What Facebook's data drama means for its video dreams

Facebook Urging Long-Form Video
(Image: Facebook)

Facebook’s ambitions as a video destination are still in their early days and its platform Facebook Watch has struggled to attract viewers. Odds are the social network’s current data scandal won’t help things.

Facebook’s public perception and stock has taken a beating lately after reports surfaced about the social network letting data from 50 million users be harvested by controversial political consultancy agency Cambridge Analytica. Now Facebook is being investigated by the Federal Trade Commission and could face steep fines in the future, according to Business Insider.

Compounding the financial woes of plummeting stock prices and potential regulatory penalties is the beginnings of advertisers pulling away from the platform. Advertisers including Mozilla Firefox, Sonos, Pep Boys and Germany's second largest bank, Commerzbank, have pulled their ads from Facebook.

According to The Wall Street Journal, other advertisers are sticking with Facebook for now but are monitoring the social media giant to see how it addresses users’ concerns through new privacy controls.

As YouTube found out last year, the financial consequences of a mass advertiser exodus can be severe. YouTube lost millions in revenue when advertisers pulled ads over concerns with video content and comments. For an ad-supported video platform, losing advertisers is a worst-case scenario.

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So would be the case for Facebook Watch, the social network’s similarly ad-supported video platform. The ads on Facebook’s videos are positioned as a means of monetization for creators and programmers and a justification for Facebook spending billions on shows and programming rights.

Facebook is taking steps to add more transparency around apps’ access to users’ information but therein could lie another issue for the company. Media analyst Michael Nathanson said that any data access changes to impact ad targeting could have an adverse effect.

“While we expect the FTC to fine Facebook for its failure to protect user data from 3rd party apps and large brand advertisers to use this event to slow or reduce ad spending on Facebook, we believe that the long tail of direct response and small to medium sized advertiserswhich make up 75% of ad revenueswill continue to spend on Facebook due to superior and unrivaled ROI,” Nathanson wrote in a research note. “With that said, if Facebook decides to dial down their own targeting tools and capabilities to mollify regulators, we would be worried that their hold on performance advertising would crumble.”

It's still unclear what, if any, the long-term impact the current data scandal could have on Facebook's advertising revenues. But if it does eat into that revenue stream, ad-supported video could feel the burn.