User-Generated Content - Business Models

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Typology

"There are five basic models:

i) voluntary contributions,

ii) charging viewers for services - pay-per-item or subscription models, including bundling with existing subscriptions,

iii) advertising-based models,

iv) licensing of content and technology to third parties, and

v) selling goods and services to the community (monetising the audience via online sales).

These models can also remunerate creators, either by sharing revenues or by direct payments from other users."


Discussion [1]:

"At this stage there are essentially five approaches to monetise UCC (User Created Content), a combination of which are illustrated by three concrete cases in Table 6 (see also VTT Technical Research Centre of Finland, 2007).

Voluntary donations

In a frequently utilised model, the user makes the content freely available, like that of a musician performing on the street, but would solicit donations from users. Such models are currently in place on many sites with a donate-button, often encouraging those accessing the content to donate to the creator or the institutions (usually online by credit card or via PayPal). A significant number of blogs, wikis, online video and online music creators ask for donations from their audience for activities such as web hosting and site maintenance, or for the content as such. A common feature of certain non-commercial UCC sites is that they manage to run their operations with quite limited funding (often only the time invested by volunteers and users). Wikipedia, for instance, spent less than USD 750 000 in 2005 to sustain its growth and it frequently draws on donations to finance these costs (beyond the donation of time and expertise which are also donated by its users).40 Blogging and citizen journalism sites such as Global Voices Online are supported by bloggers who commit their time but its operating expenses are funded by grants from foundations or even news companies (such as Reuters in the case of Global Voices Online). Such donations of time or money have been the cornerstone of Internet developments in areas such as the open source movement (e.g. for the support of free Internet browsers) or other user-driven innovations on the Internet. New voluntary payment models for the promotion of UCC content and platforms based on reciprocity, peer-based reputation and recommendations have been proposed (Regner et al, 2006).

Charging viewers for services

Sites may charge those viewing UCC, whereas the posting of content is free. This can take the form of a pay-per-item or a subscription model. The popularity of the UCC has to be high to be able to charge as competing sites are free and as making small online payments and entering credit card information may be too burdensome or impracticable.

Pay-per-item model: In that scenario, users make per-item (micro)-payments to UCC platforms or to the creators themselves to access individual pieces of content. iSTockphot, for instance, offers photographs, illustrations and stock video from its user-generated stock for USD 5 each. Platforms exclusively hosting UCC or established digital content sale points (such as online music stores, video-onDSTI/ demand platforms, or online retailers), for instance, could offer UCC as part of their repertoire on pay-peritem terms. The fact that no shelf space is needed to stock a variety of content facilitates this model. Subscription model: This model would entail consumers paying to subscribe to services offering UCC. Yet paying a subscription to access others content is rarely used as a model. Rather users pay a subscription for enhanced hosting and other services for one's own content and access to others content.

One of these models involves two-tiered subscription services, whereby a user may opt for a basic account free of charge that provides a set amount of services or for a pro account that users pay a subscription or other fee for. The pro accounts provide enhanced features, more (or even unlimited) hosting space, and other options that are attractive to the user.41 A new approach involves a hosting-based model with a cooperative element, such as Lulu.tv. Users pay for the service provided by the site, but are also remunerated on the basis of the popularity of their content (see later discussion on this point).

The bundling of UCC into existing subscriptions and associated payments may be an easier option. Cable TV operators, Internet Service Providers (ISPs), digital radio services and other media outlets derive most of their revenue through monthly subscription fees paid by the users (e.g. EUR 29.99 for a monthly Internet triple play offer in France). To remain attractive to users, such operators could opt to carry UCC, either by creating special channels exclusively devoted to UCC (such as the case with FreeTV in France) or by airing a selection of UCC on the regular programs. In both cases, users pay for the UCC content via their usual ISP or cable subscription.


Advertising-based models

(Monetising the audience via advertising)

Advertising is often seen as a more likely source of revenue surrounding UCC and a significant driver for UCC. Models based on advertising enable users and hosts to preserve access that is free of charge to the content while bringing in revenue. The economics of such a service are often compared to free web mail where users get a free service, and owners of the service get to serve ads to this audience. Payment for the advertising depends on numerous factors: number of users on UCC sites, related web site usage (dwell time on site, depth of visit / page views per session / share of repeat visits), or clicks on the actual advertisement banner leading the user to the webpage of the brand being advertised. Viable sustainable business models are only likely to work with a large enough user base to attract enough advertisers and actions by users generating revenue flows for the site.

Services that host UCC make use of advertising on the site (including banners, embedded video ads and branded channels or pages) to generate revenue. The advertisements can be specific to an audience most likely to be attracted by certain UCC platforms (often popular, young target groups) or to certain content being watched by the user. When users search or watch a particular video, related advertising is shown on the side bar, i.e. banners or short trailers start as the computer cursor moves across a banner.

Many UCC platforms such as Fanfiction.Net are relying on services to drive advertisement revenues (e.g. Google AdSense, Microsoft, or the service provided by the UCC hosting site itself such as FeedBurner Ad Network for blogs). Google AdSense automatically delivers text and image ads that are targeted to the UCC site, the requested UCC content, the users geographic location and other factors (for example, travel ads for China when searching for the keyword China on a video site). When users click on the ad, that advertisement service receives per-click revenues from the company being advertised. In turn, it then pays the UCC site hosting its ads. Some UCC sites are also redistributing part of this advertising money with those creating or owning the content. These models provide independent UCC sites (some owned by individuals) with access to a large base of advertisers.

Advertising may also be placed within the content, such as within a video. Popular video podcasts also incorporate advertisements where users can click to sites from within the video. Increasingly, branded channels have been launched on UCC platforms where users can view content from a special brand or media publisher. Virtual worlds like Calypso allow firms to create and display advertisements.

It is expected that sophisticated targeting techniques will increasingly enable advertisers to create targeted ad messages, rather than the interruptive spots used by most sites. The quality of the targeted nature of the advertisement will depend on how well videos or UCC is paired with relevant advertisements. Currently, advertisements are often displayed on the basis of tags and keywords which uploaders create. These may be more or less reliable with some users not creating keywords or using misleading ones to attract more traffic.

UCC platforms have already received substantial up-front revenues from third players wanting to advertise to this community. In August 2006, Google agreed to deliver at least USD 900 million in ad revenue over three and a half years to News Corp. for the right to broker advertising that appears on MySpace and some other sites (van Duyn and Waters, 2006). Microsoft Corp. also recently agreed to be the exclusive provider of advertising to Facebook (Sandoval, 2006a).

Although most of the hopes to monetise UCC are currently being placed on purely advertising-related business models, it will take time to show whether these models will work (c.f. also VTT Technical Research Centre of Finland, 2007 which argues that social media cannot fully flourish on ad-based models). Advertisers are concerned that the user audience may have grown accustomed to free content and will migrate to ad-free sites. Also some advertisers are concerned to be randomly associated with UCC they cannot control or foresee (e.g. a car advertisement being shown before a UCC video about a car accident or other inappropriate content).


Licensing of content and technology to third parties

Increasingly UCC is being considered for airing on other channels and this act of licensing content to third parties (e.g. television stations) may be a source of revenue. As elaborated later, according to most terms of services of UCC sites, users agree that they have given the site a licence to use the content without payment, sometimes reserving the right to commercially exploit the work.44 Sometimes this may include the right of the UCC site to licence the content to third parties but a revenue sharing model between content creators and UCC site may apply. Increasingly deals to licence content to third parties or to cooperate with third parties to share the content involve mobile carriers (e.g. the recent Verizon and YouTube Watch on Mobile service) Finally, UCC platforms can enter into commercial agreements with third parties to provide their technology to the latter (e.g. DailyMotion entering a commercial agreement with the French ISP Neuf Telecom to provide its video sharing service technology). Some UCC platforms (e.g. On2 Flix) are more back-end service providers to facilitate the process of UCC video services of third parties.


Selling goods and services to community

(Monetising the audience via online sales)


Another option is to capitalise on the large, captive user base and market own or third party products to users. Due to the network effects, successful UCC sites are likely to have a large user base. This large audience can be monetised with UCC sites selling items or services directly to their users. Similarly to the above examples in the pay-per-item or the subscription section, blogging, photo sharing and other sites may sell particular one-off or continued services to their users. But UCC platforms such as virtual worlds or social networking services also allow them to sell the use of online games, avatars, virtual accessories or even virtual land to their users. Korean social networking site CyWorld, for instance, receives considerable revenues from the sale of digital items such as decorations for a user profile or furniture for ones virtual miniroom. Users use Acorns as currency in the CyWorld Shop purchased via credit card.

UCC sites can also cooperate with third parties to monetise their audience via allowing the latter to sell directly to their users while taking a share of the revenue. For instance, the Mypurchase service of MySpace will provide the interface for creators to sell their music, taking a portion of sales revenues in exchange. The popular Japanese social networking site Mixi has several approaches, one of which is to allow users to rate and review books CDs, DVDs, games, electronics and other items and linking users directly to Amazon Japan with one click to purchase those items (calling this social commerce) or to listen to music which can later be bought over iTunes.

UCC platforms could also allow for transactions amongst its users while taking a share of the revenue. Depending on the terms of service, other business models may involve the selling of anonymised information about users and their tastes and behaviour to market research and other firms." (http://www.oecd.org/dataoecd/57/14/38393115.pdf)

Economic Impact

"The shift to Internet-based media is only beginning to affect content publishers and broadcasters. At the outset, UCC may have been seen as competition as:

i) users may create and watch UCC at the expense of traditional media, reducing advertising revenues,

ii) users become more selective in their media consumption (especially younger age groups),

iii) some UCC platforms host unauthorised content from media publishers.

However, some traditional media organisations have shifted from creating on-line content to creating the facilities and frameworks for UCC creators to publish. They have also been making their websites and services more interactive through user comment and ratings and content diffusion. TV companies are also licensing content and extending on-air programs and brands to UCC platforms. There are also potentially growing impacts of UCC on independent or syndicated content producers. Professional photographers, graphic designers, free-lance journalists and similar professional categories providing pictures, news videos, articles or other content have started to face competition from freely provided amateur-created content.

...


Despite the non-commercial context, user-created content is already an important economic phenomenon with direct impact on various industries. UCC has actively and effectively contributed to the availability of broadband content. The spread of UCC and the amount of attention devoted to this area by users seems to be a significant disruptive force for how content is created, consumed and for the industries traditionally supplying content. This disruption creates economic opportunities and challenges which vary according to market participants and their strategies. Also, the trend towards monetisation of UCC is just starting and often figures on impacts directly attributable to the phenomenon are not available. The next section discusses the economic implications of UCC while showing how the business models invoked earlier and efforts to monetise UCC may affect various industry participants. At this early stage those economic impacts especially in terms of GDP growth and employment - are hard or impossible to quantify.

As reflected in Table 7, in the context of UCC, different industry sectors and firms have very different rationales and economic impacts.46 The specific business models and economic impacts on UCC platforms were discussed in the earlier section on value chains and emerging business models.

While in the context of UCC, most press reports centre on the impact of UCC on traditional media firms, the more immediate impacts may be on users and non-media firms. The more immediate positive impacts in terms of growth, market entry of new firms and employment are currently with ICT goods and services providers and newly forming UCC platforms which attract significant investment. Another set of firms particularly active in monetising UCC are search engines, portals, and aggregators which are seeking to formulate business models surrounding search, aggregation and distribution of this content which is often based on online advertisement.

Impacts are also starting to be felt by certain professional (free-lance) content producers such as journalists, photographers, and others who now compete with freely available web content.


Users / Creators

New models are also emerging which allow for remuneration of the content creators (i.e. creators of original works) as, for example, surveys of younger age groups point to greater willingness to place ads at the end of videos, to feature brands in the video and to derive revenues from their work.52 A distinction must be made between models that garner revenue for the creators themselves and models which entail revenue sharing between creator and host.

Originally, the possibilities for users to derive profits directly and without intermediary from their works were limited. A co-operative-based model is one where the creators contribute money to the service, and then this revenue is redistributed among creators. A hybrid model, such as Lulu.tv, combines the cooperative method with shared ad-based revenues. Users pay for the service provided by the site, but then they are remunerated on the basis of the popularity of their content. There is also the possibility of flat-fee subscription services in which creators would be remunerated.

New services have arisen which allow for unlimited uploading and exchange of various content and which are financed by monthly fees from subscribers or Internet Service Providers. The Digital Media Exchange (DMX) is such a model based on P2P technology and operated as a non-profit co-operative.53 Beyond unlimited exchange it allows users to make derivative works from the content while being copyright compliant. DMX collects monthly fees from subscribers or their ISPs, and pays all of the collected fees to content suppliers.

Most revenues for creators are likely to come from revenue-sharing models between creator and host which again are based on advertising revenues discussed earlier. In the case of creator-based advertising, users would utilise advertising on, within, or surrounding the content they created. For example, bloggers may put Google AdSense advertisements on their site in order to obtain revenue. A lot of new companies and software tools are allowing users to post content and be remunerated (e.g. Ripple Share). UCC platforms are usually involved in remunerating content creators. In Korea, Mgoon has introduced a website tag story where users post their own content and share advertising profits generated by them with the company. Korean Shotech UCC site has started to share 30 to 40% of its advertising proceeds with UCC makers. Other upstarts such as Revver, Feedburner, Blip.tv and Panjea.com share at least 50% of their ad revenue with users who create their content.55 It is expected that the quality of the UCC can be improved via remuneration of its creators.

Also, professional and paying opportunities can arise for users engaging in the creation of content. For example, students in popular lip-synching videos were later hired to be in commercials. Remixers, bloggers or video podcasters have been hired by major music companies or major media companies. Turning to the users who consume the content, the latter benefit usually from free access to more diverse content which may be entertaining, educational or serve other purposes. Especially information and knowledge commons mentioned earlier can add significantly to the welfare and entertainment of citizens." (http://www.oecd.org/dataoecd/57/14/38393115.pdf)

Monetisation of user-created content and new business models

"Commercial entities, including media companies, are playing an increasing role in supporting, searching, aggregating, filtering, hosting, and diffusing UCC. Direct revenue generation from this phenomenon for the creators of the content or for established commercial entities (e.g. media companies, platforms hosting UCC) are only starting to emerge. Until recently, sites hosting UCC were essentially non-commercial ventures of enthusiasts or start-ups with little or no revenues but with increasing finance from venture capitalists. These sites often did not have business plans showing how revenues or profits would be produced, some losing significant money day-on-day due to the high bandwidth costs. Rather their objective was to increase the user-base by appealing to ever-greater audiences and users, potentially with an eye to selling their business or starting to implement business models at a later stage. Yet when projects reach a certain size considerable financial resources are necessary for the technology, bandwidth and organisation to keep it going. Also, given that many UCC platforms host unauthorised content from third parties, they face challenges with respect to remunerating the content originators.

UCC sites are also increasingly subject to business and investor interests. Mixi, the Japanese SNS site, for instance, and Open BC/Xing, a German business SNS site, have been listed on stock exchanges. Moreover, established media conglomerates but also Internet-based companies have been increasingly interested in deriving revenues from UCC sites. Firms such as News Corp, Google, Sony and Yahoo have invested significant amounts of money to buy UCC sites."

(http://www.oecd.org/dataoecd/57/14/38393115.pdf)


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