RE/CODE: How Facebook’s New Video Business Stacks Up Against YouTube

From re/code: 

The Types of Ads
YouTube makes most of its money from pre-roll ads running ahead of the content you want to watch. Facebook doesn’t like pre-roll ads. It doesn’t sell them. Instead, it’s offering standalone, autoplay ads (complete with sound) that will run within its new Suggested Videos stream.

One thing worth noting: The video ads in this feed may be more valuable to Facebook than the video ads it shows in News Feed. The difference? Context. Facebook is now pairing ads with a specific genre of content, explained Moshe Mosbacher, CEO of TubeScience, a video ad startup from Los Angeles. For example, it knows you like snowboarding videos because you clicked on one, and now it can show an ad with that context in mind.

“Facebook’s never had that,” explained Mosbacher. “You’ve never known the context in which your ad was going to be placed, but just the types of people who were going to see it.” Mosbacher says that contextual ads can garner “much higher ad rates” than Facebook’s traditional, targeted ads.

The Revenue Split
Both Facebook and YouTube are offering the same 55/45 revenue split to content creators, but there is one major difference. In YouTube’s model, that revenue split is shared with one content creator. With Facebook, the 55 percent may be divided among multiple creators. In fact, it’s almost guaranteed that it will be.

Facebook’s format offers a stream of content, so a user may watch three videos before seeing an ad. The money from that one ad would then be divided among the three video creators, divvied up depending on how much time was spent watching each video. So while both Facebook and YouTube are offering 55 percent of the ad revenue, YouTube creators get it all. Facebook creators will likely just get a portion.

But the potential with Facebook is those video feeds can put a creator’s content in front of people who don’t know they’re looking for it. So they may get less revenue, but (potentially) more eyeballs.

Who Can Make Money
On YouTube, anyone with a viral video can flip a switch to show ads before it plays. Facebook won’t make it that easy, at least not for everyday users. At launch, the company is partnering with “a few dozen” major content creators like the NBA, Hearst and Fox Sports on its revenue share program. It’s planning to add more partners, but it’s essentially hand picking those publishers, which means they’ll be big publishers with big followings.

That highlights a key difference from YouTube, which doesn’t go that far in vetting the content it tries to monetize. Facebook, in a way, is taking a page out of the traditional TV playbook by essentially programming these video feeds through specified partnerships. But the rest of the user-generated video content (e.g. the stuff that isn’t made by a professional) will likely toil away in News Feed for free.

Source: http://recode.net/2015/07/02/facebook-and-...