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User-generated Web sites in clicks-to-cash dilemma

Heavyweights such as YouTube and MySpace may be awash with millions of clips, but face big challenges turning traffic to cash, a research firm finds.

User-generated video Web sites, dominated by heavyweights such as YouTube and MySpace, may be awash with millions of clips, but face big challenges turning traffic to cash, a London-based research firm said Monday.

Market research analyst Screen Digest predicts that although 44 billion video streams--55 percent of all video content consumed in the U.S.--will be created by 2010, the market will account for only 15 percent of total revenues.

User-generated video made up 47 percent of the total online video market in the U.S. last year, said Screen Digest.

Compounding the problem of making money from video streams is that many such sites do well in content that can be violent, rude and boring, not something big advertisers are drawn to. Another challenge is the time taken to experiment with new advertising formats and the threat of a Web site losing its user appeal when ads appear near personal videos.

"It is the nature of content itself. How do you monetize free content? That is the core debate," said Arash Amel, a Screen Digest analyst who wrote the report. "No one has found a way to make real money from the huge audiences who participate on these sites."

Amel said there were a number of indicators that suggested "2007 might be the leveler for 2006" despite the strong growth.

These included the exit of key executives and co-founders in companies like Los Angeles-based video sharing company Revver and rival Guba and the drive by major media companies to buy into user generated video Web sites.

"They are actually becoming yet another outlet for parent companies to cross promote their content," said Amel.

Despite this, U.S. ad revenue is expected to remain the key source of revenue for user generated online video sites, rising from $200 million in 2006 to almost $900 million by 2010.

Amel said this would still dominate other business models such as licensing, digital sales and rental premium movie and television content and subscriptions.

Screen Digest's report said video sharing sites need to diversify, particularly with the dominance of video sites such as YouTube, a unit of Internet search engine Google and MySpace, owned by media giant News Corp.

Although the European market is small relative to the U.S., the region is seeing many sites extend their offering of local language sites and fresh initiatives from the likes of MyVideo, Clipfish, Daily Motion, Yoo tribe, Wideo and Flurl Media in Britain, France, Germany and Belgium.