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Facebook Is Ready to Get Serious About Video

By Adam Levy – Feb 9, 2016 at 12:45PM

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How close is Facebook to YouTube?

Source: Facebook.

Five hundred million people spend 100 million hours watching videos on Facebook (META 0.85%) every day, according to the company's latest update. Previously, the company gave average daily video counts, with the latest tally reaching 8 billion per day.

YouTube, the leader in online video, has also shied away from video view counts in recent years, claiming watch time is a more accurate indicator of its user engagement. The subsidiary of Google -- an Alphabet (GOOG -0.19%) (GOOGL -0.15%) company -- reported that watch time increased 60% during the company's second quarter. It also said watch time on mobile devices doubled in the same period. But when it comes to details, the most we can get is that users watch "hundreds of millions of hours" of YouTube videos every day.

YouTube's ability to monetize its viewer hours is its biggest advantage over Facebook right now. It's time for Facebook to get serious about video and think about doing the same.

Facebook's already running experiments
In recent months, Facebook has started experimenting with more direct monetization of its videos. Users who click for a full-screen experience with audio may find that an ad automatically starts playing after that video completes, with other related videos following the ad.

Facebook is also exploring a dedicated section for when users just want to watch videos. If the feature rolls out to more users, it will put Facebook more directly in competition with YouTube. It also represents a very good opportunity to insert advertisements.

While video views have had a significant impact on user engagement, according to CFO Dave Wehner, advertisements have only a small incremental impact on ad revenue. Wehner explains that for every video ad in a user's News Feed, it replaces an ad of a different format. For those 100 million hours of video views to really start paying off, Facebook needs to directly monetize its videos.

YouTube reportedly generated $4 billion in net revenue in 2014. By comparison, Facebook brought in $17.9 billion in 2015, mostly from non-video ads. Adding direct monetization of its video views would be a major growth driver for the company.

Additionally, creating new ways to directly monetize video views may attract talent to Facebook's platform to create more videos for its users. Facebook is currently experimenting with revenue share models in its suggested-videos feed, but driving more users to a stand-alone video section will make it worthwhile for talented creators to upload videos to Facebook. That would create a virtuous cycle for Facebook, drawing in more viewers.

What else is Facebook doing to grow videos?
Facebook seems to want to make watching videos on Facebook as common as looking at photos and clicking on links. It's notably changed its News Feed algorithm to favor videos, but it's also encouraging users to upload their own videos through new features.

Its most recent update allows users to stream live video. YouTube also supports live streaming via third-party apps, but it hasn't gone main ... stream. The move by Facebook is aimed at getting more users to upload and engage with videos.

As live streaming grows in popularity, Facebook is now well positioned to ride the wave, adding to its daily watch time. YouTube, by comparison, doesn't have live-streaming support built into its flagship app, putting it well behind competitors such as Facebook and Periscope.

While Facebook is still trailing YouTube in total watch time, it's rapidly catching up. The real potential for Facebook lies in increasing user engagement around videos and directly monetizing that engagement. Look for Facebook to work toward those goals in 2016.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. 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. 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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