Is User Generated Content a Financial Albatross?

Connor Kyle pointed me to an interesting article on Slate.com about the very high costs of running a user generated content site.  Not surprisingly, YouTube is blowing through cash and not able to make enough ad-revenue to turn a profit.  In fact the article points out that YouTube’s anticipated $470M 2009 loss is more than 5 times than that of the struggling Boston Globe with an $85M loss.

User generated content sites that depend on ad sales as their primary revenue stream are classic two-sided platform networks.  Typically there is a start-up problem for revenue generation on these sites; the site must have enough users in order to attract big-spending advertisers.  However, once the magical user threshold is reached and advertisers come knocking, so much money has been invested in developing the technological infrastructure and operating costs are so high to maintain the large amounts of content and traffic that the site will need massive amounts of ad revenue to ever turn a profit.  Even the king of on-line advertising, Google, can’t figure out how to turn a profit on the most popular user generated content site on the Web.  What hope does this give to companies like Twitter who are still trying to figure out their revenue model?