More highly targeted advertising is key to the future success of consumer video-on-demand services, new research argues.

ABI Research said that improving techniques for the insertion of targeted advertising, combined with a viewer population more accustomed to acquiring media content online, suggest that video-on-demand's time "may be approaching".

The key factor, according to ABI analyst Paulhwa Lee, is monetisation as service providers continue to seek the grail of higher profitability from each title accessed.

This goal increasingly appears to be found in the bundling of customised, tightly targeted advertising with the programme content.

"Video-on-demand providers have two sources of revenue: end users pay for à la carte and subscription fees, while sponsors pay for advertising," said Lee.

"The goal is to tailor interactive advertising to the individual viewer. Progress has been made towards that goal, but it is by no means perfected yet."

Lee believes that, to achieve critical market mass for targeted advertising, the video-on-demand delivery system must be able to scale up to meet demand.

"Concurrency rates", or the number of subscribing households that can watch on-demand at any given time, are therefore a crucial metric.

Providers in the US are adding video servers at a rapid rate, ultimately aiming for a concurrency rate of 100 per cent.

"US operators are trying to reach critical mass by offering the majority of video-on-demand content for free," explained Lee. "They are hoping that, once they get the broad subscriber base, they can cash in on the advertising."

Regional differences will also affect the global success of video-on-demand. While targeted advertising is the common goal, it is closer to becoming common in North America than in less developed markets in Europe and elsewhere.