• by Shankar Gupta , January 16, 2007

User-generated video, which made up 47% of the online video market in 2006, will grow to encompass 55% of the market by the end of 2010, according to a report released Monday by media research firm Screen Digest. But despite the growth, video created by consumers will account for just 15% of overall video ad revenue by 2010, the report states.

Screen Digest predicts that ad revenue for user-generated video will grow to $900 million in 2010 from $200 million in 2006 compared to overall video ad revenue of $6.2 billion in 2010, up from $1.2 billion in 2006--maintaining roughly the same proportion over the four years of traffic growth.

Ads on user-created videos are expected to lag both because marketers will be wary of placing ads next to potentially racy clips and because they are afraid of consumer resentment, if the ads are seen as intrusive, said Screen Digest Senior Analyst Arash Amel. "User-generated video is going to have a lot of issues to resolve before it becomes an effective advertising medium," he said. "There's how will people react to personal media with ads, and how will advertisers feel sitting around rude or offensive content."

At the same time, Amel said it's likely that technical issues surrounding the monetization of short-form user-generated video will be resolved--especially given search giant Google's entrée into the space, with its purchase of YouTube in October. "If Google can't make this ad model work, nobody can," he said.

He added that the broad array of user-generated content sites will have to diversify, in order to separate themselves from market leaders YouTube and MySpace. "With the dominance of YouTube and MySpace Video, smaller sites are going to need to have something different," he said. "Emerging alternatives include online editing, revenue sharing with content producers and hybrid services which offer both premium and user generated content."