Is Vudu the iPod of for-Pay Internet Video?

The Internet video download market has had a rough go of it lately. With Google (GOOG) bailing on its efforts to sell shows on Google Video, Blockbuster (BBI) buying Movielink for pocket change, and even Apple’s (AAPL) video business still accounting for only a smidgen of music sales two years after its launch, it’s a wonder that some pundits aren’t saying the future of Internet video is one that is going to be entirely ad-supported.

Oh wait, they are.

Call me crazy, but I think for-pay video on the Internet has a future as well. Sure, the majority of TV shows, user-generated content and all sorts of other video will mainly be paid for using ads, but there are some types of content for which consumers will pull out their credit cards. And I’m not just talking porn and Major League Baseball.

Where I think the pay market has a particularly bright future is the movie business. After all, we all love movies, and we love watching them in our homes — regardless of how they’re delivered. And movies that get released to home video aren’t about to show up on any ad-supported streaming sites anytime soon, at least not legally.

So what will it take for the for-pay Internet video market to take off? Simply put, when it gets its iPod.

The Internet video market today is much like the digital music market pre-iPod, with lots of solutions, services, and software, none of which work particularly well together where it matters most – the delivery device. What the Internet video market needs, then, is a device that looks at home next to the TV, outputs at DVD- and eventually HD-quality, and works without headache.

Maybe it will be Apple TV. But it won’t be with this version, because for all of the advances it has brought to the connected entertainment market, this product currently has some key shortcomings, most notably the absence of both direct download and an option to rent.

So who will bring the for-pay Internet market its iPod moment? So far the most eligible product I’ve seen comes from Vudu. (Our original post on Vudu.) The box, which the Santa Clara, Calif.-based company loaned me to tinker with over the past week, does most of what I consider necessary to bring Internet video to TV in an almost entirely pain-free fashion:

* Instant, or nearly instant, streaming of movies
* A wide catalog of movies across all major studios, with enough of a back catalog to make things interesting
* The ability to rent or own
* Easy network and video connection setups
* Intuitive and engaging user interface

I started using the Xbox 360 Video Marketplace when it came out, but stopped using it after I’d downloaded the only three or four movies in the service’s small library in which I had any interest. I also found I would get bored waiting for the movie to download, something Vudu avoids by nearly instant streaming.

It’s this instant-watch capability that had me most intrigued. The folks at Vudu told me that their technology to enable streaming is based on P2P, and while I have yet to connect with their CTO to talk about the specifics, I was and still am a little skeptical about the ability to do instant streaming using P2P. But, whatever they are using, be it a CDN, P2P or pop cans and string, I found that over the course of the last week I’ve been able to select and watch shows nearly instantaneously. At times I was told my Comcast connection wasn’t fast enough (the user guide told me I needed a consistent 1.7 Mbps connection), but then within ten minutes or so it would say it was ready to watch the show. Other times it has allowed me to watch the show instantly, and the quality has been DVD quality (they say they will be rolling out HD in the future).

Vudu has yet to roll out their box at retail, and I’ll be watching very closely to see whether — once they’re in wide release — these boxes all work as well as the one I’ve been using this past week. As we all know, new services tend to have performance issues once mass rollouts happen, as we saw with Joost’s entry into wider beta. And even with the smoothness of the service’s performance, I still have problems with pretty much all Internet VOD service limited usage rights – including Vudu’s. (Why, oh why, can we only have 24 hours to watch a movie once we start it – doesn’t anyone in Hollywood fall asleep watching movies?).

For now, I’m sticking with my belief that Internet pay VOD will eventually take off, and with the release of Vudu, that could happen sooner than later.

Mike Wolf is the Director of Digital Home Research for ABI Research ( and writes about Internet Video and other topics. He also blogs occasionally between report deadlines on Internet TV and other topics here.