By Scott Martin
SAN FRANCISCO - Facebook on Tuesday said it soon plans to begin video advertising within members' News Feeds, a move that takes aim at massive spending budgets for television ads.
The social-networking giant says in a "short amount of time" marketers will be able to tap into video ads. Facebook is testing out an ad for the film Divergent with a small number of people this week.
Shares of Facebook, which touched a new all-time high, rose 1.6% to $54.67 in morning trading action following the news.
Facebook's video advertising foray squares off against Google's increased efforts to attract billions of dollars to its massive video-sharing audience at YouTube.
"Now, Facebook will rival YouTube as a source of online video ad reach," says Forrester analyst Nate Elliott.
Yet Facebook faces a difficult task in finding the line between not outraging its users with abrasive ads and pleasing Wall Street. Underscoring the distinction, Facebook member Jason Damata said, while "I hate auto-play video ads" and would be compelled to not use the site, it will make me want to "buy FB stock because the money this will generate could be considerable and may help them formulate a viable alternative or supplement to TV ad dollars."
Facebook's new video ad units could fetch between $1 million and $2.5 million per day to reach the social network's entire audience, according to an ad industry source not authorized to speak on behalf of Facebook.
Spending on television ads in the United States is expected to reach $68.5 billion next year, according to eMarketer, up from $66.4 billion this year. U.S. digital video ad spending is expected to soar 39.5% to $5.79 billion in 2014.
"Big brands are eagerly awaiting to increase their FB spending through video," says Brian Nowak, an analyst with Susquehanna Financial Group, who increased his price target to $68 from $52 ahead of the announcement.
Facebook's video ads will begin running automatically across its News Feed but will remain muted unless people turn on the audio of the ads. The new ad forms will begin on both desktop and mobile.
The social network will need to be mindful of not blasting its 1.2 billion members with too many ads. Facebook executives noted on its third-quarter earnings that it had reached its capacity for the number of ads it can serve its audience.
"The company hasn't always been smart about testing new ad formats and rolling them out slowly, but that'll be important here to avoid compromising both the user experience and the video ads' effectiveness," says Elliott.
Still, Facebook's effort to limit the number of ads in its News Feed could boost ad prices. With restricted supply coming to its ad marketplace that faces improved clicks from advertisement advances, including such video ads sold at a premium, prices are poised to climb in Facebook's auction-buying format, say analysts.