The Devious Way Facebook Inc (FB) Is Building its Video Empire

Facebook Inc (FB) has been a terrific performer in the stock market this year. Up about 40% in 2015, FB shares are walloping the broader market, which is roughly breakeven this calendar year.

new-facebook-stock-fb-1-logo-185A good chunk of its recent gains were driven by Facebook’s impressive third-quarter results, which managed to top Wall Street estimates yet again. But that wasn’t the only reason FB stock popped after earnings.

The company also announced it was making tremendous steps in online video, where it aims to take on Alphabet’s (GOOG, GOOGL) YouTube.

You see, Facebook would really like to keep users on its site for as long as possible, and if you don’t have to click away to YouTube, you’ll stick around longer. Oh, FB also gets to serve up ads against those video views.

Cha-ching!

Unfortunately, the 8 billion video views per day that Facebook boasted in its most recent quarter are largely the result of several, shall we say, “eccentricities.”

Facebook Videos “Stolen” From Real Content Creators

The YouTube channel “In a Nutshell — Kurzesagt,” which has more than 1.3 million subscribers, notes that Facebook “cheats” by coding into Facebook Videos an algorithm that makes Facebook Videos preferable to YouTube videos in the site’s algorithm.

Not only that, but it allows people to rip original content from YouTube creators and re-post it to FB, even if they had nothing to do with the content creation. The original creators are given no cut of the revenue generated from the resultant video views. As the team at In a Nutshell points out, 725 of the top 1,000 most viewed videos on Facebook weren’t original content. That’s 17 billion views that FB got in sneaky, sneaky fashion.

But the mischief doesn’t stop there. FB is also toying with the way that it counts views, which can be awfully misleading at times.

In a Nutshell lays out the details: You only have to watch a Facebook Video for 3 seconds to be counted as a view. And it doesn’t matter that FB videos tend to autoplay when you’re scrolling through your news feed. That means that genuine engagement with Facebook Videos is, in fact, terrible. While 86% of YouTube viewers are still watching after 30 seconds, only 21% of FB video viewers are, according to the video.

The video, by the way, can be seen below. It’s worth a watch.
[youtube http://www.youtube.com/watch?v=t7tA3NNKF0Q]

The central gripe is summed up succinctly about halfway through the video:

“A whole group of people have built their online presence around stealing other people’s work. This is really bad for independent creators. Contrary to popular belief, stolen content gives creators close to no exposure at all — only the thief and Facebook profit from this.

“Quality content takes a lot of creativity, time, and love; in our case, a single video literally takes hundreds of hours to make. Even we, with more than a million subscribers, are dependent on the ads and exposure.”

So, what exactly does this mean for FB stock? Not much at the moment, but if Facebook’s video prowess starts to become one of the most heralded aspects of the stock, investors should watch out. I doubt it will be long before content creators start waging legal war against FB and those who steal their content by re-posting without attribution.

Also, Facebook’s inflated view counts should become more transparent over time, and advertisers will be unlikely to pay massive sums to advertise against videos with very little engagement.

At the end of the day, 8 billion video views on Facebook sounds great, but the means by which they’re gotten and the quality of the “views” themselves diminish the value of the figures.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/11/fb-stock-facebook-inc-video/.

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