As an online video content producer, the first question I was asked back in 2006 was: Does it make sense to produce professional video content for the Web, when user-generated content is so popular?

By 2010, it’s clear that while social media changes the rules of engagement in publishing and news, UGC will never win over advertisers; professional content will continue to filter audiences for marketers.

Today, the question has evolved to: Does it make sense to produce professional video content for the Web, when Big Media is looking to the Web for commercial and promotional opportunities?

According to media analyst Craig Moffett, “five companies” — Time Warner, Disney, Viacom-CBS, Comcast-NBC Universal, Fox — “control 85% of video-viewing hours in America. At the end of the day this train ain’t going anywhere that those five companies don’t agree to.”

Indeed, as viewers increasingly watch video online, Big Media is in a strong position.  In reality, though, television and film companies’ playbook is reminiscent of that of the record labels. When you consider that new media shrinks old media, you can’t really blame them.  So between marketers’ lack of appetite for UGC and Big Media’s reticence to open up their archives online, it’s clear there’s a major opportunity here — in between the cream of the crop and the bottom of the barrel.

But, from the perspective of just media consumption, this begs the question: Is there really a need to produce professional videos for the Web when UGC remains popular and traditional media companies are — albeit slowly – turning to digital distribution?

I recently broke down content into several different categories: on the professional level, super-premium and premium; with prosumer being the buffer between professional content and UGC.

Super-premium content can be a 22-minute comedy, a 48-minute drama or a 90-minute movie, distributed on television, the big screen, or going straight to DVD.  The last part connotes the reality that super-premium content is not a description of the content’s quality, but rather its overall production value, budget and resources.

Premium content can be many things.

Print media companies have been creating video content with varying degrees of resources and success – consider examples from WSJ  and Elle.    Let’s face it: What these companies have in journalistic resources and know-how, they lack in videography and video storytelling skills.  But the end product is premium in nature and reminds us all that online, right now, content (and video content in particular) is a means to an end.  Like a cigarette, it is merely a delivery mechanism.

Another large share of premium content comes from new-media video production companies launched by video professionals without old-media baggage.  My company is one example, but other notable players include Next New Networks, Revision 3, as well as the now-defunct Ripe Entertainment.  The programming ranges from host-driven to brand-centric and topical. Ultimately, all have some degree of professionalism and planning that emulates some of the best practices of old media — but they all lack the overall polish and resources (sometimes on purpose) of traditional media.

At the prosumer level, we have “ordinary Joes” whose extraordinary talent, sense of humor, delivery, determination and overall mojo (and understanding that anything goes online and good marketing will find an audience for your shtick) propels them into the limelight.  These include: Nalts, Niga Higa, iJustine, Fred to name a few. Some of these prosumer producers have gone on to build massive businesses with cash flow, clients and credibility.  Fred and Niga Higa, for example, are two of the most popular content providers on YouTube.  Fred, in fact, is backed by a production company and Niga Higa has worked with advertisers that would make so-called established media firms blush with envy.

The point is, the spectrum of premium content among professional videos is wide and varied, and all of them are vying for advertisers’ dollars, even though most online video content will probably remain promotional in nature and not commercial.

I’ve already examined the main three marketing challenges facing content producers.  Currently, the main commercial challenge facing producers is the nascent nature of video advertising.  The market is not only small, but as it grows, the first beneficiaries will be:

–        Traditional media companies that offer video inventory (think ESPN, Disney, etc.).

–        New-media companies that have been around for ages (think MSNBC, Yahoo, etc.).

–        New new-media companies that own the video space (think Hulu or YouTube).

The problem is most will not get enough dollars to merit their continuing to produce content, which, regardless of the production value, is expensive.   So over time, new-media producers need to justify their raison d’etre, especially as social media continues to grow in popularity (if not commercialism).

Indeed, it’s ironic that on YouTube’s five-year anniversary, the video company that was getting coverage in the NY Times was not a producer of premium content or an aggregator thereof — but rather ChatRoulette, which makes YouTube seem like a “Sesame Street” project.

If online video advertising has yet to match its lofty expectations, it’s certainly due to UGC and unsafe environments in which viewers watch videos.   But over time, inefficiencies create opportunities for abnormal profits.  Since advertisers always follow audiences and audiences are moving online, the more scarce the inventory of professional content, the better the long-term opportunities for rights-holders.  The payoff might be far away, but patience is a virtue and to the victors go the spoils.

Come back in two weeks when we look at other challenges and realities of online video.