MENLO PARK -- Coming soon to Facebook: video commercials.
While the world's largest social network hasn't announced any plans, the Internet industry is abuzz over reports that Facebook may soon be showing 15-second video ads from major consumer brands, with prices likely to exceed $1 million for the chance to tout new cars, soft drinks or other products.
Wall Street investors and modern-day Mad Men are eager to see what Facebook does with those commercials, since the social network's 1.1 billion users represent a vast new audience for the small but growing business of online video advertising.
And with rates expected to range into seven figures -- more than twice the price of a 30-second spot during TV's "American Idol" or "Sunday Night Football" -- the new commercials are likely to be a major boost for Facebook's bottom line. Despite the risk that more ads could annoy some users, one rosy estimate from Morgan Stanley analysts says Facebook could capture $1 billion in video ad spending next year.
Online video ads are a growing business. While Google's (GOOG) YouTube is currently the king, other companies, including Yahoo, Twitter and AOL, are beefing up their video strategies. But analysts say many big advertisers still haven't embraced the concept -- and aren't yet shifting their spending away from major TV networks.
That could change with Facebook, some experts say.
"For the first time, Facebook will be able to offer a TV-like video ad product with similar or greater reach than broadcast TV," said Rob Jewell, CEO of Spruce Media, a digital marketing firm that helps clients run ad campaigns on Facebook.
Facebook users already watch a variety of clips that have been uploaded to the social network, which shows more video than any U.S. website except YouTube. Even so, analysts and industry sources say CEO Mark Zuckerberg has approached the idea of video ads gingerly, even postponing their launch earlier this year to make sure they don't alienate users or take up so much bandwidth that they cause devices to freeze or crash.
"Facebook has to be careful that they don't weigh down the core experience with advertising, and alienate their users in the process," said Clark Fredericksen of the research firm eMarketer. However, he added, the company "has historically been very careful about rolling out new ad products."
Although a Facebook spokesman declined to comment, news reports citing unnamed sources describe the coming ads as 15-second spots that will appear along with other posts in a user's news feed. The video ads will start playing automatically, but soundlessly, as the user scrolls past. Users will have the option of clicking or tapping on the ad to make it start over and play with sound.
Currently, the only way for businesses to show video on Facebook is to post them on company pages, which they can pay to promote in posts that appear in users' News Feeds. Those videos don't play unless viewers click on them, and the format isn't widely used.
But in recent weeks, Facebook has dropped broad hints that the company wants to woo big advertisers who are used to spending millions of dollars on broadcast or cable TV campaigns.
"Every night, 88 million to 100 million people are actively using Facebook during prime-time TV hours in the United States alone," Chief Operating Officer Sheryl Sandberg told analysts on a recent conference call. The company also commissioned a report by the Nielsen firm that said Facebook attracts more 18- to 24-year-olds during those hours than four unnamed TV networks.
Along with its vast audience, experts say Facebook can deliver commercials to specific population segments -- young men ages 18 to 24 who like hip-hop music, for example -- more precisely than television, because of all the data that users have shared with the network. "Facebook is trying to say, 'We have both the reach and the targeting and measurement' to compete with TV," Fredericksen said.
Until now, the biggest force in Internet video -- and online video advertising -- has been Google-owned YouTube, which drew almost 168 million U.S. viewers in July and showed video ads to 116 million U.S. viewers over that month, according to the comScore research firm. About 61 million people watched video clips on Facebook during July, said comScore, which does not report daily viewership.
While Google doesn't break out figures for YouTube, analysts think it makes more than $1 billion a year in revenue. But even YouTube has found it difficult to lure big dollars away from traditional television.
Analysts at eMarketer say U.S. advertisers will spend $66 billion to show ads on TV this year, and just $4 billion for video ads on all Internet sites. The firm predicts online video ads will grow at a faster rate, however -- reaching $9 billion in spending by 2017, while TV ad spending is expected to hit $75 billion that year.
"The value is that video tells a story," said Vijay Sundaram of SocialTwist, a marketing firm that develops promotional campaigns for email and social networks. While his firm uses video and other formats, Sundaram acknowledged that a high-quality video can be more expensive to produce than one with just text or photos.
But if video ads become common on Facebook, consumers probably will start seeing more of them on mobile apps and other sites, said Fred Hsu of RTB.com, which helps clients show ads on smartphones and tablets. Only 5 percent of ads handled by his company now use video, Hsu said, but "they are hugely effective."
Contact Brandon Bailey at 408-920-5022. Follow him at Twitter.com/BrandonBailey.