Tuesday, April 22, 2008

Ads and User-Generated Content

APRIL 22, 2008

Paul Verna, Senior Analyst

Despite the massive size and projected growth of the user-generated content (UGC) movement, advertising revenues alongside this content will remain relatively modest.

eMarketer projects US user-generated content ad revenues of $824 million in 2012, up from $162 million in 2007. By 2012, this total will represent 1.62% of US online advertising spending, up from 0.77% in 2007.

eMarketer’s estimates of advertising spending against user-generated content are calculated as percentages of ad spending on online video and social networking sites. Because the bulk of the advertising activity around user-generated content occurs on video-sharing sites like YouTube and social networking destinations like MySpace and Facebook, eMarketer’s ad spending outlook is limited to these types of online venues.

Related content categories like blogs and photo-sharing were not included in eMarketer’s calculations because they account for a tiny fraction of overall ad spending against user-generated media. Similarly, eMarketer did not include Wikipedia entries, since there is currently no monetization mechanism for this content.

The inherent unpredictability of user-generated content is the main barrier to the emergence of a larger advertising market around this medium. Another obstacle is the migration of ad dollars toward professional content on YouTube and MySpace, as well as on newer sites like Joost, the NBC/News Corp. joint venture Hulu and other network-affiliated portals.

Because of these market dynamics, Screen Digest recently downgraded its revenue expectations for user-generated online video. The company now expects US advertising revenues associated with user-generated video streams to reach $624 million in 2012, growing from $229 million in 2007.

While these ad revenue numbers and growth rates are respectable, they are far smaller than Screen Digest’s forecasts from May 2007, which called for ad revenues of $956 million in 2011, up from $515 million in 2007.

Explaining this change in outlook, Arash Amel, Screen Digest’s head of broadband media, told eMarketer: “Video-sharing is continuing to grow beyond our initial expectations. However, whereas consumption has been increasing, the failure of video-sharing sites and social networks to monetize their assets in a meaningful way has meant that we’ve had to downgrade our revenue expectations.”

Interestingly, even though Screen Digest lowered its projections for ad revenue around user-generated online video, the company significantly raised its forecast of video streams. It is now projecting that US consumers will stream 62.6 billion user-generated clips in 2012, up from 49.9 billion in 2008. Previously, the company forecast 49 billion views by 2011.

Reflecting this disconnect between the expected rise in user-generated video views and the guarded forecast for advertising around this content, attitudes of US marketers and media executives are all over the map.

On one hand, 68% of US online marketers polled by iMedia Connection said established media will lose dollars to user-generated content.

On the other hand, essentially the same percentage of respondents to an AdMedia Partners survey of US senior media executives said the growth potential of social networks was overhyped. Those same executives were almost evenly split as to whether the perceived growth potential of user-generated content was overhyped or accurate.

To learn more about the amateurs who are creating content that attracts professional money, get your copy of the new eMarketer report,

No comments: