Pay-To-Download Video Has No Future?

Forrester Research says pay-to-download video services like Apple's iTunes Store will peak this year as consumers tune into ad-supported - but free - online video.

A new market report from Forrester Research, “Paid Video Downloads Give Way To Ad Models,” claims pay-to-download online video services like Apple’s iTunes music store are doomed to failure as consumers increasingly turn to ad-supported—but free—sources for online video programming.

“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, Forrester Research Principal Analyst, in a statement. “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.”

According to Forrester, only nine percent of online adults have ever paid to download a movie or television show via the Internet and those consumers don’t represent a general market but instead a niche of media and technologies aficionados willing to dive into new services. Forrester argues only a free, ad-supported model will appeal to mainstream consumers, while studios will increasingly opt for subscription-only models which parallel today’s premium and video-on-demand television offerings. McQuivey noted: “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 believes Apple will have to shift its iTunes/Apple TV platform for an ad-supported broadband service which also supports video from non-Apple sources such as YouTube. It also forecasts television networks will enable ad-supported downloads of prime-time programming (with ABC leading the way) with ad-supported television streaming surpassing usage of DVRs by the endof 2008—the move would make advertisers happy, because streamed content stymies ad-skipping. The report also posits that pay-to-download video services like CinemaNow and Movielink will partner with satellite, cable, and telco services to offer video-on-demand platforms.