ABI Research has just released a report that predicts that 1.2 million of what it calls Internet video devices in 2008. The leader of the pack? The Apple TV.

Everyone knows that the Apple TV hasn’t sold as well as expected. Forrester Research predicted that Apple would sell a million Apple TVs by now. Whoops. Since then, Forrester has changed its tune. Now, Forrester predicts that Apple has been barking up the wrong tree with its video sales, rather than rental, business model.

ABI sees hope ahead for both the Apple TV and Internet video devices. Two things will make this happen according to ABI. First, the firm believes that there will be a flood of new content. Some of that will come in new devices such as Vudu‘s HD (high definition) Internet player. They also believe that “consumers’ growing hunger for both user-generated and professionally produced content on the Internet could create greater demand for these new devices.”

ABI Research director Michael Wolf said, “The high cost of these devices, their reliance on the home network, the need for consumer self-installation, and the scarcity of content have all contributed to their lack of commercial success.”

Wolf went on “This market will continue to be challenged by traditional set-top boxes, which are incorporating more VOD (Video on Demand) and public Internet delivery features, and by the emergence of VOD services on the Xbox 360 and PlayStation 3, and those such as the TiVo/Amazon Unbox offering. However, we believe that there is a possibility of a break-out success among these new entrants if they can create compelling content offerings, make consumer installation and management incredibly easy, and offer both the hardware and content at compelling pricing. We believe one way to achieve this is by incorporating some premium content using advertising support.”

I agree with some of his analysis, but far from all. To be specific, I don’t think rentals or advertising are what Apple TV or any other media extender needs. I also don’t believe that it’s at all clear where the dividing light is going to be between pure media extenders like the Apple TV or the D-Link DSM-520 MediaLounge Wireless HD Media Player and multipurpose devices like the game/Blu-Ray/media player PlayStation 3.

Nor, do I believe it’s because home networks or the Apple TV are that difficult for home users. Anyone can work an Apple TV, and modern Wi-Fi routers like the Linksys WRT54G Wireless-G Router don’t require people to do much more than plug in he power cord and the Ethernet cable. It’s certainly not high prices. A top-of-the-line iPod, like the 16GB iPod Touch, costs more than an Apple TV or any similar device.

No, the real problem is that people want to play the videos they’ve found hither and yon over the Internet and there’s no rhyme or reason to today’s video formats. There are at least half-a-dozen popular video formats, such as AVI, MOV, Flash, MPG2, MPG4, and DivX, and at least a dozen others that are also commonly used.

That’s only the tip of the iceberg. Each format has sub-variations and some incorporate a variety of different packaging and compression formats. In short, it’s a mess. This is where technical complications get in the way of users.

In the past two years, I’ve spent far too much time working on the problem of converting from various formats to a format that was playable by various D-Link DSM video players or the Apple TV. With decades of networking and interoperability experience behind me, I have yet to find a good universal solution. There’s no way Joe User is going to be able to get their favorite videos from the Web to play consistently.

The notion that a device, which uses a single popular format, will somehow overcome the Apple TV by that virtue alone, such as the DivX player, miss this point. There is no universal format. There is not even a format, from what I’ve seen, that can even claim to be clearly the most popular one.

What Internet video players, whether they’re on computers, or on TV screens thanks to a media extenders, really need to break out of their niche is a single popular video format. Given by druthers it will be one that doesn’t incorporate DRM (Digital Rights Management). DRM only adds another layer of complication and confusion to the problem of watching TV or movies over the Internet. Besides, as has been shown time and again, DRM schemes are always breakable.

However, we’re not going to get a universal video file format. This isn’t a case where, like VHS or Beta or the on-going battle between HD-DVD and Blu-Ray, there are only two main competitors. As I said earlier, there are dozens of video formats.

No, for practical purposes, what we really need are good video format translator programs. There are many such programs, but most of them are, in a word, awful. Others are good, but require a considerable amount of technical expertise. Still others only work with a limited number of formats. In later articles, I’ll tell you about the ones that work at least reasonably well, and how to get the best possible video out of them.

For now, suffice it to say, there is no such thing as a truly great video translator. And, because of that, the Apple TV, and the other media-extenders, are going to remain in the niche for dedicated video fans who are also tech-heads. It will be a growing niche, but I’m now convinced, I’m sorry to say, that it’s going to remain a niche for the foreseeable future.