Should a Video Website Include UGC?

Yonatan Sela 01 Jul 09

YouTube’s long lasting popularity encourages website owners to enable their users the option of adding User Generated Content to their websites. Content owners aim at expanding and diversifying their site’s offering and enhancing user engagement, thereby increasing traffic and hopefully revenues as well. However, not many of them are fully aware of the fact that UGC is currently a money-losing business: although YouTube is the most successful video website on the web, it has been losing money since day one.

Content owners considering the integration of UGC in addition to their own videos should keep in mind that even the world’s leading UGC service is unable to balance the extremely high operating expenses UGC bears, in light of the inherent difficulty to monetize this type of content. Although exceeding 100 million users per month (!), YouTube’s deficit is predicted to be $470 million this year alone (according to Credit Suisse).

While people are prepared to view commercials and ads when watching professional content, and pay for “top shelf” premium content, they are for the most part unwilling to do so when it comes to UGC. As opposed to UGC websites, major video portals offering only premium content succeed in generating incremental revenues. Prominent example of pure internet VOD service is Fox & NBC’s Hulu, which matched YouTube’s revenues (in US) in its first year of operation (2008). With 34% of video streams in the US in 2008, Youtube only generated $90 Million (US revenues), while Hulu matched this revenue stream with merely 0.7% of the video traffic in the country (according to Comscore Video Matrix)‏.

Unlike UGC websites, content owners offering only professional videos aren’t plagued by constant copyright concerns and don’t need to worry about questionable user-generated content. More importantly, their content appeals to advertisers or alternatively – some of it can be offered as paid content.

Undoubtedly, user engagement, interactivity and personalization of video websites are key factors in increasing the number of video views on a website, and consequently revenue potential. Nevertheless, these objectives should (and can) be reached using other features (like personal pages, Facebook connect, interactive video players and more), and not through UGC. YouTube itself currently invests heavily on adding as much professional videos - which can be efficiently monetized - in order to transform its extremely popular, money-losing UGC service into a profit making one.

Our advice is: there are already great places out there for people to upload their UGC (and they’re losing money), content owners should focus on generating revenues from their professional videos. The key factors in doing so include an engaging environment in which the content should be placed, creation of several effective ways for its discovery and flexible monetization tools which vary according to the type of content and viewer profile.

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