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Online Video: Will The Free Ad-supported Business Model Finally Thrive?

PR Log (Press Release) – Feb 04, 2010 – Although the worldwide advertising market has been severely affected by recession, online advertising has appeared to be resilient during these rough times, as it has stabilized, and sometimes developed, in many countries.

In the US, Internet advertising revenues for 2008 totaled $23.4 billion, up 10.6 percent from the $21.2 billion reported in 2007. Dataxis Intelligence expects revenues to reach $25 billion in 2009.

However, in this very competitive and fragmented market, search leads with more than 45% market share, making it hard for ad-supported online video sites to survive. Though it has just reached the milestone of 1 billion videos viewed in a month during December, the second most popular free video website, Hulu is apparently considering a pay model.

Hulu CEO Jason Kilar said recently in an interview that even though a free version of the service will always exist, the company is currently exploring premium pricing. But the question is: are consumers ready to pay for online content?

According to Comscore’s recent ranking of online video platforms, one of the fastest rising websites is Netflix. The DVD by mail rental giant entered the the top 20 video sites for the first time in December, just ahead of Break Media, and just behind Justin.TV. With over 127 million views last month, the company is expected to reach a higher ranking very soon.

As an online streaming service, Netflix has a slightlty different business model, in so far as it offers a access to online streaming, coupled with a subscription to its DVD by mail rental service. With half of subscribers using online streaming, the model appears to be very attractive. The only remaining question for Netflix is their ability to convince studios to provide them with recent releases for streaming, at the moment when these movies are failing to attract DVD buyers, and thus affecting studio’s toplines.