November 16, 2008 11:35 pm

Rival forecast to catch YouTube

YouTube is in danger of being upstaged commercially by a smaller upstart backed by News Corporation and NBC Universal as the video-sharing site struggles to make its massive global audience appeal to advertisers.

Hulu, a video site showing only professional TV shows and movies, is forecast to draw level with Google’s YouTube in US advertising revenues next year.

The feat suggests traditional media companies can make money online without having to cede control to Google, as the music industry did to Apple, whose iTunes music store dominates the digital music market.

It also shows the difficulties other social networks might have in generating revenues from their amateur content.

YouTube, for which Google paid $1.65bn two years ago, is by some distance the most popular online video destination, with 83m unique viewers in the US in September, compared to Hulu’s 6m, according to market researcher Nielsen.

But Hulu’s advertising revenues are growing more quickly, according to Screen Digest, a digital media research group.

Neither company breaks out its advertising revenues but Arash Amel, analyst at Screen Digest, forecasts that in 2008 YouTube will generate about $100m in the US, compared with about $70m at Hulu. Next year both sites will generate about $180m in the US, he says. YouTube currently earns around half of its revenues in the US, while Hulu has not yet launched internationally.

“YouTube is in a very tough place right now,” said Mr Amel. “Most of that user-generated content is worthless or illegal. The next 18 months will determine whether or not it was just an expensive mistake for Google.”

Matthew Liu, a YouTube advertising product manager, admits: “We’re in the early stages, I wouldn’t say we’re where we want to be.”

Advertisers prefer to associate products with well-known entertainment brands, said Tracey Scheppach, video innovations director at Starcom, a media agency. “YouTube hasn’t done a great job justifying why advertisers should migrate online.”

Shorter, amateur clips make up the vast majority of YouTube videos. Hulu’s hit shows range from The Simpsons to The Office, from media owners including NBC, Sony, Fox and Viacom.

Additional reporting by Richard Waters and Kenneth Li.

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