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iTunes-like Video Services Have no Future
By: Reuters   |   May 14,2007
Online video sites that sell shows and movies such as Apple Inc.'s iTunes will likely peak this year as more programming is made available on free outlets supported by advertising, according to a study released on Monday.

Sales of movies and television shows are expected to almost triple to $279 million in 2007 from an estimated $98 million last year. But unless the average consumer begins paying for their online video en masse, growth in sales will likely peter out next year, according to Forrester Research.

"In the video space, iTunes is just a temporary flash while consumers wait for better ways to get video. They're already coming," said Forrester Research analyst James McQuivey, the author of the study, who also called the paid download video market a "dead end."

Forrester estimated that sales growth is not likely to triple or even double in 2008 and beyond, after early adopters and media addicts have already started using the services.

Confusion over different video file formats, difficulties watching downloaded videos on television screens and other technical problems have kept average users from paying for shows online.

Efforts by traditional media distribution companies to make more of their shows available for free on the Internet—including the Hollywood-backed film service MovieLink, Wal-Mart Stores Inc.'s service and Amazon.com Inc.'s Unbox service—are also working against paid services.

Led by Walt Disney Co.'s ABC.com, TV networks including News Corp.'s Fox are offering some hit shows online for free.

News Corp. and General Electric Co.'s NBC Universal also launched a joint venture to distribute a combined archive of shows over the Internet.

"Free is going to win," McQuivey said.

Cable TV service executives and set top box makers are also seeking to make online videos easier to watch on big TV screens—a major topic of discussion at last week's cable industry trade show in Las Vegas.

Earlier this year, Time Warner Inc.'s AOL struck a deal to make its videos available directly on Sony Corp. flat-panel televisions.

Currently, only about 9 percent of online adults have paid to download a program or a movie, the study said. These people spent an average of $14 each to buy videos last year and will likely spend more this year as new online outlets debut.

McQuivey advises media companies to make their content available on all distribution platforms, but pay more attention to those that let users share content within a home network.

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