Already enjoying rapid growth, the online video market is expected to explode to record $4.5 billion in sales by 2012, according to a report released Wednesday by analyst firm In-Stat.

In its "World Report on Online Video" In-Stat singled out Netflix's flat monthly fee approach as the model that will dominate the purchased/rented video market in the next few years. In-Stat said the market is expected to record $1.2 billion in sales this year.

"What is now seen as a predominately younger pastime will spread to encompass a wider group of people," said In-Stat analyst Gerry Kaufhold in a statement, "in part due to the aging of current online video viewers, but also as a result of word of mouth, spread of services, growth of in-home networks, and new network-connected consumer electronic devices."

In-Stat said 54% of respondents to a recent consumer survey said they favor purchasing physical disks when they buy movies or TV shows. "Over half of consumers actually still prefer packaged goods, which bodes well for Blu-ray discs," said Kaufhold. "Surprisingly, younger people who regularly watch online were the group that expressed the highest interest in owning a package goods bundle that includes artwork and extra content."

The market research firm predicted also that advertising-supported video from major TV networks will contribute strong revenues by 2012.

In May, Netflix launched a player built by Roku that streams Netflix movies and TV shows to TV sets.

In its survey, In-Stat found that 90% of U.S. households will have access to broadband by 2012 with 94% of that sample planning to watch video online.