Movie studios and TV production companies are getting enthusiastic about the potential of mobile video, but “people are going to want things for free. Studios will have to come up with advertising-supported business models,” said Linda Barrabee, an analyst for wireless mobile communications at the Yankee Group, in the New York Times. This is a problem because advertisers are still reluctant to embrace the new medium…

An example is the Warner Brothers-created six-episode mobile series Smallville Legends about the TV show, which shows the history of the Green Arrow, which may otherwise have not been told. However, the only sponsor for the series was Sprint, which underwrote it as part of an overall deal with Warner. So far Time Warner doesn’t see a business model for mobile video series, and is looking for advertisers to step up.

iHopes: Some studios seem to think that the iPhone will drive uptake, which is possible but not something people should bank on. The Yankee Group puts the number of mobile viewers in the US at 5 million, which has increased 10-fold since 2004. The most ambitious predictions of iPhone uptake I’ve seen put it as 6 percent of the US population are likely to buy the iPhone within a year of it being available (I think this is wildly overstated). That comes to 11.7 million users (out of the 195 million in the US). If we assume that all the iPhone buyers are high users of content, particularly video, and if we assume that none of the current mobile video users are amongst the iPhone buyers, then the market of mobile video users will triple in a year—which is about what it would have done anyway if its past growth rates continue. I do think iPhone users will be strong users of content, I don’t think it’s going to suddenly make the industry successful.

Union Fights: Another issue is what happens with actors when mobile video becomes profitable. 20th Century Fox put out a series of short clips from Borat which was so successful that the company plans to deliver similar series as advertisements, and there is now a small team of Fox marketers focused on this. “Where studios could get into trouble, though, is if mobile phone episodes like these are viewed less as promotional material and more as pure entertainment. Unionized actors, directors and writers have already balked at creating videos and other material for the Web, saying they should be paid for the extra work. (Unionized workers are not paid extra to create promotional materials.)” writes the NYT.

Rafat adds: The title: “Hollywood Loves the Tiny Screen. Advertisers Don’t” is a bit harsh, if you ask me...while mobile advertising will never be as big as the current hype around it suggests, it is still too early to judge whether advertisers are shunning mobile video ads or not.