By Deepa Seetharaman And Jack Marshall
Facebook Inc. users watch videos four billion times a day across
the social network. Now, Facebook is getting serious about making
money from that vast audience.
Facebook said it would begin sharing ad revenue with video
creators, a move designed to attract more polished content and more
ads. If successful, the effort will make Facebook a more serious
threat to Google Inc.'s YouTube in online video.
Until now, Facebook has slotted video ads into users' news
feeds. The new feature, called Suggested Videos, will include ads
between professionally produced content from major media companies,
much like TV advertisements.
The revenue-sharing model Facebook unveiled Wednesday is similar
to YouTube's, in that Facebook will keep 45% of the revenue. Unlike
YouTube, however, video producers on Facebook will have to split
their share more ways, potentially leaving them with a smaller
cut.
The initiative is aimed at smartphones, source of 65% of video
views on Facebook, according to RBC Capital Markets analyst Mark
Mahaney. YouTube shows a similar number of videos, Mr. Mahaney
said, but only about 50% of its video views come from phones.
YouTube has been far ahead in generating revenue, however. Mr.
Mahaney estimates that YouTube generated about $4 billion in
revenue in 2014; by contrast, he had been projecting Facebook to
generate $1.5 billion in revenue from video ads next year.
"Facebook could now be very serious competition for YouTube,"
said Jan Rezab, chief executive and co-founder of Socialbakers, a
social-media analytics company. "If I were Google, I would watch
out."
YouTube declined to comment.
Under the new program, mobile users who view a video in their
news feed will then be directed to videos that Facebook thinks they
might be interested in. Video ads will be interspersed among these
videos, much like TV commercials. Initial media partners include
the National Basketball Association, Hearst Corp., Fox Sports,
Funny or Die and Tastemade.
"There are use cases when someone wants to go into a video
consumption experience," said Dan Rose, Facebook vice president of
partnerships. "Scrolling through your news feed is not the most
efficient way of doing that."
Early reaction from marketers was generally positive. They said
they liked that their ads could potentially be shown alongside the
type of high-quality content they typically align themselves with
on TV, rather than inserted, potentially out-of-context, in the
news feed.
Another big draw for advertisers is that the sound for their ads
will be switched on by default, a welcome shift for those who have
bemoaned the fact that auto-play ads on Facebook have been muted
until now.
Buying video ads without sound is "wasted money," said Bob
Rupczynski, vice president of media, data and customer-relationship
management at Kraft Foods.
But there was skepticism as well. Mr. Rupczynski questioned how
many users would go "deeper and deeper" into Facebook's video
channel.
The economics will differ from YouTube. Facebook will divide the
creators' 55% share of ad revenue among all the videos that appear
adjacent to the ad, based on how long users watch each video.
"So if they spent one minute on a few NBA videos and two minutes
in a couple videos from Funny or Die, we would take that 55% of the
revenue we're sharing, we would give a third of it to the NBA and
two-thirds of it to Funny or Die," Mr. Rose said.
One executive at a large media company that has been in talks
with Facebook said Facebook's deal could "potentially be worse than
what YouTube is offering."
Facebook also will need to address concerns about pirated video.
A recent Daily Show segment about the Charleston shootings was
uploaded by a performing artist called Rock-Solid and generated
more than 23 million views. The Daily Show's version drew fewer
than two million views.
"Facebook will need to make sure that it has mechanisms to
manage copyright and piracy issues as well as move advertisers
beyond the traditional TV/video metrics like reach and frequency to
engagement and affinity," said Aaron Goldman, chief marketing
officer for 4C Insights.
Mr. Rose said Facebook was taking piracy issues seriously and
plans additional moves to address piracy this summer.
During the first few months, Facebook won't charge advertisers
for ads shown, so there won't be any revenue to share. Mr. Rose
said Facebook will watch how users react to the feed and later set
up a way to package and price the ads.
Facebook is likely to offer targeting options that are similar
to what is available on its news feed, although Mr. Rose said
Facebook could offer additional metrics.
Suzanne Vranica contributed to this article.
Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com and Jack
Marshall at Jack.Marshall@wsj.com
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