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Facebook Is Working on Its Biggest Video Problem

By Jamal Carnette, CFA - Apr 16, 2016 at 5:43PM

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Facebook is taking cues from YouTube in an attempt to protect content producers, which will help it compete against the video-hosting giant.

Source: Facebook.

Facebook (FB -5.12%) seems immune to the greater malaise that's plagued the technology industry. On a one-year basis, shares of the social-media site are up 36%, while the greater Nasdaq Composite is down 2%. Facebook's overperformance is due, in large part, to the success of the company's native video-hosting format, which has helped the company grow to 100 million daily video-viewing hours.

There have been bumps along the way, however. Similar to pre-Alphabet (GOOGL -3.93%) (GOOG -3.69%) YouTube, Facebook faced backlash from content creators regarding stolen content. In an article, popular YouTube star Hank Green, one half of VlogBrothers, accused Facebook of "stealing" in order to grow its video-market share. This month, Facebook took the strongest steps ever to combat Green's concerns.

Freebooting takes money from content creators
There's a dirty secret behind those viral cat videos you share on Facebook. Some of them were stolen from other video-hosting sites, like YouTube, with any reference to the original creator intentionally removed. I go into more detail in a prior article, and Slate has an excellent long read on the effects on content creators, but the short explanation of the problem is that the person creating the content receives no compensation or acknowledgement for these videos.

This is not necessarily a small sum of money that content creators are missing out on: Swedish Vlogger PewDiePie, one of the most-popular YouTube stars, reportedly makes in excess of $7 million annually for uploaded videos of the vlogger playing video games. Smaller YouTube stars receive the majority of their compensation from one or two viral videos instead of consistent viewing from subscribers, meaning so-called freebooting can disproportionally hurt these creators.

It should be noted that Facebook is not directly ripping videos without permission, but rather its users are. However, many content creators have faulted Facebook for inadequate policing and slow removal times once alerted by the original creator. Green goes even further by hypothesizing that Facebook might be slow-rolling a solution until after it can stake its claim as "the biggest, most important thing on video."

Facebook's new Rights Manager
Green should be elated now that Facebook has taken its clearest steps to stop freebooting. The company's new Rights Manager feature allows content creators to create a reference library of videos.

In the event one of these videos are posted by another Facebook user without permission, Facebook will immediately remove the content. Additionally, the company's FAQ section clarifies the company's punishment for repeat offenders can include disabling their accounts.

YouTube has made nice with content creators with its Content ID system. Image source: YouTube.

On average, Facebook's new Rights Manager seems very similar to YouTube's Content ID. Early in YouTube's history, the company drew the ire of content creators -- most notably those in the music and cable industries -- for unauthorized music videos and TV shows appearing on its site. Viacom sued YouTube, then owned by Alphabet, for $1 billion in 2007.

Seven years and multiple appeals later, both parties settled the suit out of court, with supposedly no money changing hands. The company's Content ID system -- in which videos uploaded to YouTube are scanned against a database of files that have been submitted to YouTube by content owners and copyright owners get to decide what happens when content in a video matches theirs -- paved the way for a favorable settlement for YouTube.

It was a wise move for Facebook to crack down on illegally uploaded videos. Additionally, Facebook is in the initial phases of sharing revenue with content creators. With strong content protections, a lucrative ad-share program, and 1.6 billion monthly active users, Facebook's video growth could be a huge threat to YouTube.

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