No Money in UGC Video...Yet

SAN JOSE — Popular Web sites such as YouTube (owned by Google) and Hulu (a joint venture of NBC Universal and News Corp) have propagated the availability and accessibility of video content, much of it generated by users. With the entertainment value of online video firmly established, content providers say they're now ready to focus on its monetary value -- if only they were able to prove such a thing existed. One set of panelists at the 2009 User-Generated Content Conference & Expo, held here this week, mostly sidestepped the economics issue of online video, and chose instead to engage in a larger discussion about the roadblocks still hindering its growth. In fact, despite the session's title -- "Monetizing the Madness: Making Money Off Video Content" -- one panelist suggested that video is at least three years away from true monetization.

The far-off projection -- made by Richie Hecker, chief executive officer of BootStrapper, a business consultancy for startups -- was hardly an extreme view among the panelists. Nate Brochin, chief executive officer of online sponsorship provider Groupable, compared the state of online video to the counterintuitive business model created during the gold rush. "To get rich in a gold rush," he said, "you've got to sell the picks and the shovels." The metaphorical equivalent in the online-video industry, however, is an overcrowded market selling unproven online-video solutions to track and monitor the "gold" -- in this case, the video content itself. There's a lot of noise around the idea of online-video revenue, Brochin said, but in reality, "very little information [exists] surrounding how video gets monetized." The goal, he told the crowd, is to avoid the trap of last century's "30-second spot" passive mentality, and to create a new medium that engages through interactivity. Brochin predicted that, in time, "video will be used as a core monetization strategy without advertising as the core revenue generator."

Unfortunately, Hecker said, today's user-generated videos are, for the most part, "useless." Content creators, he added, need to realize that not all videos are monetizable -- in fact, most aren't worth the cost of the bandwidth they eat up on YouTube. The only money-making potential, he said, is in the aggregate: Seemingly random videos gathered together, bound by some common thread, to create "serialized and consistent [content] that's sponsorable."

The proliferation of video content is a result of inexpensive, easy-to-use equipment -- digital cameras, camcorders, and video-recording-enabled mobile phones. Moreover, user-friendly editing software available on personal computers empowers the average person to produce seemingly professional-grade content. Consequently, the line between premium and typical user-generated content becomes difficult to distinguish.

While that may seem like a window of opportunity in terms of content production, the challenge of monetization remains. Instead of paying millions of dollars to produce a commercial, why not pay a local high school student $1,000 to do the same thing -- in the process creating something that's actually perceived as more authentic by the target audience? "The spontaneous is more authentic [and] seems to be a more-organic part of the Internet experience," said Terry Balagia, chief executive officer of Snowball Media, a design and advertising agency. "Stuff that feels like television [is] interruptive, insulting. We don't want to see overpolished, overproduced [content]. We want to hear the truth." He went so far as to say, "The more rough it is, the more it resonates."

Other panelists disagreed, stating that the Internet is open to any message, across the full spectrum of technical quality. Measuring the "success" of any video comes down to accurately identifying the content's goal and its target, Hecker said. Even so, several panelists emphasized the power of content deemed "real" and "authentic."

Justin Connolly, a partner at entertainment business consultancy Really Useful Information, told the crowd that a community centered around authenticity will comprise the content viewers that return again and again -- and the ones most likely to pay for more. Fortunately, he added, advertisers looking to get into viral video without the overhead costs "have the advantage of a flat playing field." The low-cost level of entry translates into the ability to make better deals with sponsors. In the end, Hecker added, the laws of capitalism still apply: "Something's only worth what the brands are willing to pay."

Unlike traditional televised video content, today's technology enables companies and viewers to interact and learn more about each other. Balagia recalled the example of a Snowball Media clients that had a Web site requiring user-age verification. That one roadblock was causing 35 percent of visitors to come to a screeching halt. At Snowball's insistence, the client got a green-screen studio, a high-definition camera, and (with the site's all-male target audience in mind) an attractive woman to appear on the homepage to entice users to enter the required information. With the addition of the video, deflection dropped to 15 percent.

True interactivity, however, has yet to hit mainstream media. The technology has been available for some time, but legal issues have long delayed its penetration into the marketplace. (A session attendee shared the story of a friend who was a member of the Screen Actors Guild; SAG revoked the friend's membership upon discovering she was generating nonunion revenue through an online instructional Pilates video.)

Remarkably, the ability to click on an online video to purchase a product has been available for years -- but all efforts along those lines have "crashed and burned," according to Really Useful Information's Connolly, a failure he ascribed partly to rights-and-restrictions issues.

Connolly, however, told the audience that the real culprit was far simpler -- and yet far more difficult to overcome: "People watching TV don't want to buy."

[Editor's Note: The first dispatch from this year's User-Generated Content Expo can be found here -- and don't forget our blogpost of Jessica Tsai's live tweets sent from the scene.]

News relevant to the customer relationship management industry is posted several times a day on destinationCRM.com, in addition to the news section Insight that appears every month in the pages of CRM magazine. You may leave a public comment regarding this article by clicking on "Comments" at the top; to contact the editors, please email editor@destinationCRM.com.

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