Twitter Makes Bet on Videos to Boost Ad Revenue

Updated with comments from Jim Cramer.

NEW YORK (TheStreet) -- By allowing users to access and upload auto-playing videos and animations on their time lines, Twitter (TWTR) is trying to prove to advertisers there's value in its service.

Whether that happens, though, remains to be seen.

With this new move, it is clear that Twitter is going after an even larger slice of the exploding spending in the mobile-ad market, which could top $100 billion worldwide for the first time next year, according to market-analysis firm eMarketer.

Mobile users accounted for about 80% of Twitter's user base as of the first quarter. Mobile advertising is the core of Twitter's business, making up 88% of its $436 million in revenue in the quarter.

The new auto-playing feature, which has been in beta testing with limited rollout for most of this year, allows users to see moving videos and animated GIFs when they scroll through their time lines, albeit muted for sound. When users click on such selections, videos will enter full-screen, audio-enabled mode. Users can also interact with this new content by retweeting, making it a favorite or commenting as they do with other tweets.

"It isn't about video, it is about ease of onboarding and event-following that would bring back the growth," said TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio. "Just go all @Sacca and it will happen." 

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Twitter is clear that as much as it hopes to further engage its users, the move is a way to boost the advertising value of its service.

Adam Bain, Twitter's president of global revenue, said in tweets last week the company has found in tests that consumers have better recall of video using the auto-play function. The company "saw a significant 14% lift in video recall over other video formats," he wrote.

Advertisers will be charged every time a video is expanded to full-size view for more than three seconds, and such views will also be confirmed by third-party verification. According to Bain, that "makes a Twitter Promoted Video campaign one of the highest quality views, if not THE highest quality video view in the industry."

This year, 30% of global ad dollars will be spent online, up 5% from last year, with the highest penetration in the demographic of 12- to 44-year-olds, according to eMarketer. Those groups also represent a 59.2% audience share, with market penetration ranging from 88% to 96%, and the pattern will persist for at least the next four years.

But there is another, parallel trend afoot that could make Twitter more important as a highly targeted, advertising-supported, free-viewing broadcasting platform.

The market for online-video ads could be a $14.38 billion industry in the U.S. alone by 2019, according to eMarketer's latest report, "Q1 State of Video Monetization, Audience, Platforms and Content." This comes as traditional TV viewing continues to decline and digital is no longer thought of as the "second screen." The research firm also notes that overall TV viewing dropped at least 9% in each of the last three quarters, and audiences in the first quarter were down by about 12%.

The Cable Television Advertising Bureau reports that cable viewing is down as much as 40% overall because of subscription streaming video services.

Furthermore, eMarketer's analysis shows paid subscriptions are not necessarily where the money is -- or where it is going. "Despite a flurry of first-quarter activity on the subscription front, advertising accounts for the lion's share of digital video revenue and will continue to so in the foreseeable future," according to eMarketer's report.

The scope of the market at stake, and Twitter's clear bid for a large piece of it through new features, made many analysts shake off the news that Twitter is now looking for a new CEO.

Brean Capital analyst Sarah Hindlian reiterated her buy rating on June 12 with a price target of $55. "We believe that a replacement CEO may be able to better define Twitter as an event-driven platform, attract larger branded advertisers, and respond more rapidly to changes in the marketplace," she wrote.

But not everyone believes Twitter is poised for dominance as a monetized advertising platform in this new market, and there is a lot of competition from Google (GOOG) and others.

According to Jehoshua Eliashberg, a professor of marketing at Wharton, the battle is now on for commandeering market share of mobile advertising and livestream video spending, and Twitter is not necessarily slated to come out the winner.

"We are still at the stage where live-streaming services are experimenting, and I do not see at this point any clear winning business model," he said.

 

  This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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