Between a rock and YouTube, video execs see promise

SAN FRANCISCO--If the $1 billion Web video advertising market is to reach the level of television's estimated $50 billion, it ironically won't be thanks to YouTube, the Internet's most popular spot for watching clips.

That's at least the read from Internet video executives here Thursday at the RBC Capital conference. Executives from popular video search and ad companies said that so-called user-generated videos like those on YouTube aren't drawing any significant dollars from advertisers or agencies. Advertisers need to control their brand, and it's seen as too risky to give up that control on a network with home videos or potentially pirated broadcasts.

One executive went so far as to say that user-generated videos will never make money.

"It will be like instant messaging. It's ubiquitous but no one makes money on it," said Thomas Wilde, CEO of Everyzing, which hosts digital audio and video for major broadcasters such as Fox Sports and Cox Radio.

Of course, he has a stake in supporting professional content. But that's still a controversial idea, given that Google spent $1.6 billion to buy YouTube two years ago. Despite the site's enormous popularity--it's the no. 5 Web site--YouTube has yet to make money from the massive video inventory it produces. Industry insiders have even estimated that it costs Google as much as $1 million a day in bandwidth fees to serve hundreds of millions of videos, according to Fortune.

Suranga Chandratillake, CEO and founder of video search service Blinkx, speculated that Google didn't really care about the costs when it bought YouTube. The acquisition, he said, was likely about acquiring those millions of people who visit YouTube every day--the same rationale behind Microsoft's interest in Facebook. (That said, YouTube has sought to form partnerships for professional videos.)

He disagreed with Wolfe that user-generated content will never make money.

"It will have to be a very different kind of advertising. If someone does figure it out, then Google will be in a good position," he said.

So when and for whom will the money start rolling in? Video ad executives said that while YouTube has a lot of inventory that's hard to monetize, sites with professional content such as Hulu.com don't have enough inventory to serve demand from brand advertisers.

Jayant Kadambi, CEO of video ad network YUME, said that in February, a major auto manufacturer called him and asked to spend $2 million on online video broadcasts the day before the Super Bowl. "I couldn't take it," Kadambi said, clarifying that he didn't have enough inventory. (His company now runs a piece of Microsoft's video ad platform.)

He said only recently has there been enough video to start targeting ads to people's demographics, location and age. That has kept the cost of video ads relatively high--between $10 cost per thousand impressions and $20 cost per thousand.

Video executives also said that they're getting higher rates of response on video ads than typical online display ads, which can command as low as 0.1 percent click through rates. They said that the more popular pre-roll video ads--or ads that play before a broadcast--are getting anywhere from 2 percent to 6 percent response rates.

Still, Blinkx's Chandratillake said hosting and streaming video is expensive, particularly compared with a text page. "If you are a publisher you're paying for this expense and you're trying to figure out how ad revenue will offset that expense," he said.

"What we've found is that advertisers and agencies are only interested in professional media, so professional content providers are having a good time finding extremely high demand because they have a lack of video views," he said.

He said his company has had some success creating a program to place sponsored videos next to searched-for broadcasts.

As for getting to TV-like spending, advertising executives said that that likely won't happen soon, if ever.

"I don't think it's going to be a $50 billion business, but it's going to be a more efficient business, one that's targeted and relevant," said Brandon Berger, an executive at MDC Partners, a holding company for several digital advertising agencies.

[jamalystic]

It's a difficult and frustrating for the likes of Youtube, who despite all the mammoth following is still having dificulties translating that to cash. The case could be said of social networks like facebook and myspace. Social media is an avenue that marketers have to tread cautiously and for now it seems no one has deviced a model to monetize it: How to Monetize Social Media? Nobody Knows(http://www.internetevolution.com/author.asp?section_id=466&doc_id=155826&F_src=flftwo)

[jlleventon]

it's the repertoire that one builds with these "video clips" that detemines one's future self worth. . .
not all funny videos get the $10,000
not all motion pictures break box office records
mabey after we die our efforts will be noticed

[gmh_in_mclean_va]

Much of the stuff on YouTube is crap. Some of it is really cool. Although YouTube is owned by someone, the "video" execs mentioned in the article seem to be missing something very important. That being the way corporations and users see the internet. Corporations see it as something that exists as an advertising medium or a means to sell products and services by directly reaching the broadest market possible. Users, although they may use it as a market place, also see it as a community. Not everything that happens in a community is commerce. Sometimes people are making art for the shear joy of it. Sometimes they just want to hang out with friends, make new ones, argue with strangers, or call each other names. Sometimes they want to make social commentary, discuss politics, or religion. Others (for some reason I can't fathom) simply get a kick out of lighting a fart on fire and hoping someone else will think it's funny.

Even in a capitalist society, things exist that have nothing to do with corporate profit margins. Its kind of like going to a dinner party with the most eclectic assembly of guests you can imagine and part way through, "the man" jumps out of a closet in a suit and tie and says, "This dinner party is brought to you by Nike...Just Do It" and then spends the evening walking around behind the guests and gesturing at a shoe he's holding like the models do with items on, "The Price Is Right". He may not sell a shoe, but he'll bug the crap out of the dinner guests and he'll probably leave deeming the party to have had no real worth because no one bought or sold anything while he was there. The guests will ask each other, "Who was that creepy dude in the suit, and why was he walking around fondling that shoe?"

[sherrib123]

Your analogy is probably the best I have ever read! I own Google stock and really want them to make money on Youtube and I didn't even know before this article that they were actually spending an an additional $356 million a year in bandwidth fees on top of the 1.6 billion they paid to buy Youtube. I love Youtube and think its great free entertainment. I am sure one day someone will figure out how to make money from it without alienating all of the userbase but for right now your analogy really sums up the whole problem with trying to apply the traditional advertising model to a new media like Youtube.

[steve_rosenbaum]

There are two words in the article and comments, both of which need to be put in context:

first, UGC.
second, CRAP.

In 24 months there will be no such thing as UGC. "User" Generated Content is made up distinction. There is no 'pro' and no 'amateur' content in the future. Professional used to be be defined by the earning of money (think 'amateur' college sports and pro-sports). But in the future, everyone who wants to make money will be able to get paid. Maybe micro-payments, maybe insignificant payments. But there will be rev share for content makers. So the "Pro" and "amateur" distinction will blur.

Now lets look at CRAP. No such thing. One man's junk is another man's treasure. Consider television. Lot's of 'crap' on TV. But it is pro-crap.

So, if you're a Beagle owner (I am) than Beagle videos are fun to watch. Home video, amateur, glossy, Animal Planet, etc... I'll watch 'em all. Poodle videos - not so much.

Context, Personal taste, Niches, Passion - will drive individual interest in video from all sources.

And - advertisers will love it. It will be a huge new way to reach consumers who express intent by the clips they watch, and the video communities they participate in. Heck, i just bough puppy training pads and a dog carrier after watch 5 videos of 'frisbee dogs'. Tell me that isn't the future of advertising!

[badasscat]

Interesting definition of the word "professional". I think you're a little confused.

"Professional" content is not content that makes money, it's content made by those who are themselves professionals (the word "professional" is derived from "profession" - the content itself doesn't have a profession). That generally means they're paid for it, but it also means they were good enough at what they do to be hired by somebody to pay them for it. The upshot being that professional content has a certain level of skill and craft involved that amateur content doesn't, or at least not usually. By definition, anyone can make amateur content (even professionals). But not anyone can make professional content - only those judged good enough to be hired by someone else can make professional content. There is a built-in level of quality control in professional content that doesn't exist in amateur content.

Does that mean all pro content is better than all amateur content? No, but the overall signal to noise ratio is certainly a lot better.

It also means that yes, there will *always* be a distinction between professional content and amateur content, just as there will always be a distinction between professional and amateur pilots or professional and amateur race car drivers or professional and amateur porn stars. The distinction is whether or not somebody thought a person's work was worth paying them to do on a continuing basis. That's not a judgment call on quality and it's not a distinction that will ever disappear. Either something is your profession or it isn't.

[hunter_jc]

Actually i think the Ad support model will work on quality website. Not those youtube site but sites like nytimes.com . I think the nytimes.com is the only quality site that is worth clicking the ad to support.

[steve_rosenbaum]

really? the ONLY site that you think is worth supporting is the NY Times.

[patriciahandschiegel]

It's just VERY early for video. User driven content isn't about advertisers not being able to control the brand alone - it's also that publishers would have to figure out how they'd compensate their content creators. Google may have bought YouTube for its technology, reach, etc. It may play a big enough part of something else to make sense to them.

Professional content will be the way of the future not because user driven is hard to monetize but because the internet is designed to converge channels, and one of those channels is TV.