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Facebook Is About to Declare War on YouTube

By Evan Niu, CFA - Feb 5, 2018 at 7:06PM

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The social network hopes to win over YouTube creators.

It's now been about six months since Facebook (META 0.41%) officially launched Watch, the social network's nascent video platform. Thus far, Facebook has focused on professional content, which it helped fund to get its efforts off the ground. However, it should have been obvious all along that the real opportunity for Facebook is in user-generated videos (that it doesn't need to pay for), which was the key to YouTube's soaring popularity when it launched in 2005, before being promptly acquired by Alphabet (GOOG -1.54%) (GOOGL -1.38%) subsidiary Google a year later.

Slowly but surely, we're inching closer to that milestone.

Facebook Watch interface

Image source: Facebook.

Passive consumption isn't meaningful, according to Zuckerberg

CNBC reports that Facebook is preparing to open up the Watch platform to individual creators, citing anonymous sources. The move could bolster Facebook's catalog of long-form video content that it would naturally monetize with video ads, and could potentially offset the decline in time spent passively watching content, which Facebook believes is bad for users.

On the earnings call last week, CEO Mark Zuckerberg said:

Too often today, watching video is just a passive experience. To shift that balance, I said [last quarter] that we were going to focus on videos that encourage meaningful social interaction. And in Q4, we updated our video recommendations and made other quality changes to reflect these values. We estimate that these updates decreased time spent on Facebook by roughly 5% in the fourth quarter.

Much like how YouTube works, creators will be able to share the ad revenue with Facebook. In a seeming reversal from Zuckerberg's previously adamant stance against preroll ads, the company said in December that it was starting to test preroll ads. The subtle distinction is that Facebook still doesn't think pre-roll ads work in the core News Feed, but Watch is a different story. Users have different expectations when they visit Watch compared to News Feed.

The social angle

Facebook's opportunity in user-generated video will naturally come from its social angle, where the company hopes to emphasize meaningful interactions and build communities around video content. The company has some hope here, as its real-name policy should help mitigate potential toxicity. YouTube's comments section is notorious for being especially noxious.

Google had previously attempted to combat anonymity on the platform by linking YouTube accounts to Google+ accounts years ago, which it had hoped would simultaneously tamp down harassment on YouTube while growing Google+. The search giant killed zero birds with that stone, and gave up on the idea in 2015.

Controversy fuel?

While Facebook has faced significant controversy over the past year regarding how social media affects politics and society, YouTube has too, just to an arguably lesser extent. There has been advertiser backlash over what videos their ads appear in, which at times has included controversial or extremist content.

As if Facebook didn't already have its hands full with navigating the controversial social implications of its platforms, the issue will only be magnified as it grows Watch. That will be a necessary issue to tackle, as Watch is a natural extension of Facebook that holds significant potential to grow the business, but it won't be easy.

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