MUMBAI: Internet video services are on the brink of becoming a mainstream phenomenon in the United States.

According to a new forecast from IDC, internet video services will generate over $1.7 billion in revenues by 2010, an increase of more than $1.5 billion from 2005 totals. Much of this growth will be fueled by a surge in the amount of premium content made available online. However, IDC cautioned that the market’s potential could be dampened by key technical and legal hurdles.

The market for internet video services began its dramatic acceleration in 2005 as content owners, once unwilling to offer their products online, started to experiment with digital distribution as a way to complement and enhance their existing business models and to stem illegal P2P file sharing and piracy. In particular, the television networks’ decision to offer episodes from new shows as well as old sparked significant interest in internet video. Television content, which is available in ample amounts and is ideally suited for the PC, is expected to be an integral component to revenue growth throughout the forecast period.

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IDC’s Consumer Markets associate research analyst Josh Martin says, “The internet video market has a huge upside. With that upside, however, comes the risk to content owners of cannibalizing existing revenue streams. In order to properly take advantage of this emerging market, content owners to aggregators to consumer electronics manufacturers must understand the challenges the market faces and how to overcome them.”

The key drivers for the adoption of internet video include the expansion of premium content offerings online and the emergence of home networking solutions that allow consumers to more easily view Internet content on their televisions. As services become increasingly common, content owners will leverage internet video to complement their existing revenue streams and to generate additional revenue from archived content and new content created specifically for the service.

IDC expects that content owners will migrate toward three basic service types. Advertising-based services will remain the dominant type of internet video service, although its share of total market revenue will decline as a la carte services, buoyed by consumer familiarity with iTunes, grow dramatically over the next 2-3 years. Subscription-based services will experience steady growth throughout the forecast period, enhanced somewhat by the emergence of home networking solutions that make subscriptions more appealing to consumers.

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In order to sustain the momentum gathered in 2005 and maximise opportunities for success, content owners and service providers will need to overcome several important problems, including licensing issues, inadequate video search, competitive challenges, and the issue of how to move content beyond the PC. IDC believes that companies involved from the creation to distribution of content will have to partner with others across the value chain to create appealing, flexible services that will evolve into viable businesses.