The paid video download market is a dead end, according to a new report by Forrester Research, Inc. Forrester estimates that paid video downloads will peak in 2007, generating $279 million in revenue, up from $98 million last year. Instead, advertising models will drive the online video market.
In the past year, companies such as Apple, Amazon, Microsoft, and Wal-Mart have begun offering consumers the ability to download television programs and movies to own or rent. But a recent Forrester survey showed that only nine percent of online adults have ever paid to download a movie or TV show. Furthermore, an analysis of these consumers showed they are 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.
“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 Forrester Research Principal Analyst James McQuivey, in the press release. “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.”
Other implications of such a market shift include:
• Set-top boxes give in to Internet video. Apple will have to rethink Apple TV, shifting it from a closed pay-per-view system to an ad-supported, broadband service provider model that puts YouTube videos as well as ABC.com TV shows directly on the TV. At the same time, Internet-friendly set-top boxes from Cisco and Motorola will give Comcast and Time Warner a way to offer competing Internet-based, ad-supported content.
• Television networks allow ad-supported downloads of prime-time TV shows. New technology such as the recently announced Adobe Media Player will allow consumers to download video for playback without losing the ads that were sold with the video. Expect ABC to go first in 2008, with other networks quickly following.
• Paid video download pioneers CinemaNow and Movielink shift their expertise to partner with satellite and telco service providers provide video-on-demand (VOD) content without a huge investment in VOD infrastructure.
• Streaming of ad-supported TV shows eclipses DVR use by the end of 2008. Advertisers will cheer because this shift thwarts ad-skipping; consumers will applaud this breakthrough because it’s cheaper than a DVR and is more flexible.
“To attract mainstream viewers, media strategy executives must develop new business models and delivery mechanisms to make video downloading ad-supported and geek-free,” says McQuivey.
The report “Paid Video Downloads Give Way To Ad Models” includes recommendations for media executives and is currently available to Forrester RoleView clients. It can also be purchased directly at http://www.forrester.com/Research/Document/Excerpt/0,7211,42291,00.html
Apple has already signaled their intention to continually develop new software features for Apple TV via free software and/or firmware updates and hinted at iTunes Store video rentals in the future. Please see related articles below.
mm: “Have you actually seen an AppleTV work? I went to an Apple store to see for myself and was very disappointed.”
Apple isn’t selling (renting?) the right content yet. I’m sure it’s just around the corner, though. As soon as they bump up the resolution, the in-store demos will look much better. I do my own encoding from DVD at home at they look dramatically better than the current movie downloads from the iTS. Thanks, Handbrake!
Zachcube – you cube head.
You are limited in your view of AppleTV. I have a ton of home movies, pics and music on my Mac. Now I can show photo slideshows, watch the vids, listen to my music on my home theatre system – all because of AppleTV.
The HD downloads will come but the AppleTV, along with the new software being developed will continue to open a whole new world.
Basically, if all you want is to download HD video, tell me another device that offers that? It’s coming but HD isn’t quite here yet. The bandwidth and download requirements are very costly. I’ve seen some PC versions of wireless video sender/receivers and they are brutal and usually never work because you need a Phd to operate them.
Again, Matt, you are only looking at AppleTV as a tool that is only useful to download content to. Not for utilizing existing content already on your computer.
big article today in the LA Times about ABC.com, which is positioning their TV shows by focusing on their website as THE portal for their shows, to not dilute their brand. Yes, the article mentions they work with iTunes and Jobs is the largest Disney (abc) shareholder. Perhaps AppleTV will become an abc trojan horse box to put abc content right onto AppleTV boxes.
These TV shows from ABC.com do carry some ads, so everyone is kept ‘honest.’
I bought an AppleTV when they came out without really being sure what to expect. The thing is great. It really has changed the way I interact with my TV. I’m in the process of ripping my DVD collection and getting it into iTunes so that I can watch them on the AppleTV.
For those people who complain about the quality, I can only assume they have never seen it. 720p on a 768-line LCD TV is superb – much better than broadcast, even here in the UK, and beter even than DVDs (without upscaling).
I am really looking forward to when I can buy video content from the UK iTunes store (there’s still nothing outside the US apart from a few music videos) and watch it at 720p without ads.
Actually the distinction Forrester seems to be making is that paid, downloaded content is not a sustainable market. Ad based streaming distribution methods will overtake all other methods.
This can not possibly be accurate.
I think the market is heading toward a decentralized distribution process. There will be no single effective medium for content producers or advertisers to operate. Therefore they will have to be active in all spaces the market demands.
There are arguments to be made for each aspect of distribution and money to be made everywhere. The consumer has developed differing methods for acquiring content today and will continue to evolve along the same pattern. Convenience, cost and quality all converge at a different point for each individual and piracy acts a governor for the industry.
It is a dollars and sense equation. It just makes sense to be where the dollars are.
Forrester assumes that the ultimate power lies in the distributors and advertisers hands and ignores the consumer completely. Upside down logic, in my opinion.
This is really a brand new market, still in the process of being created, I don’t think we can really do much of anything at this point except guess at how well downloading tv shows is going to do. Maybe we can see what the trend is and speculate from there. Most of the language in the article as I skimmed it was kind of based on what’s happening moment by moment rather extrapolating a trend from the data. I’m not any kind of online geek and I really enjoy being able to download programs. I’m about ready to drop my Dish subscription.
Increase the number of people on line by 700% downloading 2 hour films and see if internet downloading capabilites remain the same. I don’t think so.
Being civilized has nothing at all to do with technological capabilties. That is, some of the most civilized people I have know were not technologically adept. Also, some of the most technologically savvy people I have known were some of the biggest assholes. Savvy?
This is like saying “the iPod won’t succeed because people buy only an average of 10 songs from the iTunes store”.
Yeah I’d rather drive to the store for a movie…or wait by the mail box….
Instant gratification is for suckers…I like to wait…I wont to wait…
Forrester, what forest have you been living?
Broadcast TV is a dead end!
In a decade it will be replaced by online on demand media. And Apple will be at the forefront of that.
Oh my… get a clue.
If all this comment response is any indication, I’d say that it’s safe to say there is great interest in this emerging medium.
Marshall McLuhan made famous the axiom “the medium is the message”, I guess that because people don’t quite understand this medium yet, they don’t quite get the message.
The message is this: Apple TV = choice
You are the selector.
No longer will television be a non-stop, technicolor torrent of drek. It will become the way people can finally control their daily TV jones, by choice, not by default.
The Apple TV medium is the template for the future of truly selectable, high-quality global televison. Stayed tuned…
Forrester is WRONG
People like to own movies. That is why DVD (and VHS before them) SALES have always been strong – despite having lots of RENTAL options.
People do not like advertising forced on them to watch a TV show or movie on line. I’ve watched CBS shows online and find the “commercial” every 10-12 minutes irritating. Imagine a movie presented this way – ie broken into 15 minute fragments – and it will be since the advertisers know that you would simply get a coffee for the 5 minutes at the start of a movie and “avoid” the commercial pain.
There will be a substantial market for on-line purchases – especially for movies people want to own – just like with current DVD sales. What is threatened is the physical DVD sales at Wal-Mart and Target as well as the Box Office (hey 60″ HDTV here).
Apple TV works great. Handbrake at 2500 kbps and Dolby 5.1 out put to a 60″ HDTV is FANTASTIC!
> Forrester estimates that paid video downloads will peak in 2007, generating $279 million in revenue, up from $98 million last year.
What kind of idiotic “research” is this… It estimates a rise in revenue from $98 million to $279 million, and says that’s where it will “peak.” If revenue is going to almost triple in one year, I’d say that’s far from peaking. Yet another example of analysts who will publish whatever “results” their clients pay them to publish.
Totally off base with this one, but check Forrester’s record with consumer technology predictions (PVR adoption, HDTV advertising) — it stinks. The analyst is a data guy and not a consumer tech guy. I have yet to see a long-term insightful comment from him that shows an understanding of future consumer needs, technology realities, and market forces. Data can’t tell you everything, especially adoption of new tech that consumers don’t know about. And compare with JoshB, the guy who predicted the ITS demise. Both offer predictions but have no real understanding of the market. The evidence is available in terms of their quotes, papers, etc.
Apple TV is underwhelming in terms of content from the ITS TODAY because of resolution issues. At 720p, Apple TV looks great on an $799 LCD HD TV. What is dead is HD DVD and Blu-ray: When ITS goes 720p, there will be little need for those formats outside of those who own a game console. For most, they will move to big fat hard drives with commercial free, no limitation content.
The future is in digital (non-physical) video downloads, and some rentals. Save this one for a couple of years and then ask for a discount with your next Forr membership.
Hey, just thought of something. Don’t suppose part of the Apple TV strategy was to get all us PowerPC slobs to use an Apple Remote? As opposed to GIVING US FRONT ROW AND THE ABILITY TO USE AN APPLE REMOTE FOR $29.00 RATHER THAN $299.00. Just a thought, now back to your regularly scheduled programming.
@mm I put a link to a BBC site. In that feature, they have provided a family with all the latest Home digital equipment including an Apple Tv.
The first reaction the family had was like yours.
Later after they had familiarised themselves with it and had set it up to their liking, they found it easier and faster compared to M$’s media thingy. It was also versatile in that all the content on your PC/imac is available for veiwing on your widescreen HD monitor.
Given enough time on any type of appliance, you will appreciate or not that appliance.
We should have been discussing the possibility of the death of Blockbuster Video and all who ply in that type of trade.
Movies is one of 10 things that the iTV does…
Movies are selling well on itunes, they are getting new production houses every week…
not to mention to boost presence they will likely go with a rental scheme, to squash blockbuster and netflix
they have the drm, they have the technology, they have the movies.. they can do it.
MDN magic word: music
how do you make this character? ‘’
I am just pasting it
how do I create it from scratch?
mm: “Have you actually seen an AppleTV work? I went to an Apple store to see for myself and was very disappointed. So you may be right that it’s ahead of its time, etc, but for right now it had better get an audience or it won’t be around in the future.”
Sorry I missed your comment, yes I have seen AppleTV up close. I know the source material they provide in the Apple Stores is not optimal quality, they are representing the average quality of video available from Pod Casts and iTunes Store.
As I said the hardware of the AppleTV is fully capable of displaying very high quality video files, it just needs quality source material. But you can’t make average quality video files look stunning on an HDTV. But look at the interface on the device, the images and menus look stunning and crisp.
This device is ahead of its time, I don’t think Apple expects to sell this thing off the shelves yet, but they’re getting things in place so they can get the ecosystem around media distribution set so when the file quality improves they have a full line of products to take advantage of it.
btw,
is OPTION + COMMAND (the cloverleaf next to the space bar) + K.
On a PC it is not likely to display at all (likely you’ll see nothing or an empty square box), it’s not a cross platform symbol, it’s pretty much Mac-only.
But as this is a Mac forum, feel free to use it if you wish.
would be OPTION SHIFT, not command, sorry!
Why do so many people say that Apple TV doesn’t do HD? Just because there isn’t any HD content on iTunes at the moment does not mean that the device doesn’t do it.
I’ve had an Apple TV for 2 weeks now and 720p content looks amazing, some of the HD podcasts are simply stunning.
As an experiment, I have been torrenting (is that a word?) HD movies and TV shows, these are usually mkv format. I then use Visual Hub to convert to an Apple TV compatible format.
I am very pleased with the results and as soon as HD stuff appears on iTunes, I will buy some.
Fortunately Apple will have plenty of time/resources to rethink appleTV because of those collapsing iTunes sales Forrester “reported” last year.
I’m sure it’s a good business making predictions that entrenched companies want to hear, but Forrester just sounds like a b2b version of Dvorak link baiting.