Paid Video Downloads Soaring, but Will Crash and Burn

May 16, 2007

This article is included in these additional categories:

Broadcast & Cable | Media & Entertainment | Retail & E-Commerce | Television

The paid video-download market has nowhere to go but down after it peaks this year, according to a report by Forrester Research. Paid video downloads will generate $279 million in revenue in 2007, Forrester estimates; that’s up from $98 million in 2006.

Instead, advertising models will drive the online video market, according to the report, “Paid Video Downloads Give Way to Ad Models.”

Only 9% of online adults have ever paid to download a movie or TV show, and they constitute a niche of media junkies willing to spend heavily and do not represent the vanguard of a rush by mainstream consumers, Forrester said.

They watch nearly 32 movies/videos online per month, compared with the 9 or so that’s the overall average; nearly 7 of 10 are men; and they are, on average, nearly 5 years younger than the overall online population and make $13,000 more per year, according to the report.

Some 7 million paid to download video in 2006, and Forrester expects that number to increase to 11 million in 2007, on average spending $25 each for downloads.

However, “[t]he paid video download market in its current evolutionary state will soon become extinct, despite the fast growth and the millions being spent today,” said Forrester Research Principal Analyst James McQuivey.

“To attract mainstream viewers, media strategy executives must develop new business models and delivery mechanisms to make video downloading ad-supported and geek-free,” McQuivey said.

Among the changes that Forrester suggests and forecasts:

  • Set-top boxes will give in to internet video. Apple will have to rethink Apple TV, shifting it from a closed pay-per-view system to an ad-supported, broadband service that puts YouTube videos and TV shows directly on the TV. At the same time, internet-friendly set-top boxes from Cisco and Motorola will give Comcast and Time Warner a way to offer competing internet-based, ad-supported content.
  • Television networks will allow ad-supported downloads of primetime TV shows. New technology such as the Adobe Media Player will allow consumers to download video for playback without losing the ads that were sold with the video. Expect ABC to go first in 2008, with other networks quickly following.
  • Paid video download pioneers CinemaNow and Movielink will shift their expertise to partner with satellite and telco service providers provide video-on-demand (VOD) content without a huge investment in VOD infrastructure.
  • Streaming of ad-supported TV shows will eclipse DVR use by the end of 2008. Advertisers will cheer because this shift thwarts ad-skipping; consumers will applaud because it’s cheaper than a DVR and is more flexible.

Related story: Forrester: ‘Social Technographics’ a Prerequisite for Social Strategy

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