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Do 'You' really matter?

User-generated content is all the rage right now. But the thought of 'You' controlling the media and marketing world is little more than breathless hype.

By Paul R. La Monica, CNNMoney.com editor at large

NEW YORK (CNNMoney.com) -- The future of the media and advertising is here and its name is "You."

Time magazine named "You" the Person of the Year. Not to be outdone, the influential industry trade publication Advertising Age selected "The Consumer" as its ad agency of the year.

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Google's $1.65 billion acquisition of YouTube helped validate the business of user-generated content. But some think that only a handful of user-generated media companies will thrive.
TECHNOLOGY FUN MONEY

Average folks are becoming famous (well, for the requisite Warholian 15 minutes at least) by posting amusing videos on YouTube, which was also named by Time as the invention of the year. (Time is owned by Time Warner (Charts), the parent company of CNNMoney.com.)

And during this year's Super Bowl, commercials for Doritos, Chevy and the NFL will air that were either created by or inspired by ideas from everyday people.

But do "You" really matter? Yes. There is no denying that in this age of blogs, MySpace and photo and video sharing sites, it is a lot easier for you to get your voice heard.

"Overwhelmingly, people use these sites because they want to be entertained. You see this shift from watching TV or reading magazines to social networks because people find content produced by other people more gratifying and entertaining than content made by media companies," said Stephen DiMarco, chief marketing officer at Compete, Inc., an online research firm.

Still, all the breathless hype about user-generated content is overdone. "You" are not the death knell for traditional media companies. In fact, "You" could wind up being a fad.

With everyone with a computer and camera now having the ability to try and become the next Steven Spielberg or Maureen Dowd, it's hard to imagine how there won't eventually be a backlash against ubiquitous user-generated video clips, blogs and the like.

DiMarco said there's still a way to go before we reach this point but that eventually, interest in social media could wane.

"At what point do we have social saturation when every person and every marketer tries to film every idea they've ever had? The best content will always rise to the top but there will be a ton that probably won't get covered and people may stop posting when it becomes evident that nobody is interested," he said.

So what "You" need to do is actually generate profits and revenues in order to have a real say. And it's unclear just how effective "You" will be.

There is still some fuzzy math going on when it comes to what makes an online viral video a hit and what makes mainstream media successful. On YouTube for example, a user-generated video that gets viewed more than 100,000 times is typically considered a winner. And most of these videos have no advertising associated with them.

To wit, one of the most buzzed about online videos, of two Chinese kids lip-synching to "I Want It That Way" by the Backstreet Boys, has been viewed about 1.3 million times on YouTube since the video was added to the site in November, 2005.

Meanwhile, a show like NBC's "Studio 60 on the Sunset Strip" or CBS (Charts)' "Smith," which was the first cancellation of the fall TV season, are branded as failures even though they generated nearly 10 million viewers a week and are supported by advertising.

So having a video on YouTube that gets 500,000 clicks is great for the ego. But it's financially worthless unless you can get people to pay to watch it or sell advertising against it.

Sure, sites like Revver and Metacafe are experimenting with ad-supported models that let content creators get paid based on how many times a video is seen. But so far, the amount of money people are making is negligible. For example, the top earner in Metacafe's producer rewards program has taken in just over $25,000.

Andrew Metrick, a professor of finance at the Wharton School at the University of Pennsylvania who specializes in the subject of venture capital investing, said that a company like YouTube is very similar to the traditional broadcast TV networks.

In other words, YouTube is a distributor of content. So in order for the site to thrive, YouTube will eventually need to start selling ads. YouTube probably will be a winner. After all, it's backed by Google (Charts), with its $155 billion in market value and $10.5 billion in cash.

Similarly, social networking sites such as MySpace, owned by Rupert Murdoch's media conglomerate News Corp (Charts)., probably will also continue to do well. But the scores of startups that have cropped up in the past two years to challenge the YouTubes and MySpaces may find it difficult to profit from "You" no matter how creative "You" are.

"There are likely to be only a few winners. MySpace was a steal for Rupert Murdoch and Google probably didn't pay too much for YouTube. But outside of the top three or four companies, I don't see how you support billion dollar valuations for user-generated content," said Metrick.

Turning to advertising, much has been made about how this year's Super Bowl could represent a huge sea change for the industry. The suits on Madison Avenue aren't coming up with commercial ideas for Pepsico (Charts), which owns Doritos and General Motors' (Charts) Chevy, "You" are.

But is that really the case? Mark Stevens, chief executive officer of MSCO, a global marketing firm based in White Plains, New York, said that user-generated contests are nothing more than a marketing gimmick. He doesn't believe that companies or Madison Avenue are really losing control of their marketing to the average consumer.

To that end, the person who won the NFL's Super Bowl ad contest is a director of business for a marketing firm.

And the five finalists for the Doritos contests are hardly amateurs either. According to the Yahoo (Charts)-powered site where people can go to vote for their favorite Doritos commercial, one finalist describes herself as a "location manager and scout for commercials", another is a wedding photographer, two more are filmmakers and the final contestant said he quit a day job in sales marketing to join a firm specializing in "creative video production."

"This idea of having customers generate ad campaigns would be a good idea if it really was consumers," said Stevens. "People winning these contests are not coal miners, cab drivers or people who sell shoes at Bloomingdale's. They are people at small agencies or independents."

Roger Jehenson, co-founder and president of UGENmedia, a New York-based technology firm that helps companies create and manage user-generated ad campaigns, adds that even though more businesses are tuning to consumers to get their marketing message across, many firms are still wary of giving up too much control.

So it's foolish to suggest that Madison Avenue will soon become obsolete and that Fortune 500 companies will tune only to YouTube and Yahoo! Video for their next great commercial ideas.

"There will always be a place for ad agencies. This is just another piece of the marketing puzzle," said Jehenson.

Don't get me wrong. I'm all for people outside of the big mainstream ad agencies or Hollywood TV and movie studios getting the opportunity to showcase their talent. And that is the great thing about the Internet. People have a greater chance of being discovered.

But let's not rush to proclaim "You" the next big thing in media. Just because "You" can create a commercial or a two-minute comedy sketch and easily post it online, doesn't mean that "You" will dominate the media and marketing landscape in the years to come.

"If you look at a lot of user-generated content out there, most of it is terrible. Some of it is catchy and inspired but a lot of it is terrible," said Tim Calkins, a professor of marketing with the Kellogg School of Management at Northwestern University.

Only a handful of user-generated ideas will be successful and even then, odds are that they are going to be financial windfalls for large advertisers as well as the big media companies that own the popular user-generated sites.

And so far, it remains to be seen whether not "You" will ever be able to generate much more than a lot of buzz. Sure, buzz is sexy. But you know what's sexier? Revenue and profits.

The reporter of this story owns shares of Time Warner through his company's 401(k) plan. Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.