Europe to Lead iTV Revolution

Digital TV will surpass PC-based Internet penetration in Western Europe by 2005, making DTV-based interactive services, the more popular means of accessing the Internet by the middle of this decade, according to the Yankee Group.

By 2005, 81.2 million households will have DTV-based iTV services, compared with 80.6 million PC-based Internet households. This compares with a forecast of 24.5 million DTV households against 45.4 million households for PC-based Internet for 2001.

“We believe iTV in Europe will soon begin to siphon off many of the potential middle-market and low-end users that ISPs target today through low-cost services,” said Andy Greenman of Yankee Group’s Internet Strategies Europe (ISE) Group. “We don’t believe the broad middle market of Internet consumers in the next five to seven years will want to hassle with ISPs, PC configuration and cost, and an open Web-surfing experience when they can effectively have a walled garden that allows shopping, banking, and entertainment services from familiar names, at a low cost, without having to do much more than allow their set-top box provider to push them new services. The growth we expect in ITV will begin to have profound consequences regarding the shape of alliances and service development in the interactive arena in Europe.”

The Yankee Group also predicts the rise of t-commerce revenues will be swift, from a forecasted $267.5 million today across Europe, to just over $17 billion by 2006. Broadcast media companies and entertainment conglomerates will begin to exert significant power as iTV’s growth accelerates. Cable and satellite operators will begin to be viewed as key partners for reaching the mainstream consumer through interactive channels. ITV will become a powerful broadband medium, as it provides a better platform for rich, interactive media delivery than the PC, and can integrate interactivity with content more directly.

According to a report by Strategy Analytics, 38 million homes worldwide will have access to interactive digital television services. The most advanced market in the world is the Britain, where 40 percent of homes will have interactive digital television by the end of 2001. All of Britain’s major digital platforms: satellite, cable and terrestrial, offer a wide range of interactive services such as interactive sports coverage, t-commerce, games, email and walled-garden Internet. Other leading European markets include Denmark (25 percent household penetration by the end of 2001), Spain (23 percent) and Sweden (22 percent).

The essential element that will allow consumers to reap the benefits of digital television is the set-top box. Research by International Data Corp. (IDC) found that set-top box shipments will surpass 24 million in the United States and nearly 70 million worldwide by 2004. Television service providers will have to make large investments in order to take advantage of the growing interactive television opportunity, however.

“Demand for digital TV exceeds — and will continue to exceed — the expectations of many large digital TV service providers,” said Mary Joy Scafidi, senior analyst for IDC’s Consumer Devices program. “However, digital cable services cannot be implemented without hybrid/coax network replacement from the cable head end to local nodes. This process requires a rather large investment on behalf of the cable operators, who then have to pick up the additional costs of deployment.”

The high manufacturing costs of digital set-top boxes have kept TV service providers from deploying them to the mass market, according to IDC. As a result the boxes are now being designed at the lowest possible cost along with the ability to support revenue-generating applications and upgraded applications.

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