Some pretty interesting research today out of Forrester, via News.com.com, that claims that growth in online video sales will begin to stall and then sputter out in the next few years; the success iTunes has had will be but a blip and a footnote in history.

The reason? Media companies are racing to make so much of their content “free” that its conditioning the market to evolve to a point where they just won’t pay for online video content.

My knee jerk reaction (and I have been known to have them) was “that’s garbage!” What about online music sales? After all, with the success of iTunes, they’ve pulled out a steep decline, and people still have a way to get a free copy any time they like.

But you know what?

The business for video is much different than the business of music.

For one, with the exception of things that go to DVD, there has been a long tradition of getting your videos for free as they were supported by ads. This is called television. In fact, up until very recently, when TV shows were starting to be sold *on* DVD, there was simply no way to purchase television shows. The legacy of television is that it, I think, really inculcated us to believe that television is an ad-supported medium. Even for those of us that pay steep cable bills every month.

This isn’t so in music. While its true that music has always been freely available through radio, there has always been the impetus to buy the album to acquire the music. Until Napster, anyway.

Furthermore, another point of difference is that media conglomerates are already racing to the bottom to give their television shows away for free — an are doing so for all kinds of reasons. One of them, I’m sure, is the recognition that their content is getting uploaded and distributed irrespective of how they try and lock it down (if they ever could), coupled with the dominance of Google/YouTube in distributing said content — irrespective of its legal challenges via Viacom and its friends.

The music industry has never done any such thing, and the closest its ever going to get is by slowly evolving into a DRM-free format. But you’d still have to buy the music in the first place (or, someone’s got to).

While I think there will always be a segment that’s willing to pay for online video (perhaps high definition content, rare content, unique content that is streamed live), I think that there is some merit to the idea that the vast majority will not. There’s probably always enough to make a business out of it, and for some, a healthy business, but then again, the assertion is not that the sector will disappear — only that the growth will flatten out.

And I think that’s believable, if for no other reason that companies today are in such a rush to gain a foothold in the hearts and minds of online video users that they’re giving away viewership to those assets.

You might wonder about the porn industry — surely they’re growing and earning billions of dollars per year, and they depend on online memberships, subscriptions and so on (or so I’ve been told). The difference, though, is that no company has otherwise ad-supported and free shows on network television and in *addition* is also giving some of their product away.

Its an interesting future for online video — particularly television. I don’t know if there’s “no future”, but the way that media conglomerates are going at it right now — and I don’t know if there’s a right answer to it — they’re conditioning their customers to *never* pay for online video, torrent hijinks or no.

So there’s a flurry of activity over Netflix’s “second act”, wherein they’ve released software that will allow streaming movies to your PC.  More details all over the blogosphere, but I’m not sure what the fuss is about — after all, how big is the market for people who want to view movies on a PC … in standard definition?

Now, full disclosure here: I say this as a high definition snob.

Also full disclosure — I’ve watched movies on my PC.  And I’ve watched high definition content on my TV.

There is absolutely no comparison.

Watching stuff like television and movies are a social phenomenon.  When was the last time you tried to play a movie around a 19″ LCD for your friends and family?  I did that back in 1995 when we got a DVD player with our PC.  It was strange and awkward, particularly because we had a 17″ monitor back then.

Its no different today.

And more to the point — for anyone who thinks there IS a comparison (because, let’s say for example, you enjoy watching movies by yourself), you simply haven’t had the pleasure of enjoying large screen content in crystal clear 1080i (or “p”) with full 5.1 dolby surround sound.

So where does a high def snob like myself get off telling you what he thinks about Netflix?  Only because the future is going to be in high definition — and if you don’t have a set now, you will in the future. And its probably going to be sooner than you think, as prices are continuing to fall like a rock, high definition programming is exploding, women seem to love the things (and as you know, women are drivers of major domestic purchasers) and the price of that programming remains stable.

If the future is high definition, in both movies and television, then why is anyone giving a rat’s patootie about downloading movies (only) to your PC?  I love Thomas Hawk as an intelligent and gracious blogger — but I think the man is dead, dead, wrong about TV going extinct.

I used to be one of those people who “didn’t watch TV”.  Heck, I have lots of reasons NOT to watch television.  But the combination of great television shows AND the fortune to own a fully rigged set means I am watching a great deal more TV than I used to — and I’m loving it.

As far as I’m concerned, to “own” the future of digital entertainment as it pertains to movies and television absolutely requires the following
1) The partnerships with major studios to release their content
2) Have that content be in high definition
3) A way to play that content on your PC

And you know what?  There’s only one player in town that has (on paper), the prerequisites to all three, and I’m sorry to say to all you Apple lovers out there — but its Microsoft.

That’s right.  The Xbox360 is the magic wand in all of this, because its a piece of hardware that connects your PC to your TV, and allows high definition content to be streamed right through it.

What about Apple?  Well, although there’s the Apple ITV product that broadcasts in 720p (which is fine, and don’t let anyone else tell you otherwise), its crippled because it doesn’t have the partnerships with studios to release their movies.  So far, its only Disney.  Microsoft has partnerships with Warner Bros., Paramount, VH1, MTV, CBS, Comedy Central … well, the list goes on.

(also, if such things are important to you, you can’t play games on it like the Xbox360)

(and yes, BOTH of them have their DRM issues, and yes, the Xbox360 has issues regarding downloading vs. streaming)

Netflix?  Sorry — its not high definition … and in fact, the resolution changes with the kind of connection you’ve got.   Also, its still stuck to your PC.  And its only movies.

If Netflix’s streaming movies to your PC is a secret bridge to an attempt to eventually getting onto your TV that’s one thing.  But without that connection, I just don’t see where all this cacophony is going to lead Netflix, in fact, like a few others am saying “so what?”  There will be an audience for it sure … but its going to be limited. 

But if you’ve spent five minutes in front front of a high def set recently, you’re probably agreeing with me too.