Few people, even those who love watching TV programmes on the web, have heard of Project Kangaroo. That's because as far as consumers are concerned, this video download website doesn't exist. To the frustration of its founders BBC Worldwide, ITV and Channel 4, the launch of Kangaroo faces delay after the Competition Commission ruled yesterday that the venture raises competition issues and cannot yet launch.

It seems clear that Kangaroo in its proposed form - a one-stop shop for recent and archive programmes from the BBC, ITV and C4 - will need big changes if it is to get the green light. Competitors such as Virgin Media and Tiscali want guarantees that they won't be excluded from getting access to the video footage on Kangaroo and won't have to pay a premium over rivals ITV and C4 for the privilege.

Despite this, the Kangaroo concept is being closely watched and could make a big difference to the media landscape. First, because the idea of three of Britain's big public-service broadcasters uniting on a download video service is unprecedented. And second, because the inspiration for Kangaroo, the BBC iPlayer, has already been a huge hit. Ashley Highfield, who oversaw iPlayer, even became Kangaroo's first chief executive, although Microsoft poached him last month.

Everyone knows about iPlayer. The online download video service, launched on Christmas Day 2007 and funded by the licence fee, has been a technological and marketing triumph. Suddenly the broadband revolution had its "breakthrough" moment as Britons discovered how easy it was to download programmes that they had missed - "making the unmissable unmissable" as the catchphrase goes - and all without paying a penny. Viewers are downloading everything from The Apprentice to Gavin & Stacey on iPlayer at a rate of more than a million programmes a day and rising.

BBC iPlayer may be the most successful site of its kind in Britain but it is not alone. All the major broadcasters from ITV and C4 to Sky and Virgin have their own offerings. Other media firms such as BT and Tiscali also let subscribers download clips, shows and films.

It's not just the advance of technology that is driving this change. Media owners and advertisers are desperate to find new audiences as viewing figures and revenues for traditional terrestrial TV continue to slide. Forecasts for the growth in online video consumption are exciting. Analysts at Dresdner Kleinwort reckon the online TV market could be worth £1.2 billion in the UK by 2012. By that time, about 20% of UK viewing could be non-linear - that is via the web or downloads - rather than on traditional TV channels. Looking further into its crystal ball, Dresdner thinks by 2018 more than 40% of our viewing might be online or "on demand".

The problem, as so often with going digital, is monetising the audience -making money. That may not be such a great issue for the BBC, but it is in the commercial world. The experience of Google's YouTube, the world's most popular video website, has been instructive. Advertisers and big-name corporate sponsors have been wary, to say the least, because of fears about the nature of the user-generated content. Leaving aside the vexed issue of copyright with some of that TV footage on YouTube, the fear of advertisers is that they might be associated with some maverick or unpalatable video. That's where Kangaroo hopes to come in. ITV and C4 have joined forces with the BBC's commercial arm, BBC Worldwide, because they are offering their programming in an environment that is trusted by advertisers and viewers alike.

It seems reasonable to assume that ITV and C4 would also love some of that iPlayer-style magic to rub off on them. In the case of Worldwide, it's a chance to make money as the BBC itself is not allowed to put advertising on the licence fee-funded iPlayer. The success of Hulu, a similar download site in America run jointly by Rupert Murdoch's News Corp and NBC, augurs well. Advertising revenue on Hulu is forecast to overtake that of YouTube in 2009 despite the latter's bigger audience.

Those involved in Kangaroo hope the fact that Hulu exists - and could soon come to the UK - will convince the Competition Commission that Kangaroo does not pose insurmountable problems in a download market that now stretches from traditional TV to Google, Apple and even Sony Xbox.

Dresdner Kleinwort media analyst Omar Sheikh, who describes Kangaroo as "probably the most interesting new business model in Europe" for online video, is among those who believes Kangaroo will still happen. But even if it fails to get off the ground, Sheikh argues there is still huge potential for online video growth in the UK. He highlights rising broadband penetration; BT's planned rollout of a new fibre network across Britain; a new younger generation with an appetite for technology; and the lack of a language barrier for US-produced content.

Incidentally, Kangaroo isn't the name of the proposed website. It's just the project codename. We will discover the real name when, and if, it launches. But in the end whether Kangaroo is bounced out of town or not hardly matters.

As iPlayer has shown, online TV and video on demand can only get bigger.