Hungry Sharks - Profits 2.0

Profiting from social networks may require outside the box thinking!

Reuters — London, January 15, 2007 - According to this latest release, user generated video sites may be facing big problems with their cash flow. Massively successful sites like YouTube and MySpace , sporting millions of video clips, only generated about $200 million in 2006. What sounds like a big profit might not be as much as we think!

Screen Digest, a market research analysis company, predicts that by 2010 - 44 billion video streams will be created. This would account for 55 percent of all video content consumed in the U.S., but this huge number would only account for 15 percent of revenues.

User generated video accounted for 47 percent of total on-line video last year. The problem is how to monetize free content, as no one has exactly perfected a way to generate greater profits from these sites. Despite this news, user generated content will still rise into the billion dollar vicinity by 2010 according to Screen Digest.

In a post October 4th, 2006 ZDNet's Mitch Ratcliffe summarizes data from several sources, contending that YouTube is probably in the red financially. According to Ratcliffe, total monthly net margins for YouTube could be as low a 6.4 percent. His numbers were allowing for conservative salary costs and total revenue of $4.65 million dollars per month, with a bandwidth cost at almost $4 million per month. Actual bandwidth numbers are not known at this time, but could be as low as $1 million.

All this speculation is based on approximations for bandwidth expenditures for YouTube and similar entities. According to Forbes, bandwidth providers like Limelight have special pricing deals with their larger customers like YouTube. Since neither company has opened their books regarding their arrangements, it is difficult to tell exactly how profitable YouTube actually is right now. Actual prices for access for these larger companies may be as low as one tenth of a penny per minute of download time compared with 10 times that for smaller customers of the large providers. With bandwidth expenditures taking the lion's share of site profits, YouTube and others are certainly looking for pricing and other alternatives to solve this problem.

Obviously, companies are going to have to find new ways to get income from these user generated sites. The situation reminds me of a group of sharks swimming on the outskirts of the largest collection of seals ever seen. They look at one another and register the same quandary in their black eyes: "What do we do? If we move in for the kill, they may scatter!" With the kind of potential for revenue to be made, I do not think Google and the others are willing to run viewers off just yet.

We will watch, for somewhere, lurking just below the surface…

Image credit: Shark-PixarStudios