Within five years, forecasters say, the TV screen will be the primary portal for home shopping, and advertisers will use interactive TV to give viewers targeted information about products and services.
TV networks and content developers who want to stay in the picture are ramping up tests of interactive advertising and "t-commerce" offerings, allowing viewers to buy programming-related merchandise directly from TV screens, although most claim they are in early stages of testing the medium.
Research firm The Myers Group predicts interactive TV will generate $21 billion from advertising, e-commerce and subscription fees by 2005, up from less than $1 billion last year.
The number of U.S. homes with interactive TV capabilities will rise 144% this year, says Forrester Research, from around 5 million at the end of 2000 to 12.2 million by yearend, with more than 65 million homes with interactive TV by 2005. Visions of interactive TV home shopping include password-protected security features, the ability to request more information from advertisers, one-step transactions and the option of storing information about all of one's home shopping transactions for easy returns, exchanges and credit via a single screen.
"We're in the very early stages of interactive TV development, but we believe the lion's share of today's Internet e-commerce will migrate to the TV set over the next three to five years, and content will come from all directions and will be carried by satellite," says Scott Landers, director of interactive television for Littleton, Colo.-based EchoStar's Dish Network.
Network and cable TV broadcasters like Discovery Channel and VH1 are testing the waters, prompting viewers to visit related Web sites while watching TV to buy merchandise or bid on auctions.
NBC Interactive's recently revamped site (www.NBCi.com) includes entertainment and shopping options. NBC is also enhancing its regular TV broadcast offerings with interactive options including the chance to buy programming-related merchandise, such as the CD from "The Tonight Show" featured musical artist, and request more information from advertisers. NBC's enhanced TV offerings are enabled by WebTV and Wink Communications.
"Most of the TV networks are starting to realize the potential of selling sports merchandise directly off the TV screen, and they're setting up parallel Web sites to position themselves for the arrival of robust interactive TV," Mr. Landers says.
Other players in the interactive TV arena expected to play a big role in developing home shopping-based services include Microsoft Corp. and Open TV, but neither has announced retail partners.
All eyes are on AOLTV, the interactive TV service rolled out late last year by America Online, which appears to have the early lead in home shopping opportunities thanks to a partnership inked with TV home shopping giant QVC.
Sold through electronics stores and via direct-response TV for $249, AOLTV consists of a box that works with a TV and a telephone line to deliver a glorified version of the Internet on a TV screen.
Although AOL is tight-lipped about its specific e-commerce plans, AOLTV is expected to include enhanced e-commerce offerings starting this year including merchandise sold only through AOLTV. AOL's recent acquisition of Time Warner will greatly enrich those offerings, and provide incentives for key players to join forces with AOLTV, say industry observers.
Through its partnership with AOLTV, QVC says it hopes to create an interactive TV service that will combine the best aspects of TV shopping with the Internet shopping experience, say executives from both companies.
"Interactive TV would allow us to put entertaining shopping programs together with the convenience of making selections instantly with a remote control," says Stephen Hamlin, VP-operations at iQVC. It would also simplify the payment process to a single step," he says. IQVC, like its TV home-shopping parent, sells thousands of items across virtually every merchandise category.
QVC says Internet shoppers account for higher sales volume, so improving the interactive shopping process ought to boost sales.
"We've already seen that a customer who converts from shopping by phone to shopping online is worth 25% more to us. People tend to buy from us in two different ways: on an impulse and with forethought for considered, more researched purchases. Interactive TV would make it easier for customers to do both, through one system," says Mr. Hamlin.
AOL has not detailed its plans with QVC. "We are working to develop interactive shopping for the AOLTV service where users will be able to get detailed product descriptions and make purchases as they view items," says an AOL spokeswoman. "We will be leveraging the existing relationships we have with our partners in the AOL service to explore the potential for commerce and advertising opportunities." AOLTV is pursuing "a variety of other partnerships" as well, she says.
AOL has already formed partnerships with National Geo-graphic Channel; AsSeenIn.com, a site for fans of TV shows; BBC America; Moletown.com, an e-tailer selling merchandise based on TV programs and movies; and the National Basketball Association.
Many network TV and cable operators are struggling to determine the business model for interactive offerings.
"Content will be king in the interactive TV future, and TV networks may end up playing a bigger role than the WebTVs and AOLs of the world," says Mr. Landers. "If AOL simply presents the Internet on TV, it won't be a big deal," he says. "But if they bring true interactivity and unique content to TV, that will be a breakthrough."