The digital video market, being nascent, promising and hot, is the equivalent of a precocious young celebrity. They both attract a lot of attention, press coverage, and debate concerning which projects and relationships are worth pursuing. Of course, I have my own opinion, but just about digital video and not celebrities.

If you divide the digital video market by delivery methods (streaming or downloaded) and business models (consumer paid or ad supported), four sectors emerge.

Companies within the ad-supported streamed quadrant (upper left-hand corner) have received a lot of criticism lately for basically giving away for their content. Although YouTube attracts between 40 to 60% of total internet video streams the company places ads in only about 9% of these streams. Hulu has been somewhat more successful since it’s selling about 60% of its ad inventory, but the site has much less traffic, and runs only two minutes of spots per 22 minute program (a quarter of the standard amount on television). Hulu’s annual sales are running at about $120 million, a third less than estimates at the beginning of the year.

Unsurprisingly, there is much speculation about Hulu beginning a subscription service option, which would extend its presence towards the lower left-hand quadrant, along with the likes of Netflix and the “TV Everywhere” project currently being developed by Time Warner and Comcast. Such a business model might offer Hulu a greater revenue per viewer than what advertising currently yields, even at a high $50 CPM. Interestingly Amazon’s versatile Unbox service offers both paid streaming and downloaded options, placing it across both the lower left-hand and right-hand quadrants. Just within the paid downloaded quadrant iTunes is probably the biggest player.

Most of these companies do not yet have mobile video platforms. The only options seem to be YouTube, iTunes and Podcasts. Hulu may have an iPhone App in the works, but it seems to be on hold until their subscription service launches. This would leave Podcasts as the only mobile ad-supported downloaded service. It seems to me that this is an opportunity worth exploring.

Mobile video content has a strong value proposition. It offers portable viewing of video, anywhere and at anytime, and doesn’t require a network connection which can very unreliable or inaccessible in many situations. Mobile video also offers a higher level of viewer engagement than with television or computers where consumers can change channels or application windows. The only catch is that in order to make the most of this, you would have to “pause” or disable the fast-forward button during commercial breaks. Of course, the downloaded content would also have to an “expiration date,” as is the case with any video content, but this could be easily implemented with mobile devices just as Apple has restricted the length of time for viewing rented movies from its iTunes store.

I posted my idea for an ad-supported downloaded video on a recent article by Dan Rayburn concerning Hulu’s possible iPhone app, and how Hulu could opt for this route . His response:

Sure, it’s possible, but I don’t think likely as the consumer experience would suffer and the content would not be available instantly.

I respectfully disagree since consumers do want to be able to watch video content without relying on AT&T’s 3G network. Perhaps in the long term when mobile networks switch to 4G downloadable content would not offer the same value, but it remains to be seen how quickly mobile networks upgrade, and how data pricing plans also evolve. I also believe that consumers would be willing to temporarily cede their FF button in return for the right to see the latest episode of their favorite TV show anytime and anywhere. Viewers don’t mind sitting through the unskippable commercial breaks in Hulu and this proposition would be fairly similar.

The most important thing to remember is the immense market potential of mobile video. According to Nielsen, consumers currently spend about 3.5 hours per month watching video on a mobile device; that’s only 1.8% of the total time they spend watching video. Everybody is expecting this market to explode and the sooner or later a diversity of video options will be offered to satisfy a range of demands. Perhaps the downloaded ad-supported models won’t be the majority, but they will certainly be available. The only question is which companies will offer the service.