The company says that Reels are getting more popular. It will be difficult to turn that attention into revenue.
The format that Facebook copied from TikTok is hard to get right, according to advertisers. Users expect Reels to be entertaining, enjoyable and relevant to each individual person, as they take up an entire phone screen, because videos are more complicated than still images.
Barry Hott, an advertising consultant whose clients spend hundreds of thousands of dollars on digital ads per month, says that the guard against bad content is up.
The company reported a decline in revenue for the first time in its history. To keep up with changing consumer tastes, Meta has pushed Reels. Advertising revenue doesn't grow if attention doesn't grow
The company said that the first step of the process has been successful. The users are spending more time on Reels. The shift is hurting Meta's business in the short term because it cannibalizes attention from features where the company makes a more predictable stream of revenue.
Advertisers are cutting their budgets due to economic uncertainty, which is making it difficult to invent a new business. The CEO of Meta acknowledged on the call with analysts that they could mitigate the short term headwind by pushing less hard. That would be bad for our products and business.
People who don't follow their creator will notice a reel when it goes viral. The bar for what is considered a good reel has been raised. Most marketers post the same ads to both Facebook and TikTok, according to Gil David, founder of the advertising firm Run DMG. Adoption of the format is slow because it requires more creativity. According to David, his clients set aside money for ads that run in both Reels and Stories. Up to 10% of the pot is made up of reels.
The same thing has happened to Terry Whalen, who runs a digital advertising firm. At the beginning of the year, the firm's clients spent 1% of their Stories and Reels budget on Reels ads, but now they spend about six percent. He said that the format accounted for less than 1% of clients' overall ad spending in the first half of the year.
Meta acknowledges the challenges and is trying to make it easier for businesses to create and test Reels ads. The company said that so far, Reels are generating ad revenue at an implied rate of $1 billion a year and growing at a faster clip than it did a few years ago.
The company encourages advertisers to test and learn by putting Reels ads into existing campaigns and putting more money behind the videos that perform best. The Reels School is a workshop that trains businesses on how to use the product. The company is investing in artificial intelligence that will help turn static images with music into something that looks more like a video.
According to multiple ad buyers, some Meta employees have encouraged advertisers to test short-form video ads on TikTok first, and then bring the best performing ones over to Reels. While it may lead to more revenue for TikTok in the short term, the thought inside Meta is that it will weed out the bad ads before they ever get to Meta.
The company makes another big bet by filling users' feeds with content from accounts they don't already follow. The idea is to suggest new content to people who haven't asked for it. About 15% of the content in a user's feed is from accounts they don't follow on Facebook The proportion will increase by the end of next year.
Every video that is less than 15 minutes in length will be branded a reel. It will be eligible for distribution if it is made by a public account and lasts less than 90 seconds. Artificial intelligence tools that can better identify users' interests and the content they'd be interested in is a priority. Even as it cuts back on spending, the business will still invest in places.
If an advertiser hits the right notes, the success isn't always repeatable. Natalie Silverstein said that the speed at which the tone changes is head spinning. A month ago it was fine, now it's cringeworthy.
If marketers don't take the plunge into the new format, they could lose access to Meta. "We just need to push through this one," he said.
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