According to a new forecast from IDC, internet video services will generate over $1.7bn in revenues by 2010, an increase of more than $1.5bn from 2005.
Much of this growth will be fuelled by a surge in the amount of premium content made available online.
However, the analyst firm warned that the market’s potential could be dampened by technical and legal hurdles.
IDC described how the market for internet video services began a “dramatic acceleration” in 2005 as content owners, once unwilling to offer their products online, started to experiment with digital distribution as a way to complement existing business models and to stem illegal P2P file sharing and piracy.
In particular, the television networks’ decision to offer episodes from new shows as well as old content sparked significant interest in internet video, IDC noted.
“The internet video market has huge upside. With that upside, however, comes the risk to content owners of cannibalising existing revenue streams,” said Josh Martin, associate research analyst for IDC’s consumer markets video programme.
“In order properly to take advantage of this emerging market, content owners, aggregators and consumer electronics manufacturers must understand the challenges the market faces and how to overcome them.”
Key drivers for the adoption of internet video, according to the IDC study, include the expansion of premium content offerings online and the emergence of home networking systems that allow consumers more easily to view internet content on their televisions.
As services become increasingly common, content owners will leverage internet video to complement existing revenue streams and to generate additional revenue from archived content and new content created specifically for the service.
IDC expects content owners to migrate towards three basic service types. Advertising-based services are expected to remain the dominant type of internet video service, although its share of total market revenue will decline as à la carte services, buoyed by consumer familiarity with Apple’s iTunes, grow dramatically over the next two or three years.
Subscription-based services will experience steady growth throughout the forecast period, enhanced somewhat by the emergence of home networking solutions that make subscriptions more appealing to consumers.
In order to sustain the momentum gathered in 2005 and maximise opportunities for success, content owners and service providers will need to overcome important problems, including licensing issues, inadequate video search, competitive challenges, and the issue of how to move content beyond the PC.
IDC believes that companies involved from the creation to distribution of content will have to partner with others across the value chain to create appealing, flexible services that will evolve into viable businesses.
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