Is Web 2.0 Abandoning the UGC Ship?

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ships-in-a-hurricaneDoes anyone remember that show Project Greenlight? It came out of LivePlanet, the 1999-era dot com started by Ben Affleck, Chris Moore and Matt Damon that aimed to use the Web to transform traditional entertainment. It was user generated content before we had an over-used buzz-phrase for it.

The premise of the show was that would-be writers and directors would submit their work via the Web and the guys would pick the most talented person and produce his or her movie. It was an entertaining show, but the movies always flopped. In the later seasons, I remember a scene where a frustrated Matt Damon says something like, “Are we saying we were wrong and all the talent is already in Hollywood?”

Welcome to the catch-22 of User Generated Content. And guess what? It hasn’t changed with time. We all know there are talented people who never get their lucky breaks, so democratization works in theory. But there’s a problem: It doesn’t make money. Users don’t want to pay subscription fees for something aspiring writers, singers, and actors are uploading for free, and advertisers don’t want to be next to dodgy and unpredictable inventory, no matter how gaudy the page views or streams.

In the LivePlanet-era, costs and excesses ran fledgling UGC companies into the ground. But this time around, with more people online, greater access to bandwidth, a more established online advertising ecosystem, and far lower burn rates, there was reason to believe the monetization nut could be cracked. After all, there was a time when no one thought you could make money off of search. Tim Koogle reportedly used to brag at Yahoo analyst meetings that search traffic was going down, because how could you possibly make money off people leaving your site?

Then, the financial world blew up the economy for us. And the most rosy-eyed optimists have come to realize that even though Web companies didn’t cause the meltdown this time, they’re still getting hit. Companies need revenues and in a duck-and-cover economy, it seems UGC isn’t going to get them there. Across the Web 2.0 world, we’re seeing a quiet-but-knee-jerk shift away from UGC in favor of professional content.

I wrote about this idea back in February when Slide—a company that’s long championed the marketability of individual expression—did a deal with Ashton Kutcher’s Katalyst Media. But in the last few weeks, there’s been a better example: YouTube. Last week, news leaked that YouTube was close to locking Disney up in an exclusive deal for long-form content, and now, we hear of a potential deal with Sony Pictures.

One of two things has happened: Either YouTube has spent years trying to work on deals with Hollywood,and they all happen to be closing at the same time; or the biggest champion of the user generated content revolution is changing its game plan.

Of course, YouTube won’t say it’s turning its back on user generated content, the same way Max Levchin said calling UGC a loss-leader was “too harsh” a few months ago. (Never mind, he had just described it as a great way to bring in users but not a great way to make money….you know, the definition of a loss leader.) That’s because smart entrepreneurs realize user generated content still matters, it just doesn’t directly translate to revenues. UGC is the core of why so many people are on these sites and without the eyeballs, the tech platforms don’t have as much negotiating leverage with Hollywood. Without Hollywood, it seems, they may not get revenues anytime soon.

It’s an interesting catch-22 for entrepreneurs and executives. Web 2.0 companies need to shift their emphasis away from UGC, without seeming like they are. In other words, they can’t abandon the soft, fuzzy ROI of UGC, as much as the immediate need to make money is pressing down on them. Otherwise, they risk driving users away and opening the door for the next wave of Web upstarts—the same way Web 1.0 did when its leaders stopped chasing eyeballs in favor of premium services and subscriptions.

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