Will Facebook Start Taking TV Ad Dollars Too?

Will Facebook Start Taking TV Ad Dollars Too?
SHARE
THIS



In this article from The Week, its economics and business correspondent Jeff Spross, argues Zuckerberg’s Curse (AKA Facebook) is fast moving its business to video and that could mean bad news for TV networks’ ad coffers…

(Please note this article is written from the perspective of the US market)

It should have been a great moment of triumph for Facebook. Instead, the social network’s stock took a precipitous nosedive.

Facebook released its third-quarter results on Wednesday, showing spectacular year-on-year revenue growth of 56 percent, arriving at $7 billion. Facebook’s third-quarter profits, meanwhile, grew almost 300 percent, to hit $2.3 billion.

Overall, the company has been on a tear. Revenue grew 59 percent in the second quarter, and has been pretty amazing all year. Not surprisingly, Facebook’s stock price has been on a tear too, rising 30 percent in the last year, and 230 percent since May 2012.

And yet, shortly after those third-quarter results came out, Facebook’s stock tanked by 7 percent. By Thursday, it had settled at a loss of around 5.5 percent.

What gives?

It boils down to the distinction between making money on volume and making it on price. In 2016, 57 percent of Facebook’s revenue growth came from new users or from established users spending more time on the platform — more eyeballs looking at ads for longer. Another 32 percent of that growth came from Facebook showing each of its users more ads.

Meanwhile, growth in the price advertisers have to pay Facebook to feature each ad accounted for a measly 11 percent of the increase in revenue this year. In other words, 2016’s gangbusters revenue increase has largely been about jacking up the volume of ads, not the price advertisers are willing to pay for them.

There’s an obvious natural limit to this dynamic. Facebook can only cram so many ads into your Newsfeed before you get mad. And when it released its third-quarter results, Facebook admitted this can’t continue: “Ad load will play a less significant factor driving revenue growth after mid-2017,” David Wehner, the company’s CFO, told analysts on a conference call. As a result, advertising growth will “come down meaningfully.” Hence the investor whiplash.

To keep Wall Street happy, Facebook needs to transition its strategy from volume to price. The social network must start making more money by charging advertisers more to feature ads on the platform. By 2018, growth in the price Facebook charges per ad is projected to account for 40 percent of revenue growth, while growth in ads per user will fall to just 8 percent.

Going forward, instead of worrying about scaring off users with too many ads, Facebook has to worry about scaring off advertisers by charging too much. But the company has a plan: video.

TV stations have traditionally been able to charge a premium for advertisements because of the value brands place on getting themselves in front of TV viewers across the nation. Particularly for appointment viewing that people must watch live (you’ve gotta love sports!), advertisers are downright eager to pony up for the chance to get a vanishingly rare shot at viewers’ undivided attention. A Bloomberg Intelligence analysis found that reaching 1,000 people on prime time television cost advertisers $50 in 2015, while accomplishing the same thing on Facebook cost just $5. Of the $500 billion spent on all forms of advertising in America each year, $200 billion still goes to TV.

Read the full article here.

Please login with linkedin to comment

Latest News

Zenith Sydney MD Karen Halligan To Depart
  • Media

Zenith Sydney MD Karen Halligan To Depart

Zenith Sydney's Karen Halligan has pulled-up stumps, although that's not to infer bad light had anything to do with it.

by B&T Magazine

B&T Magazine
PR Agency Hotwire Rebrands
  • Marketing
  • Media

PR Agency Hotwire Rebrands

PR agency Hotwire has rebranded, yet sadly not to "Hot Cocks Who Rock Your Socks Off". Which would've been far cooler.

Challenger Agency VCCP Wins Creative Account For Torrens University Australia
  • Advertising

Challenger Agency VCCP Wins Creative Account For Torrens University Australia

After a competitive pitching process involving five agencies, Torrens University Australia has appointed challenger agency VCCP as its new brand strategy partner and creative agency for 2018. Acclaimed for its work on dynamic brands including ING and Compare the Market in the financial services sector, Laureate Australia CMO Anne Da Cunha said VCCP’s reputation as […]

GumGum Appoints Ansible’s Sarah Baskerville As Victorian Sales Director
  • Advertising
  • Technology

GumGum Appoints Ansible’s Sarah Baskerville As Victorian Sales Director

AI advertising company GumGum has announced the appointment of Sarah Baskerville as its sales director for Victoria. Baskerville joins GumGum from Ansible, where she spent two years as its Melbourne mobile director. Prior to joining Ansible, she was head of specialist sales and partnerships at News Corp Australia, and also held a number of sales […]

The Diamond Concierge Gives Away $85K Ring In Campaign By McCann Queensland
  • Advertising
  • Campaigns

The Diamond Concierge Gives Away $85K Ring In Campaign By McCann Queensland

McCann Queensland’s second instalment of ‘The 5th C’ campaign launched over the weekend for online diamond retailer The Diamond Concierge, which received over 47million views around the world in the first 48 hours of it being released. In this second phase of the campaign, The Diamond Concierge gave away an $85,000 diamond ring, with Gold […]

Sparro Recruits Key Account Director Following Client Wins
  • Marketing

Sparro Recruits Key Account Director Following Client Wins

Digital marketing agency Sparro has announced the appointment of Hannah Jones (pictured above) as a key account director following a spate of client wins. Jones joins Sparro’s senior team alongside founders Cameron and Morris Bryant, overseeing a portfolio of accounts that includes Webjet, Domino’s Pizza, TAFE NSW, Temple & Webster, F45 Training and Bing Lee. […]

Women’s Health’s Jacqui Mooney On Driving A Women’s Brand In An Evolving Industry
  • Media

Women’s Health’s Jacqui Mooney On Driving A Women’s Brand In An Evolving Industry

In an industry facing change, Jacqui Mooney, editor of Women’s Health believes brands such as hers will continue to be a constant. Please note: this article was contributed by Magazine Networks. The magazine industry may be seeing substantial change but Jacqui Mooney has a goal that remains firm: to create happier, healthier lives for Australian women. […]

Why Consumer Brands Are Failing Aussie Mums
  • Marketing
  • Opinion

Why Consumer Brands Are Failing Aussie Mums

Is your game chainsaws or large marlin wall-hangings? Can't seem to attract the mums? This couldn't come soon enough.

Opinion

by B&T Magazine

B&T Magazine
Network Ten Creditors Approve CBS Deal
  • Media

Network Ten Creditors Approve CBS Deal

It seems the fight for Ten between CBS and media moguls Lachlan Murdoch and Bruce Gordon may finally be over.

by B&T Magazine

B&T Magazine
MKTG Signs Exclusive Commercial Partnership With PlayersVoice
  • Marketing
  • Media

MKTG Signs Exclusive Commercial Partnership With PlayersVoice

MKTG has announced it has signed an exclusive commercial partnership with newly-launched sports storytelling site PlayersVoice.com.au – an agreement that will see the agency move into a new territory of sports marketing. The partnership between MKTG and PlayersVoice will see the business managing brand partnership opportunities for the new platform; working with clients to deliver […]

Domo Introduces New Data Security Software Solution
  • Marketing
  • Technology

Domo Introduces New Data Security Software Solution

Domo has announced it has introduced new cloud security technology for its Bring Your Own Key (BYOK) software, which includes unique capabilities like rolling generation of data encryption keys and a built-in kill switch. Domo BYOK is the first BYOK enterprise software solution for cloud analytics and business intelligence, and builds on the company’s existing security, compliance and […]

Shopper Media Group Grows Sydney & Melbourne Sales Teams
  • Advertising
  • Marketing
  • Media

Shopper Media Group Grows Sydney & Melbourne Sales Teams

Shopper Media Group (SMG) has continued to grow its Sydney and Melbourne sales teams to keep up with the demand for Smartlite Panels for shopping centres. Ashley Munro joins SMG as group sales manager for Sydney, having previously worked in a similar role at NOVA Entertainment. Laura Mason has been appointed as SMG’s business manager […]

RIO DE JANEIRO, BRAZIL - AUGUST 14:  Usain Bolt of Jamaica competes in the Men's 100 meter semifinal on Day 9 of the Rio 2016 Olympic Games at the Olympic Stadium on August 14, 2016 in Rio de Janeiro, Brazil.  (Photo by Cameron Spencer/Getty Images)
  • Advertising
  • Media

Olympics, Census Prove Tough Hurdles For Media Agencies: SMI

Australia’s media agency market has experienced another tough month in August, according to the latest data by Standard Media Index (SMI). SMI noted the softer demand this time around was primarily due to the Rio Olympics and Census providing abnormal bookings last year, resulting in demand for August 2017 so far being back 12.1 per […]