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Facebook’s Bite into TV: Social Giant to Hit $3.8 Billion in Video-Ad Sales by 2017, Analyst Says

Social service poised to triple video-ad revenue by 2017, while YouTube will hit $8.5 billion, according to Nomura forecast

Facebook is poised to siphon off a large chunk of spending from TV budgets in the next two years: The world’s biggest social service has the potential to generate $3.8 billion in revenue from video advertising by 2017, triple its expected haul this year, according to a Wall Street research firm.

Facebook, with 1.39 billion average monthly active users worldwide as of the end of 2014, can boost video ad sales “with only modest cannibalization of other ad revenue sources,” Nomura analyst Anthony DiClemente wrote in a research note Tuesday. Based on the firm’s revised estimates, it raised its target price on the stock from $90 to $96 per share.

At the same time, Facebook will not punch a hole in YouTube’s battleship. The Google-owned video service is set to more than double its revenue over a three-year span, according to Nomura’s projections. YouTube generated revenue of $4.1 billion in 2014, and that will grow to $8.5 billion by 2017, per the firm’s estimates.

With the overall online-video advertising pie growing, the implication is that those ad dollars will flow from other areas — primarily TV.

“In our view, Facebook and YouTube will likely be the largest players in online video, providing differentiated offerings with respect to pricing, targeting and engagement,” DiClemente wrote. By 2017, Facebook and YouTube’s combined share of global online video spending will increase to 36% (from 34% in 2014).

The analyst firm estimated that Facebook’s video ads carry a cost per thousand (CPM) in the range of $22-$28, in line with other premium digital-video inventory and primetime broadcast TV, whereas YouTube’s CPMs average $15-$20. “In contrast to YouTube, because users are logged into Facebook’s service while viewing their newsfeed, Facebook can leverage all of a user’s data to offer advertisers unmatched targeting at scale,” DiClemente said.

On the other hand, YouTube likely has far better completion rates for video ads than Facebook, given that audiences are visiting YouTube expressly for the purpose of viewing video content.

See More: Facebook Tops Q4 Estimates on Strong Mobile Growth, Now Serves 3 Billion Videos per Day

Moreover, DiClemente noted, “YouTube audiences are more likely to be watching ads with sound, again due to users’ intention of watching video content,” whereas Facebook video ads autoplay in its users’ feeds with the audio muted by default.

In the past two months, Facebook has inked deals to bring premium video to the service. Those include pacts with MSNBC for a pair of daily Web series; ABC to live-stream “The Oscars Backstage”; and “Access Hollywood” for a behind-the-scenes daily show.

Facebook COO Sheryl Sandberg, on the company’s earnings call in January, said that “what really matters is that consumers are using video on Facebook… We’re already seeing pretty explosive growth without that kind of premium content in the system in large numbers, and so we’ll continue to figure (that) out.”

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