The free online ad supported video segment may be growing, but new research shows that people are willing to pay for their online video.

According to a report by Boston-based Strategy Analytics, paid-for video is expected to grow faster than free ad-supported video over the next several years, at a rate of 39% annually, compared to 37% for free video.

That's good money if you can get it. But it will be a hard sell to get people to pay for things they get now for free.

According to Strategy Analytics, ad-supported video websites are expected to generate $3.5 billion in 2009. But the company expects the paid online video segment, including download-to-own, rental and subscription services, to reach $3.8 billion by the end of the year.

The study says that the downturn has helped this trend. According to Martin Olausson, Strategy Analytics’ director of digital media research: “The economic downturn and diminishing advertising budgets have increased the focus on consumer paid content on the Web in the last six months."

The shift to subscription and pay-per-use content is being strongly considered right now. Newscorp's Hulu has been making hints in that direction lately, and the networks are greatly concerned about making money from their content online. But charging for online video is not such an easy solution. Olausson continues:

“Increased consumer awareness and uptake of services, such as Netflix WatchNow and Xbox Live Video Store, in combination with new services such as the TV Everywhere initiative announced by Comcast and Time Warner Cable will also help drive the paid online video segment in the coming years.”

But those services have traditionally been paid for. Film rental services like Netflix and cable content from Time Warner have always cost viewers money. The more difficult concept is network content that has always been free and ad supported. Customers used to watching shows for free on television are not likely to happily pay when the content shifts online.

But increasing video lengths online are making the medium more conducive to advertising. Audiences moving online and proving their interest in longer videos suggest that there may be more tolerance for video ads online than we've seen to date.

From The New York Times last week:

"New Web habits, aided by the screen-filling video that faster Internet access allows, are now debunking the rule [of "keep it short"]. As the Internet becomes a jukebox for every imaginable type of video — from baby videos to 'Masterpiece Theater' — producers and advertisers are discovering that users will watch for more than two minutes at a time."

Meghan Keane

Published 14 July, 2009 by Meghan Keane

Based in New York, Meghan Keane is US Editor of Econsultancy. You can follow her on Twitter: @keanesian.

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