VentureBeat

In a moment of glee for every person who hates social networks and/or the idea that they’re real businesses, research firm eMarketer has dropped its projections for the amount of money spent on social networks in the US, from an estimated $1.6 billion spent on social network ads, to $1.4 billion. It expects social network ad spending to increase by 55 percent this year versus 163 percent last year.

EMarketer feels it now has a better handle on social network ad spending for the more distant future, too. In 2011, it expects $2.4 billion to be spent versus its previous estimate of $2.7 billion.

Here are the reasons for the update to the previous report, which was published in December of 2007. A less rosy outlook on the economy will affect the amount of money spent by advertisers for years to come. Even the market leaders like Facebook and MySpace have yet to present compelling ad revenue models. Both companies, and others, have their own efforts to target advertising to users based on users’ demographic and personal information.

For those of us who think that social network application could partially prove their value through ads, the report now includes information on spending within social networking widgets and their more complex form, applications on Facebook and now other social networks. The fact that the forecast dropped in spite of this is not impressive.

But advertisers, like eMarketer, are still figuring out how to measure these ads, and define how valuable they are. Anyone who has seen a branded virtual good within a social game on Facebook can get an idea of this — what does a branded good mean to a user? Let’s say a user buys a virtual Mountain Dew bottle within a game. Does this mean you can tie that purchase to the likelihood that the user will go out and buy Mountain Dew?

Of course, television and newspaper ads aren’t necessarily more verifiable than social network ads, but advertisers are used to spending money on them. The bulls of social networking, like widget-maker Slide’s chief executive, Max Levchin, already see themselves as more engaging than television. But in order to prove themselves to advertisers on a large scale, they’ll need to bring better metrics to the table than traditional media can offer, and that proven forms of online advertising like search ads can even better offer.

EMarketer, in the meantime, expects to see social networks add new revenue from local advertising and automated social network ad sales.

And for those of us who wonder about whether or not Facebook is breaking even — and should need to be taking out $100 million loans for infrastructure — eMarketer says that it expects Facebook to make $265 million in ad revenue this year, below the previous $305 million projection. Note: The cost to an advertiser of creating branded applications on Facebook isn’t counted here

Of course, anyone reading about the report needs to remember that it doesn’t address other ways social networks make money, like e-commerce, that social networks and their applications are looking at closely.

More than 154 million Americans will watch online videos this year, according to eMarketer’s latest report (purchase required). That’s a 12.1 percent increase from last year. But online video growth is supposed to level off in the coming year, with a projected 3.8 percent annual growth rate in 2012, eMarketer believes, as the market reaches saturation.

Most people, meanwhile, are still busy watching lots of television — 4.5 hours per day, according to Nielsen. And, in fact, broadcasters are looking forward to strong ad sales this year, even as online video startups struggle to monetize.

But it is missing the point to suggest that TV will continue to dominate online video. First of all, online video technology is rapidly improving to allow for faster streaming of longer videos — it’s not currently possible to get a quality, TV-watching experience over the web, but it will be soon. For now, the most popular online video formats are short news, comedy and movie clips, as the eMarketer report demonstrates (see chart).

Second of all, many people — especially people below thirty — are spending hours on social networks, where they can interact with their friends and create their own content, rather than watching pre-packaged shows. Social networks are a great distribution platform for short clips, but they will also likely evolve to be a platform for longer-form videos because they already have the attention of users.

So yes, the shift is happening. That’s why media executives like ex-Disney chief executive Michael Eisner have switched to creating online videos (and finding some success), and why MTV is creating a show featuring chart-topping songs — as voted on by Myspace users. And, that’s why new media funds are popping up, that blend Hollywood, Silicon Valley and Madison Avenue. Examples: Velocity Interactive Group (our coverage), the rumored fund put together by Draper Fisher Jurvetson and Hollywood agency CAA (our coverage), and most recently, the fund put together by Accel Partners, Venrock, Hollywood agency William Morris and AT&T (our coverage). It’s also why more traditional investment banks, like Allen & Co. are busy networking in Silicon Valley (our coverage).