HEARST JOINS CANADIAN INTERACTIVE TV VENTURE

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The Canadian interactive superhighway is under construction in the small industrial city of Chicoutimi, Quebec, and Hearst Corp. is going along for the ride.

Next January, Groupe Videotron, a Quebec broadcasting and cable TV company, will start the first two-way interactive TV system in Canada, reaching 35,000 homes, or 80% of the population of Chicoutimi. A consortium of six companies, including Hearst, will fund the system.

The project, called Videoway, is Hearst's first major foray into interactive media and the first significant project of Al Sikes, the former Federal Communications Commission chairman who hasbeen president of Hearst's New Media & Technology Division since March.

Videotron and its partners-the National Bank of Canada, utility company Hydro-Quebec, the Quebec Lottery, Canada Post Corp. and Hearst-today will announce details of the project, which will include catalog shopping, home banking, lottery games, electronic mail and home utility automation.

The Chicoutimi system has drawn tremendous interest from advertisers, including some that to date haven't been involved in interactive TV, because of its size and opportunities for target marketing. Advertisers will be able to test a variety of response-driven commercials offering consumers coupons, catalogs or more information.

More than 80 companies have already signed on to provide interactive advertising or services, said Jean-Pascal Lion, VP-marketing for Videoway Multimedia. Among them: Sears, Roebuck & Co.; Quaker Oats Co.; Avon Products; Coca-Cola Co.; Ford Motor Co.; Eastman Kodak Co.; American Home Products Corp.'s Whitehall-Robins unit; and Du Pont, as well as marketers of confections and home cleaning products.

For Hearst, the project "is an opportunity to be on the inside, to be a service provider in an interactive network that is market-based," said an executive close to the situation. "It is not a trial but an actual full-market deployment."

Hearst, which declined comment, is said to be providing a variety of programs, including classified advertising, transactional services and information directories.

For the past three years, Videotron has operated a one-way interactive TV system, also called Videoway, in Montreal. More than 200,000 subscribers pay $7.95 per month to play videogames, call up sports statistics and select one of four camera angles during sports programming. Marketers including Ford, Labatt Breweries of Canada and Coca-Cola have tested advertising that lets viewers pick which commercials they want to see.

Videoway also has a small U.S. presence through relationships with a few wireless cable TV operators.

But the interactive TV system in Chicoutimi-a 5-hour drive north of Montreal-will let consumers communicate with each other, and with advertisers, via an advanced cable TV set-top box, remote control and, eventually, an in-home printer. Consumers will also get a smart card they can load with money from the interactive banking service and then use for teleshopping.

If the Chicoutimi project is successful, Videoway will expand the service to Montreal and Quebec City.

"I think this is one instance where Canada was ahead of the U.S.," said Debbie King, VP-operations at Foote, Cone & Belding's Optimedia media buying unit, Toronto. Seven top clients have signed letters of intent to test advertising. Optimedia's largest clients include Mazda Motor Co., Goodyear Tire & Rubber Co., Nestle, First Brands Corp., S.C. Johnson & Son and Pizza Hut.

Advertisers will pay as little as $30,000 to test in Chicoutimi, compared with $200,000 for Time Warner's smaller-albeit more technically advanced-test in Orlando.

"It's much less expensive up here to test," said Bruce Grondin, senior VP-media director at Young & Rubicam, Toronto. The Videoway system "will have 80% penetration; that makes it very attractive to advertisers. It's not as if they're going to put this into Orlando, and what percentage penetration is that?"

Videoway and its partners will spend an estimated $27 million on the test, a Videoway spokesman said, but the figure is likely to grow.

It's unclear whether Hearst's involvement will help Videoway expansion in the U.S.

"The type of expansion that we're talking now in Chicoutimi is something that we would very much like to happen in the U.S.," the Videoway spokesman said. But the first priority is to get the system up and running in Quebec, he said.M

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