeed. Chavez put it in terms of the higher “density” of mobile-native videos: packing more activity into a short time window, with faster dialogue, fewer setup shots, split screens and other tactics.

With the growing amount of time people spend watching videos on their social apps each day — and the flood of subpar videos chasing view counts — it makes sense that they would desire a premium content option. We have seen this scenario before as ad-dependent radio gave rise to subscription satellite radio like Sirius XM and ad-dependent network TV gave rise to pay-TV channels like HBO. What that looks like in this context is a trusted service with the same high bar for riveting storytelling of popular films and TV series — and often featuring famous talent from those — but native to the vertical, smartphone environment.

If IGTV pursues this path, it would compete most directly with Quibi, the new venture that Jeffrey Katzenberg and Meg Whitman are raising $2 billion to launch (and was temporarily called NewTV until their announcement at Vanity Fair’s New Establishment Summit last Wednesday). They are developing a big library of exclusive shows by iconic directors like Guillermo del Toro and Jason Blum crafted specifically for smartphones through their upcoming subscription-based app.

Quibi’s funding is coming from the world’s largest studios (Disney, Fox, Sony, Lionsgate, MGM, NBCU, Viacom, Alibaba, etc.) whose executives see substantial enough opportunity in such a platform — which they could then produce content for — to write nine-figure checks.

TechCrunch’s Josh Constine argued last year Snapchat should go in a similar “HBO of mobile” direction as well, albeit ad-supported rather than a subscription model. The company indeed seems to be stepping further in this direction with last week’s announcement of Snapchat Originals, although it has announced and then canceled original content plans before.

Snapchat announced its Snap Originals last week

Facebook is the best positioned to win

Facebook is the best positioned to seize this opportunity, and IGTV is the vehicle for doing so. Without even considering integrations with the Facebook, Messenger or WhatsApp apps, Facebook is starting with a base of more than 1 billion monthly active users on Instagram alone. That’s an enormous audience to expose these original shows to, and an audience who don’t need to create or sign into a separate account to explore what’s playing on IGTV. Broader distribution is also a selling point for creative talent: They want their shows to be seen by large audiences.

The user data that makes Facebook rivaled only by Google in targeted advertising would give IGTV’s recommendation algorithms a distinct advantage in pushing users to the IGTV shows most relevant to their interests and most popular among their friends.

The social nature of Instagram is an advantage in driving awareness and engagement around IGTV shows: Instagram users could see when someone they follow watches or “likes” a show (pending their privacy settings). An obvious feature would be to allow users to discuss or review a show by sharing it to their main Instagram feed with a comment; their followers would see a clip or trailer, then be able to click-through to the full show in IGTV with one tap.

Developing and acquiring a library of must-see, high-quality original productions is massively capital-intensive — just ask Netflix about the $13 billion it’s spending this year. Targeting premium-quality mobile video will be no different. That’s why Katzenberg and Whitman are raising a $2 billion war chest for Quibi and budgeting production costs of $100,000-150,000 per minute on par with top TV shows. Facebook has $42 billion in cash and equivalents on its balance sheet. It can easily outspend Quibi and Snap in financing and marketing original shows by a mix of newcomers and Hollywood icons.

Snap can’t afford (financially) to compete head-on and doesn’t have the same scale of distribution. It is at 188 million daily active users and no longer growing rapidly (up 8 percent over the last year, but DAUs actually shrunk by 3 million last quarter). Snapchat is also a much more private interface: it doesn’t enable users to see each others’ activity like Facebook, Instagram, LinkedIn, YouTube, Spotify and others do to encourage content discovery. Snap is more likely to create a hub for ad-supported mobile-first shows for teens and early-twentysomethings rather than rival Quibi or IGTV in creating a more broadly popular Netflix or Hulu of mobile-native shows.

It’s time to go freemium

Investing substantial capital upfront is especially necessary for a company launching a subscription tier: consumers must see enough compelling content behind the paywall from the start, and enough new content regularly added, to find an ongoing subscription worthwhile.

There is currently no monetization of IGTV. It is sitting in experimentation mode as Facebook watches how people use it. If any company can drive enough ad revenue solely from short commercials to still profit on high-cost, high-quality episodic shows on mobile, it’s Facebook. But a freemium subscription model makes more sense for IGTV. From a financial standpoint, building IGTV into its own profitable P&L while making substantial content investments likely demands more revenue than ads alone will generate.

Of equal importance is incentive alignment. Subscriptions are defined by “time well spent” rather time spent and clicks made: quality over quantity. This is the environment in which premium content of other formats has thrived too; Sirius XM as the breakout on radio, HBO on linear TV, Netflix in OTT originals. The type of content IGTV will incentivize, and the creative talent they’ll attract, will be much higher quality when the incentives are to create must-see shows that drive new subscribers than when the incentives are to create videos that optimize for views.

Could there be a “Netflix for mobile native video” with shows shot in vertical format specifically for viewing on smartphone?

The optimization for views (to drive ad revenue) have been the model that media companies creating content for Facebook have operated on for the last decade. The toxicity of this has been a top news story over the last year with Facebook acknowledging many of the issues with clickbait and sensationalism and vowing changes.

Over the years, Facebook has dragged media companies up and down with changes to its newsfeed algorithm that forced them to make dramatic changes to their content strategies (often with layoffs and restructuring). It has burned bridges with media companies in the process; especially after last January, how to reduce dependence on Facebook platforms has become a common discussion point among digital content executives. If Facebook wants to get top producers, directors and production companies investing their time and resources in developing a new format of high-quality video series for IGTV, it needs an incentives-aligned business model they can trust to stay consistent.

Imagine a free, ad-supported tier for videos by influencers and media partners (plus select “IGTV Originals”) to draw in Instagram users, then a $3-8/month subscription tier for access to all IGTV Originals and an ad-free viewing experience. (By comparison, Quibi plans to charge a $5/month subscription with ads with the option of $8/month for its ad-free tier.)

Looking at the growth of Netflix in traditional TV streaming, a subscription-based business should be a welcome addition to Facebook’s portfolio of leading content-sharing platforms. This wouldn’t be its first expansion beyond ad revenue: the newest major division of Facebook, Oculus, generates revenue from hardware sales and a 30 percent cut of the revenue to VR apps in the Oculus app store (similar to Apple’s cut of iOS app revenue). Facebook is also testing a dating app which — based on the freemium business model Tinder, Bumble, Hinge, and other leading dating apps have proven to work — would be natural to add a subscription tier to.

Facebook is facing more public scrutiny (and government regulation) on data privacy and its ad targeting than ever before. Incorporating subscriptions and transaction fees as revenue streams benefits the company financially, creates a healthier alignment of incentives with users and eases the public criticism of how Facebook is using people’s data. Facebook is already testing subscriptions to Facebook Groups and has even explored offering a subscription alternative to advertising across its core social platforms. It is quite unlikely to do the latter, but developing revenue streams beyond ads is clearly something the company’s leadership is contemplating.

The path forward

IGTV needs to make product changes if it heads in this direction. Right now videos can’t link together to form a series (i.e. one show with multiple episodes) and discoverability is very weak. Beyond seeing recent videos by those you follow, videos that are trending and a selection of recommendations, you can only search for channels to follow (based on name). There’s no way to search for specific videos or shows, no way to browse channels or videos by topic and no way to see what people you follow are watching.

It would be a missed opportunity not to vie for this. The upside is enormous — owning the Netflix of a new content category — while the downside is fairly minimal for a company with such a large balance sheet.