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Facebook to Offer Music Videos, Should YouTube Worry? - Analyst Blog

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Facebook, Inc.FB is reportedly mulling over the addition of music videos to users' news feeds. According to media reports, the company is in talks with content providers like record companies for licensing.

Reports state that the social media company is offering the labels a higher share of ad revenues than Google's GOOGL YouTube (55% of ad revenues for record companies). However, there has been no confirmation of this news yet.

The company declined the rumors regarding its entry into the music streaming market like its peer Apple Inc. AAPL and Spotify.

Facebook has taken a number of initiatives recently, ranging from acquisitions and research to collaborations. It even changed its ad pricing policies to monetize videos. Additionally, media reports also suggest that Facebook is claiming to have better control than YouTube in pulling down unauthorized videos.

In June, a London-based research firm, Ampere Analysis reported that Facebook has been consistently better than YouTube as a platform for online marketing and might as well surpass the latter.

Till last year, YouTube remained the market leader in the online video market, but recently, Facebook has been gaining on it with its growing user base and rising engagement levels. Furthermore, the company is also luring content providers by offering them a greater share of revenues. This is even more significant as the average revenue per user for Facebook (73 cents in 2014) is significantly higher than YouTube (28 cents).

While at present, as many as 4 billion videos are being watched by users on its platform per day, the addition of music videos can be said to be a quantum leap. Music videos form a major chunk of YouTube views (40% of total views), generating a significant portion of ad revenues.

Furthermore, the online video market (especially music) is expected to grow exponentially going ahead. Per research firm ZenithOptimedia, online video will continue to grow around 29% per annum by 2017. The report also states that by 2017, the Internet will outdo TV advertising in as many as 12 prime markets and is likely to represent 28% of worldwide ad spending.

While Facebook is yet to make an official announcement, we believe that this move fits well with the company's strategy. It has been gradually improving its scope of monetization through video views on its platform. Meanwhile, it seems that YouTube is up for more challenging times ahead.

Facebook currently carries a Zacks Rank #3 (Hold). Akamai Technologies, Inc. AKAM is a better-ranked stock in the space having a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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