By Suzanne Vranica
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 17, 2018).
Facebook Inc. knew of problems in how it measured viewership of
video ads on its platform for more than a year before it disclosed
them in 2016, according to a complaint filed Tuesday by
advertisers.
A group of small advertisers filed a lawsuit in California
federal court in 2016, alleging the tech giant engaged in unfair
business conduct by disseminating inaccurate metrics that
significantly overestimated the amount of time users were spending
watching video ads.
The plaintiffs later added a fraud claim, and in Tuesday's court
filing they alleged Facebook knew of irregularities in its video
metrics by January 2015 and understood the nature of the
miscalculation within a few months, but failed to disclose the
information for over a year.
The filing followed the plaintiffs' review of some 80,000 pages
of internal Facebook records that they obtained as part of court
proceedings.
The complaint, which cites the internal Facebook documents, also
alleges that the scale of the miscalculation was far worse than
understood.
"Facebook's internal efforts behind the scenes reflect a company
mentality of reckless indifference toward the accuracy of its
metrics," the plaintiffs said in Tuesday's filing.
In a statement, a Facebook spokeswoman said, "Suggestions that
we in any way tried to hide this issue from our partners are false.
We told our customers about the error when we discovered it -- and
updated our help center to explain the issue."
Facebook said the lawsuit is without merit and has moved to
dismiss the fraud claim.
The plaintiffs in the case include Crowd Siren, a small Las
Vegas marketing agency, and Jonathan Murdough, a Pennsylvania
resident who purchased Facebook video ads.
The lawsuit, which seeks class-action status and punitive
damages, stemmed from a September 2016 Wall Street Journal report
that said Facebook had vastly overestimated average viewing time
for video ads. Facebook disclosed the issue in a post on its
advertiser help center that August.
The error, and Facebook's handling of it, became a critical
moment in the relationship between the social-media giant and
marketers who pay its bills. Many brands already were skeptical of
the practice by Facebook and other tech giants to closely guard
their internal ad data -- one top executive likened it to "grading
their own homework." The incident fueled renewed calls for Facebook
to allow independent measurement and auditing.
Damping marketers' concerns is important for Facebook as it
seeks a bigger piece of U.S. spending on online video ads, which is
projected to grow 30% this year to $27.8 billion. Facebook is
expected to account for almost 25% of U.S. video ad spending,
eMarketer estimates.
For two years, Facebook had counted only video views that lasted
more than three seconds when calculating its "average duration of
video viewed" metric. Video views of under three seconds weren't
factored in, thereby inflating the average length of a view.
Facebook replaced the metric with "average watch time," which
reflects video views of any duration.
After disclosing the issue in 2016, Facebook said in a statement
that it had "recently discovered" the error.
Facebook told some advertisers that it likely overestimated
average time spent watching videos by 60% to 80%. The plaintiffs
alleged in Tuesday's complaint that the error was much larger and
that the average viewership metrics had been inflated by some 150%
to 900%.
Facebook also said at the time that the error didn't affect
billings. However, in their complaint, the plaintiffs claim
Facebook's misrepresentations "induced" advertisers to purchase
video ads and to pay more for Facebook's video ads because they
believed users were watching videos for longer than they actually
were on average.
The claims that Facebook failed to act when it discovered the
video metric error were in an August filing, but were heavily
redacted at the time. In the latest version of the complaint filed
Tuesday, those claims were unredacted.
The plaintiffs allege the Facebook documents show that by July
2015 the company had received inquiries from several advertisers
about video metrics that appeared suspect, and had essentially
determined the cause of the issue.
In June 2016, nearly a year later, a Facebook engineering
manager, following up on advertisers' complaints, discussed the
issue internally, writing, "somehow there was no progress on the
task for the year." The plaintiffs also allege the company
developed a "no PR" strategy to avoid drawing attention to the
matter.
Facebook decided to "obfuscate the fact that we screwed up the
math," the complaint said, quoting the Facebook documents.
After the video-metric error, Facebook disclosed other errors in
its measurement practices on several occasions and came under
renewed pressure from the ad industry to make changes.
The Association of National Advertisers, a trade group that
represents top marketers including Procter & Gamble Co.,
General Electric Co. and Verizon Communications Inc., called on the
company and other major digital ad-sellers to allow independent
verification of their metrics.
Facebook has worked to address the matter by allowing more
third-party measurement companies to validate its data, and by
undergoing audits by the Media Rating Council, the media industry's
measurement watchdog.
Jason Kint, chief executive of Digital Content Next, a trade
organization that represents online publishers, said Facebook's
measurement practices have been detrimental to the digital
advertising marketplace. "Facebook needs to lead with radical
marketer and consumer transparency to get past this. We haven't
seen it yet," he said.
--Aruna Viswanatha contributed to this article.
Write to Suzanne Vranica at suzanne.vranica@wsj.com
(END) Dow Jones Newswires
October 17, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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