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Study: Paid Video Downloads a Dead End

14 May, 2007 By: Erik Gruenwedel

The nascent electronic sellthrough market for video is about to go bust, according to a new report from Forrester Research.

Cambridge, Mass.-based Forrester said that despite forays by Apple, Amazon and Wal-Mart to offer movie and TV episode downloads for rent and purchase online, 2007 will see the market top out at $279 million in revenue, compared to $98 million in 2006.

In a survey, Forrester found that just 9% of adults online had ever paid to download a movie or TV show. While this market demo tends to “spend heavily” for content, the report found it did not represent mainstream consumers, thereby relegating the market to niche status.

“The paid video download market in its current evolutionary state will soon become extinct, despite the fast growth and the millions being spent today,” said principal analyst James McQuivey in a statement.

He said TV and cable networks would begin shifting the bulk of paid downloading to ad-supported streams where they have better control of ads and effective audience measurement.

McQuivey said that with movie studios' content representing just a fraction of paid downloads, they would continue to migrate electronic sellthrough towards subscription models that imitate premium cable channel services.

The report found that video-on-demand set-top box services would be challenged by ad-supported broadband Internet video content.

“Apple TV will have to rethink Apple TV, shifting it away from a closed pay-per-view system to an ad-supported, broadband service provider model,” according to the report.

TV networks, led by ABC TV in 2008, would increasingly adopt media players such as the one offered by Adobe that allows consumers to download video with the ads included.

The report said video download pioneers CinemaNow and Movielink would soon collaborate with satellite and telecommunication providers to offer their VOD services.

Finally, downloaded ad-supported TV programming would eclipse digital video recorder use by 2008 due to the reduced cost and flexibility to consumers.

“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.

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