Facebook is making its biggest bet to date to take on YouTube for video dollars. Ad agencies aren’t convinced

Samantha Lee / Business Insider

Facebook is starting to offer advertisers preferential access to Facebook Watch advertising in exchange for year-long deals — similar to how TV networks have sold big ad packages for decades.
Facebook claims that ads in premium content reach 100 million monthly viewers.
Google has also offered a similar buying option for YouTube since 2014 through its Google Preferred program, and Facebook will compete with Google to secure ad commitments from big TV buyers.
Buyers say that Facebook likely won’t make a dent in TV advertising because it’s unclear how big Facebook’s audience is and how much quality content is within Watch.

Facebook’s taking another crack at winning TV dollars by taking a page from Google’s playbook.

Facebook launched a program dubbed Showcase, an upfront-like way of purchasing ads within Facebook Watch through year-long commitments, during a media event in New York on Tuesday. The announcement follows a move in September to open up an ad-buying option called in-stream reserve inventory that allows brands to purchase guaranteed packages of genre-related Watch content.

Instead of buying through auctions where advertisers bid on ad prices, guaranteed deals are negotiated as a larger package — similar to upfront deals where the major TV networks secure big, year-long deals with advertisers every year. Up until now, Facebook said that advertisers have been purchasing such ad space quarterly and by expanding to yearly commitments, it’s looking to secure bigger investments from advertisers.

Facebook will not hold events during the weeks of the upfronts or NewFront presentations in New York when publishers and networks put on glitzy events for ad buyers. Instead, the company will meet individually with buyers during the upfront selling cycle.

Facebook is working with Nielsen’s Target Rating Points (or TRPs) system to make sure that ads only appear within premium video content. Ad packages are designed around genres of content bucketed into categories like "fashion," "sports," "beauty" and "entertainment," and Facebook is rolling out the categories of "news" and "food" as new genres to advertisers.

"It’s a very different way for Facebook to do it but it’s not a new way for the marketplace to do it — it’s how the marketplace transacts," said Eric Geisler, director of North America agency sales at Facebook.

Geisler declined to comment on pricing but said that prices on rate cards distributed to agencies the past two quarters are "competitive." During the first-quarter, the cost-per-impression (or CPM) prices were around $23 to $25, he said.

In theory, ad prices for Watch will become more predictable through Showcase, Geisler said.

Facebook hopes to avoid YouTube’s brand-safety problems

Showcase will compete with Google Preferred, YouTube’s premium ad program that’s aimed at big video ad spenders that helps advertisers buy video space on the most popular channels.

Last week, brands like AT&T and McDonald’s pulled their ads because they were running alongside YouTube videos with questionable content. Those videos were not part of Google’s top-tier Google Preferred program that vets individual videos before they are eligible to run ads. Nonetheless, Facebook execs stressed that brand safety will not be a problem with Showcase.

"Every single piece of content, every program is human reviewed before it is eligible for monetization," Geisler said. "Brand safety isn’t an attribute; brand safety is the product."

Jon Stimmel, chief investment officer at Universal McCann, said that purchasing Facebook video inventory through upfront deals removes some of the volatility of Facebook’s algorithm and brand-safety concerns.

"We accept that there’s some level of risk in the digital marketplace — I think what’s changing is the weaponization of it," he said. "You can’t anticipate the bad actors out there."

The amount of Watch inventory considered premium and eligible for advertising represents a small part of Watch’s overall content. According to Facebook, 100 million people in the US view Watch content eligible for the ad program every month compared to the 400 million people who spend at least one minute per month viewing any Watch content. 43% of people who watch ad-eligible content are 18 to 34 years old, the company said.

The small number of Watch videos eligible for ads could be helpful for Facebook in mitigating brand-safety issues, said Andrew Sandoval, director of biddable media at The Media Kitchen.

"You don’t have to worry about the long-tail when you’re only dealing with a small amount of inventory," he said. "It’s putting a video platform on a hugely successful and big ad investment that most brands are making, and it’s a different experience than the newsfeed."

That said, Sandoval said that Facebook’s reporting on the number of people engaging with Watch each month makes him nervous because it’s unclear how Facebook calculates the one minute of time spent per month.

"Is that the combination of scrolling through newsfeed for 20 seconds today and 30 seconds tomorrow?" he said. "That sort of stuff gets a little bit scary."

Facebook is also investing in more content

One way Facebook is wooing advertisers is by pumping up the amount of its original content.

Over the past couple of years, Facebook’s strategy for Watch has taken several twists and focused on content from both entertainment and news publishers.

Matthew Henick, head of content planning and strategy, explained Facebook’s strategy as fitting into three buckets during the media event: Programming focused on community, interactivity and co-watching.

One program that fits the bill of those guidelines is MTV’s upcoming "Real World" series that is co-produced with Viacom’s MTV Studios and Bunim/Murray Productions.

In conjunction with three new seasons of the show, Facebook is also licensing old seasons of the show to distribute on Watch. Viewers will decide which old seasons of the show are distributed on Watch through a poll featured in the new seasons of the show.

Facebook has also green-lit an animated comedy called "Human Discoveries" with Zac Efron and Anna Kendrick that will debut on Watch later this year.

On Tuesday morning, Digiday reported that Facebook doesn’t plan to renew two-thirds of existing Watch shows from news publishers. Henick pushed back on the number — though he did say that Facebook is changing how it funds news programs.

"We’re not cutting two-thirds of what our final output would be — we’re just examining the previous investments," he said.

In addition to YouTube, Facebook is also competing for content alongside Amazon, and some agencies said that it’s not clear how Watch differentiates itself.

"It’ll be interesting to see what moves they make to elevate Facebook Watch’s reputation as a premium, long-format content partner to both consumers and advertisers and get ahead of the impending competition Amazon will bring to the space amongst others," said Tom Buontempo, president of Attention.

But Facebook isn’t a threat to TV networks yet

Buontempo said that while Facebook Watch doesn’t cut into TV investments, it does "provide another wave of commitments from advertisers."

Another agency source said that it’s hard to pinpoint Facebook’s video strategy with reserved Watch ads because it sits between TV and digital advertising. Facebook is seeking big commitments from brands but the company isn’t playing in the streaming TV race, the exec said.

"It’s a weird hybrid product because it’s mostly delivered in-stream and assuming that you’re on a mobile device," the exec said. "I think of that as a different bucket than OTT; I think of OTT as video delivered typically on a TV set, maybe on a laptop."

And the Media Kitchen’s Sandoval said that Facebook’s upfront pitch isn’t compelling because of the muddied content strategy.

"The upfronts may make a lot of sense if there’s content that we need to be on top of — I don’t think we’ve seen that yet," he said. "I could see Facebook leveraging their whole ecosystem to start making those deals happen."

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