July 31st, 2006

Who Will Make Money with User-Generated Online Video?

by

If you thought the social networking market was frothy, online video is rapidly expanding to fill all the bubble space. Jeff Jarvis observed that YouTube has now surpassed MySpace on Alexa (at least in reach) and speculates on who might buy YouTube — he also invited me to comment, and I’m going to take up the challenge by focusing on my favorite obscure corner of Web 2.0 — business models.

In particular, I’m going to focus on business models that reward the “users” who everyone is depending on to “generate” all this video “content.” The following list of business models is by no means comprehensive, but it’s indicative of the rush to figure out how to make (or in some cases lose) money:

1. Attention

Attention has been the most successful form of currency for user-generated online video to-date, which has rocketed YouTube to stardom, and has prompted everyone from Google to Grouper — and now AOL — to get in on the game — even the venerable CNN wants in on the user-generated content action. Of course, CNN is not offering “attention” so much as a chance to participate in “journalism”:

User-generated content has the potential to play a pivotal role in journalism whether it’s online or offline,” Mitch Gelman, senior vice president and executive producer for CNN.com.

The quest for attention has also been the key driver of the social networking explosion, at MySpace above all.

My standing question here is how long users will be satisfied with attention as the only form of recompense — especially since YouTube changed its terms of service to exert more ownership over uploaded content:

“…by submitting the User Submissions to YouTube, you hereby grant YouTube a worldwide, non-exclusive, royalty-free, sublicenseable and transferable license to use, reproduce, distribute, prepare derivative works of, display, and perform the User Submissions in connection with the YouTube Website and YouTube’s (and its successor’s) business… in any media formats and through any media channels.”

2. Advertising revenue sharing

Revver has been a high-profile innovator with this model, offering to share 50% of advertising revenue with users that submit videos.

3. Subscription revenue sharing

LuLu.tv’s approach is to get users to contribute a fee to a collective pot, which will be doled out to users proportional to how often their videos are viewed.

4. Free bandwidth in exchange for advertising

Red Swoosh’s approach shines a spotlight on one of the key issues for YouTube — the high price of bandwidth. Red Swoosh uses P2P technology to provide essentially free bandwidth — in exchange, Red Swoosh delivers pre-roll ads in any “swooshed” videos. Users can pay for a “Pro” account with no ads.

Red Swoosh appears to be anticipating a moment when successful content creators will start to eschew YouTube and its lack of rights and revenue sharing.

So who will be the winner in the user-generated video game? Just as MySpace is having trouble monetizing its huge sea of user-generated content, I think YouTube and others that traffic in the “America’s Funniest Home Videos” category of online video will continue to get A LOT of attention:

YouTube Vs. Other Online Video

BUT they may be be hard pressed to monetize it. There’s no real premium on lip synching, stupid human tricks, and soft core porn videos, and advertisers will eschew this kind of content in video the same as they have on MySpace.

I think the real winners long-term will be platforms that enable a new generation of content producers to break free from the old media content hierarchy and make money from their creativity. As Umair reminds us, it’s all about enabling creativity.

It’s not just content creation and distribution that will be democratized — the business of content will be democratized as well.

As to the question of who might buy YouTube, Rupert Murdoch has certainly shown a willingness to value online properties based on audience size rather than business models.

  • Great post!

    I've been thinking a ton about what business model will unlock consumer generated media long-term (not, the flavor of the week). Looking at the past's biggest winners online I see names like Google, Overture/Yahoo, and eBay -- all businesses that monetize content in a marketplace fashion. Although they are toying with a variety of hosted-content plays, their core revenue/profits flow from taking a cut of marketplace transactions for advertising or goods/services.

    Therefore, I've been searching for THE marketplace for consumer generated media. It isn't hosting-centric players like YouTube, MySpace, Revver, Flickr, Blogger, TypePad, WordPress or FaceBook; but it should unlock value for users of all of those. The closest platform I've found is PayPerPost -- if you can get past the knee-jerk reaction that people are driven to post for money, not self-expression. I believe self-expression is the key to consumer generated advertising and allowing people to monetize what they already do. Interestingly, monetization may help increase the quality and quantity of self-expression, but the driver of CGM will always be sharing your opinions/experiences/talents.

    Whether you agree or disagree, click my sig-digg and I'd love to hear whether the future of CGM includes organic and sponsored content; and whether the best positioned business model is NOT hosting-based, but instead leverages a marketplace for buyers and sellers of CGM to transact with each other.

  • Excellent piece. I've made decent money on Revver ($2000) and Metacafe ($2200). And I've started to experiment with Eefoof. But Lulu.TV was new to me.

  • To be clear, in Ponzi schemes you *only* get paid when you induct new members. In this case, you get paid on every click (i.e. it's merit based), and you can affect the outcome (i.e. change your odds), so it's not gambling either. It's more like a co-op.

    And "other options with no cost of entry do not pay creators", and they end up with a mess of shoddy videos, porn ads, and copyright abuse.

    If they do pay creators, they do so with ads. Ads create site clutter, bother users, and bring one more voice into the editorial flavor of a site. (e.g. an advertiser likes to decide what video their ads play with/near or not).

    That said, we do have a free membership. Free users can upload and share all they want, they just can't get paid.

    Maybe we'll figure out a way to get money in the co-op that's not from creators. Say from user donations, or monthly site patrons/sponsors.

    Thanks for blogging about us!
    --jeremy

  • Mark, I too am skeptical of Lulu.tv's model -- there's a Ponzie scheme aspect too it, and there are too many other options with no cost of entry.

    John -- many thanks, I'm honored -- you're not the first to think I'm a slob.

    Brian, I don't know if YouTube will adopt the exact same model as Revver, but I do think that they need to create a revenue sharing platform if they want to keep the content that actually has the potential to generate revenue. I agree that Red Swoosh's that the viewer install software is a tough proposition -- it all depends on how much the viewer WANTS to view the content.

  • You Tube's license to use your content terminates as soon as you withdraw the content from the site, which virtually eliminates You Tube's ability to use the content in any other medium. I bet they will be cutting online syndication deals though.

    Scott, don't you think You Tube has little choice other than to adopt Revver's model? How else can you monetize that content and crowd without alienating the content producers?

    Also, thanks for the link to Red Swoosh... hadn't seen that. Given the fact that Revver provides free hosting AND 50% of ad revenue, plus the fact that Red Swoosh requires an install by the viewer, the concept seems dead in the water to me at this point. Maybe I'm missing something.

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