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Consumers Like Online Video, But Business Model Still Evolving

Revenues from Internet video services are expected to grow from $1 billion in 2006 to $7 billion in 2010
Interest in video delivered over broadband is growing among consumers, but strategies for building a business around the Web-based content remain elusive, a research firm said Monday.

Media companies are increasingly offering ad-supported video, either for sale as a download, via subscriptions or as rentals, JupiterResearch said in its latest report on the online video market. However, no strategy is a clear winner, and revenues will probably remain modest for the next several years.

Indeed, market researcher Parks Associates expects about 85 percent of U.S. revenue this year to come from ads attached to video. By 2010, however, services for renting and downloading TV shows and movies are forecast to account for nearly 40 percent of total revenues. By 2010, revenues from Internet video services are expected to exceed $7 billion from $1 billion in 2006.

The main benefit today from Internet-delivered video is in building an audience or increasing loyalty for traditionally delivered TV programming. "Broadband video nicely complements TV today, but this grace period won't last forever," JupiterResearch analyst Joe Laszlo said in a statement.

Internet video is expected to gradually substitute traditionally delivered content, so media companies should prepare for this new audience shift in their mid- to long-term plans, Laszlo said.

In the meantime, companies should take advantage of the fact that recommendations from friends and Internet search remain the most important factors driving people to watch online video. Examples of tactics to drive viewing include an "e-mail this video" link on a page, or using URLs short enough to post in an IM window.