Report: Video Download Market Will Fail

A prominent research firm is calling the for-pay video download industry a "dead end," saying free ad-supported streams would likely take their place. The peak for the industry will come this year, it claims.

According to Forrester Research, premium video downloads will reach revenues of $279 million in 2007, up from $98 million the previous year. Such a market shift could have major implications for products like Apple TV, which depend heavily on the industry.

However, the long development time for Apple TV forced Apple to make decisions on how to handle content on the device long before the market developed. At that time, it was thought that paid video downloads would take off; ad supported video did not exist yet.

"The paid video download market in its current evolutionary state will soon become extinct, despite the fast growth and the millions being spent today," Forrester Principal Analyst James McQuivey said.

Forrester found that less than 1 in 10 online adults have paid for an online video, and that most fell into a group that was willing to spend heavily on content. Without the support of mainstream consumers, the industry is destined to fail.

Forrester predicts that Apple will soon switch to a more open and ad-supported model in order to stay viable. Broadcast networks like ABC have primetime shows available for download free of charge with advertising included. The rise of ad-supported video would also likely supplant the DVR.

"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 added.

Apple could not be reached for comment on the report, but the company has remained adamant that consumers want to own content.

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