An evening flicking through the various Internet TV services offered by the UK's major broadcasters shows that ITV seem to be doing particularly badly in selling advertising within their programmes, whilst Channel 4 seem to be selling out (perhaps a motivation for their deal with YouTube whereby they will sell their own inventory on the Google video service). ITV's problems may stem from their recent switch away from Silverlight to Flash (which has improved their service tremendously), but they need to rapidly address this since the cost of delivering the service must be far outstripping their revenues in the only medium where their rates aren't capped.
With ZenithOptimedia predicting a further 9.9% fall in global ad spend this year the picture for advertising supported services seems dire. Spotify's woes in this respect are well reported. VCs who a year ago nodded sagely at ad supported revenue models will now laugh a business founded on that premise out of the building.
But, as Channel 4 has shown, the position isn't so dire. But there is another threat for Internet TV services. Increasingly, low paying MPUs are featuring video content. So, an advertiser might be paying £25 CPM for a pre-roll or instream ad, whilst running beside it is a video for which the advertiser paid £4 or less. The former barely covers the cost of streaming 5 mins of HD video, so the challenge for the market is not only to increase inventory, but also to defend the value of the slots.