As the 2014 NFL season kicked off, Twitter (NYSE:TWTR) expanded its curated timeline product -- which started with the World Cup this summer -- to include every NFL game. The curated timelines included behind-the-scenes videos and in-game highlights from the NFL and its broadcast partners.
The week Twitter launched the product, I noted that it represented a big opportunity for the company. Now, Facebook (NASDAQ:FB) has stepped in at the last moment and intercepted what looked like a Twitter touchdown after signing an agreement to show NFL videos in users' Newsfeeds.
Facebook goes to training camp
The NFL videos are sponsored by Verizon Wireless, but its video ads will play after the actual highlight. This runs counter to how other video sites work, typically playing a pre-roll advertisement before the content the user actually wants to see. However, Facebook's ad chief previously indicated the company has no interest in pre-roll video ads.
"This is a small video sponsorship test," a Facebook spokeswoman was quoted as saying last week in a Wall Street Journal blog post about the new NFL deal. "And we will be evaluating how people, publishers, and marketers respond to this kind of co-branded video content on Facebook."
It's a very important test, however, as it's an attempt by Facebook to monetize video content -- of which it has a growing supply. It has already rolled out stand-alone video ads, but Facebook's video ambitions extend well beyond that. It wants to monetize the 1-billion-plus video views it gets every day.
Pre-roll ads simply won't work with Facebook's passive auto-play videos. The deal with the NFL allows Facebook to test "post-roll" ads on a broad scale with high-quality advertisements from a big company. (I haven't seen any of the NFL videos yet, but I imagine the Verizon NFL Mobile advertisements featuring NFL players are a shoe-in for the ad space.)
Testing the ad efficacy is key to providing important data to other potential video advertisers, so they can determine the fair value of the ad units. Or if the ads are a complete flop, it allows Facebook to go back to the drawing board to find other ways to monetize the growing amount of native video content on its platform.
Twitter struck a similar deal with the NFL last year, and incorporated that agreement into its curated timelines. The NFL is even creating content specifically for Twitter, but it's not clear if that content is exclusive, or whether it's also included in Facebook's contract. Still, in the 16 weeks since their launch, curated timelines on Twitter have improved noticeably.
Yet the highlight of the timelines are the highlights. Starting this week, Twitter is no longer the premiere destination for discussion of those video clips.
Facebook doesn't need to tell its users where to find its new highlight videos, and it doesn't need to ask permission to show them. It just knows its users well enough that it can place the highlight videos in select user's timelines, and it's very likely that the user will have some interest in watching them. The passive aspect of Facebook means it can reach far more users than Twitter with the NFL videos.
It also means Twitter could see lower engagement numbers as NFL fans stop migrating to Twitter to find what people are saying about the game.
Video ads are the future for Facebook
Facebook has a lot of video ad inventory it can fill already without monetizing user-generated videos, or things like NFL highlights. It can use its recently acquired LiveRail video ad platform and the Facebook Audience Network to sell well-targeted video ads in other apps. It also just rolled out video app-install ads to capitalize on their popularity and increase their average ad price.
Facebook should be able to continue growing revenue, just as analysts expect. On average, analysts expect Facebook to grow revenue 37.6% next year, slowing down from 57.4% this year.
But being able to monetize its native video content with post-roll advertisements could have a huge impact on Facebook's top line for a couple of reasons. Obviously, it would allow Facebook to sell more video ads. More importantly -- for the long-term investor -- monetizing user-generated videos is key to increasing the number of content producers on the platform.
Not only will more content create additional video ad inventory for Facebook, it engages users more, keeping them on the site or in the app longer. This provides additional advertising opportunities on top of the potential post-roll advertisement.