Meta's short form video feature Reels has a $3 billion annual revenue run rate across Instagram and Facebook, chief executive Mark Zuckerberg said during the company's earnings conference call on October 26.
Reels has been a key engagement lever for the social networking giant as it competes with rivals such as TikTok and YouTube Shorts amid rising consumption of short video among users worldwide.
That said, monetising Reels is crucial for Facebook's parent company, as the company is in the process of shifting its products toward short-form video in response to increasing video consumption on the platform. In July, Zuckerberg announced that Instagram Reels had reached a $1 billion annual revenue run rate.
This development also comes at a time when the social networking giant is grappling with a revenue decline for two straight quarters for the first time in the company's history, owing to a sluggish digital advertising market, and is expecting a revenue drop in the ongoing quarter.
Plans to close the monetisation gap
Meta expects Reels to be a big money spinner in the long term, but it will pose a challenge to the company's revenue growth in the near term, since video has traditionally been slower to monetise compared to other formats. During the call, Zuckerberg reiterated his earlier comments stating that Reels doesn't monetize at the same rate as feed or stories format.
"That means as Reels grow, we're displacing revenue from higher-monetising surfaces. I think this is clearly the right thing to do so that Reels can grow with the demand we're seeing, but closing this (monetisation) gap is also a high priority... We want this to be a tailwind, not a headwind" Zuckerberg said.
He said the company is "choosing to take more than $500 million quarterly revenue headwind" with this shift, despite the progress they have made so far and expect to get to a "more neutral place" over the next 12-18 months.
Read: Meta to 'dramatically' slow hiring, keep headcount growth flat till the end of 2023
Zuckerberg believes its efforts and investments are bearing fruit since the feature is witnessing strong growth across its apps, both in terms of users creating short videos and consuming them and is also helping increase the time spent by users on its apps.
There are now more than 140 billion Reels plays across Facebook and Instagram on a daily basis, registering a 50% increase from six months ago. People also reshare Reels one billion times through direct messages on a daily basis on the Instagram app alone, he said.
"We believe that we're gaining time spent share on competitors like TikTok," Zuckerberg said.
Major redesigns
In recent months, Meta has introduced significant redesigns of Facebook and Instagram with a greater emphasis on algorithmic content recommendations, powered by its artificial intelligence-based discovery engine.
"Our AI discovery engine is playing an increasingly important role across our products -- especially as (AI) advances enable us to recommend more interesting content from across our networks in feeds that used to be primarily driven just by the people and accounts you follow," Zuckerberg said.
Reels, which are algorithm-driven and are devoid of the user's social graph (which depicts the social interconnections and relationships between users), has been a key strategy with this discovery engine.
The company has previously said that short-form video is the biggest contributor to engagement growth on Instagram and one of the largest contributors to positive engagement on Facebook.
During the call, Meta's chief business officer Marne Levine said they are also focused on making sure that businesses get a strong ROI (return on investment) on Reels.
Earlier this month, the company said that they are testing a series of ad formats for Reels. These include "post-loop" video ads that can be skipped after 4–10 seconds and stand-alone video ads that play after a Reel ends, as well as "carousel" ads at the bottom of the Reel that can display anywhere from 2 to 10 image ads.
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