An imperfect but useful analogy I use is the banking model, where retail, corporate and investment banking fees can create a large business.
This diversified strategy provides:

• a safe income stream:  licensing, like retail banking, provides a recurring and non-volatile revenue base.
• a growth business: syndication, like corporate banking, requires other companies in the ecosystem to do well.  This can provide higher CPM rates by placing content in the right context.
• a wildly lucrative stream: advertising, like investment banking, takes time to develop, is speculative and seasonal, and risks drying up abruptly.  Notice how advertising revenue spikes each fourth quarter, for example.

The reason why I place content producers in the highest Profitability circle over time  in the first chart above is because only they can build such a business.  (The Profitability Index represented in the chart takes into account operating margins and total return on investment, including likelihood of a liquidity event).  And, yes, I am completely biased, since this is the kind of business I am trying to build with WatchMojo.  Aggregators and networks are solely advertising based businesses; just ask YouTube who generated $10,000 in a paid model test, even though it can generate billions in simpler ways.  Video advertising will be a bigger business, but not necessarily a higher-margin business.
Video will be Everywhere: on all Websites
Video on the Web is no longer just about entertainment.  It is also about marketing, instruction, and conveying information of all kinds.

• Content bellwether Wikipedia announced it will be rolling out videos soon enough.
• e-Commerce leader Zappos encourages users to submit their video experiences which increase sales 6% to 30%.  In 2010, it will create 50,000 videos.
• It won’t be long before organizations feature their accountants, lawyers, management, VCs in videos too.

Video will be Everywhere: in Ads
Videos won’t simply be on all websites; video ads will converge with rich media and display banners.  Publishers and ad networks will swap out low yield ad placements for videos that sell at a premium.  Rupert Murdoch is right to say that there isn’t enough advertising to make all publishing online profitable, but if you insert a video-enabled ad where a display banner exists today, maybe it will become more profitable, as video rates tend to generate a tenfold premium over display banners.  Of course, the flip side of that argument is that if video ad inventory lost all scarcity as display banners have, then it rates would also see a steep drop.
Video is the Anti-Search
Google’s dominance of the Web today stems from a perfect storm.  Search benefitted from low expectations.   Whereas Google’s competitors threw in the towel to focus on portaldom (or outright handed them the business), online video companies’ war chests seemingly have no bottom as they wage the war for the online audience.
With YouTube being a unit of Google, it’s hard to compete being a pure video aggregator.  Those who have tried are flailing badly.  Yet video’s expectations have always been high and will only get higher.
History Repeats Itself
Video will follow search in two ways though.
Search is software and Google is the only successful ad-supported technology company.  Video is media, which has a natural disposition to embrace ad-supported models.  As such, advertising will monetize video streams.  In fact, as large ad agencies and marketers shift online, they’ll embrace branding campaigns and push video advertising could eventually top search advertising.  Once that starts, online advertising will surpass television, it’s already happened in the UK.
Search for The Leading Ad Format
Everyone agrees that video advertising will be huge but what will the prevailing ad format be?
Stakeholders are obsessed with finding the ad format likely to follow television’s 30-second ad spot and search’s paid listings.
What might lead the way?
Pre-rolls are the equivalent of pop-ups (and mid/post rolls the equivalent of pop-unders) in that users hate them, but unlike pop-ups, I actually think pre-rolls won’t disappear, mainly because

• They’re the most in-demand ad format (according to Brightroll CEO Tod Sacerdoti)
• It is easier to include a pre-roll when you’re syndicating to other websites and platforms (says blip.tv co-founder Dina Kaplan)
• But largely because they’ll get more user-friendly: the 30-second ad will make way for 5-10 second interactive pre-rolls (SpotXchange CEO Michael Shehan).

However, there will always be properties which will forego pre-roll revenue to improve the user experience in order to build audiences, and all else being equal users will migrate to those sites.  So I’m not sure the pre-roll will remain all that ubiquitous.  The other problem with pre-rolls is lack of attention.  When a pre-roll starts, I tune out and look for my headphones or go grab a coffee.
That’s why I like the contextual display banner (and not necessarily the companion banner).  A companion banner comes bundled with the video pre-roll, but sits alongside the video  A contextual banner comes without the pre-roll.  Whereas most banners disappear quickly next to text with one downward scroll of the mouse, alongside a video player, that banner becomes quite valuable and top-of-mind since people are just staring at the video.
We’ve also seen the rise (and fall) of overlays, which is basically an expanded Picture-in-Picture (PIP) format; we know how that fared.
Of course, content producers are also salivating over branded content (more than product integration and product placement, the brand becomes central to the story) or outright sponsorships.
Finally, there’s the Web’s favorite offspring: the viral video.  Viral video is not an ad format, of course, but it is not quite branded content nor is it supported by ads.  As these become more common, achieving success with content alone becomes a sure-fire recipe for failure.  All content will need to be supported by a media buy or some kind of promotional push.  After all, on TV you spend millions creating an ad but you need to buy media spots to promote it.  It’s not going to be that different online.  Yes, it’s a meritocracy, but it’s a loud, cluttered one.
KISS: Keep It Simple Stupid
There won’t be a single dominant ad format but the holy grail will prove simpler than expected.  It always does.
Remember Don Lapre’s infomercials?  He would go on and on about placing “Tiny Classified Ads” in newspapers.  I never thought much of those ads until Google’s adoption of (essentially) little text ads next to search results led to their explosive growth.
Sometimes in business, the solution is simpler than you can imagine.