On-demand media services will generate $1.1 billion in consumer spending by 2012, from $33 million this year in the US and major European markets, according to Screen Digest's "On-Demand Media: Re-Inventing The Retail Business Model" report.

Screen Digest said that two-thirds of that $1 billion would be new revenue, while the rest would replace traditional DVD spending.

The forecast is based on retailers' ability to offer a huge range of titles without worrying about shelf space or the traditional video supply chain. Consumers could burn their purchase onto physical media, get discs by mail or bring media players with them and download at the retail site.

"Retailers, rights holders and consumers can all benefit from the on-demand retailing of a wide range of video content," said Marie Bloomfield, analyst at Screen Digest. "Growth in the DVD business has plateaued and the new content made available to consumers will generate incremental revenue which will help sustain the market.”

Besides previously-unavailable long-tail content, on-demand media could also offer content with a short shelf life such as sports highlights, "catch-up" TV and back-catalog feature films.

One question about on-demand video is how it would affect the existing video-on-demand (VOD) market—and its nascent advertising business.

Last June, MAGNA Global predicted that VOD ad spending would top $100 million in 2008.

VOD ads show promise in part because much of the on-demand content on offer from the leading cable MSOs is free, and may be ad-supported.

As a result, on-demand media and VOD may not overlap much. Exclusive licensing may well keep some content unavailable to VOD. Moreover, on-demand media will serve a list of different content to a different audience. Long-tail material that wouldn't have a viable audience against which to advertise would top that list.

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