Facebook Inc.'s rapid growth has been tightly linked to convincing advertisers that people are watching more videos on its social network. Now the company is disclosing it has been giving marketers an inflated number for the average time being spent viewing online clips.
The revelation that Facebook overstated the key metric angered advertisers and could undercut the giant social network's growing efforts to lure lucrative video advertising.
"The metric should have reflected the total time spent watching a video divided by the total number of people who played the video. But it didn't - it reflected the total time spent watching a video divided by only the number of 'views' of a video (that is, when the video was watched for three or more seconds)," David Fischer, vice president of business and marketing partnerships, wrote in a Facebook post.
The Wall Street Journal reported Thursday that Facebook told advertising buying agency Publicis Media that the video metric had been overstated by between 60 per cent and 80 per cent.
A letter Publicis Media sent to clients, reviewed by The Wall Street Journal, said: "Two years of reporting inflated performance numbers is unacceptable."
The misstep could renew calls for an independent metric to understand what advertisers are getting for their money.
"As soon as we discovered the discrepancy, we fixed it," Mr Fischer said "We informed our partners and made sure to put a notice in the product itself so that anyone who went into their dashboard could understand our error."
After reviewing other metrics, Facebook concluded that the error had no impact on video statistics the company has shared in the past, such as time spent watching video or the number of video views, according to the statement.
The disclosure may hurt Facebook's effort to get marketers to augment television campaigns, which carry the largest budgets in advertising, with clips on its social network. The metric Facebook has been giving advertisers doesn't include the roughly 80 per cent of people who don't watch online videos at all, or quickly browse past them, according to Rob Norman, chief digital officer at GroupM, an advertising company.
"Nobody is saying Facebook is defrauding anybody, but what they are doing is giving specific measurements which some people may find misleading," Mr Norman said.
Facebook's stock fell 1.6 per cent to $128.04 at 9:57 am in New York. The stock had gained 24 per cent this year through Thursday's close.
How to classify online video consumption is important to marketers and has long been a source of contention in the industry, Mr Norman said. Figures that show people are, on average, spending a longer-than-expected amount of time viewing an ad may lead a brand to budget more because it shows potential customers are paying attention.
"If you get a report that says your reach on television was 70 per cent of your audience, and that by adding Facebook you're reaching 80 per cent of your audience, you may spend more," Mr Norman said.
Martin Sorrell, chief executive officer of WPP, the world's largest advertising company, said Facebook's miscalculation increases the need for an independent body like ComScore Inc. to play a bigger role in overseeing important metrics.
"We have also been calling for a long time for media owners like Facebook and Google not to mark their own homework and release data to ComScore to enable independent evaluation," said Mr Sorrell, whose company owns GroupM and has invested in ComScore. "The referee and player cannot be the same person."
Facebook disclosed the issue in a posting on its advertiser help centre web page several weeks ago. Big advertising buyers and marketers are upset about the inflated metric, and asked the company for more details, according to the report in the Wall Street Journal, which first reported the metric issue.
Facebook's publishing partners are affected by the error as well. News outlets like The New York Times are under increasing pressure from advertisers to prove that their online videos are actually seen by readers for more than a split-second. If Facebook's data about video viewing is inaccurate or incomplete, those companies may decide to put more videos on other platforms like YouTube. However, Facebook has become such a dominant source of traffic for publishers that they may have little choice but to accept Facebook's mistake and move on.
The social network, which has more than 1.7 billion users, has been making video a centrepiece of its strategy, and its robust growth in mobile advertising has been driven by strong demand for video spots. Chief Executive Officer Mark Zuckerberg said in July he wants Facebook to be a "video-first" company - and the news feed is likely to be mostly video in a few years.
Facebook's executives are set to meet with their top advertisers in New York next week during the Advertising Week conference.