Forrester: Paid video is just supported by pockets of dead-ender media junkies

[iTunes sales through April 2007 on a log scale]


With echoes of Donald Rumsfeld's famous dead-ender quote in 2003, Forrester yesterday released a report saying that there is no future for paid video downloads. While I haven't been able to get my hands on a copy of the full report yet, the major data point cited in the press release is that only nine percent of online adults have ever paid to download a movie or a TV show. Arguing that this nine percent constitutes largely media junkies (the media-driven segment of Forrester's Technographics segmentation of US consumers), Forrester dismisses the trend as missing the mainstream video viewers who have been raised on free TV. The report also appears to argue that consumers will greet media companies who supply content with required viewing ads as liberators from the hell of actually paying for content.

Shades of deja vu, this reminds me of last year when Forrester predicted that iTunes sales were collapsing.

Quick, someone should tell the DVD business that no one will pay for video, especially not video of free TV shows! Tell Blockbuster to sell off those boxed DVD sets of Lost, Sex And The City, and Heros. And tell Disney to give back that $20 million they made on downloaded movies in the past six months -- it will never work!

OK, pop quiz time. How long have legal digital movie downloads been available to consumers? Your choices are:

• a) One week
• b) One month
• c) Nine months
• d) Twenty-one months
• e) Movies have always been available for paid downloading.

The correct answer is c) nine months (as you may have noticed from the chart at the top of the posting). If we changed the word "movie" in the question to "TV show", the correct answer would be d) 21 months, or less than two years. Yet, we already have nearly 1 in 10 online consumers that have bought such a show. Sounds to me like fairly rapid adoption, not an experiment in its death throes.

But I think the biggest factor that Forrester misses is the fact that consumers are willing to pay for the one thing that they can't ever get more of: time.

See, a lot of people think that ad-supported TV is free. But the consumer pays for the content with time. Today, a one-hour TV show is actually 43 minutes -- the other 17 minutes is commercial content. If I want to watch two one-hour shows in an evening, say both Desperate Housewives and Studio 60, I can either pay the half-hour of commercial time or I can pay $4 for those two TV shows from the iTunes store and get 34 minutes -- more than a half-hour -- of my evening to do something else with my family. Is my evening time with my family worth $8 an hour? You bet it is.

In my household, we have video-on-demand cable TV, a TiVO digital video recorder, and several iTunes enabled computers. We use them all to watch video content. We don't watch commercials unless we're bored or lazy. Life is too short for commercials. Yet, we aren't what Forrester would call video junkies -- our TV time per week is less than 10 hours. Given the trade-off between time and money, eliminating video commercials is money we think is well-spent.

The history of TV is filled with people predicting that free would eradicate new video businesses. For nearly 20 years, the TV industry thought cable and pay TV were completely ridiculous business propositions when TV was available for free over the airwaves. Today, you'd be hard-pressed to convince HBO and Comcast of that point of view. Others thought that DVD movies could never compete with those same movies being available on the networks, yet DVD sales now are a greater source of income to movie studios than theatrical box office sales. And don't forget that many originally claimed that iTunes could never succeed against free (and illegal) music sharing services like Napster. And now Forrester has joined the chorus claiming that required-ad-viewing "free" TV will kill the paid video download business. Forrester is in good company -- but it is just as wrong as Donald Rumsfeld was.

Full disclosure: the author is an ex-Forrester analyst himself and also has a long position in Apple shares, but has no positions in the other companies mentioned in this article.

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