Nico Nico Douga is a Japanese video sharing site that has rapidly gained popularity in Japan. Nico Nico Douga was launched in mid-December, 2006. A little more than a year later, in mid-January, 2008, the site had about 5 million users. As of October, 2007, the site’s Japanese users amounted to 27% of YouTube’s Japanese users, but Nico Nico Douga’s users had 43% greater video viewing time and 49% greater number of visits per month than YouTube’s Japanese users. Nico Nico Douga has been astonishingly successful in rapidly acquiring a large number of relatively active users.
A signature feature of Nico Nico Douga is that users are able to add text comments within videos. Much research and analysis supports the value of integrating sensory modes of communication (but I’m still waiting for a show-and-tell mobile communicator). Other sites, however, have not been successful with this feature. Mojiti, one of several sites that has provided commenting within videos, disappeared. Hulu, an NBC-News Corp joint venture, is rumored to have purchased Mojiti, but Hulu does not currently offer commenting within videos. Part of the problem may be rights issues. Adding comments within a video might arguably be creating a derivative work, or be a violation of the creator’s moral right to the integrity of her or his video work. So perhaps the reason that Nico Nico Douga has successfully implemented in-video comments, and popular U.S. video sites have not, is that the U.S. has many more copyright lawyers than does Japan.
Nico Nico Douga’s revenue comes mainly from premium membership fees. The site, which requires users to register to view videos, offers free membership and premium membership. The number of free members granted access to the site is limited during the prime usage hours 7pm to 2am. Premium membership costs 525 yen (about 5 USD) per month. Premium membership gives the user unrestricted access time, more bandwidth, more storage, mobile services, and other additional customization options. Premium members account for only about 3% of total members. But premium membership fees account for about 67% of the site’s revenue. The remaining 33% of revenue comes roughly equally from banner ads and an affiliate program. Nico Nico Douga’ business model thus contrasts sharply with video sites that emphasize video distribution and advertising.
Many video sites are currently struggling to generate ad revenue. YouTube’s U.S. (ad) revenue for 2008 was recently estimated at 90 million USD. Some estimates put total U.S. online video ad revenue for 2008 at 0.5 to 1.4 billion USD. Perhaps 50% of that ad revenue will be from display ads on video play pages, 40% from pre-roll video ads, and only 10% from in-video ads. Online video ads confront some significant challenges. Most fundamentally, unless online video ads work significantly differently from other types of traditional advertising, the size of the total ad market will be limited to perhaps 1.5% of GDP. In that scenario, online ad revenue will come only from winning tough competition for attention with traditional media.
Nico Nico Douga’s annualized revenue in January, 2008 amounted to about $25 million USD. That’s not bad for a business in operation for a little over a year. Profitability for online video sharing and social networking sites is possible. But betting solely on advertising-supported business models probably isn’t a good idea.
 These data are from Fumi Yamazaki’s review of Nico Nico Douga on Joi Ito’s Lab Blog. From the linked Nielsen/Netratings source (in Japanese), and other data I’ve inferred the specifications of the numbers.
 Calculated by scaling up Y 101 million revenue in Nov. 07 with 86,000 premium members to 174,000 premium members in Jan. ’08.