ITV and Channel4 have been advised to reconsider their part in Project Kangaroo, says Enders Analysis.
According to the analyst firm, the project could cost the broadcasters in the region of 30m next year, but they should be using the cash to stabilise themselves during the economic downturn.
First announced in November 2007, Project Kangaroo is an on-demand TV service that was billed as a 'one-stop shop' for video content online. It was expected to offer users more than 10,000 hours of TV from the BBC, Channel 4 and ITV, with around 90 per cent available for free and the rest available for rent or purchase.
The Competition Commission began investigating the project after rival broadcasters Sky and Virgin Media raised concerns. It is estimated that Project Kangaroo has already cost the three broadcasters more than 25m in costs so far.
"The market for internet video advertising, on which the commercial revenues from Kangaroo would chiefly depend, is tiny and developing slowly," said a report by Enders Analysis.
"Revenues may not exceed the cost of Kangaroo for some time. In summary, the potential advertising rewards from online video are far lower than Kangaroo's backers imagine. Therefore it can certainly wait for a year or two whilst the commercial PSBs (Public Service Broadcasters) focus on their survival."
The report argues that Channel 4 and ITV should focus on the BBC's offer of the free and open use of its iPlayer.
"Their interests may be better served by collaborating with the BBC over the iPlayer, although the Competition Commission's findings [into Project Kangaroo] indicate strongly that and video on demand venture from the UK's leading content providers will be subject to intense scrutiny."
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