The market for film and television internet downloads is expected to grow dramatically over the next five years, with revenues from paid downloads far exceeding earnings from advertising placed on free programming, according to a new industry study.

By 2011, the commercial-free digital video distribution model will be the most lucrative, Adams Media Research said in its report, issued on Wednesday.

Two models currently dominate the video download market: paid download-to-own, and downloads that are free for the user but include advertising.

Adams predicted that consumers will spend approximately $4.1bn a year on films and television programmes - a significant increase on the $111m spent in 2006. Providers using ad-supported distribution, on the other hand, will likely see revenues of only $1.7bn annually, compared with $409m last year.

Demand for the ad-supported model, mainly used on the websites of the major US television networks, reflects the consumer’s willingness to consume things on the same terms as commercial television, said Tom Adams, president and senior analyst at AMR.

Still, he noted, “It’s an attractive model for the supplier to sell it for $2 per episode…The whole industry is pushing the download-to-own model.”

This month Wal-Mart launched a video download service on its website in partnership with Hewlett-Packard and six Hollywood film studios, including Walt Disney, Warner Brothers and Paramount.

But the world’s largest retailer will be jostling for market share alongside big internet players such as Amazon, with its Unbox download platform launched in September 2006 - the same month that films were made available in Apple’s iTunes store.

New hardware such as Apple TV, a set-top box that enables the transfer of digital video from PC to television, is expected to drive growth in the digital download industry.

“The real issue becomes the connection to the TV,” said Mr Adams. “That’s where we’re going to really unlock this market.”

Despite its bullish appearance, however, AMR’s analysis is cautious, predicting that the next two years will see a “period of experimentation” in which the ad-supported model will dominate. Only after 2009 will the industry’s rapid growth see more household televisions connecting to the internet and consumer spending exceeding advertising spending, AMR said.

“Given all the [recent] excitement about product launches, there is a general feeling that the market is bigger than it is, and that boom times are just around the corner,” Mr Adams said. “We think it’s about to happen, but there will be some stops and starts – getting these technologies to work is not trivial.”

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