Predicting Next Year’s Model

May 21, 2007  •  Post A Comment

iTunes will need to change its business model to enable ad-supported downloads of television shows if it is to survive.

That’s the finding of a Forrester Research report released last week that declared the paid download market a “dead end” because only 9 percent of online adults have ever paid to download a TV show or movie.

The market is unlikely to expand beyond those “affluent geeks” and video junkies. “Only with ad-supported content will Apple be able to compete with the power of free television and TV-quality Web streams,” Forrester analyst James McQuivey said.

TV networks should place their online-video focus on ad-supported streaming shows as a way to attract mainstream viewers to online TV, he said. Last week, ABC announced it would offer its prime-time shows in high definition on ABC.com starting this summer. The ABC.com player is ad-supported.

While consumers will spend more money this year on online downloads-shelling out $279 million compared with $98 million last year-that growth isn’t sustainable unless mainstream viewers start downloading videos, Forrester said. Most won’t do so until connecting a PC to a TV is easier. As a result, media companies will start shifting their download content to ad-supported models, Mr. McQuivey said.

“[Ad-supported] is what producers are used to and it makes consumers adopt quickly. If you make them pay, it slows down their willingness to try it,” Mr. McQuivey said.

Forrester also predicted the streaming of ad-supported shows will eclipse DVR usage by the end of 2008 and that more than 10 percent of the U.S. population will have connected their computers to their TVs by early 2009, further speeding the advertising model for online TV.

Other market analysts disagree with Forrester’s black-and-white view of video downloading. Paid content won’t die; it will co-exist with ad-supported variations because it’s convenient and works for consumers who don’t want to watch any ads, said Kaan Yigit, analyst with Solutions Research Group.

“Buying is about saving time, convenience and being able to do what you like with the content without always having a live Internet connection,” he said.

Since its inception, iTunes has sold more than 50 million TV episodes. The iTunes store offers 350-plus television shows.


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