Facebook Inc. FB -1.07% could pay $40 million to settle a lawsuit from advertisers over miscalculated video metrics.
The legal battle began in 2016 after Facebook disclosed it had incorrectly calculated the average viewing time for video ads on its platform. For two years, the tech giant had only counted video views that lasted at least three seconds, ignoring those of shorter durations and artificially pushing the average length of a view higher. Facebook said it discovered the problem only a month before going public with it.
A group of small advertisers sued in California federal court, alleging that Facebook engaged in unfair competitive practices by providing inaccurate information. The plaintiffs later added claims that Facebook knew about the incorrect metrics long before it ultimately fixed them and that the error was larger than what Facebook told some advertisers.
The legal battle centered on how much the inflated metrics impacted advertisers’ businesses and the claim that Facebook knew about the inaccuracy of the information sooner than it had admitted.
Facebook argued that the impact was minimal because the company doesn’t bill advertisers based on video watch time.
The plaintiffs disputed that, calling average viewing time a common indirect barometer to guide ad-buying decisions: Clients would want to spend more on the video ads that people were actually watching.
“Video completion rate is still the reigning king out there from a [key performance] perspective, but watch time is absolutely one of the indicators that clients look at for business performance,” said Kait Boulos, vice president of marketing for Varick, an ad agency owned by MDC Partners Inc. “Marketers want to understand what percentage of people watched for the first quarter, half or even three quarters of a video.”
Under the terms of the proposed court settlement, Facebook would acknowledge it made an error in calculating its metrics but wouldn’t admit to any other allegations.
“This lawsuit is without merit but we believe resolving this case is in the best interests of the company and advertisers,” a Facebook spokeswoman said in a statement.
Attorneys for the plaintiffs declined to comment.
If approved, Facebook’s penalty will cost the company the $40 million settlement. But the case doesn’t seem to have damaged the continuing growth in its advertising business. In the second quarter of 2019, Facebook generated more than $16.6 billion in ad revenue, up 28% year over year. Facebook and Alphabet Inc. -owned Google are expected to account for 60.9% of U.S. digital ad revenue in 2019, according to eMarketer.
“This is a recurring theme that we keep seeing: Facebook gets called out on something, but marketers continue to use the platform,” said Ms. Boulos. “It does not seem that we’re close to any straw breaking the camel’s back in terms of something hindering or pushing marketers away from the platforms.”
Write to Sahil Patel at [email protected]
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