While the market for Internet TV is growing steadily — survey after survey shows that people are consuming more video online than ever before — as 2007 draws to an end, Google-owned YouTube is still the number one video destination site.

This isn’t just true in terms of traffic but also in terms of “mind share”; when people talk about online video they often refer only to YouTube. As a result, a number of hardware companies have added YouTube support to their devices in 2007, such as YouTube-compatible cameras and mobile phones capable of viewing and publishing video to YouTube.

And then there’s the strong relationship between Google and Apple, which this year has led to YouTube support being added to both the AppleTV and iPhone, with a change in the video format to boot. Apple successfully persuaded YouTube to start re-encoding its video catalog to the much higher quality (and Apple-preferred) H.264 codec.

Not one to rest on its laurels, YouTube introduced a number of new features of their own, including a redesiged player, the introduction of interactive overlay ads, better copyright filtering, and — like many Google properties — improvements to its mobile offering.

What can we expect in 2008?

Coinciding with improvements to the quality of Flash video, YouTube co-founder Steve Chen has said that the company is currently testing a version of its player that detects the speed of the viewer’s Internet connection and serves up higher-quality video if the user wants it. According to Chen, we can expect to see higher-quality playback on YouTube as early as February 08.

Also in part related to an upgrade to Flash Lite (Adobe’s version of Flash for mobile devices) that adds full support for Flash video, along with the launch of Google’s mobile phone-oriented OS called Android, 2008 will likely see YouTube being offered on an ever greater number of mobile devices.

On the content front, with Google stepping up its monetization options for YouTube, including expanding its ad-revenue share scheme with independent producers, 2008 may well see more professionally-produced video being offered on the site.

Television networks and movie studios reluctantly experiment

In 2007 we’ve seen a large amount of online experimentation from the television networks (both in the U.S. and UK) and, to a lesser extent, from the major movie studios too. The problem, however, is that many seem to have been doing so with their hands tied behind their back.

In September, we took an extensive look at what the U.S. television networks, ABC, CBS, NBC, Fox, and The CW, were offering on their own websites. Dan Langendorf wrote at the time:

The good news: Major U.S. television networks continue to embrace Internet technology and are putting their shows on the Web for online viewing, just like they did last year.

The bad news: Their online offerings remain sporadic; their Internet strategies feel like “we have to” rather than “we want to”; and — worst of all — they still haven’t embraced the idea that we are living in a new digital world, with different rules, participants, and expectations all around.

This year also saw a number of new efforts by the U.S. television networks to offer their content elsewhere on the Web (not just through their own sites), embracing both ad-supported models and paid-for rental and to-own.

On the ad-supported front, the big news was the launch of the much awaited video destination site Hulu, a joint venture between News Corp. and NBC that offers streaming video of both companies’ television and film content along with offerings from other studios such as Sony Pictures Television and MGM. While many industry pundits were skeptical of Hulu’s chances, upon viewing a Beta version of the site, early reactions have been positive.

NBC, who in some ways seem the most willing to experiment, also launched a Beta version of NBC Direct, an Internet-based catchup TV service. We came away unimpressed by NBC’s thinking, however, noting that shows are only available up to seven days after broadcast, and once downloaded, expire after 48 hours.

With regards to paid-for downloads of television shows, 2007 was also the year in which NBC and Apple’s iTunes divorced. Following a very public spat, NBC chose not to renew its partnership with Apple and is instead selling downloads through Amazon’s UnBox, Sandisk’s Fanfare, and Netflix, among others.

In July we took a look at the Internet TV offerings of the five major UK television broadcasters, noting that the then yet-to-launch iPlayer from the BBC looked the most promising.

However, when the iPlayer finally launched it wasn’t without controversy. The BBC was accused of being corrupt due to the iPlayer’s reliance on Microsoft technology and its lack of Mac/Linux support, and UK ISPs were reportedly critical of the application’s use of peer-to-peer technology and potentially high bandwidth costs. Answering the former, in October the BBC announced it had partnered with Adobe to develop a streaming version of iPlayer based on Flash that will be compatible with Windows, Mac and Linux PCs, and possibly mobile devices in the future.

In the movie download space we compared eleven download stores, concluding that “it’s still very early days in the paid-for video download space, where so far, greater competition hasn’t produced nearly enough innovation in terms of pricing and convenience — particularly in relation to copy-protection.”

What can we expect in 2008?

There’s evidence to suggest that watching full length TV shows online is becoming increasingly popular, in part due to higher broadband penetration rates but also because the studios are making more of their content available on the Web. Encouraged by this, we hope to see the television networks and movie studios take greater risks, although don’t expect the constraints of traditional scheduling and release dates or geographical territories to go away anytime soon.

One likely possibility is that iTunes will start to offer online movie rentals, putting Apple in direct competition with Netflix.

In the UK, broadcasters, BBC, ITV and Channel 4 have announced an initiative to develop a combined service for accessing their on-demand and catch-up services. The new service is currently known under the working title “Kangaroo”, and if approved by the BBC’s governing body, could emerge in 2008.

Internet TV comes to the desktop

The year 2007 is definitely the year of the desktop Internet TV application, with a number of companies launching products that aim to combine a TV-like viewing experience with the best of the Web.

Joost, founded by the team behind Skype, is the most high profile, along with Italian billionaire Silvio Scaglia’s Babelgum. Add to list VeohTV, Zattoo, Livestation, Next.TV (backed by HP), Adobe’s Media Player, and Microsoft’s Internet TV, and it becomes clear how crowded this space has got in 2007.

What can we expect in 2008?

The jury is out on whether people are really willing to leave their web browser and use a number of separate desktop applications in order to get their Internet TV fix. A big question mark also remains around whether the various desktop offerings will be able to secure enough compelling content in order to compete with the Web as a whole.

PC-to-TV and set-top box ambitions

Admittedly we at last100 are more obsessed with PC-to-TV and Internet connected set-top boxes than most industry watchers and consumers alike — 2007 has been a fairly busy year for these type of devices.

The biggest launch was that of the AppleTV, which at the time Steve Jobs hailed as the final piece to Apple’s digital lifestyle strategy, since the device bridges the gap between the PC and the television. However, the AppleTV has been far from a smash hit, with worldwide sales reportedly as low as 400,000 units, a dwindling amount of video content following the NBC Universal loss, and Jobs himself repositioning the device as the company’s “hobby”.

In comparison to the AppleTV, which feels far too tied to the iTunes store, in 2007 TiVo added numerous third-party web services to its line of broadband-enabled DVRs.

This year saw the launch of the Vudu set-top movie box and accompanying download store.

Microsoft and its partners’ unveiled the latest Windows Media Extender devices, with new functionality including higher-speed wireless and DivX support.

Sandisk also entered the PC-to-TV space, with the launch of TakeTV and download service Fanfare.

But perhaps the two companies who best positioned themselves in 2007 to eventually solve the PC to TV problem, along with getting Internet content into the living room, are Microsoft with the XBox360 and Sony with its PlayStation 3.

What can we expect in 2008?

While the market for PC-to-TV devices will remain modest, getting Internet content directly into the living room will remain the pursuit of many companies, particularly Apple, Microsoft and Sony. For example, we’re pretty confident Apple will take a second stab at the AppleTV, and Microsoft and Sony will ramp up their efforts to offer more video and other content through their respective game consoles. Also expect TiVo to continue to add more web services to it DVRs.

Other companies to watch in 2008, in relation to set-top box activity, are Netflix, DivX and possibly Joost.

DivX support is everywhere

Another trend in 2007 was an increasing number of devices supporting DivX video, most notably Microsoft’s Extenders for Media Center and XBox 360, as well as forthcoming DivX support on the Sony PlayStation 3. Additionally, DivX has developed a reference design for its own DivX enabled set-top box, and Sandisk added DivX support to its Sansa line of portable media players.

What can we expect in 2008?

More of the same.