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Sites Vie for Position, Try to Generate Money

May 8, 2006  •  Post A Comment

The turf war among video-sharing sites is on, with companies including YouTube.com competing with heavyweights such as Microsoft’s MSN service for visitors and advertising revenue.

Becoming the first stop for the fickle hordes of Web video grazers could lead to a windfall. The Internet video marketplace is poised to grow from $225 million in ad spending in 2005 to $640 million in 2007, according to eMarketer. By the end of the decade that figure should reach $1.5 billion.

By comparison, cable TV ad spending generated $15.9 billion in ad dollars in 2005, while broadcast television brought in $22.5 billion, according to TNS Media Intelligence.

“There is no question they have tapped into a real consumer interest, and there is every reason to believe this phenomenon will get more popular,” said Will Richmond, president of research firm Broadband Directions. “The big challenge is monetizing. We have all seen plenty of Internet companies generate consumer interest and not be able to monetize it.”

The video-sharing sites face obstacles to achieving significant profits or becoming acquisition targets. Some of their content violates copyright restrictions, inviting lawsuits. Becoming a commodity is another risk in a world where video files can be posted on one Web site and sprout up on a dozen others in minutes.

Differentiation is key to survival, said Tom Tercek, senior VP of ventures for Denuo Group, the digital media unit for Publicis Groupe.

“Having the same content appear on multiple sites does nothing to build brand equity,” he said. Sites that provide exclusive programming targeted to their audiences will build stronger audience loyalty in the long run, and that attracts marketers, he said.

The video-sharing sites are tearing pages from the television industry’s book in their effort to provide exclusive content, paying for clips and sponsoring short-form video to create loyalty among videographers.

The sites are also suffering some of the indignities TV networks have encountered on the Web.

In late March, Break.com posted a video of a young man having his ear pierced by friends who hammered a nail into his earlobe. Break.com, the fifth-ranked video site in March, paid $250 for the clip and signed an exclusive contract with the amateur filmmakers who submitted it.

A few minutes after being posted, the video appeared on another upstart amateur video online site Enwhore.com, said Keith Richman, CEO of Break.com. Break.com did not request that the money be returned, he said.

So for now, the competition between video-sharing sites is a game of seconds.

“People want to see things immediately,” Mr. Richman said. “Everyone wants to see it first, so we become in a position to create what is cool. So the head start you get, whether it’s a day or an hour, makes quite a bit of difference.”

The fight to be unique has forced the sites to invest.

Break was profitable until February, but then doubled its size to expand its content. MSN Video, the third-largest video-sharing site, said its viral video business is profitable and that advertisers include Heineken, American Express, Microsoft and Procter & Gamble. Metacafe, the ninth-largest, said it will soon be profitable through ad sales and licensing content.

Heavy.com, the eighth-largest sharing site, is teaming with users and marketers to create unique content, said CEO Dave Carson. Last fall Heavy.com users created a video featuring a man wearing a Burger King mask who demanded a Whopper at a McDonald’s drive-through. That’s content Heavy owned exclusively. Heavy also runs its own exclusive “shows” such as “Behind the Music That Sucks,” a parody of VH1’s “Behind the Music.”

YouTube.com, the most-visited video site, tries to create the most hospitable environment for its clip donors and users, said Julie Supan, senior director of marketing for the company.

That means offering video clips that are 10 minutes or shorter in length because that’s about the maximum length an online viewer will watch. YouTube also lets users comment or “tag” the videos and offers sharing features that

let users send video clips to friends, with the clip appearing like a mini TV screen in the

e-mail.