Just ahead of the big game Sunday between the Seattle Seahawks and New England Patriots, the NFL signed a deal with Google (NASDAQ:GOOG) (NASDAQ:GOOGL) to show NFL highlights on YouTube. The deal also allows Google to place detailed information about games, including those YouTube highlight videos, at the top of its search results pages.
Facebook (NASDAQ:FB) actually signed a similar deal in December, but Google represents a more immediate opportunity to capitalize on the NFL's valuable content.
Two giants of the web
Google and Facebook own three of the four most popular websites in the United States: Google.com, Facebook.com, and YouTube.com. Google accounts for about two-thirds of all web searches on desktops, and Facebook has one of the most engaged audiences with 864 million users logging in every day.
Facebook has been working to overtake YouTube as a destination for video content. It even surpassed the video site for total views on desktops last August. This deal with the NFL may have put the social network ahead of YouTube for a few weeks, but Google was quick to remedy that situation.
Completing the pass
Google appears to have swayed the NFL, which has been somewhat hesitant to give up control of its digital distribution, by agreeing to place video highlights in its search results pages. Or perhaps the NFL was fed up with all the third-party users who uploaded its content to the site without "express written consent."
Either way, YouTube represents a huge market for the NFL, and Google is willing to promote its videos with special search engine results.
YouTube already has a proven method of monetizing its video content. In 2014, YouTube generated over $1 billion in ad revenue, and it claimed approximately 20% of all U.S. digital video ad spending last year.
Comparatively, Facebook is still working on how to monetize its video inventory. With the NFL, it's testing post-roll ads that play after the video is complete. While Facebook has displayed stand-alone video ads, it's been unable to figure out a way to monetize its user-generated content. This deal with the NFL is a key test to find out if post-roll ads are effective enough to sell against its growing amount of user-generated content.
YouTube won't stop Facebook
By bringing on Google and YouTube as content distributors, the NFL is playing both sides of the ball. For web users actively seeking information about a certain game, Google is the go-to destination. For people passively seeking content on a Sunday evening or Monday morning, Facebook is the place to be (some might say Twitter, and the NFL has that covered too).
Ultimately, the deal between the NFL and YouTube isn't really a threat to Facebook. They cater to two different audiences. While the deal represents an immediate revenue opportunity for YouTube, it's probably far more valuable for Facebook as it aims to monetize third party content.
Last year, Facebook acquired LiveRail with the aim of using the platform to monetize its growing video inventory. Management has so far shied away from pre-roll ads like YouTube, because it feels it gets more value from auto-playing videos in users' Newsfeeds.
2015 is shaping up to be the year Facebook makes a big push into video advertising and being able to advertise against user-generated content would open up a huge amount of content. With revenue growth expectations over 37%, Facebook needs to continue raising ad prices or inventory as what's currently available is becoming saturated. Video ads are the key to these efforts.
If Facebook can learn to effectively monetize third party ads, it stands a chance of attracting top talent to upload content directly to Facebook. That would be a huge blow for YouTube, because Facebook refers almost 9% of YouTube traffic.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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