Making money the next frontier for video sites

16 Jan 2007

By 2010 more than half of all online video content will be user-generated, analyst firm Screen Digest has predicted, but just 15pc of online video revenues will come from this source.

Already user-generated video, as posted on popular sites like YouTube and MySpace, accounts for 47pc of the total online video market in the US, with Screen Digest expecting this to rise to 55pc, representing 44 billion video streams, by 2010.

Screen Digest has forecast that advertising will make up the bulk of revenue for user-generated sites in the future. In the US it predicted that in the user-generated online video (UGOV) market revenues will grow from US$200m in 2006 to US$900m by 2010. However, this will still account for just 15pc of all online video revenue.

Screen Digest has warned that site owners and advertising agencies could struggle to find a cost-effective way to place relevant advertising on millions of different videos, saying that at present the market is at a “trial and error” stage. The possibility of UGOV sites losing the ‘cool’ factor as mainstream advertising infiltrates personal video sites is also a possibility, the firm said.

Screen Digest senior analyst and author of the UGOV report Arash Amel commented: “2006 was a phenomenal year for UGOV, with exceptional growth in the number of UGOV streams and with Google’s US$1.6bn acquisition of the 18-month old YouTube. At the same time, it’s also proving rather difficult for UGOV sites to monetize their video streams.

“As yet, no one has found a way to make real money from the huge audiences who participate on these sites. UGOV will drive the majority of internet content consumed in the future but despite its huge popularity with web surfers worldwide the major players have yet to find a way to generate significant revenues from it.”

He said that UGOV sites will need to diversify in order to survive and differentiate themselves from the market leaders YouTube and MySpace. “With the dominance of YouTube and MySpace Video, smaller sites are going to need to offer something different. Emerging alternative offerings include online editing, revenue sharing with content producers and hybrid services that offer both premium and user generated content.”

According to Screen Digest, there are five business models currently being used to make money from UGOV: advertising, content licensing, D commerce (digital sales and rental of premium movie and TV content), subscriptions and technology licensing.

By Niall Byrne