User-generated online video exploded in 2006. By the end of the year, user-generated videos made up 47% of the total online video market in the US. 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.

Although accounting for more than half of all online video content consumed – user generated videos will make up just 15% of total revenues, according to a new report from Screen Digest. These are the latest findings from Screen Digest, a media analyst firm.

According to Screen Digest, advertising will be the principal source of revenue for user-generated video sites. In the US, ad revenues will grow from $200m in 2006 to almost $900m by 2010. This represents only 15% of all online video revenues.

While there is no shortage of people ready to use these sites, the key challenge facing the many companies that now operate in the user-generated video arena is finding a business model that will make them financially viable. According to Screen Digest, there are five business models currently being used to make money from user-generated online video (UGOV):

• Advertising
• Content Licensing
• D-Commerce (digital sales and rental of premium movie and TV content)
• Subscriptions
• Technology Licensing

Screen Digest Senior Analyst and the report’s author, Arash Amel, comments:
“No one has found a way to make real money from the huge audiences who participate on these sites. User-generated online video will drive the majority of Internet content consumed in the future, but despite its huge popularity with web surfers worldwide, the major players have yet to find a way to generate significant revenues from it. The interesting developments in this market are going to be about who can monetise user generated online video, and how they’ll do it.”

Amel continues: “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. At the same time it’s also proving rather difficult for UGOV sites to monetize their video streams. Added to recent high profile executive departures from two significant players in the industry, Revver and Guba ‚Äì the signs are all there that the honeymoon period is over.”

“UGOV sites need to diversify to survive. With the dominance of YouTube and MySpace Video, smaller sites are going to need to offer something different. Emerging alternative offerings include online editing, revenue sharing with content producers and hybrid services which offer both premium and user generated content.”