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Bear Stearns: User Generated Content No Fad

This from a Bear Stearns report:


USER GENERATED CONTENT (UGS) NOT LIKELY A FAD:

Text-based UGC (e.g., blogs/social networks) already accounts for at least 13% of Internet traffic and continues to grow unabated. Also, our online video survey finds that UGC is the No. 1 and No. 2 most popular content category among men aged 18-34 and all respondents, respectively….

Some investors remain skeptical that UGC is more than a passing fad. … Moreover, if we define UGC as page views only from sites such as Myspace.com, Facebook.com, Youtube.com, Wikipedia.org, Blogger.com, and Digg.com (which is quite conservative), we estimate that UGC now accounts for 13% of total U.S.Internet traffic, up from 0%-1% in 2004. Based on these statistics, we submit that UGC is here to stay.

Here is more:

Although much attention has been paid to UGC, the reality is that the digitization of media also opens the door for “semiprofessional” creators of content. In addition, magazine, and radio companies, new technology also allows other traditional media players such as newspaper,who, in the past, did not have access to finite video spectrum, to provide video content.

However the report adds:


CONTENT ISN’T KING, GREAT CONTENT IS:

The problem with the “content is king” axiom is that no one company has proven capable of consistently creating only great content, as evidenced by fluctuations in TV ratings, box office per film, etc. In addition, while entertainment firms are focused on “digital,” this revenue stream will likely remain small relative to overall sales for the foreseeable future. The risk is that, as with newspaper companies, strong digital revenues do not offset decelerating growth in core revenue streams.

No surprise that there is so much content that people need help in determining how to find what meets their needs, thus sites like Google are the ones that make the most money.

For example, in 2006, Google (covered by Bear Stearns Internet analyst Robert Peck) generated more than $10 billion in gross advertising revenue. It shares part of its ad revenues with Web sites in the Google network. This portion (traffic acquisition cost [TAC]) totaled $3.3 billion in 2006. While a substantial amount of money, this figure was spread over “thousands” of affiliates in Google’s network. On the other hand, Google’s share of this $10 billion gross advertising figure was over $7 billion.

Also the report adds:

We think this conundrum (the “Paradox of Choice”) will increase the value of”middlemen,” or packagers of content that can appropriately filter out the noise and connect users with the content that appeals to their interests. This can be done through strong brands, editorial discretion, technology, and harnessing user recommendations.


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