Last year, when Google bought YouTube, a lot of marketers started taking a closer at user-generated online video (UGOV). Now Screen Digest, a research firm based in London, has provided perhaps the most sharply focused view of the business side of UGOV yet.

According to Screen Digest’s calculations, user-generated video accounted for 47% all online video that was watched in the US during 2006.

Furthermore, the firm projects that by 2010 more than half (55%) of all the video content consumed online in the US will be user-generated, representing 44 billion video streams.

The bad news? Although accounting for more than half of all online video content consumed, UGOV will make up just 15% of the revenue generated by online video.

"2006 was a phenomenal year for UGOV, with exceptional growth in the number of UGOV streams and with Google’s $1.6bn acquisition of the 18 month old YouTube," reported Arash Amel of Screen Digest. "At the same time it’s also proving rather difficult for UGOV sites to monetize their video streams."

"While making money off user-created video is still difficult, such content indirectly supports online video advertising," said David Hallerman, a senior analyst at eMarketer. "While most video ads will be pegged against professionally created content, the presence of UGOV tends to boost traffic to a Web site — creating a more robust audience for the site to sell against."

The principle source of revenue for UGOV sites is expected to be advertising. Screen Digest forecasts that ad revenues from UGOV will grow from $200 million in 2006 to almost $900 million by 2010.

Obviously, the key to success for UGOV providers is finding business models that are financially viable. Currently, beyond advertising, there are four other revenue-generating sources: content licensing, d-commerce (digital sales and rentals of premium movie and TV content), subscriptions and technology licensing.

"As yet though, no one has found a way to make real money from the huge audiences who participate on these sites," reported Mr. Amel. "[Even] the major players have yet to find a way to generate significant revenues."

The risk for all UGOV sites is that by searching for viable business models — ways to monetize their huge audiences — they risk losing their "cool" factor. Or, even worse, users may become quickly turned off when they see commercial ads being piled on top of their personal videos.

Via eMarketer