Meta’s watch gets Tiktok

ByteDance Limited’s Tiktok Meta Platforms Inc. It has proved to be such a fierce competitor that it mentioned the short-form video platform five times on its February earnings call. The company that essentially invented social media now has to meaningfully alter its playbook to remain dominant in the game, possibly with lasting financial consequences.

, Meta launched Reels globally in 2020 on Instagram and earlier this year on Facebook. The company said last month that reels was its fastest-growing content format “by far” and was already the biggest contributor to engagement growth on Instagram. While the reels are helping slow user attrition, investor attrition is another matter: Meta’s stock is down by a third this year.

TikTok, which last year said it had reached one billion global users, is still early in its monetization efforts, formally launching advertising on its platform in 2020. Reel is the first, and is still prioritizing user engagement over ad dollars. , Today anyone can scroll through six or seven reels on Instagram without any ads; But you’ll only run into an ad after two Instagram Stories or Feed posts.

While Reels’ ad load is expected to increase over time, its ads may never be as prevalent as some of the more mature formats of meta have become. Morgan Stanley’s Brian Nowak estimates that Reel could still earn 45% less than core Instagram and Facebook by the end of next year.

Positively, Meta recently said that ads on Stories are finally monetizing at the same level as its feed ads in certain geographies, suggesting reels may become more valuable over time. However, there may be additional costs. To attract quality content in an already competitive space, Meta says it will offer its reel makers a revenue share on certain ad formats like overlays and stickers.

How much Meta will ultimately have to offer creators may be a function of how fierce the competition really is in short-form videos. Mr Novak of Morgan Stanley estimates that Reel will be subject to sharing 40% of ad revenue with creators and the company will pay them a generous 55%, which is in line with what YouTube has paid and what Meta has said. Paid in the past with Facebook Watch and Instagram’s IGTV. UBS’s Lloyd Walsley thinks it will be too little. He says that creators are accustomed to earning the bulk of their profits from sponsorship rather than revenue-sharing, and that sponsorship widely requires building a large and diverse audience they can receive across different platforms.

Meta has clarified that using reels will initially reduce some engagement on high-monetization formats such as Newsfeed and Stories, but expects overall engagement to increase, leading to increased ad revenue over time. Instagram this week announced a slew of new messaging features to make the platform more attractive for its users to spend longer periods of time. But it may have its work cut out for it: While Instagram grew its audience by becoming a fresh, cool face in dedicated photo sharing, the reels feel like a photocopy of an existing video app slapping a meta platform.

It looks like Meta has reached its expiration date, with many users ready to move to the new, shiner platform. The risk is that its short-form video products fail to make for a financial highlight reel.