Net video subscriptions to go prime time

Video streaming subscription services will take off in the next several years, according to a new study, which estimates that the market's value will reach $4.5 billion in 2007.

The 2007 figure is a more than a threefold increase from the $991 million in revenues expected from digital video subscriptions this year, according to research from In-Stat/MDR, a Scottsdale, Ariz.-based research company. Factors leading to the growth include greater broadband adoption, increased consumer willingness to pay for online services and higher-quality content being created for the Web, according to the study, called "Consumer Oriented Subscription Video Services Over IP Networks."

"The world of online content is undergoing a three-way metamorphosis, creating opportunities for major media companies and large service providers to finally get their fingers into the Internet revenue pie," Gerry Kaufhold, principal analyst at In-Stat/MDR, said in a statement.

Streaming video has long been promoted as the Net's next killer app, but limitations to technology, content and broadband have hampered development. Today, technology companies have made vast improvements to video compression software in terms of speed, quality and cost. Analysts also estimate that between 20 million and 30 million households are surfing the Net with high-speed connections; In-Stat/MDR expects that more than 130 million households will be hooked up by the end of 2007. And as video services begin to stick in some areas, Net companies are developing new services.

Companies that stand to benefit from subscription video sales include RealNetworks, which has already signed up nearly a million subscribers for its RealOne SuperPass service, a video and audio service for news and entertainment. The company also recently bought Listen.com's Rhapsody, a music subscription service, to complement its own digital audio service. Microsoft's MSN, AOL and Yahoo will also benefit from an upward trend in subscription video, because they all have such services in their sights for later this year, InStat/MDR said.

Internet media analysts and executives say demand for subscription video or audio services will ultimately eclipse that for pay-per-use models because of the convenience to consumers.

Specialty content such as sports from ESPN and video-on-demand sites such as Movielink will also drive subscriptions, according to the report. Companies that provide the pipes for the services--such as Vibe Phone, Intratel, Yahoo Broadband in Japan and FastWeb in Italy--should do nicely, thanks to partnerships for delivering video over IP.

In addition, Asia--not the United States--will see most of the revenue from video subscriptions. The region will generate about $1.2 billion in 2007, according to InStat/MDR, followed by substantial sales in Europe.

Still, the United States is not to be overlooked. In a sign that U.S. consumers are more willing to pay for services online, a report Tuesday said spending for Internet content jumped 23 percent in the states during the first half of 2003 from the year prior.