In Depth

Web Video Evolves in Bid for Ad Money

Next Gen User Gen

Call it User-Generated Video 2.0.

Hollywood, having declared there is no business to be built on user-generated videos of cats flushing toilets, is placing bets on a new generation of Internet content.

Web video sensations such as technology commentator Justine Ezarik of iJustine.com and the pull-no-punches wine expert Gary Vaynerchuk of Winelibrary TV are in the vanguard of a new genre whose higher production values and more predictable content may draw advertisers that eschewed the first wave of Web video.

"The right product will be a package of professionally produced plus user-generated content in a professionally presented fashion. User-generated video was never alive as a stand-alone product for advertising. It was always a nifty feature, like free e-mail." -- Tolman Geffs, managing director of the Jordan, Edmiston Group, an investment banking firm

The new "User-Gen Plus" breed of content also is drawing pros such as Web video entrepreneur and former Disney CEO Michael Eisner, who backed the "Prom Queen" Web series, and comedian Will Ferrell's Funnyordie.com, which presents short skits such as "The Landlord." Both Hollywood companies and technology powerhouses are paying talent to produce material for the Web.

The run-up to the fall television season witnessed a rush of announcements in the market for higher-quality Web video. Emmy-winning TV producers Marshall Herskovitz and Ed Zwick said they would produce a new series, "Quarterlife," exclusively for MySpace. And Warner Bros. Television Group said it plans to create 23 short-form series for broadband and wireless. In recent months, CBS purchased Wallstrip.com, which produces satirical financial-news clips.

"This is the beginning of a revolution, and maybe the catalyst was user-generated video, and maybe down the road professionally produced videos in broadband will be the real big winner," said Mr. Eisner, who now runs online studio Vuguru. "That doesn't mean user-generated video is going away. There are too many people with cameras."

Already, 57 percent of Americans have watched online video and 19 percent do so each day, according to the Pew American Life & Internet Project. All the Web video sites are trying to cash in on a growing market. Online video advertising will grow 89 percent this year to $775 million, according to market research firm eMarketer. While that's still a drop in the bucket compared to last year's approximately $50 billion broadcast television advertising market, the new genre's capacity for growth is attracting investment.

"If it's good content, it can find an audience." -- Keith Richman, CEO of Break.com

Quality Counts

When it comes to Web video, researchers are finding consumers prefer quality content. The Pew study found 62 percent of online video viewers say their favorite videos are professionally produced, while only 19 percent say they prefer content produced by amateurs.

That's why newer services have stepped away from amateur content. Upstart Internet TV service Babelgum kicked off an online contest this month to find the best new film creators. Each of seven winners will receive about $27,000.

"User-generated video hasn't generated substantial income for the people who create the content or the video. If you're going to get involved in user-generated video, brand advertisers aren't going to get involved," said Simon Kenny, head of content strategy at Babelgum.

Contests are becoming a popular method to both encourage artists with real talent and to filter out the junk, Mr. Kenny said. Current TV is sponsoring contests for video auteurs to submit green-themed short videos. Ourstage.com, dedicated to emerging music and film talent, offers mentoring sessions with Grammy winner John Legend as part of a prize package for a music competition. Sony-owned Crackle offers regular contests to win meetings with Sony executives.

"User-generated video is dead as an ad-supported business. There was a lot of unguarded enthusiasm and it was an audience-generating tool, but the reality is you have to figure out how to attract advertisers." -- Josh Felser, president, Crackle

The Crackle experiment neatly parallels the short history of user-generated video on the Web. Last summer, Sony purchased viral video site Grouper for $65 million. But Sony and Grouper executives noticed that traffic and advertiser interest in amateur clips had failed to grow, said Josh Felser, Crackle's president. At the same time, advertisers were more willing to sponsor emerging talent. That's why Sony rebranded the site as Crackle earlier this summer with a focus on professionally produced videos.

"When you look at the space you have to think about what advertisers want," said Jim Feuille, a partner with venture capital firm Crosslink Capital in San Francisco.

PureVideo, another Web video company, has similarly shifted its strategy. In the last year, it has devoted more resources to its niche video site Grind.TV, which showcases action sports such as surfing, skating and snowboarding, and away from the user-generated clips on its other property, StupidVideos.com. The result: Grind.TV has seen a 500 percent increase in ad revenue year-over-year, compared with a 50 percent rise at StupidVideos.

"We look at individual opportunities. ... There are going to be examples that pop through." -- T.S. Kelly, senior VP and director of research and insight at Media Contacts, the interactive media division of Havas Media

Despite changing video consumption habits, venture capitalists aren't closing their wallets to user-generated videos. Consumers do watch both kinds of video, said Roger Lee, general partner with Battery Ventures, which is affiliated with 60 Frames.

"The market is big enough, and there is room enough for it to survive and thrive," Mr. Lee said.

Content with higher production values isn't necessarily a slam-dunk either, he said, pointing out that it costs more to make.

"Because advertisers can target their products precisely, more advertisers will participate. We have already seen this happen." -- Dmitry Shapiro, founder and chief innovation officer for Veoh Networks

A host of video search firms, such as Blinkx, Adap.TV and YuMe Networks, have emerged to facilitate the migration of advertising money into the new milieu of User-Gen Plus videos by matching targeted ads with video content.

Such services are sorely needed, given the explosion in available content. According to comScore, nearly 75 percent of U.S. Internet users watched on average about three hours of online video in July. That represents about 9 billion videos.

"User-generated content has conditioned a very large audience to consume video online and that has made the creative community sit up and take notice.'" -- Brent Weinstein, CEO of 60 Frames, a newly formed online video financing and syndication shop that's backing four Web-exclusive shows launching this fall

Leave a comment

Comments 28

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Daisy,

Great article, and to me it reinforces more than anything that the YouTube crew 100% made the right decision in selling when they did, at the height of their run. Because the Internet is a distribution platform that can be consumed for FREE, unlike for example cable TV, cellular, or even the film industry, even professionally produced content is going to have a hard time generating long term sustainable revenue until the methods of distribution are improved. These methods being:

1. Faster Broadband
2. Better incorporation into our TV's
3. A less cumbersome experience for the Net eventually on our phones

I think that we are years away from someone choosing to sit in front of their computer and watch a 19" monitor in an uncomfortable chair at 8pm at night vs. laying down on their couch and watching their 52" LCD TV.

When internet content can be viewed that way in a QUALITY manner, then you have a long term sustainable stream of revenue from advertisers for the right piece of content, which like any other show (Curb Your Enthusiasm being my current favorite), then will have loyal watchers.

Thanks again for the story.

Best,
Ray Doustdar
Co-Founder
TeamDating.com

user-pic

Daisy,

Great article, and to me it reinforces more than anything that the YouTube crew 100% made the right decision in selling when they did, at the height of their run. Because the Internet is a distribution platform that can be consumed for FREE, unlike for example cable TV, cellular, or even the film industry, even professionally produced content is going to have a hard time generating long term sustainable revenue until the methods of distribution are improved. These methods being:

1. Faster Broadband
2. Better incorporation into our TV's
3. A less cumbersome experience for the Net eventually on our phones

I think that we are years away from someone choosing to sit in front of their computer and watch a 19" monitor in an uncomfortable chair at 8pm at night vs. laying down on their couch and watching their 52" LCD TV.

When internet content can be viewed that way in a QUALITY manner, then you have a long term sustainable stream of revenue from advertisers for the right piece of content, which like any other show (Curb Your Enthusiasm being my current favorite), then will have loyal watchers.

Thanks again for the story.

Best,
Ray Doustdar
Co-Founder
TeamDating.com

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