"I advise clients there are seemingly dozens of independent platforms and technologies that are all fighting to become the greatest thing since powdered gelatin in marketing," says Tim Hanlon, director, emerging contacts for Bcom3 Group's Starcom MediaVest Worldwide, Chicago. "Some will win, some will lose. ... There will be consolidation and the point is that a lot of these seemingly independent technologies and situations will come together."
The intersection of content and commerce via the Internet and new broadband technologies has yielded a variety of platforms that fall under the iTV tent. They range from digital video recorders with TiVo's Personal TV Service, ReplayTV and Microsoft Corp.'s UltimateTV, to cable operators' interactive and early stage video-on-demand services through TV set-top boxes. Then, there's WebTV Plus, Microsoft's MSN Web Companion and America Online's AOLTV that facilitate online banking, shopping and promotional offers. Companies such as Gemstar-TV Guide hope to offer the iTV experience via electronic program guides that consumers already use. ACTV's SpotOn service uses broadcast-quality video to deliver targeted advertising, while RespondTV's technology, as well as Microsoft's and Wink Communications' software, also provide critical building blocks for iTV.
"RespondTV is an infrastructure company ... we are acting as the serving and data-capturing mechanism," explains Mugs Buckley, VP-programming alliances, adding, "The beauty of what we do is we can enhance any situation of what's represented on a TiVo or Replay [system]."
Microsoft is hedging its iTV bets on two fronts. The company's UltimateTV product, which debuted recently, is also a DirecTV satellite receiver that will give Microsoft access to potentially millions of satellite TV households.
"When we reach scale we'll do pilots with advertisers," says Rob Schoeben, senior director, UltimateTV planning. Mr. Schoeben says scale is probably 1 million set-top boxes. Microsoft also has its MS-TV platform for enhanced TV, which the company considers the integration of digital TV, digital video recording, interactive TV and the Internet on TV. "We think we're taking the holistic approach," Mr. Schoeben adds.
With the plethora of platforms, business strategies and alliances, not to mention competing interests among cable operators and programmers, broadcast networks and marketers, when and how will the iTV market take shape?
"ITV has been two years away for at least the last 10 years," says Jordan Rohan, principal media analyst, Wit SoundView. Mr. Rohan says predicting consumer adoption of iTV, no matter the vehicle, isn't easy. At best, it won't take off for at least another three to five years. "I wouldn't be surprised if the success we see, if any, comes out of Europe or Asia."
In the U.K. alone, household penetration of digital TV, which enables the delivery of interactive functions and services, is approaching 50%. The same cannot be said for the U.S., where technology suppliers such as Motorola, Scientific Atlanta and Microsoft must work through infrastructure issues with cable operators such as AOL-Time Warner and AT&T Broadband. Most analysts contend that until cable and satellite TV operators deploy advanced set-top boxes en masse, prospects for iTV growth remain modest. "There are infrastructure issues, the hardware and software can't be expensive to a consumer ... it has to either be given away or sold for a nominal amount," Mr. Rohan says. "If it's built into your TV, it's fine," he says, adding, "In two years, the DVR companies don't make any sense."
Maligned as "ad-zappers," digital video recorders have had marketers and ad agencies scrambling for more than a year to develop viable iTV ad models. The boxes are loaded with software that allows consumers to digitally record and store TV programs. They also enable viewers to pause live TV and skip past commercials. "There are two schools of thought ... fear, and a barely submerged panic," says Josh Bernoff, principal analyst, Forrester Research, adding that there's also an acceptance that "this is technology-we've dealt with technology changes before."
In any case, Forrester's scaled-down projections for household penetration of DVRs have put marketers and ad agencies on notice. The tech researcher, which defines DVR households as those using a hard-drive device to record TV, projected 350,000 units in homes at year-end 2000. That number was revised from an earlier projection of 800,000.
Jupiter Research aggressively projects an installed base of 35 million to 40 million DVRs by 2005, helped along by massive cable and satellite deployments.
In 2001, Forrester projects more than a million DVRs in U.S. homes, revised from 3.6 million. In five years, if the numbers track according to projections, a 30% decrease in TV ad viewing is anticipated. While iTV, regardless of platform, offers opportunities for increasingly targeted advertising, Forrester predicts a whopping $18 billion in lost revenue from TV advertising in five years. The flip side? It's offset by $23 billion in interactive couch commerce, the spoils of which cable operators, broadcasters, marketers and other parties yet to emerge, no doubt, will lay claim to.
"There's a land grab right now, for what are now mythical revenues," Mr. Hanlon says, referring to the potential windfall of couch commerce that interactive TV advertising could bring. "A set-top box is a disintermediating force that drives a wedge between cable and broadcast networks and the consumer ... they're fighting over whose customer is it ... It's a huge conundrum that needs to be dealt with in the next couple of years and it's probably the issue that will make or break these interactive platforms," he said.
Beyond the revenue-sharing battle, the various iTV platforms will begin looking for supremacy. Companies like RespondTV may have the edge, along with electronic program-guide marketers. RespondTV's technology is platform-agnostic, meaning that it can enable any iTV paradigm.
Last year, Respond worked closely with Coca-Cola Co., Ralston Purina Co., Comedy Central and other major marketers to develop interactive TV offers deployed via 600,000 WebTV Plus set-top boxes across the U.S. While the universe of set-top boxes enabled for iTV is tiny, the results so far have been positive. An interactive promotion with Coke for consumers to receive a free stuffed polar bear, which ran from Nov. 20, 2000 through Dec. 24, 2000, yielded a completion rate of 49.9%. Coke sent out about 1,700 bears to respondents. Respond hosted and stored the interactive application and sent order data back to Coke for processing.
Purina's offer to pet owners last May debuted an interactive ad for Puppy Chow that enabled consumers to order a free Puppy Care Kit. The offer generated a 15.2% completion rate, running in nine networks in 37 states.
"The 15.2% is the amount of people who initially clicked when the icon came up, went all the way through and filled in forms and sent a response back," Ms. Buckley says. The test was deemed successful enough that Purina ran the same four-week offer shortly thereafter.
"Networks are starting to think about in-program sponsorship opportunities to collect leads instantaneously," says Lisa Kruglov, VP-advertising alliances for Respond. This year, Respond is looking to partner with more marketers, networks and media agencies to develop interactive offers. Respond, at press time, was in talks with Grey Worldwide's MediaCom, which represents Reebok, to develop interactive promotions during the shoe company's sponsorship of CBS's "Survivor: The Australian Outback," set to premiere Jan. 29.
Electronic program guides that appear on satellite and cable TV systems are yet another viable iTV platform. "The electronic program guide has proven itself to be a critical element for the consumer, therefore it's important for the platform providers to be able to provide an EPG," says Thomas Eagan, who follows the cable and satellite TV industries for UBS Warburg. "Technologically, the EPG is important; for many companies it's the fulcrum from which they will offer more services." Mr. Eagan believes interactive advertising won't become a factor until late 2001 or 2002, but "the more a TiVo or Replay can prove to the cable operator that you really want this because your customers really want this," the faster the sector will take off.
"I think the agencies specifically should be looking to determine the popularity of the DVRs, because the popularity and success of the TiVos of the world are going to have an impact," Mr. Eagan maintains.
Forrester's Mr. Bernoff agrees: "Agencies look at this and say `how should we shift our advertising mix?' Networks say, `Oh my God, there's a locomotive coming down the tracks."'
"I'm pretty bullish on TiVo, the fact that consumers will want this as a service," says David Card, senior analyst, interactive TV, Jupiter Research.
He maintains that there are several options: TiVo could get critical mass through its own brand, or as a channel on DirecTV's satellite service or on cable systems, such as Time Warner.
But it's far too early to say how the category will shake out with product sales and subscriber numbers from holiday 2000 still rolling in and business models highly fluid. TiVo's stock, for example, has taken a beating along with most tech companies. It was trading around $6, down more than 92% from its 52-week high. "You can't pick the winners yet because it's very early, this is a business where a network effect could take place ... the winner-take-all effect," Mr. Card says.