Report: paid video download is a 'dead end'

This post was originally published on Read/WriteWeb on May 15th, 2007.

Joost vs Amazon Unbox

A new study from Forrester Research predicts that online video download services will see sales peak this year, as consumers move other sources of online video. Read/WriteWeb recently reported that CBS is increasingly releasing content for free or via ad-supported mediums such as, Joost. Further, consumers are confronted with a growing number of video-on-demand options from their cable or satellite providers and Internet services.

Though sales of television and film downloads via services like iTunes and Amazon Unbox will nearly triple this year, according to the report, it is unlikely that such services will see much growth in 2008 and beyond unless the market shifts dramatically.

“The paid download market … is ultimately a dead end,” writes James L. McQuiveny, saying that media producers will need to create new ad-supported business models to survive. The good news for media executives, says the report, is that today’s video downloaders tend to be younger and have higher incomes than the general online population. They’re more tech-savvy and will pump more money into online video this year. However, attracting users outside of those early adopters will be hard without a change in business model and delivery method.

Tempted by better audience measurement and complete control over advertising content, Forrester predicts that media distributors will shift to ad-supported streams, or even downloads. The Adobe Media Player, for example, will allow content producers to offer downloadable Flash video with embedded ads that can be updated and measured accurately.According to the report only 24% of the general Internet population owns a DVR, while 50% of the current video downloaders own one. That mainstream audience, who are not used to time-shifted, sans-advertising television, will likely be less resistant to ad-supported online media. However, notes the report, mainstream viewers “won’t appreciate the value of a download until it can be viewed on the TV screen. Yet only 20% of households, none of them mainstream, are interested in buying a special device to do the trick, and only 4% want to spend more than $100 to do it.”

That seems to spell good news for cable and satellite companies that can push video-on-demand services direct to a viewer’s television, without forcing them to buy extra equipment, and for set-top boxes like the Xbox 360 (which Microsoft says will have IPTV capability by year’s end), Tivo (which already integrates with Amazon’s Unbox service), and Apple TV (which Forrester predicts predicts will become a broadband service provider by its second iteration).

It seems like common sense that free video would win out over pay-to-download in the end, as long as quality is kept high and advertising intrusions are kept to a minimum. But will users really opt for ad-supported streaming video over to save money on ad-free downloadable content? Are the iTunes video store, Amazon Unbox, et. al. part of a dying breed? Or will paid download video services continue to thrive?

[Ed. A recent report by Adams Media Research came to the opposite conclusion, predicting that by 2011 the online video market will be worth $5.8 billion, and bucking today’s trend, the majority of that revenue will be generated through selling downloads not ad-supported content.]

last100 is edited by Steve O'Hear. Aside from founding last100, Steve is co-founder and CEO of Beepl and a freelance journalist who has written for numerous publications, including TechCrunch, The Guardian, ZDNet, ReadWriteWeb and Macworld, and also wrote and directed the Silicon Valley documentary, In Search of the Valley. See his full profile and disclosure of his industry affiliations.

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