Thursday, July 28, 2016, 11:20 AM ET|Posted by Will Richmond
Facebook announced off-the-charts Q2 ’16 earnings yesterday, including $2 billion in net income, double what it was just 6 months ago. Monthly active users increased to 1.71 billion, with 1.1 billion using Facebook daily. From a standing start in mobile just 4 years ago, Facebook generated $5.2 billion or 84% of its quarterly ad revenue from mobile.
There is no question that Facebook has thoroughly conquered mobile. But, far from sitting on its laurels, Facebook is evolving in many ways and over the past year video has become an ever-bigger part of Facebook’s story. Earlier this year, Mark Zuckerberg, Facebook’s Founder, Chairman and CEO, highlighted the role that video is playing in delivering more engaging experiences. Then on yesterday’s earnings call Zuckerberg went a step further, stating the company’s goals plainly, “We see a world that is video first with video at the heart of all of our apps and service.”
The most important video initiative Facebook is pursuing is live-streaming, which the company calls Facebook Live. I’ve been bullish on Facebook Live since the beginning, seeing it as the natural evolution for users to share raw, authentic content. What’s also emerged over the past year is that publishers of all stripes have embraced Facebook Live and that it has become consequential in current events as well (see the Philando Castile shooting in St. Paul as just one example).
Not content to solely rely on its users to create live-streams, Facebook is paying 140 media companies and celebrities over $50 million to originate live content. And it is spending over $2 million to incent a clutch of YouTube stars to experiment with Facebook Live. Delivering all of this live video is also contributing to a big ramp-up in Facebook’s capex, as CFO David Wehner explained on the earnings call.
Facebook is clearly still dabbling in live-streaming content, seeing what works and what doesn’t. The only apparent unifier is an emphasis on short-form, not long-form content, as Sheryl Sandberg, Facebook’s COO, stated on the earnings call. In other words, don’t expect Facebook to announce a Netflix-style slate of original programs any time soon.
Clearly, there is a ton of stuff happening on the content side with live-streaming, but what’s unclear at this point is how any of it will be directly monetized beyond current brand-building, audience growth, etc upsides. One of the key issues is that Facebook continues to eschew pre-roll ads, the mainstay of today’s online video advertising landscape.
Zuckerberg addressed this again yesterday, explaining that the pre-roll model doesn’t fit with Facebook’s News Feed format, and that it could detract from users watching the embedded auto-play video ads that Facebook has instead emphasized.
Zuckerberg is likely right about this, but still, if pre-rolls are off the table, the question nags, how will Facebook Live be monetized? More broadly, despite its huge user base and hyper-targeting potential in video, can Facebook fully capitalize on video if it continues to avoid pre-rolls? For all pre-roll’s faults, it became the prevalent online video ad unit because it is relatively easy to implement for publishers while advertisers can mostly re-use existing TV ad creative.
By avoiding pre-rolls, Facebook instead requires that advertisers be much more sophisticated about video ad campaigns, essentially mandating investment in new special purpose mobile-first ad creative. By including auto-play, sound-off ads in the News Feed, Facebook raises the bar on advertisers to capture the user’s attention within the first 1-2 seconds to avoid being scrolled past, while introducing new concepts like text captioning to entice users.
Offsetting the higher bar, Facebook offers advertisers unprecedented targeting and distinctiveness by being positioned natively in the News Feed, as opposed to being yet another mindless interruption that users block, click away from or tune out. On the call, Sandberg highlighted how Sour Patch Kids Gum created “punchy, ten-second, looping videos tailored for Facebook and Instagram” that helped the brand “beat sales benchmarks.”
Getting more advertisers to invest in that kind of custom ad campaign for Facebook is the company’s key challenge going forward. As Facebook spends more on premium content partnerships and infrastructure, it will be increasingly important to attract TV ad dollars to scale its video monetization. Meanwhile, TV networks are working overtime to data-enable their inventory to hang on to advertisers and block Facebook’s incursions.
All of this is part of the titanic battle for viewers’ attention and advertisers’ spending that is playing out: the big platforms - Facebook, Google/YouTube, Snapchat, Twitter and others - vs. the TV industry. With tens of billions of dollars in play and viewers’ attention up for grabs, the stakes are very high. By declaring that it wants to be a video-first company, Facebook is guaranteeing that the video/TV landscape is going to become even more competitive going forward.
- Facebook Puts Video Center Stage
- Live Video Poised to Soar As Facebook Doubles Down
- Live-Streaming Video, Facebook and Finding the Money
- 5 Reasons Why Facebook Spending $50 Million on Live-Streaming Content is So Smart
- Research: Over 50% of Publishers Have Run Video Campaigns on Facebook vs. 31% on YouTube
- Reaching Audiences at Scale: Will TV Succeed in the Digital Age? [AD SUMMIT VIDEO]
- Achieving Video Success in the Platform Economy [AD SUMMIT VIDEO]