• by Steve Smith , Staff Writer @popeyesm, July 7, 2011

In coming years, more and more TV viewers will be doing what I have to do every night when my wife and I contemplate an evening of lean-backness. What's it gonna cost us this time? Do I rent from Apple TV or fire up the Google TV to look for a better deal on Amazon? If no compelling recent issue film seems worth the $4 to $5 a la carte fee, then which back catalog of all-you-can eat wares do I plumb? Amazon Prime's limp but growing library that costs me $70 or so a year (with other benefits)? Netflix at $12 or so a month, with added benefits? Or do I look for something on my HBO Go app on Google TV or iPad). After all, I know HBO is costing me something extra a month as part of my Comcast HD bundle, but I am more interested in their back catalog of great series than I am in the current content on my TV grid. And speaking of grids, do I really want to drill into the horrendous and unresponsive set top box interface from Comcast to get a paid or free on-demand selection?

Hulu Plus? I left that one behind right after the free trial ended. Just not enough there. But 875,000 people disagree. According to a blog post yesterday from CEO Jason Kilar, Hulu Plus now has that many paid subs in less than 8 months since the model started. Kilar says he is reading the money on those $7.99 monthly fees and ad revs around. "Today, we proudly and profitably pay the content community approximately $8 per subscriber per month for the content offering you see today on Hulu Plus. A portion of the $8 payment to the content community comes from our $7.99 subscription fee; the balance comes from the revenue we generate through advertising."

On some level families with Internet-connected devices are doing some of the math on these choices across their Xbox/PS3 or increasingly popular Internet TVs. Spending on over the top (OTT) media services is about to go ballistic, according to IMS Research. This year, revenue to services like Netflix and Hulu Plus command much of the spend, which IMS estimates at $1.9 billion for 2010. But look for that haul to expand to $16.4 billion in 2016. The compound annual growth rate for OTT service revenue will be 32% through 2016.

Much of the money will go to subscription services, IMS says. Netflix and Hulu Plus. But the pay-per-view transaction will grow faster. Many media companies that have lost revenue from declining disc sales will be looking to recapture some of that lost revenue in direct sales and rental fees.

Free models will struggle, the analysts say. Expect the major content providers like Google, Microsoft and Yahoo to find ways of pushing their free customers to paid models. That is if they have content people will pay to get. "Potential acquisition of Hulu is exciting news for these companies," says Anna Hunt consumer electronics analyst for IMS. "Mergers with and sales of successful OTT services are going to become more common as Internet giants and large retailers seek to establish a global pay-OTT presence and compete with the likes of Netflix."