Internet TV has enjoyed explosive popularity in its infancy but no one is making much real money yet.

Take, as an example, Westwood-based Veoh Networks Inc., an Internet TV network of 500,000 shows and videos. It already enjoys 18 million users on its Web site, which is not yet a year old. Each day over the last two weeks, about 50,000 new users joined the Veoh network, the company boasts.

Veoh is among the top Internet television networks that are heading the infant industry using technology that makes streaming images on computer screens appear more like the quality of television. The others include just-launched Joost of New York, headed by founders of popular free Internet phone service Skype, and Dublin-based Babelgum. NBC is also trying to spin off an online network that would broadcast similar high-resolution shows across the Web.

For all the technological advances, however, the basic conundrum how to replicate TV advertising revenues with smaller, less-committed Internet audiences remains.

Nearly 16 percent of American households that use the Internet watch television broadcasts online, a figure that doubled from last year, according to an October report by the Conference Board and TNS, which surveyed 10,000 households.

However, finding ad dollars to advertise against vignettes of Internet video programming will be a challenge, because online viewership numbers are paltry compared to the average of four hours that Americans spend in front of the television every day.

Online videos are watched roughly six minutes a day. The number increases to about 10 minutes when surveying only households connected to broadband, which is about 40 percent of the population, said Dan Littman, technology and media analyst at Deloitte Consulting LLP.

The shorter viewing time is problematic when considering the amount of advertising revenue that companies are expected to glean from these shows, Littman said.

Internet video revenue, mostly from advertising, is at $2 billion this year and is projected to hit $7 billion by 2010, according to Parks Associates, an industry research firm.

A $7 billion projection would amount to about 10 percent of today's television advertising market. Ten percent of traditional viewing time would be about 24 minutes, which is quadruple the average amount of time people watch videos online.

"You really can't break the laws of advertising here," Littman said. "There are a lot of exciting things happening in the space but the usage is very small and not to the extent that would produce the kind of advertising dollars people are expecting."


For reprint and licensing requests for this article, CLICK HERE.