NEW YORK – Facebook said Tuesday that it's testing video advertisements that show up in its users' news feeds, creating another potential source of advertising revenue for the social network.
Under the plan, the advertisements automatically start playing without sound when they appear. Users can click on a video to view it with sound, or scroll past it if they're not interested.
Facebook said it's been testing the silent auto-playing videos for video content shared between Facebook users since September, and has seen a 10 percent increase in the number of videos watched, liked, shared and commented on.
Investors appeared to give the plan a thumbs-up, as they lifted Facebook's shares to an all-time high of $55.18 on Tuesday morning. The stock pulled back to $54.67 in afternoon trading.
Facebook said the new format will allow its advertisers to reach a large number of people in a short amount of time, while also improving the quality of advertisements its users see in their news feeds.
Facebook needs to proceed with caution. While people have grown accustomed to video ads online, Facebook is a place where users commune with friends and family and is often perceived as a more personal setting than other websites where video ads may not be seen as intrusive.
The Menlo Park, Calif.-based company emphasized that the idea is still in the testing phase and that it's not currently selling video advertisements. The company wouldn't disclose pricing, but said its goal is for the test feature to become a premium advertising product designed to reach a large audience at specific times.
Meanwhile, advertising spending continues to rise. According to research firm eMarketer, spending on digital video advertising will more than triple from 2012 levels to $9.42 billion in 2017, though that pales in comparison to the TV advertising market which is expected to reach $75.25 billion by the same year.
Citi analyst Mark May backed his "Buy" rating for Facebook's stock, noting that the video ad effort was expected and could add more than half a billion dollars to the company's revenue next year and up to $1 billion by 2016.
As part of the test, Facebook said it's partnering with Summit Entertainment to show a series of videos related to its upcoming film "Divergent" to a small number of Facebook users Thursday.
Facebook noted that for mobile users, the advertisements are preloaded only when the device is connected to wireless Internet and will not consume additional data. No sound will play unless a user clicks or taps on the video.