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BEST PRACTICES SERIES

A plane hit a building in New York. I saw it on the evening news. The evening news saw it on YouTube. Right in the middle of the broadcast, the anchors cut to a YouTube video of the tragic event. The audience is making the news these days.

User-generated content is far from new, from America's Funniest Home Videos (or sassiest kitties, or whatever) to fan-submitted song parodies on Howard Stern's show. And for decades, letters to the editor have filled a lot of column inches with readers' own words.

Actually, the rise in respectability from "amateur contributions" to "user-generated content" or "grassroots media" may be the real news. While journalism originated from the ink-stained hands of the people, it has long been dominated by professionals, who—while offering a polished perspective—also often filter content through a sieve of ad models and overt or covert bias.

Online, user-generated content (UGC) delivers popular or personal opinions in the undiluted voice of the people directly to an audience comprised of one or many. Measurable exposure—eyeballs—is not a requirement for UGC, but where audience numbers dovetail with content, business models inevitably emerge.

Wow. That almost sounds like a pre-bubble, pseudo-business model. The difference now is that the billions of investment and acquisition dollars tend to be held back until the convergence actually occurs, not tossed around like gold rush money in a ghost town waiting to happen.

Yet online, business models (not unlike content) are transient. Premium content is the darling one day, ad-supported content delivery the belle of the ball the next. Digital content providers need to be nimble, keeping their eyes on the eyeballs, ready and able to shift strategies as the game plays on.

Unfortunately, that makes investment in the industry far from a sure thing. One thing is for sure: content plus consumers yields revenue. So when the consumers create the content—well, the intersection is inevitable. Perhaps that's why entrenched and emerging media alike are scrambling to inspire users to create their own. Problem is, planned communities usually bear little resemblance to their organically grown counterparts.

So out come the checkbooks. As exhibited by News Corp's $580 million acquisition of Intermix Media (known for its MySpace online community), those shopping for content villages had better be prepared to spend big. While the acquisition more than doubled News Corp's online audience, the price tag seemed hefty. However, MySpace.com reportedly served an eighth of all online ads in June 2005, the month it was acquired, so News Corp. simply made an investment in rejuvenating its virility as newspaper advertising declines.

A company with no shortage of advertising, Google, announced a multi-year search technology and services agreement in August whereby Google would be the exclusive search and keyword-targeted ad sales provider for News Corp's Fox Interactive Media network, including MySpace. Under the terms, Google must make guaranteed minimum revenue share payments to Fox of $900 million, based on Fox achieving certain traffic and other commitments. Only a year later, that $580 million price tag doesn't look quite so unreasonable.

Then Google went and spent $1.65 billion on YouTube. The multimillion-member community is the darling of the latest UGC craze—video sharing. All the infrastructure pieces—from broadband to the proliferation of digital video cameras and usable web delivery tools—are finally in place to deliver web-based video to the masses, and YouTube built a formidable community around creating, sharing, and commenting on video.

While the acquisition provides access to millions of viewers along with increased video-advertising opportunities, which augment Google's successful text-based ad business, it also provides Google with fodder to develop robust video search. As we've seen with other forms of content, search has arisen as the entry point to most content discovery. So it goes without saying that making it easier to find video will help make streaming and other web-based video delivery all the more popular.

But over one and a half billion? Even for a company that announced $2.69 billion gross earnings for Q3 2006, that's one heck of a price tag. As Rafat Ali, publisher of PaidContent.org, succinctly put it, "They paid too much." But things aren't that simple. He goes on to point out that while paying cash "would have been crazy," the purchase arrangement "represents less than 1% of Google's stock."

However, the truly complex part remains, as Ali says, that "these things are difficult to value; they are based on future potential." And without a doubt, the future for user-generated content online—and for the media and technology companies that can harness its power—looks awfully bright. and overt or covert bias.