July 31 (Bloomberg) -- Facebook Inc., seeking to break the long-held dominance of television over advertising budgets, plans to sell TV-style commercials on its site for as much as $2.5 million a day, two people familiar with the matter said.
The world’s largest social-networking site, which has 1.15 billion members, expects to start offering 15-second spots to advertisers later this year, according to the people, who asked not to be named because the plans aren’t public. Facebook rose above the $38 initial public offering price in early trading.
The move would follow efforts by Facebook’s online rivals to capture ad dollars that have traditionally gone to TV networks. Google Inc. began funding original content channels on its YouTube video-sharing site in recent years, giving it a more curated venue for commercials. A year ago, AOL Inc. started HuffPost Live, a CNN-like video stream running five days a week.
With Facebook, the idea would be to capitalize on the millions of users who actively check the site on a daily basis, including during the prime-time hours coveted by television advertisers. As of last quarter, 61 percent of Facebook members were using the site daily -- a number that has risen despite management predictions that it would decline.
“Every night, 88 million to 100 million people are actively using Facebook during prime-time TV hours in the United States alone,” Chief Operating Officer Sheryl Sandberg said last week on a conference call about second-quarter results.
Elisabeth Diana, a spokeswoman for Menlo Park, California-based Facebook, declined to comment on its advertising plan.
Optimism over Facebook’s advertising prospects has helped the stock rebound after dropping as much as 53 percent below the $38 price of its May 2012 initial public offering. The stock fell 2.2 percent today to $36.80.
While the social network already allows advertisers to upload videos to their Facebook page and then broadcast them to a user’s news feed, the new service would let marketers buy their way directly into a person’s feed with a 15-second pitch, according to the people. That’s typically the minimum length of a television commercial.
At 15 seconds, the ads also would be the same length as Facebook’s Instagram videos -- a feature that was added to the company’s photo-sharing service last month. That means the commercials would come in a familiar format for users.
The commercials will initially be sold on a full-day basis and can only be targeted to users based on age and gender, according to the people. That would be a break from how ad units are currently sold on Facebook, which lets marketers target ads based on location and areas of interest -- data points that television networks generally don’t offer. By relying on fewer categories, Facebook is mimicking the way television ads are purchased, an attempt to make the process more comfortable for executives accustomed to TV, the people said.
Facebook members won’t see a commercial more than three times in a given day, the people said. Depending on how large an audience an advertiser plans to reach, the ads will range in price from $1 million to about $2.5 million a day, according to the people.
Chief Executive Officer Mark Zuckerberg, who has been working with global marketing head Carolyn Everson on the video ad service, pushed back the start date at least twice, wanting to make sure Facebook’s user experience won’t be tainted by the ads, according to the people. Zuckerberg wants high-definition video and easy-to-use playback features, the people said.
Zuckerberg said last week that he’s sensitive to how users react to advertising in general. He plans to limit the amount of ads people see to about one for every 20 updates. That would comprise about 5 percent of a user’s news feed.
“One of the things I watch most closely is the quality of our ads and people’s sentiment around them,” Zuckerberg said. “We haven’t measured a meaningful drop in satisfaction.”
Even so, television remains the undisputed king of the ad world. Advertisers plan to spend almost twice as much on television as on digital media this year, according to ZenithOptimedia, a research unit of Publicis Groupe SA. Internet ads are expected to reach $36.2 billion, or 22 percent of all media purchases, while TV advertising will garner $63.9 billion, or 38 percent.
Facebook’s move also would step up competition with social-networking rival Twitter Inc., which has been courting TV advertisers in its bid to reach $1 billion in sales by 2014. Earlier this month, the microblogging site expanded a service that markets direct promotions to viewers who tweet about shows they’re watching on television.
Twitter also has built partnerships with television networks such as Walt Disney Co.’s ESPN; Viacom Inc.’s MTV and Nickelodeon; and Time Warner Inc., owner of TNT, TBS and CNN. The agreements let the company stream videos on its site and split the resulting ad revenue with the networks, a person familiar with the matter said earlier this year.
Silicon Valley companies have had difficulty luring away ad dollars from television networks because of a lack of a single measurement system that compares TV audiences directly to Internet audiences. Figures from measurement companies such as ComScore Inc. are difficult to compare against ratings from Nielsen, the dominant firm for measuring TV ratings.
Nielsen started working with Facebook three years ago on an effort to count Internet viewership the same way it does with television. Nielsen relies on Facebook’s user data to create ratings measurements for online content, whether it’s an ad or a TV show streamed over the Internet.
Facebook sees the Nielsen partnership as a boon in its effort to sell more video advertising, an executive familiar with the plans said. Advertisers will be willing to spend more if they’re able to present comparable Nielsen ratings figures, the person said.
In a separate report released today, Nielsen found that Facebook attracts more 18- to 24-year-old people during prime-time viewing hours than any of four major television networks.
To contact the reporter on this story: Edmund Lee in New York at email@example.com