Free Video Downloads Will Overtake iTunes Soon -- Study

Sites like Apple's iTunes, which sell video downloads of movies and TV shows, will likely peak this year and then cede share to sites that provide such offerings for free, according to a new study by Forrester Research. Sales of movies and TV shows are forecast to nearly triple to $279 million this year from an estimated $98 million in 2006, but they are expected to dwindle sharply next year. Many consumers have avoided paying for video content out of concern over how to replay material on their TVs and confusion over file formats. Study author James McQuivey calls iTunes a "temporary flash" while consumers await better options that are already on their way. For-pay video download sites have to compete with media distribution companies that are making their material available for nothing, including MovieLink and Amazon's Unbox. On the TV side, Walt Disney's ABC.com and News Corp.'s Fox are releasing hit programs for free. News Corp. and NBC Universal, which is owned by General Electric, have put together a JV to create an archive of shows available online. The paid download video market is a "dead end," according to McQuivey. "Free is going to win."

Sources: Press release, ZDnet, PC Magazine, Playlist
Commentary: MGM Catalog Hits iTunes, Pushing Apple's Library Above 500 Titles • Lionsgate Now Showing On iTunes • Forget the iTunes Store: Disney Offering Free TV Programing at ABC.com
Stocks/ETFs to watch: Apple (AAPL), Amazon.com (AMZN), The Walt Disney Co. (DIS). ETFs: Internet Architecture HOLDRS (IAH), Internet HOLDRs (HHH)
Conference call transcripts: Apple F2Q07 (Qtr End 3/31/07)
Related: Apple iTunes

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Comments

[Jon T:]

Slightly ridiculous argument in my opinion. There is plenty of "free" that is shunned by consumers because the free experience is so terrible.

2007 May 15 06:36 AM

[Macbth:]

Users don’t like to change the way they do things.
They are not going to abandon iTunes if it works for them.
Example – the use of IE over Firefox.
The average person don’t change habits.

2007 May 15 08:08 AM

[Tom B:]

1) It doesn't matter; hardware sales are more importnat to Apple than content sales.
2) The file format arguement is a bit of a straw man; if you just stick to iTunes and have Quicktime installed, you've covered all the formats of consequence. Sophisticated users can add in DiVX, as well.
3) And this "free" content will be-- ad free? Didn't think so...

2007 May 15 08:28 AM

[huangjin:]

Why would I pay iTunes even $1 for a show I can get for free on NBC, Fox, or ABC.com?

2007 May 15 08:28 AM

[Richard Alv...:]

Because it won't always be there. Look for season one of Lost or 24 online. Can't? well you can on iTunes.

2007 May 15 08:52 AM

[Martin Hill:]

I’m afraid Forrester Research has lost all credibility now. Remember, this is the research group that determined that iTunes music sales had collapsed – shortly before Apple released figures that demonstrated they had in fact increased and were now selling at a record 5 million songs per day and had hit the 2.5 billion sold mark.

Forrester’s argument that free (ad-supported) video content will always trump paid (ad-free) video is frankly quite unbelievable. It appears they mustn’t have heard of people paying for DVDs of TV shows and movies (which they could get for free on TV). Horrors. Or paying for Cable vs free-to-air TV. Perhaps they have also not realised just how much a large proportion of the TV audience just loathes commercials.

I’m sorry, I can’t take this report seriously at all. See Blackfriars for a great take on the subject:

www.blackfriarsinc.com...

-Mart

2007 May 15 10:42 AM

[jbelkin:]

2aday.wordpress.com/20.../

2007 May 15 01:04 PM

[huangjin:]

I watch Lost online already, I have to sit through 3 30-sec ads. I don't like commercials, but paying $1 for 1:30 of time is $40 an hour. How many peoples' time is worth $40 an hour?

I'm sure iTunes can still make money, even in a world of free content, because there is tons of content to deliver in a myriad of ways. But the Internet allows for perfect competition, and free goods and services can wipe a market out in a short period of time.

2007 May 15 05:48 PM

[Hayweed:]

Question is downloads or video streams. Itunes allows you to download, move to apple tv and then watch on your living room widescreeen tv. Most video streams are small, if blown up are grainy and you have to watch at the computer, Hope you have the apple 30 inch monitor. I do but things like mlb tv blown up are a little distorted. But if you want to watch at the computer and watch the ads good for you. If you want to watch them on your tv or at the gym on your ipod, itunes is the way to go.

2007 May 15 07:55 PM