Facebook, Corporate Bad Actor

The logo for Facebook appears on screens at the Nasdaq MarketSite, in New York's Times Square,  Thursday, March 29, 2018. (AP Photo/Richard Drew)
Richard Drew/AP

Here is a story about an on-going lawsuit by a group of advertisers against Facebook. It all seems fairly technical and distant from most of our concerns. But it’s actually something that has had a huge impact on the evolution of the news publishing industry over the last few years, and something that seems to have been based in large measure on Facebook’s fraud.

In other things I (or others) have written about the publishing industry, you’ve probably heard about the so-called “pivot to video.” It’s actually become something like a cliche or a meme, a craven shift digital publications made toward replacing text with video before failing in the effort and in many cases going out of business.

There’s a complicated backstory to this phenomenon. It’s mainly about declining digital advertising rates for news publishers and those publishers’ frenzied efforts to find other more lucrative sources of ad dollars. Facebook played a critical role in this story on a few different levels. First, they’re one of the social platforms which has gobbled up an ever-growing percentage of ad dollars – both taking up a bigger percentage of dollars and driving overall rates down. But Facebook played a more specific role too.

Advertisers believe that video advertising – mainly television ads – are simply more valuable than most other kinds of advertising. They may be right. But that’s besides the point for the present discussion. The relevant point is that this belief is deeply embedded in the advertising industry. So if you can show video ads on websites that’s really valuable in advertising dollars terms. The ability to show video ads and have people watch them almost necessarily means having video programming that people are interested in watching. What all of that comes down to is that if you can publish video on the web and do it successfully you can make a lot of money.

The problem has always been that it’s really, really hard to get people to watch video on the web, certainly at anything like the scale that would make the higher ad rates meaningful. There’s Netflix of course. People watch sports telecasts. In a way, there’s lots of video on the web. But those are really different businesses. If you’re in publishing or news publishing it tends to be really, really hard. People aren’t terribly interested in getting their news in a video package. Digital publishers have been trying to crack that lock for more than a decade. It’s very hard.

Fast forward to the last few years when declining ad rates for publishers have squeezed the whole industry. Publishers were desperate for new buckets of ad dollars. That put advertisers in a very strong position to basically say, if you want our ad dollars, come up with video that people will watch or that you can force them to watch. That was a tall order but publishers were desperate. Someone had figured it out, though: Facebook. People were watching lots of video on Facebook. They watched it. They watched till the end. It all seemed to work.

That had two huge consequences.

One consequence was that a flood of ad dollars went to Facebook. But it also served as a powerful proof of concept. If Facebook had figured it out others could too. A third possibility was that your publication could create videos designed to be shown primarily on Facebook. In this span of years hundreds of millions in VC dollars was going to start-ups designed to do just that. Facebook had figured it out even if you couldn’t. Each version of the trend amounted to the same thing. The journalism money was in video.

There was just one problem. It wasn’t true. Facebook was dramatically exaggerating how many people watched their videos and how long they watched them. This is not new information. This came out in 2016. At the time my colleagues and I laughed because they called it a “discrepancy”. Calling this a “discrepancy” is a bit of a stretch. In the advertising world, reporting metrics are the currency, almost literally. If you’re a lawyer and double bill your hours for years, that’s not a discrepancy. It’s fraud, certainly if you’re doing it intentionally. The key was that Facebook was so big that they had largely gotten away with generating their own metrics. They didn’t have to submit their numbers to any kind of third-party verification. What this lawsuit now alleges is that Facebook knew for roughly a year that their numbers were wrong before they told anyone. If that’s true, that’s a big, big problem.

If anything I think this understates the problem. Many of Facebook’s advertising metrics are self-serving because they make them up themselves. But here there’s a credible allegation of fraud, which really would be like my example of a lawyer double-billing clients.

It is difficult to overstate the effect this all had on the publishing industry. This wasn’t solely do to Facebook’s fudging. It was part of a larger sequence of events, the most critical of which are the foundational challenges of ever declining ad rates. But Facebook’s phony numbers played a huge role as well, suckering numerous publishers into a self-destructive pivot to video which either wasted time or money and in not a few cases drove publications out of business entirely.

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