Facebook to sell video ads

Facebook announced Tuesday it plans to start selling video ads that will appear in users news feeds. It’s another way for marketers to reach audiences, but will users actually want to watch the videos?

That’s the question posed by the Wall Street Journal’s story written by Reed Albergotti, Suzanne Vranica and Ben Fritz:

Marketers “have to be sensitive,” said Tony Pace, chief marketing officer for the Subway sandwich chain, which advertises on Facebook. “If someone said [this video ad] is going to run whether consumers want it or not, that would give me pause,” he said.

Facebook said its first video ad, a teaser for the coming sci-fi film “Divergent,” would begin appearing Thursday, marking an effort by the world’s largest social network to grab a slice of the $66 billion annual U.S. TV advertising pie.

The video ads, which the company says are still being tested to a limited number of users, will start playing automatically as users scroll through their news feed, the central real estate in Facebook’s desktop and mobile platforms. They will initially play without sound; users can stop the ad by scrolling past it in the news feed.

In a November survey of 735 Facebook users by global marketing consultancy Analytic Partners, 83% of users said they would find video ads “intrusive” and would likely “ignore” them.

USA Today’s story, by Scott Martin, pointed out the revenue potential of the move, saying investors welcomed the new source of income for the social networking site:

Facebook’s new video ad units could fetch between $1 million and $2.5 million per day to reach the social network’s entire audience, according to an ad industry source not authorized to speak on behalf of Facebook.

Spending on television ads in the United States is expected to reach $68.5 billion next year, according to eMarketer, up from $66.4 billion this year. U.S. digital video ad spending is expected to soar 39.5% to $5.79 billion in 2014.

“Big brands are eagerly awaiting to increase their FB spending through video,” says Brian Nowak, an analyst with Susquehanna Financial Group, who increased his price target to $68 from $52 ahead of the announcement.

Facebook’s video ads will begin running automatically across its News Feed but will remain muted unless people turn on the audio of the ads. The new ad forms will begin on both desktop and mobile.

Alexei Oreskovic wrote for Reuters that the move is an important one for the company’s stock, and Wall Street analysts have been waiting to see what the service will do:

Wall Street has been counting on video ads to open up a potentially lucrative market as the company tries to sustain its rapid growth. That market is considered crucial for Facebook’s market valuation, and poses a potential long-term threat to traditional TV networks.

The company’s shares, which have surged roughly 30 percent since September, gained 1.4 percent to $54.57 in morning trading on Tuesday, aided by Susquehanna and Oppenheimer price-target upgrades.

“In terms of monetization, the video ads are very important,” said Robert Baird & Co analyst Colin Sebastian.

“They’re priced a lot higher than traditional display or text ads. And it also opens up for Facebook a larger group of advertisers.”

The move could escalate competition between Facebook and Google Inc, which owns popular video website Youtube, and which is aggressively courting marketers to run video ads on its website.

Jenna Wortham wrote in The New York Times Bits blog that the opportunity is a huge one for Facebook as advertisers are looking for more ways to spend money on video content:

The video ads, if poorly received, could risk that growth, but they also present a tremendous opportunity. Digital video advertising spending is expected to hit $4.15 billion by the end of this year, a 23 percent increase over last year, according to the market research company eMarketer. YouTube has the biggest slice of that spending, at about 20 percent.

Sterne Agee, a research firm, projects Facebook could command as much as $3 million a day in video ads, which could represent as much as 10 percent of the company’s advertising dollars in 2014. Facebook had $1.8 billion in advertising revenue in its most recent quarter.

Facebook has taken steps to assure people its video ads won’t be too annoying. The videos are silent unless a user taps, clicks on the ad or enlarges it to a full screen.

For data-guzzling mobile devices, the company said that videos would be downloaded in advance when the device was connected to Wi-Fi. So if someone checks Facebook when a device is connected through a cellular network, it will rely on predownloaded versions of the video ads, keeping it from consuming too much data, a concern for people whose phone contracts have a monthly limit on the amount of data they can use.

At the end of each video ad, Facebook will show two other video advertisements that they can click or tap to view, if they choose.

If Facebook can show that users are watching and interacting with the videos, they’re sitting on a fortune. Advertisers are looking for new, innovate ways to reach consumers, especially younger audiences. But only time will tell if the new ads are intrusive and people begin to leave the site for other social media options.