You're not alone if you've noticed an increase in the number of videos you see on Facebook (NASDAQ:FB). The social network reported that daily video views grew to 8 billion during the third quarter, double where they were six months prior. That number of video plays puts it around the same level as Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube.
YouTube started eschewing total video plays several years ago in favor of total viewer hours, which provides a better picture of how much time viewers are spending on YouTube. Viewer hours are probably lower on Facebook because of the three-second view time necessary to register a view on the platform. Nonetheless, the phenomenal growth over the past year makes Facebook a clear threat to YouTube.
A News Feed full of videos
At this time last year, Facebook had just announced that it was seeing users watch 1 billion videos per day. YouTube reached 1 billion views per day in October 2009. It took more than two years for that number to reach 4 billion views per day. So Facebook's growth is certainly fast.
Facebook says it averages around 500 million video viewers per day, which means the average video viewer on Facebook watches 16 videos per day. Facebook can do that because it controls the News Feed. The News Feed is one of the most popular products in the world, and users continue spending more of their time browsing content. Facebook can tweak how much of that content is pictures, videos, text, or links, and it's clearly favoring video for a lot of users.
A recent survey found that businesses reach 2.5 times more of their page followers by posting a video instead of a photo, and videos reach almost nine times more people than simple text updates. Facebook is certainly giving businesses incentive to post more videos to reach their audiences. As a result, the number of quality videos being posted and the number of video advertising opportunities are both increasing.
Video ads will probably be the next big growth driver for Facebook's ad revenue. The format currently provides a lower cost per conversion than any other format on Facebook, but prices will probably rise as more businesses promote their own video posts. Getting users used to seeing lots of videos in their News Feeds is paramount to increasing video ad load.
Overcoming the quality gap
Mark Zuckerberg wasn't afraid to tell investors where Facebook is lacking when it comes to video. He pointed out that the company has had trouble attracting quality content from video entertainment creators that flock to YouTube for its revenue sharing program. "There's a certain class of content which is only going to come on to Facebook if there's a good way to compensate the content owners for that," he said. "And we've recently rolled out the business model for this, which is for premium content; we'll give a revenue share on a portion of the views to the content owners."
He's referring to the suggested-videos feed the company started testing last month, offering a share of ad revenue from video ads inserted in between videos. Revenue is split based on view time for each video. Zuckerberg says the company has received good feedback so far, and it will roll out to more partners if it continues to please content creators.
Facebook has also taken the steps to curb the amount of video piracy on its platform, where some page will post content ripped from YouTube. In August, the company rolled out a new video matching tool that it's made available to select creators. The tool allows users to upload their videos, and it scans all of Facebook's 2 trillion posts for infringing videos.
Getting intellectual-property protection in place with a good revenue-sharing system will help Facebook attract more content that would otherwise end up on YouTube. While it's not likely to attract YouTube creators with established audiences, Facebook's substantial audience could attract creators new to digital video.
Still a lot more to do
Zuckerberg was clear to point out that Facebook is still in the early going with video. Based on the fact that only half of its daily users are watching videos, I'd have to agree. "There's a pretty clear roadmap of stuff that we're going to do over the next couple of years," Zuckerberg said. "But we're just so early in this right now. It's pretty amazing how quickly it's growing, but there's a lot more to do."
Investors should watch for further developments to increase the total number of people watching videos and the number of premium content owners partnering with Facebook as it expands its revenue-sharing platform. YouTube is still ahead of Facebook, but Facebook could be the premier destination for a video experience in just a few short years.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. 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.