TV content owners resist less lucrative online ad model

If content producers or networks attempted to add more advertising to their online programming, "Chances are that would just drive people to use their DVRs [digital video recorders] more, and they would skip the ads," Eiley said.

Even new services such as Apple TV and Netflix broadband delivery of movies still represent a small fraction of revenues, Eiley pointed out. "We track Apple’s numbers, and they grew 20% last year over 2007  – their sales of TV shows was $180 million," he said. "That’s not even a drop in the bucket compared to advertising revenues."

What Eiley believes may develop instead is more video-on-demand content, including "day and date" movies – those that are offered on-demand on the same day they are released on DVD – and other programming. And since many of the video service providers are also the broadband Internet providers, there is the opportunity to create walled garden delivery of premium video content over the Internet, available only to subscribers and then possibly at a premium.

"We are not saying there is not going to be a change in the long run – people want to watch TV on demand, there will be a generational shift," Eiley said. "We could see some other ways of doing this – that is what the rumblings are. But the way the TV industry is constructed, unless they want to shoot themselves in the head, they can’t put everything on line. They would be hurting the companies they do business with, which happen to be the companies that control the broadband pipe. But this will be an evolutionary process. It’s a fascinating space to watch, but it’s not happening overnight. Yes, the viewership has improved, Hulu gets eyeballs, but the revenue relationships aren’t there yet."

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