Paid video downloads have no future - study

Posted by Wolfgang Gruener

Cambridge (MA) – Forrester is one of the first market research firms to question the opportunities of paid video download services.

Companies such as MovieLink, CinemaNow and even Apple may have to reconsider their video distribution models. According to a study released by Forrester today, paid video downloads will not be able to live up to their high expectations and convince a mass market to pay for digital versions of movies and TV series. The market research firm estimates that only 9% of online adults have ever paid for a movie or TV show download – and Forrester believes that paid video downloads will remain a niche “of media junkies” willing to spend heavily on such content.

“They do not represent the vanguard of a rush by mainstream consumers. Without mainstream viewers joining the party, the video download market will not grow fast enough to support the ambitions of all the companies involved,” Forrester said. The company predicts paid video downloads to peak in 2007 with revenues of $279 million, up from $98 million in 2006. Further down the road, the company believes that advertising-supported content will take over the online video market.

“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 James McQuivey, an analyst with Forrester. “Television and cable networks will shift the bulk of paid downloading to ad-supported streams where they have control of ads and effective audience measurement. The movie studios, whose content only makes up a fraction of today’s paid downloads, will put their weight behind subscription models that imitate premium cable channel services.”

Forrester said that future set-top boxes will support Internet video, which will also mean that Apple may have to change the core functionality of its Apple TV device. Instead of a closed pay-per-view system, the company could shift to an ad-supported, broadband service provider model that enables access to Internet content from services such as YouTube as well as commercial content from traditional TV broadcasters. These broadcasters are expected to shift their focus from $1.99 downloads to ad-supported downloads of prime-time TV shows, which will run on software such as Adobe’s recently announced Media Player. Compared to a one-time download, this model keeps ads originally sold for the TV in place and enables the networks to track the use of their content.

Forrester also predicts that CinemaNow and Movielink will change their business models and partner with satellite and telco service providers provide video-on-demand (VOD) content. Overall, use of streamed ad-supported TV could exceed DVR use by the end of 2008, the firm said.