Sites that sell TV shows and movies online, like iTunes, are likely to peak this year as more and more programming is made available for free. And free always wins, said Forrester researcher James McQuivey.

"In the video space, iTunes is just a temporary flash while consumers wait for better ways to get video," Mr. McQuivey said. "They’re already coming." He characterized the download video market as a "dead end" in a story carried by Reuters .

Looking at sales trends, the study showed that online sales of movies are expected to almost tripple in 2007, reaching US$279M compared to $98M in 2006. Even so, the study concluded that several factors will stall progress.

First, confusion over different file formats, watching those purchased videos on a TV, and other technical problems have kept the average user from paying for shows online. Secondly, only a small fraction, 9 percent, of online adults have paid to download a movie or TV show. The amount of money each customer is spending is small.

In contrast, the efforts by studios and networks to make advertising supported video available free on the Internet are ramping up. Sony, MovieLink, Amazon’s Unbox, Disney, and the News Corp (Fox), and NBC are alll involved. [As is Joost.]

"Free is going to win," McQuivey said. He also advised the media companies to pay attention to the customer desire to share content on a home network.

Apple, which was not mentioned in the report, is certainly doing all it can to address the complexity issues by making the Apple TV simple and easy to use. However, the traditional business model of advertising supported media makes content available to a much broader audience. Whether the Apple TV, currently without HD content support, remains a niche product or whether it emerges as a major player will likely depend on how the giant entertainment industry handles the massive movement to Internet content, new cable and satellite technologies, VOD, and HD video for the average viewer.