Dive Brief:
- Facebook is denying new filings brought Tuesday in an ongoing lawsuit by advertisers around its handling of faulty video advertising metrics, Ad Age reported. The new filings in California federal court allege that the social network didn't address issues around the reporting errors or communicate them with its partners quickly enough.
- The group of advertisers filing suit claim that Facebook knew about the viewability miscalculations as far back as January 2015. Facebook informed its customers and partners about the miscalculations in September 2016. The degree of viewability inflation is contested as well. In the fall of 2016, Facebook suggested it overestimated view times by as much as 60% to 80%, with faulty reporting dating as far back as 2014. However, some plaintiffs allege average view times on videos were inflated by as much as 900%.
- The metrics errors didn't affect the amount of money brands were billed for advertising on Facebook, but the lawsuit claims that the skewed picture of video views "induced" businesses to purchase a greater volume of video ads on the platform, per The Wall Street Journal, which reported that the plaintiffs include marketing agency Crowd Siren and Pennsylvania resident Jonathan Murdough. In statements to Ad Age and the Journal, Facebook representatives called the lawsuit "without merit" and said the company has filed a motion to dismiss the accusations of fraud. The spokesperson said that Facebook kept advertisers up to date about the metrics errors.
Dive Insight:
The new claims against Facebook, if proven true, show the company yet again failing to handle an internal error with proper transparency, which will come as another blow to the degree of marketers' trust in one of the world's largest digital advertising platforms. The issue ultimately isn't that Facebook was overcharging marketers due to inflated views, but rather that those inflated views made its platform appear a more valuable video viewing destination, which would, in turn, attract more advertising dollars. Facebook, including Instagram, is forecast to command 24.5% of all video ad spending this year at $6.81 billion and hold an 87% share of U.S. social media video ad spending, according to a recent report from eMarketer.
The suit also alleges that internal Facebook documents show the social network tried to downplay the severity of the issue. It started receiving inquiries from advertisers concerned about video metrics as far back as July 2015, according to the Journal. A Facebook engineering manager, in June the following year, wrote internally that "somehow there was no progress on the task for the year," per the complaint. Company documents quoted in the complaint suggest that Facebook's response was to "obfuscate the fact that we screwed up the math," per the Journal.
Initial news of Facebook's viewability shortcomings two years ago in some ways marked an industry turning point, being seen as helping to push major brands, including Procter & Gamble, to demand more third-party accreditation on their digital marketing metrics. Starting in 2017, P&G made it a requirement that all of its advertising partners receive third-party accreditation from the Media Rating Council in order to retain its business. Facebook committed to an MRC audit last year, which Ad Age reported is ongoing, and also partnered with more third parties on its measurement business.
But in the wake of the 2016 viewability controversy, the social network otherwise emerged relatively unscathed from a revenue standpoint. Facebook, however, is in a far different position today after being hammered for months by data privacy scandals, including Cambridge Analytica, along with mounting criticisms of its leadership.
The company is also experiencing a long-expected slowdown in revenue growth, which has been compounded by the safeguards now being deployed to protect users' data. On a call discussing Q2 results in July, company officials suggested that those privacy safeguards, such as giving users the ability to opt-out of third-party data sharing, could impede future growth.
Given these running concerns, the current lawsuit, while being brought by what Ad Age described as a small group of advertisers, could renew marketers' scrutiny into how transparently Facebook handles its marketing business if it continues to pick up traction.
Facebook is expected to report Q3 earnings on Oct. 30.
