Updated from Jan. 16 to include information from SunTrust analyst regarding premium video ad revenue.

SAN DIEGO, CALIF. (TheStreet) -- Pop the popcorn, get cozy, and settle in for a year of must-watch digital video drama as Facebook (FB) - Get Report makes a play to challenge Google's (GOOG) - Get ReportYouTube and steal the important advertising revenue.

Already, Facebook's videos--which like YouTube are uploaded by users--are massive and growing at a rapid clip. In November, 95 million Americans watched videos on Facebook from desktop computers, according to digital analytics company comScore (SCOR) - Get Report . In one year's time, Facebook has grown this audience by 44%, while Google, which had 162.2 million unique U.S. viewers in November, lost around a percent of its audience.

The social network is picking up ground quickly thanks to a three-part effort to pump more video into News Feed, make videos impossible to ignore, and work with premium advertisers on high-end, broadcast-like spots. In the past year, the amount of video in users' News Feed has more than tripled. To boot, in September, the company kicked its video efforts into high gear with auto-play videos that come to life in the feed, no click required.

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The timing couldn't be better.

Digital video advertising in the U.S. is expected to increase by 30.4% in 2015 to reach $7.77 billion, according to the latest projections from eMarketer. The firm estimates that YouTube will consume 20% of those advertising dollars, or $1.55 billion in net U.S. video ad revenue. It's not inconceivable to think that as users switch to watching more video on Facebook, that the ad dollars will follow.

Facebook doesn't break out revenue from video advertising, and, given the lack of insight, eMarketer doesn't have a forecast for the social network's nascent business -- Wall Street, however, has a few bullish guestimates of its own. 

RBC Capital analyst Mark Mahaney is projecting $700 million in revenue this year from autoplay video advertisements. Oppenheimer analyst Jason Helfstein's hypothetical video advertising scenario, as presented in the firm's Jan. 13 note, suggests Facebook could make between $1.7 billion and $3.3 billion if it ran one premium video ad every day.

SunTrust analyst Robert Peck estimates premium video ads could pull in $1 billion in revenue per year. "We think video ads will become a big business for Facebook," Peck said. "If recent trends are any indication we feel the potential of the scale and power of the Facebook platform is already having an impact."

Officially introduced in March of last year, Facebook's "Premium Video Ads" are 15-second, TV-style spots, with TV-like price tags, that auto-play in News Feed and expand into a full-screen view with sound on click. The high-end units offer top-tier advertisers reach to a broad swath of Facebook users at specific intervals during the day. The company is still working with a select group of number of advertisers, and, as COO Sheryl Sandberg noted in the third-quarter earnings conference call, is being "deliberate and slow" in scaling this business.

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Most recently, Facebook's video ambitions were seen in its infrastructure pickup of QuickFire Networks, a nuts-and-bolts kind of acquisition designed to help the company support a growing number of video uploads, and double or triple its 1 billion daily video views without a hiccup. QuickFire's name also just so happens to be the perfect term to represent the current state of the digital video market.

The buy is just one step in series of calculated steps the social network has taken in the past year to close the gap between itself and Google. And it's a move we should have seen coming. Facebook CFO Dave Wehner said during the third-quarter earnings call that one of the main reasons Facebook would be spending so darn much in 2015 -- as much as 75% more than it spent in 2014 -- is because of, you guessed it, video. "From an infrastructure side, we plan to invest to support the growth of the core business. That includes things like video," Wehner said.

That Facebook wants to own video is not a secret. During that same call with investors, Facebook chief Mark Zuckerberg included several mentions of the company's video efforts in his prepared remarks, a testament to video being a top-of-mind objective. He put video in the bucket of initiatives the company is working on to improve its core metrics and business.

"The investments we have made in video have also played a big part here," Zuckerberg said, with "here" referring to both a desire to host more public content and the company's three-year plan "to grow and serve our existing communities and businesses and help them reach their full potential."  

Later on during the call, he elaborated on his thinking around the relationship between public content and video:

One of the big things that we ... thought that there was a big opportunity in was public content, where it's content that people are either comfortable sharing with everyone or want to consume that is public and shared with everyone. So we're looking at a few different areas. Video is a very big priority. News is a very big priority, because a lot of people want to share that on Facebook already. And enabling public figures, whether they are celebrities, they are athletes, they are actors, or politicians or leaders in different kind of communities to get on Facebook and use the platform to distribute the content that they want. So those are the three areas that where -- that you'll probably see us investing the most in over the next year or so.

The topic proved a popular one during the question-and-answer portion of the call, with Zuckerberg adding this:

Most of the content on Facebook is things that people are sharing with their friends and the people around them. So I think we'll continue to see that in video as well. There's definitely the trend over the last few years where, if you go back five years most of the content was text. Now a lot of it is photos, and if you look in the future, as networks get larger and the ability to capture good video and share in a good way improves, then I think that going forward a lot of the content that people share will be video. It's just a very compelling.

In other words, video is not some distant objective like monetizing WhatsApp or connecting the rest of the world through Internet.org. It's a right-here, right-now priority that Zuckerberg has literally told Wall Street to watch -- and Wall Street is watching.

"For Facebook, we think video will be the next leg of social sharing and ad monetization, following the photo sharing wave over the last 4 years," Bank of America Merrill Lynch analyst Justin Post wrote in the firm's Jan. 12 report on U.S. Internet trends in 2015.

"We think video advertising has potential to increase both Facebook usage and ad monetization. If we assume video ads are more engaging and have 2x the CPMs of standard ads, each 10% shift in ad mix to video could have a 5% lift in Facebook's total revenues," Post wrote in a separate Jan. 5 note on Facebook.

Post is right. Video, as Zuckerberg sees it, is the medium by which Facebook can continue to grow its audience, improve engagement rates, and boost its advertising revenue. The social network has the stats to back it up too: more than 1 billion video views per day with 65% on mobile, and a viral video sensation that captured the world's attention.

"During the summer, the Ice Bucket Challenge drew more than 10 billion video views by 440 million people," Zuckerberg said on the conference call, "which is a good sign of how far our video product has come."

The video meme proves that Facebook has at least one leg up on YouTube as an environment more conducive to sharing. The ALS Ice Bucket Challenge typifies the difference between Facebook and Google's (GOOGL) - Get Report YouTube, eMarketer analyst Debra Aho Williamson wrote in the digital media analytics firm's December report on video advertising. "It showed that Facebook users were not only willing to upload video of themselves being doused with ice water, but also that they would use Facebook's sharing and tagging features to encourage others to view and participate," Williamson said. 

But to the real matter at hand: Can Facebook steal digital video ad dollars away from YouTube? 

The simple answer is probably not -- this year, at least -- even though it does have a powerful new weapon in video ad platform LiveRail. Purchased for a reported $500 million in July, LiveRail's programmatic video ad-tech should help the company improve the relevance of mobile ads. According to comScore, LiveRail served ads to 54.2% of the total U.S. population in November.

"As Facebook video becomes more pervasive it will be another reason why advertisers will look to Facebook for their advertising needs," Gartner analyst Brian Blau told TheStreet. "That will have some impact on YouTube, but I suspect that it will be more accretive as brands and advertisers add more video as part of their media campaigns." In the third quarter, Facebooks' advertising business rose 64% year over year to $2.96 billion, and expects total revenue will rise for the fourth quarter between 40% and 47%, which roughly equates to $3.6 billion to $3.8 billion. Analysts polled by Thomson Reuters are looking for $3.8 billion in revenue for the December quarter.

"While Facebook has grown quickly as a video platform, there are many reasons to think YouTube will continue to be a favored video advertising destination for marketers," Williamson said. "Facebook's entry could help grow the overall video market, rather than take away from YouTube."

Post has a similar view. "We believe Google's initiatives to monetize YouTube, Facebook's introduction of auto play video in news feeds, improving Twitter card video capabilities and increasing use of Hulu will be catalysts to drive online video advertising revenues in 2015," he said. "TV-style video advertisements surrounding semi-professionally produced content will likely be a rapidly growing ad format, in our view. Google (YouTube) is the top video site, followed by Facebook and AOL (Adap.TV)."

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By 2015, eMarketer forecasts that TV ad spending will reach $70.59 billion. There is some evidence to suggest that a material chunk of television ad dollars can migrate to digital video. It's possible, Williamson said, that marketers will dip more heavily into their TV budgets to fund video ads in social media. In October, Daryl Simm, CEO of media operations at Omnicom Group, told The Wall Street Journal that he is advising clients to move between 10% and 25% of their broadcast dollars to online video.

It's the explosion of the digital video market that has every major technology company, not just Google and Facebook, preparing for the Internet's next gold rush.

Twitter (TWTR) - Get Report , for its part, is quickly readying the release of a native video product to turn its network into more of a destination for video. The company runs two video ad products: Amplify, which tacks 6-second pre-roll video ads onto short TV clips from partners, and the beta Promoted Video unit, or Promoted Tweets that include advertisers' videos. The network has more real-time appeal than rivals, but is lagging behind in the digital video space.

"The company does not break out its video ad revenue, but the figure is likely only in the tens of millions of dollars," Williamson wrote in her video report. "In November 2014, Twitter said that four new ad formats (website cards, mobile app install ads, video ads and off-network ads) combined to generate $93 million in revenue in Q3 2014." 

As it stands, then, the real battle for digital video viewers attention and ad dollars and is between Google and Facebook. If the social network is to cut into the search giant's YouTube profits it will because its auto-play video ads return better results.

If advertisers notice positive results from video ads that play for a few seconds, then they will back that standard by buying more ads on Facebook, Williamson said. "However, if the ads do not perform as expected, YouTube and Twitter may be the beneficiaries of more spending."

Whatever happens, Facebook's assault on digital video makes for reality TV-style drama worth watching.

--Written by Jennifer Van Grove in San Diego, Calif.

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