Insight Analysis: The Struggle For Interactive Television
Interactive television (iTV) represents the point at which the TV ceases to be just a TV. Interactivity promises a two-way relationship with television programmes; access to the internet; the opportunity to browse and buy goods and services from the sofa via the screen, as well as a host of quizzes, news material and programme-related editorial content.
The answer to each of these questions is far from a resounding ‘yes’. iTV, both in the US and across Europe, has struggled to find its feet. There are a number of conspiring factors in this. Poor consumer education is one of them – UK Interactive TV Penetration To Reach 40% By 2003, Says GartnerG2 found that 50% of British adults and 75% of French adults do not even realise that their iTV system allows them to buy goods via the television set.
There are also the financial constraints that have hit broadcasters, particularly cable companies – which are best placed to take advantage of two-way, interactive technologies. Cable groups have invested heavily in building their infrastructure, marketing their services to consumers and making the push to digital TV. As a result they are generally heavily in debt (see NTL In Talks For Further Investment, Says FT).
Video on-demand Commenting on the development of video on-demand systems (VOD) – one of the iTV services about which consumers seem genuinely enthusiastic – 26 Million Will Have Video On Demand By 2006, Says Screen Digest says that “plummeting values of cable and telecoms companies, the draining away of investor confidence and the huge debts caused by acquisition of third-generation (3G) mobile licences” are reasons why operators have shied away from committing to VOD provision.
According to Frost & Sullivan, VOD services will reach more than 8.5 million people across Europe, generating revenues of up to $2.5 billion by 2006. So far, the development of VOD services in Europe has lagged behind that of the US.
“Interest in the technology will initially expand at a sluggish pace, on a par with the development of subscription levels, but rapid growth will ensue as a result of the expected escalation in the overall subscriber base and average revenue per subscriber. We believe that the number of VOD subscribers will rise in tandem with home broadband access,” said Niamh Spillane, research analyst at F&S.
Despite the constraints of investment, VOD is one of the few iTV offerings that consumers are embracing and wish to see more of.
Television retail Whilst VOD largely remains a tantalising prospect, television retail (t-commerce) services are already available in the UK for digital TV subscribers. However, t-commerce has not yet proven a runaway success.
Poor consumer knowledge seems to be a large hampering factor, given that only half of iTV users realise that they can actually purchase goods through the service. As a recent Interactive TV ‘Poised For Growth’ Despite Shaky Start report found: “The greatest obstacle to growth is a broad misunderstanding of what the platform actually is.” GartnerG2 concurs, saying: “The root cause is that many consumers either don’t realise they have interactive TV or [don’t] know how to use it.”
Davnet Cassidy, an analyst for GartnerG2, offers some explanations of why t-commerce has failed to take off: “The reason for the lack of success with television-based commerce (t-commerce) is that retailers have not linked their interactive TV presence to TV programming. They need to realise that consumers will not use the TV like they use the internet, to purposefully seek out products for sale. Retailers urgently need to move away from the ‘build it and they will come’ attitude and work hard to focus on a clearly defined sales proposition for a defined target audience,” she says.
Meanwhile, a survey by Forrester Research claimed that t-commerce in the UK is in trouble and that return on investment (ROI) is a distant possibility. Forrester argues that there are too many retailers chasing too little available revenue. The situation is made worse by platform operators taking too great a share of revenue and setting fixed costs unjustifiably high.
“British retailers’ dissatisfaction with current tRetail revenues is wholly justified,” said Forrester’s director of research, Fraser Pearce. “The combined costs of more than 50 retailers massively outweigh the gross revenues available to them – making tRetail ROI a distant prospect. Platform operators have created an impossible scenario for tRetail – attacking thin margins with large revenue shares and high fixed costs.”
Pearce claims that from 2000 to 2001, retailers will spend £47 million chasing just £12 million in net revenue, as shown.
The report claims that today’s overcrowded ‘walled gardens’ are helping no one, wasting the resources of retailers with the least potential, whilst snatching revenue from those with the most.
Mirroring the cable companies’ reluctance to invest in VOD, Myers Reports says that whilst cable operators are well aware of the revenue potential for t-commerce, they feel that customers will not embrace its services quickly enough to justify their financial investments.
Is it interactivity useful? The US experience points to similar problems. A study by Statistical Research reported that almost three quarters of US consumers are yet to be convinced of the merits of digital television and its associated interactive services. When asked if they were interested in interacting with television programmes, 72% of respondents said that they were not.
Amongst those respondents who already had iTV services, most said that they rarely or never use interactive links and TV-based internet and email. However, whilst 75% believe that iTV is not the great enhancement the industry would have us believe it is, Statistical Research found that VOD and electronic programme guides (EPGs) are proving popular.
Almost three-quarters of those with access to pay-per-view (PPV) films use the service, whilst 43% purchase other PPV events, such as sports, according to the survey. PPV, with multiple films broadcasting at regular intervals, is essentially a precursor to proper, full video on-demand.
Forecasts Despite the obstacles, Cahners In-Stat believes that the iTV market is ‘poised for growth’, particularly in North America. Digital TV’s capability of two-way transmission is helping cable, satellite and terrestrial broadcasters alike to develop their interactive offerings, it claims.
The number of television households using on-demand services worldwide will jump from 1.3 million in 2001 to over 33 million in 2005, forecasts In-Stat. North American video on-demand service revenues are predicted to grow from $86 million in 2001 to over $1.75 billion in 2005.
GartnerG2 says that the UK currently leads Europe in the uptake of digital television, with a penetration of 35% at the beginning of this year. DTV penetration in the UK rose from 27% last year to 35% and is forecast by Gartner to reach 40% by the end of 2002.
Yankee Group group research forecasts that European t-commerce revenue will reach $17 billion by 2006. Yankee also forecasts that 81.2 million European households will use interactive services via digital television by 2005, overtaking PC Net access which is expected to be used by 80.6 million households by the same year.
This increase will be due to ‘third wave adopters’ – those in lower income groups who may not have the money or interest to buy a PC but who will take advantage of the interactive services offered alongside digital television, says Yankee.
VOD services will reach more than 8.5 million people across Europe, generating revenues of up to $2.5 billion by 2006, according to Frost & Sullivan.
US iTV revenue forecasts from Myers Reports are shown in the table below and were originally published in September 2001.
| U.S. Interactive TV Revenue (in $m) | ||||
| Advertising & IPG* | T-Commerce** | Subscription | Total | |
| 1999 | 9 | 0 | 123 | 129 |
| 2000 | 14 | 8 | 280 | 302 |
| 2001 | 20 | 18 | 340 | 378 |
| 2002 | 30 | 28 | 530 | 588 |
| 2003 | 58 | 60 | 950 | 1068 |
| 2004 | 120 | 120 | 2150 | 2390 |
| 2005 | 215 | 250 | 4000 | 4465 |
| 2006 | 400 | 500 | 6800 | 7700 |
| Source: Myers Reports | ||||