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Facebook May Struggle to Match Apple, Google in Entertainment

Facebook May Struggle in Digital Entertainment
Ankur Pansari, a sales engineer for Facebook Inc., uses the company's mobile application on a T-Mobile G1 smartphone powered by the Google Android platform at Facebook's headquarters in Palo Alto, California. Photographer: Tony Avelar/Bloomberg

Sept. 22 (Bloomberg) -- Facebook Inc., expected to unveil services for sharing online music and videos today, may struggle to narrow Google Inc. and Apple Inc.’s lead in the market for digital entertainment.

The company is likely to announce at the F8 developers conference that its users will be able to incorporate online music services including Spotify Ltd. and Rdio Inc. on their home pages, said people with knowledge of the plans last month. Movies and television shows also are likely to be part of the company’s announcements, said Lou Kerner, an analyst at Wedbush Securities Inc. in New York.

Chief Executive Officer Mark Zuckerberg is bulking up the social network’s features beyond status updates and photo tagging to make the site more attractive to users and the advertisers keen to reach them. Facebook is playing catch-up with Apple, owner of iTunes, and Google, which offers video and music services.

“It’s going to be an uphill battle,” said Sean Corcoran, an analyst with Forrester Research Inc. in Cambridge, Massachusetts, noting it’s not clear what the competition will be until the company names potential partners. “But they have the one thing that others don’t have: Many, many people’s social graphs sitting there to leverage.”

More Face Time

Facebook has more than 750 million users, up from 500 million in July 2010. Visitors to Facebook spent an average of more than seven hours on the site during August in the U.S., the most of any service, according to Reston, Virginia-based ComScore Inc. That’s up from less than five hours in the year-ago period.

“Anything that Facebook does from here on out is making sure these people don’t want to spend less time on Facebook,” said Debra Aho Williamson, an analyst at EMarketer Inc.

Facebook, at today’s conference in San Francisco, is due to outline efforts aimed at expanding existing entertainment services. Miramax is offering movies such as “Good Will Hunting” and “No Country for Old Men,” while Time Warner Inc.’s Warner Bros. has begun offering rental of “The Dark Knight” on the website. Both are using Facebook Credits, a virtual-currency program that lets users buy items in applications.

Other media services that use Facebook features on their sites include Pandora Inc., Spotify and Rdio.

Rivals Entrenched

Still, Facebook’s new media efforts will push it into more competition with large rivals.

Apple’s ITunes has remained the most-used online digital music service, facing down efforts by Amazon.com Inc., Wal-Mart Stores Inc. and more recently Google. Google’s YouTube, the No. 1 video site in the U.S., has expanded into the movie-rentals business, challenging Netflix Inc.

Facebook users are more accustomed to posting photos or checking status updates than using the service for music or watching movies, said Michael Gartenberg, an analyst at Gartner Inc.

“It’s a challenge because others are entrenched,” Gartenberg said. “It’s a challenge because Facebook isn’t a place I normally think of going to for those services.”

At the same time, Facebook must be careful not to make the site too complex or frustrate users with so many tools, said Greg Sterling, an analyst with Opus Research Inc. in San Francisco.

Beware of Clutter

“The challenge for Facebook is to integrate all these things elegantly without having all this feature creep,” he said. “The more cluttered and noisy that Facebook gets, the more problems I think they have over time.”

The company has rolled out new features in the past few months after Google unveiled its latest challenge in the social-networking market, Google+, he said. The service, which was started in late June, had reached 29 million users by the end of July, according to ComScore.

Last month, the company said it was closing its daily-deal service, which competed with Groupon Inc., after a four-month test.

“Facebook can’t simply think it’s going to build some site that features music or movies, and everyone is going to suddenly show up and use it,” Sterling said.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net

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