Facebook's Video Initiative Is A Reach – Brian Wieser’s Pivotal Report

REPORT INCLUDING DISCLOSURES CAN BE FOUND HERE Madison ampamp Wall 8213pdf Headlines this week trumpeted a new study produced by Nielsen and commissioned by Facebook which indicates they are quotcapable of delivering site reach at levels comparable to major TV networksquot This follows on coincidentally we39re sure anonymouslysourced reports from earlier in the week that Facebook is set to price video ad units at between 125mm per day The newsflow has served to conflate a number of factors and implicitly overstates the opportunity on hand for Facebook While our model has longassumed that Facebook will generate incremental revenue from online video it will most likely be more modest than optimists might expect and what they generate will not likely come from television budgets Instead we expect reallocations of existing Facebook budgets or shifts of spending that would otherwise have gone to other media owners with online video inventoryWhile Facebook reaches more people during the day than certain TV networks this is a selective way of looking at the industry Highlighting Facebook39s dominant reach vs individual networks during daytime wrongly implies that timeofday is a first cut against which budgets are set Perhaps they should be but workflows associated with media buying not to mention the distinct ways in which different media may influence consumers dictate that the first cut of planning for large marketers is by medium Digital media is separate from TV in this regard for many reasons workflows are different and leanforward vs leanback environments mean they are generally viewed as different environments not better or worse just different the means of assessment how a budget is justified and how impressions are measured at the present time are generally different too Comparing Facebook by itself to any one network is similarly moot that a single media owner on one lowerreaching medium has more reach than single mediaowners on higher reaching media is mostly irrelevant If Facebook39ser Nielsen39s implications were correct advertisers would be more likely to shift their spending from TV to other publishers with online video inventory than to Facebook Take Google39s GOOG Hold YouTube for a start notwithstanding that YouTube won39t support Nielsen39s OCR standard Or video ad networks Or home page takeovers involving video on virtually any portal There are many ways to reach large audiences instantly on the web with video Facebook39s primary appeal by contrast has been the degree to which you can target target audiences vs almost any alternative an advertiser can often find more of a target there rather than anywhere else but that doesn39t necessarily mean that all of a sudden they want to use Facebook as a broad reach vehicleThe pricing of units is in a word significant Most digital budgets when discretely negotiated amount to tens of thousands and occasionally hundreds of thousands of dollars While a single large advertiser39s annual commitment to Facebook may amount into the millions for annual campaign spending the absolute commitment which Facebook is asking for is wellbeyond the scope of what advertisers will pay in a single oneoff buy This leads us to suspect that over time Facebook will iterate its offering to include video assets which are priced at much lower costs and included in general ad sales packages This is not a negative per se new product iteration is generally a positive thing as it helps sales justify higher pricing for media But even then if it were capturing share it would come from budgets intended for Google39s YouTube or online video networks rather than television If there is a single most important takeaway from the PR effort associated with this news it is that it may serve to highlight how quotreachquot can be more important than impressions or ratings especially in context of our focus on why we have argued that television dominates the media budgets for most of the world39s largest brands Reach matters more than ratings from a planning perspective and planners are more influential than buyers in allocating budgets across media A slide in Nielsen39s presentation on this topic highlights the right way to think about reach and media once you start allocating more than 1015 of a budget online the amount of incremental reach you can produce starts to fall off substantially This is why time and money won39t necessarily ever equate to each other and why given that most large brands are by now allocating 1015 of their budgets to digital media growth on the online advertising properties large brands favor has begun to slow significantly Facebook can keep growing of course but it will primarily occur as they take share of online budgets from existing segments of marketers and as they create new ad products for new segments of marketersPutting aside what a media plan says is optimal and the political challenges in implementing the necessary changes within advertisers39 marketing organizations to execute on those optimal plans another consideration is the cost to execute different kinds of media buys It might cost 15 of the TV budget to actually buy TV but 10 of a digital budget to buy digital media using conventional workflows Agency contracts typically aren39t structured in a manner which facilitates this as marketers and their procurement teams often focus on the absolute amounts they pay their agencies even if it leads to inefficiencies in the media mix We can argue that programmatic buying of digital media drives that cost down towards 2 and will help make marketers and agencies more indifferent in their media planning although driving programmatic buying throughout the industry will take some time most media owners would rather avoid selling their best inventory in this manner and most buyers aren39t yet ready to buy most media in this way either This past week39s merger announcement between Publicis and Omnicom is important in this regard as such changes are more likely than not to emerge as the new company will more likely invest the capital and develop the negotiation constructs necessary to make it happen faster than would otherwise have been the case Statements from executives at Interpublic39s Mediabrands this week around their intention to make 50 of all media buying programmatic is at minimum a reflection of the intentions that all agencies have towards these ends For a good illustration of how issues like the above play out elsewhere consider if marketers could identify the 20 of local markets that drive 80 of variations in outcomes wouldn39t they spend more money on local media It39s a potentially massively more efficient way to spend money and one which marketers have had the capacity to execute against for many many yearsand yet if anything marketers with nationallyskewed corporate structures have been shifting most of their spending towards national media over the same time Consider that over the past ten years national mass media owners39 advertising revenues grew by 33 while local mass media owners39 advertising revenues fell by 28 during the same time Reasons unrelated to marketing efficiency usually have substantial sway in dictating changes in advertising spending choices across the economy Facebook will undoubtedly continue to grow the budgets it collects from the large advertisers who have videobased creative advertising units and who represent perhaps a quarter to a third of the company39s revenue base by high single or low double digits much as it has over the past year or two This is mostly a function of the mechanics of ad sales when a media owner is already one of the top suppliers of media to so many marketers To justify these budget gains Facebook needs to iterate and improve its offering for these advertisers on an ongoing basis and a video ad product is one way to do this It is usually the case that budgets shift generally in line with where audiences go within a medium so to the extent that Facebook can capture increased share of digital mediabased media time that would lead to an incremental amount of revenue tooAs before the bulk of Facebook revenue growth comes we think from small businesses which have doubled in number on Facebook yearoveryear and ecommerce based advertisers whose spending has doubled according to the company For a factor which causes us to meaningfully rethink our still very favorable forecasts for the growth trajectory of Facebook39s ad revenue growth we39d rather wait for a news release from Facebook on the trends impacting these cohorts insteadBrian Wieser is a Senior Analyst at Pivotal Research Group where he covers securities which are impacted by the advertising economy including Facebook Google Yahoo Interpublic Omnicom WPP Publicis Nielsen CBS Viacom and Discovery Communications amp160Read all Brian39s MediaBizBloggers commentaries at Brian Wieser39s Pivotal ReportCheck us out on Facebook at MediaBizBloggerscomFollow our Twitter updates MediaBizBloggerThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaBizBloggerscom management or associated bloggers MediaBizBloggers is an open thought leadership platform and readers may share their comments and opinions in response to all commentaries

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Facebook's Video Initiative Is A Reach – Brian Wieser’s Pivotal Report

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