GTE's mainStreet provides a wide array of interactive services to 4,000 subscribers in two California towns and Boston. FROM COMPETITORS TO CONTENT LOW-LEVEL PROVIDERS OF INTERACTIVE TV TRY TO RECAST THEIR ROLE

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If you can't beat 'em, join 'em.

That seems to be the new philosophy of many providers of low-level interactive TV services. Where they once took advantage of the setbacks plaguing more advanced two-way TV trials, these companies are now trying to ally themselves with the bigger players to avoid being steamrolled in a direct showdown.

These smaller services, too, have had their share of problems with technology delays and limited advertiser support.

Full-service networks being built by Time Warner, U S West and every other major cable and telecommunications company promise to deliver a broad array of advanced services, including video on demand and interactive catalogs. These networks rely on sophisticated, costly technologies, some of which are still being developed.

Lower-level services from players including NTN Communications, Zing Systems, Interactive Network and GTE's mainStreet use less sophisticated technologies to allow users to respond to programming and advertising. Their offerings range from text-only services to still images and sound to near video on demand.

And while they first tried to go it alone, these companies are now seeking to become content providers to the larger players.

"Many smaller interactive television companies have given way from being the end point to being one service within a product," said Barry Layne, VP-director, Ketchum Communications' Ketchum Interactive Group, Los Angeles. "It's not fair to write the obit for these companies, but they will need to learn to dance a little faster. The proof will be in the pudding as to where the strategic alliances will be formed."

NTN has already signed on to participate in U S West's trial in Omaha and is in talks with Time Warner. No other deals have been announced yet, but cable operators and phone companies are actively seeking outside content providers to expand the choices available to their consumers and advertisers.

"Why should we reinvent the wheel? We want to be a content provider to interactive services-both on television and online," said Dan Downs, president of NTN, which will begin testing via U S West's Omaha service this summer.

Success has so far proven elusive for Interactive Network, one of the early birds of the interactive TV world.

The San Jose, Calif., company has been hampered by financial woes and numerous marketing gaffes since it started offering interactive, play-along TV games in 1989.

Since then, IN has expanded to only five markets-San Francisco and Sacramento, Calif.; Chicago; and Indianapolis and South Bend, Ind.-and has returned to its financial backers (including Tele-Communications Inc., Sprint, NBC and Motorola) several times for additional cash infusions.

After initially marketing itself as a videogame device sold at retail, IN is now being repositioned as a provider of play-along games, a strategy CEO David Lockton thinks will finally help the company turn a profit.

"We've always known there is a market out there," Mr. Lockton said. "But quite frankly, we really stumbled and had lots of problems with the retail pricing structure."

IN's latest strategy, being tested in Indianapolis, is to offer its service as a $19.95-per-month add-on to consumers' cable TV subscriptions. Hardware is included in the price. Since November, IN has amassed 1,450 subscribers in Indianapolis, more than a quarter of its nationwide total.

"A lot of theses companies are realizing they'd rather play on the application and content side of this than actually developing the hardware," said Bill Harvey, president of consultancy Next Century Media.

IN has had moderate success attracting marketers to use the system to test interactive advertising. Sprint earlier this month agreed to use IN to test awareness beginning with the National Collegiate Athletic Association basketball playoffs. Chrysler Corp., American Airlines and the Ad Council also are partners with IN in its Charter Advertiser Consortium.

As with IN, the goal for Zing is to change the perception of the company from a stand-alone service to a content provider.

"A lot of times people say to us, `What's going to happen when Time Warner rolls out?'*" said Scott Wills, senior VP-marketing at Zing, Englewood, Colo. "What we do is not concern ourselves with content manipulation. If you're a content provider, whether there are five channels or 500 in your house we add value .*.*. If Time Warner were to roll out, what they would do is include our content on top of what they offer everyone else."

Like several of its peers, Zing has suffered setbacks in its launch plans. Zing had aimed for a December 1994 consumer rollout, but only started a beta test at that point. The revised schedule targets September for the launch.

Zing has agreements from 14 cable TV networks to encode their programming using Zing technology so viewers can play along using a handheld device. Zing will sell its equipment at retail and charge a $50 annual subscription fee.

Zing technology eventually will be incorporated into cable TV set-top boxes, eliminating the need for consumers to buy a separate, dedicated device. Hewlett-Packard is the first set-top maker to agree to incorporate Zing technology.

Zing isn't focusing on advertisers yet, which is probably wise. Marketers have been hesitant to invest in smaller, less technologically-sophisticated services.

"I don't think expensive little game boy toys are the answer," said Jean Pool, senior partner-director of local market broadcast at J. Walter Thompson USA, New York. "When you're playing along with game shows .*.*. you're never watching television."

Nissan last year participated in a low-level interactive TV test with Star Response, San Antonio, Texas. Cable subscribers in the market could use their remote control to request more information when they saw a star logo during a Nissan spot. The information was mailed to subscribers.

Dick Hackenberg, who oversees interactive projects for Nissan Motor Cars USA at Chiat/Day, Venice, Calif., termed the test successful, but said Chiat and Nissan are still concentrating more of their attention on the video-on-demand tests planned by cable and telecommunications companies.

"When we looked at Interactive Network, for example, we all came to the conclusion that the viewers weren't interacting with the television as much as the device itself. It seemed awkward to us," he said.

Bill Samuels, chairman-CEO of ACTV, which has been providing low-level interactive TV to 230,000 subscribers in Montreal, insists "there's room for everyone."

"It's crucial to remember that interactive television is not one thing. It's a combination of applications ranging from transac- tions to play-alongs to video games to full motion video and individualized television," he said. ACTV next month will introduce a cable service, TVI: Television Interactive, in Los Angeles.

"The only competition that's out there is the fact that the consumer only has so much time and money," said Mr. Samuels. "We'd like to be picked up by other services as a content provider, but we'd also like to learn from other test beds and understand what works and what doesn't work."

GTE's mainStreet also plans to be both a content provider to others and a stand-alone network. MainStreet has 4,000 subscribers in Carlsbad and Cerritos, Calif., and Boston, who pay $9.95 a month for interactive services such as game shows, fantasy sports programming and an on-screen encyclopedia.

"We're a very realistic lab for an advertiser to be in and are pursuing both local and national advertisers very aggressively," said Robert J. Regan, mainStreet senior VP-programming and content. "We have the ability and the knowledge and a great product which will allow us to compete with the bigger tests."

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