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Facebook says its two-year old Watch video service, pitched as a challenger to streaming giants Netflix and Hulu, is quickly gaining viewers. But analysts have mixed opinions about whether it can eventually produce big profits.

The social media giant said last week that more than 140 million people now spend at least a minute daily on Facebook Watch, nearly twice as many as in December. On a monthly basis, 720 million viewers use the service, according to Facebook.

But Facebook has declined to disclose how much it’s spending on Watch or collecting in revenue. The lack of financial details and skepticism about its ability to gain traction against established rivals has led some analysts to question whether Watch will make much of an impact on Facebook’s overall business.

“We hadn’t given Facebook Watch much attention as we don’t think it is a game-changer,” said Michael Nathanson, analyst at research firm MoffettNathanson. “The reality is that we don’t have much of a baseline here for comparison.”

Watch, which debuted in the U.S. in 2017, features a library of original shows staring Hollywood A-listers along with videos produced by third parties. It currently includes original series like Red Table Talk starring Jada Pinkett Smith, her daughter Willow, and her mother; Extra Innings starring Bill Murray and his brother; and Queen America, starring Catherine Zeta-Jones.

And Facebook continues to pour money into the project. In 2018, it reportedly committed up to $1 billion on original content.

In the next three months alone, Facebook plans to debut at least eight new originals that will feature stars including Zac Efron, Anna Kendrick, Jessica Biel, and Stanely Tucci. The company is also collaborating with other digital publishers including BuzzFeed and Tastemade to add more unique content to Watch.

Lloyd Walmsley, an analyst at Deutsche Bank, said Watch could generate more than $5 billion annually in the next few years. But based on a conversation with Facebook executives about the topic recently, he said that the company hasn’t spent much time figuring out how to make money from the free service.

“They said, ‘It’s still early days,’” Walmsley recalled. “‘We’re still more focused on building the audience and behavior than we are on monetizing it.’”

Viewership for Facebook’s original content varies widely, depending on the program and episode. And it’s unclear whether the original shows are driving more people to Watch.

For example, the first episode of Queen America, which debuted in November, has had 10.1 million views so far, according to the show’s Facebook page. That number drops to 1.4 million views for the second episode and 1.1 million for the most recent episode, which debuted in January.

But a March episode of Red Table Talk, featuring Kylie Jenner’s former best friend Jordyn Woods, attracted 7.5 million viewers within the first 24 hours and more than 800,000 likes, comments, reactions, and shares within the first 72 hours, Facebook said. That episode is Red Table Talk’s most-watched of the series, attracting 32.7 million viewers to date.

There is some precedent for slow starts that later went on to be blockbusters For example, HBO’s hit show Game of Thrones had 2.2 million viewers for its first episode in 2011. Eight years later, 19.3 million people watched the series finale the day it debuted.

In addition to original shows, Facebook includes videos on Watch that were posted on Facebook’s news feed by other publishers. They include recipe videos from the Food Network and American Idol audition clips.

The practice helps to lift the viewership numbers that Facebook announces. As long as users saw the clips through the Watch tab, Facebook credits Watch with those views.

Facebook declined to comment. But in a blog post, Paresh Rajwat, director of product management, and Matthew Henick, head of content planning and strategy, said, “Our goal with Watch is to offer a completely personalized experience for everyone, supported by a deep library of videos from a wide array of video creators and publishers.”

Walmsley said that Facebook must do a few things to prove Watch is on the right track. First, it must show that ads on the service can reach audiences that marketers want to target and that it pays video publishers enough that want to continue publishing on the service.

Facebook also need to attract more viewers to Watch without reducing the amount of time they spend on Facebook’s news feed. The fear is that the more people use Watch, they less they check their news feeds, the company’s cash cow.

“If the time is just coming out of news feed, then the prospects of this business are not nearly as attractive,” Walmsley said. “The core news feed monetizes so well; it’s one of the best ad vehicles on the Internet.”

Walmsley’s latest report lists three ways Watch’s future could play out, based on how much Watch cannibalizes Facebook’s news feed. The best-case scenario, as mentioned, would generate Facebook more than $5 billion in additional annual revenue in a few years and more than $1 billion in additional profit.

In the worst case, Facebook profits would be $1.4 billion lower than they otherwise would be.

Facebook Watch Video Service Has Yet to Prove it Can Make Big Money

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