While the gap between Facebook(NASDAQ:FB)and YouTube video views continues to close, YouTube's biggest advantage is that users can monetize their videos. While Facebook may provide more exposure for a video, there is currently not much a user can do to generate revenue directly from the videos it is uploading.
That will all change this fall.
A few more details
Facebook is first extending the offer for a revenue split to select video creators including the NBA and Funny or Die. Facebook will keep 45% of ad revenue, and the other 55% will go to publishers.
But Facebook doesn't place pre-roll ads in front of videos like YouTube does. Instead, Facebook plans to establish a Suggested Videos feed that will pop up when a user clicks a video from his News Feed. Facebook will place ads within that feed, and creators will split revenue based on the amount of time spent watching their content within the feed. So, if a user watches a one minute NBA highlight and two minute Funny or Die skit, Funny or Die gets two-thirds of the 55% share of ad revenue.
That might be a problem
The ads in the Suggested Videos feed may command a higher premium, because they will start playing with the sound on as opposed to regular News Feed videos, which autoplay silently. Still, the revenue split format is less than desirable for creators that typically make very short videos.
Amazon is facing a similar problem after adjusting its payment structure for its Kindle Unlimited program to pay per page read instead of book download. The new structure discourages authors of shorter books -- like children's books -- from participating in the program. But children's books are important pieces of content for Amazon, just as shorter digital videos are important for Facebook and YouTube.
It is worth noting that Facebook is just taking its first steps in revenue sharing, and the upcoming program starting this fall is just a test. Nonetheless, this is a glaring issue that will prevent the company from attracting a significant number of content creators.
A real push into video
The revenue sharing deal indicates that Facebook is prepared to make video a top priority and wants to start generating more revenue from video ads. That is a good thing since its early efforts with video ads have been met with a relatively muted response.
Some advertisers refused to buy video ads, because Facebook previously counted any impression as a view. The company recently added an option for advertisers to pay only after a video has played at least 10 seconds. Others will not buy ads since Facebook videos start off muted.
With the Suggested Videos feed, Facebook could attract more quality content producers, which it could use to attract more advertisers. YouTube offers advertisers the option to only place ads in front of content from its top channels. Associating with higher-quality content is important for many brands, but Facebook has a quality problem. Agreeing to share revenue can kill two birds with one stone.
That is bad news for YouTube. It means the growing number of content creators that rely on YouTube ad revenue for income, and to fund their videos, will be compelled to at least experiment with uploading content to Facebook. And since Facebook controls the News Feed, it can prioritize its native version over YouTube embeds to reap the benefits of that content, much to the detriment of YouTube.
Adam Levy owns shares of Amazon.com and Apple. The Motley Fool recommends Amazon.com, Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Facebook, Google (A shares), and Google (C shares). 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.