As people spend more time viewing content on digital platforms like Facebook (NASDAQ:FB), old media companies are losing out on advertising revenue. Indeed, television networks have resorted to stuffing more commercials into the same time slot, only to later realize those efforts drove more viewers away. So, it should be no surprise that the CEO of one of the biggest television network companies believes digital video ads like Facebook's aren't very good for advertisers.
James Murdoch, head of 21st Century Fox (NASDAQ:FOXA), said in an interview recently that Facebook's video ads "are not really earning anybody's attention." He pointed instead to recent efforts by Fox, both online and on TV, to make ads more engaging. But is Fox really better at advertising than Facebook?
A call for more "innovation"
In an interview with Discovery CEO David Zaslav, Murdoch called for more innovation in advertising. He cited Fox's recent $20 million deal with Pepsi to integrate the soft drink into the company's hit show Empire. (I wouldn't call that innovation. Product placement has been around forever.)
More innovative is the company's efforts to make online video ads more engaging. Fox is working with Hulu -- of which it owns one-third -- to roll out a new ad format that requires users to engage with the ad. Powered by Fox subsidiary company TrueX, the new ads will allow users to sit through fewer commercials in exchange for actually paying attention to one commercial. Murdoch believes this is the kind of innovation that online video advertisers need to be doing to compete with traditional television advertising.
But television networks need to innovate as well. After increasing ad loads failed to produce the desired results, several networks have decided to cut back on total advertising. Time Warner (NYSE:TWX.DL) laid out plans to decrease its ad load starting next year. Its TruTV network will cut commercial time in half during primetime next fall. Murdoch admitted, "Probably the ad loads have been too high in a lot of places."
In order to make up for the decrease in total ads, networks will have to increase the value of individual ad spots or figure out ways to incorporate more advertising into the programming itself. Fox's Empire deal is just one example, but TV is still battling against DVR and other commercial-free platforms.
Should Facebook worry
The crux of Murdoch's argument is that TV shouldn't be afraid of digital advertising like Facebook's because business will realize the return on investment just isn't there. The crux of Facebook's investment thesis is that it will grow to take a bigger share of advertising as ad dollars shift from places like television to digital, particularly mobile. In order to to do that, Facebook's ads must be effective.
Facebook hasn't shied away from sharing its results with video advertising either. On Facebook's third-quarter earnings call, COO Sheryl Sandberg shared a study from Nielsen Research that found "marketers using Facebook ads with TV ads saw higher reach, ad recall, brand linkage and likeability." More specifically, she shared that GMC used video and other ads on Facebook to extend the reach of its TV brand campaign, driving a 13-point lift in ad recall and a 6-point lift in brand favorability.
What's more, Facebook is making it easier for brands to judge the effectiveness of video ads. It recently introduced the ability to use third-party metrics for tracking viewership and conversions. It also has a tool, Conversion Lift, that will show how well Facebook ads perform against a control group as well as different ad campaigns. These efforts are designed to show the real value that advertising on Facebook provides, and the early results have been good.
Fox might feel threatened that Facebook is growing its share of ad revenue as a larger portion of ad dollars wind up on mobile. Murdoch is right that his and other companies need to make more innovations in advertising, but that's to offset the trend of lower viewership on many networks and to win share with Hulu's ad-supported business. Facebook, with its superior targeting and huge audience, doesn't have much to worry about from Fox or any other television network.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and PepsiCo. The Motley Fool recommends Time Warner. 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.