When Gordon Brown, the UK chancellor of the exchequer (finance minister), unveiled his economic plans for the year ahead in his budget address last month, more than 20,000 people around the world were watching him live on the internet.

Mr Brown's speech was the latest of a growing number of high-profile events shown in real-time digital video on the web, suggesting that webcasting or streaming - the terms used to describe broadcasting on the internet - is coming of age.

However, even Mr Brown's appeal paled in comparison to Madonna, the pop diva, whose rare concert at Brixton Academy in London last November was viewed by a record-breaking worldwide internet audience of 9m.

Big Brother, last summer's reality TV hit in the UK - broadcast on Channel 4 and widely emulated overseas - also attracted thousands of web surfers to live updates on the show's incarcerated contestants.

The popularity of these early examples of webcasting has underlined the potential for the internet to rival traditional television as a source of live video content. However, questions remain about webcasting technology's reliability - and about operators' ability to make money out of it.

People logging on to watch the Madonna concert complained about the slow pace of downloading content. Those whose connection did not crash altogether, complained that the pictures were fuzzy and stilted.

Ian King, north European general manager of Akamai, a webcasting specialist, says webcasting is still at an early stage of development.

"There is a lot of talk about pay-per-view on the internet: that people would go online and subscribe to this, that and the other. The reality is the quality is not good enough to charge for yet," he adds.

Although the Madonna concert did make money - an additional 80,000 records were sold as a result of the publicity - nobody paid to view it.

Eoin Farrer, manager of systems engineering at Infolibria, an internet solutions provider, says webcasting is unlikely to prove lucrative until more people switched from slow dial-up internet connections to higher-bandwidth broadband services, which allow faster, better quality webcasting.

"It's questionable whether any streaming is worth watching using a dial-up internet connection. Nobody is going to invest much or make much money until a mass broadband market is there," he says. However, even once broadband is widely available to consumers, services could still be stalled by congestion elsewhere in the network.

"Internet communications are delayed more in the rest of the infrastructure than during the last hop," says CacheFlow, a webcasting technology developer.

Akamai's Mr King says the internet is not optimised to send content down the best route. "It's like feeding all the traffic from the M25 [London's orbital motorway] to a minor road. The internet was never designed to do what we want it to do. It was originally designed for scientists to communicate with each other."

Tests by Akamai showed that streamed content from a website hosted by a company in Frankfurt passed over seven different networks to reach a PC in a hotel four miles away.

Most industry insiders agree that these network problems must be ironed out before webcasting can compete with other media for speed and quality.

"If the internet is very congested, you either give a very high quality product to a small number of people or a very poor quality service to a large number of people. Either way, you're not going to make much money," says Mr King.

The solution, says CacheFlow, is to develop ways of by-passing the congestion: "The key is to bring the data as close as possible to the user to ensure the majority of data only needs to travel that last mile."

Mr King illustrates the problem: "If the film industry had been constructed in the way the internet was, we'd have to go to Hollywood to watch a film. We go to where the website is. The film industry solved the problem by building cinemas so that millions of people can simultaneously view the same film in different places around the world."

Akamai is bringing the same approach to webcasting. "We've a network of 8,500 servers situated round the 'edge' of the internet. We work out where the internet is least busy and put our content there. It's like building a cinema nearer your home," says Mr King.

Another way of bypassing hold-ups could be satellite. Content could bypass congested parts of the network by being beamed to local servers.

The day when millions of consumers around the world can simultaneously watch a live webcast event on their PCs or internet-connected televisions in perfect quality is still some way off.

In the meantime, it is the smaller but highly valuable business market that is becoming the first serious user of streamed content. Multinational companies can use the technology to hold video-conferences between offices on different continents. They also screen press conferences and presentations to analysts to allow investors better access to market-sensitive information.

Eamonn Campbell, vice president of Oni, an optical technology company, says demand from the business sector would fund development of webcasting technology - to the eventual benefit of consumers.

"Webcasting will never be developed economically if it's only for domestic use, but the demand from business will fund its roll-out - then it will be exploited for domestic use," he says. Until that time, Mr King warns that the industry must be careful not to give the false impression that the internet is about to supplant television. "Part of the challenge is to manage consumer expectations."

Once the technology is improved, the next challenge will be to convince consumers to use it. Matthew Finnie, vice president of Interoute, a network builder, warns that no matter how good the speed and quality of webcasting, people will not adopt the services unless there's something worth watching.

"Webcasting is not about a nice piece of technology. It's about what service it carries. The industry gets lost in the technical jargon and forgets about the content," he says. NEW MEDIA SHOW Today sees the start of the two-day New Media Show at London's Business Design Centre. For details, see: www.newmediashow.co.uk