Despite the popularity of online video, new research shows that European content owners are struggling to turn a profit as delivery costs in many cases exceed advertising revenues. By comparison, businesses in the US have been more successful at making money from online content, having negotiated better technology distribution deals and established more effective advertising strategies that include sponsorship and run of site, rather than the inventory based deals that prevail in Europe.

Screen Digest Head of Broadband Media Arash Amel forecasts that – despite the large audiences, online TV in the UK will represent less than 2 per cent of total TV revenues by 2012. A combination of the limited reach, underdeveloped advertising sales strategies and prohibitive costs from online video services in the UK are responsible. Amel further asserted that only 10-15 per cent of all online video consumed in the UK is actually monetisable with content from the BBC's online services and user-generated video from YouTube combining to dominate online video consumption in the UK.

According to Amel, "The current economic model for ad-supported online video distribution in the UK is not working. Commercial UK ad-supported online video platforms are generally loss making, or providing very low profit margins, because of a failure to sell advertising effectively or syndicate their platforms. But the critical question bubbling under the surface is who will pay for the bandwidth. With data transfer costs continuing to rise in relation to falling broadband prices, and so much online video in the UK now either not directly monetisable or loss making, the online video value chain whether for video delivery or service provision will face critical challenges."

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