Paid Downloads on the Way to Extinction: Ads and Subscriptions are the Future

That's the word from Forrester Research analyst James McQuivey. (I'll bet Steve Jobs doesn't agree with him.) Here's the alert I got from them this morning (and here's the press release):

The paid video download market is a dead end according to a new report by Forrester Research. Forrester estimates that paid video downloads will peak in 2007, generating $279 million in revenue, up from $98 million last year. Instead, advertising models will drive the online video market.

In the past year, companies such as Apple, Amazon, Microsoft, and Wal-Mart have begun offering consumers the ability to download television programs and movies to own or rent. But a recent Forrester survey showed that only nine percent of online adults have ever paid to download a movie or TV show. Furthermore, an analysis of these consumers showed they are a niche of media junkies willing to spend heavily on such content; they do not represent the vanguard of a rush by mainstream consumers. Without mainstream viewers joining the party, the video download market will not grow fast enough to support the ambitions of all the companies involved.

"The paid video download market in its current evolutionary state will soon become extinct, despite the fast growth and the millions being spent today,” writes well-respected Forrester analyst James McQuivey. "Television and cable networks will shift the bulk of paid downloading to ad-supported streams where they have control of ads and effective audience measurement. The movie studios, whose content only makes up a fraction of today's paid downloads, will put their weight behind subscription models that imitate premium cable channel services.”

I don't agree with McQuivey's take on this -- I think media companies that crank out TV shows and movies enjoy being able to charge for them a la carte, on DVDs or as downloads, and I think they're going to do what they can to preserve that model, alongside advertising and subscription programs. They'll try to sell new, premium content as paid downloads (on Apple's iTunes and elsewhere), and make available slightly older stuff in subscription services, or free and supported by ads.