Annual U.S. revenue from Internet video services is expected to exceed $7 billion by 2010, up from about $1 billion this year, a market research firm says.

Along with the revenue growth from services spanning user-generated content to television shows and movies, Parks Associates expects to see a shift in the revenue mix. Next year, about 85% of revenue will be from ads attached to video. By 2010, services for renting and downloading TV shows and moves are forecast to account for nearly 40% of total revenue.

Online distribution has boosted ad revenue and the number of viewers for current prime-time TV programming, Parks Associates said. In addition, the Web has served as a strong differentiator for shows in an increasingly fragmented market.

The market researcher believes active users of portals specializing in user-generated videos and social networking will be the early buyers of video, and recommends that content creators work closely with these Web sites.