IPTV Set to Boom

Would you be surprised to find that worldwide, 300 million consumers watch ad-supported or subscription-based broadband video content on the Internet? A report published earlier this month by ABI Research predicts that this number will soar to nearly 1 billion by 2012. The company expects that broadcast television content will continue to be supported by paid advertisements. Movie content will be paid for by the consumer, either in subscription or rental fees. And user-generated content such as YouTube will rely on ad revenue.

I wonder how long the traditional “interruption for this important commercial announcement” model will survive. The content producers keep trying to find ways to force viewers to watch the ads, but TiVo and other technology advances will make it difficult to unring the bell. Consumers don’t like ads, and will surf away from the current show to watch something else rather than watch a commercial. Given the nearly infinite content on the Internet, the chances of that viewer ever returning are tiny.

As a result, I still expect to see paid advertising become transformed. Broadcast television is already exploring some interesting new approaches. In sporting events, they continue to run the game in a split-screen window while the ad runs next to it. (The wide format of HDTV makes it easier to do this.) Or they rotate ads in the background or on the scoreboard during play. I also expect to see even more branding of shows and segments as alternatives to separate ads. This blending of the commercial message with the content makes it less intrusive and more difficult to avoid.

As for viewer-paid revenues, that clearly can work so long as the charge is small and the system is easy to use. iTunes and other music download services have sold tens of millions of musical tracks at less than $1. Blockbuster and NetFlix have movie renters expecting “all you can eat” plans for less than the cost of buying one DVD movie a month. Internet TV will be able to get viewers to pay to watch some content, but not pay much. So the economies of scale will have to work overtime to bring costs down to the point where the companies running the services can stay in business.