The global paid video market will reach $3.8 billion this year, according to a new report from Strategy Analytics, outperforming the free, ad-supported video sector, which it’s forecasting will hit $3.5 billion.
And this year is no fluke. Strategy Analytics predicts that paid video will outpace free video through 2012 with a 39 percent compound annual growth rate, compared with 37 percent for free video. But it hasn’t always been that way. Strategy Analytics says that in 2008 the free video market was $2.3 billion while the paid market was $2 billion.
To be clear, there will be more free video consumed, but more money will be made from paid video instead of advertising. “Free stuff will be massively higher,” Marin Olausson, director of digital media research at Strategy Analytics told us by phone, “but once you move to the subscription model, the revenues make more sense.”
Olausson credits the growth in paid video to two factors: First, ironically, the global recession is spurring a growth in paying for content. “People stay more at home in economic downturns, rather than going out to restaurants and [on] holidays,” said Olausson, “so these are some of those simple pleasures that they tend to treat themselves to.”
Second, and more important, said Olausson, is that people are getting more used to services such as Netflix’s (s NFLX) Watch Instantly, iTunes (s AAPL) and video on Microsoft’s (s MSFT) Xbox. “The big thing is that these services are being rolled out in a much broader fashion now,” he said, pointing out that Xbox is launching in 10 more countries this fall. Other big drivers will be initiatives like Time Warner’s (s TWX) TV Everywhere and Comcast’s (s CMSCA) OnDemand Online.
Indeed, Netflix is getting on pretty much every Net-connected TV device, Xbox is making big moves in the video watching space, and if authentication plans like TV Everywhere and Comcast OnDemand Online take off, a lot of premium video will be locked up behind a pay wall requiring a cable subscription. There’s even been talk of putting some content on Hulu (which is free) behind a subscription wall.
Further reading: As TV Comes Online, Can Content Providers Sell Premium? (subscription required)