Interactive TV Market Remains Complex

The majority of US households will be capable of using interactive TV (iTV) in 2005, and active usage will reach more than 41 million in that year, according to a study by The Strategis Group.

“As operators continue to upgrade their networks to digital and interactive capability, and content providers prepare for widespread deployment of interactive products and services, the pieces are being put in place to take iTV mainstream in the coming years,” said Keith Kennebeck, analyst with The Strategis Group. “iTV has the potential to revolutionize the way we use our televisions — we’ll be able to order products, access information, get movies and chat with friends with the click of a remote.”

iTV growth is expected to be fueled by consumer demand for interactive services, such as Video on Demand (VoD) and television-based commerce (T-commerce), and by cable, digital broadcast satellite (DBS) and digital broadcast operators’ desire to tap new revenue sources. According to a recent Strategis survey, 24 percent of consumers are very or extremely interested in VoD, while 12 percent are very or extremely in T-commerce.

“This survey data reveals that not all consumers are currently ready to embrace interactive services because iTV has not yet demonstrated its value,” said Ty Cottrill of The Strategis Group. “This will change quickly if consumer experience shows interactive television to be an entertaining and useful service.”


iTV Households
Year Households
(in millions)
2000 1.0
2001 5.2
2002 11.6
2003 19.9
2004 29.8
2005 41.1
Source: The Strategis Group

All of the major cable multiple-system and DBS operators have demonstrated their interest in providing interactive services over broadband networks and digital set-top boxes. Terrestrial broadcasters are also expected to enter the iTV fray as digital broadcasting proliferates in the coming years. Cable and DBS operators are counting on revenues from interactive services to augment their traditional video service revenues. VoD alone is expected to generate $2.6 billion in incremental revenue for cable operators by 2005.

According to research by International Data Corp. (IDC), massive improvements to the infrastructure for TV-centric information appliances over the past few years and lower costs per home for interactive service deployment will lead to a tenfold increase in iTV activations, from about 1 million in 1999 to more than 10 million in 2004.

“The opportunity for a new type of device that provides consumers with interactive features and that supplements or even replaces PCs is upon us,” said Mary Joy Scafidi, senior research analyst for IDC’s Consumer Devices program. “The bandwidth is in place; the content and price points are in place; and the system capabilities are in place to successfully deliver interactive Internet solutions.”

Although US unit activations are expected to consume more than 50 percent of the worldwide share, iTV will have a global market presence. Worldwide activations are expected to increase from 6.1 million in 1999 to 19.5 million in 2004. This growth means more than 81 million iTVs will be installed in 2004.

Among the factor’s that drive IDC’s prediction is consumer demand for shared new media entertainment and information services. The other is the popularity of TV. In the US, households watch more than 50 hours of television per week. These factors make iTV the leading vehicle for information delivery.

“The interactive TV market is poised to be one of the largest non-PC platforms for interactivity,” Scafidi said. “To be successful, vendors need to provide a complete solution to consumers. If this is done, NetTV will experience huge success.”

A number of key differences between cable and satellite subscribers may affect market growth for iTV services. According to TechTrends, Inc., only 47 percent of cable subscribers would pay more than $100 for a fully loaded iTV set-top box, compared to more than 55 percent of DBS satellite subscribers. The research found that satellite subscribers are more interested in time-shifting features (pausing live TV, ad skipping) than cable subscribers, which are less interested in personal TV channels.

Forty percent of both cable subscribers and satellite subscribers access the Internet on their PC and watch TV at the same time, and 60 percent of each group are interested in Web-browsing and email through their TV. But more than half of all DBS subscribers (50 percent of DirecTV, 54 percent of Dish Network) spend more than 10 hours per week accessing the Internet on their PC, compared with only 46 percent of cable subscribers. Half of DBS subscribers (51 percent of DirecTV, 48 percent of Dish Network) watch more than 20 hours of TV per week, while only 38 percent cable subscribers watch more than 20 hours per week.

“Right now, consumer demand is too complex for any one product or service to appeal to everyone,” said Laurence Bloom, director of research and consulting at TechTrends. “To win in this market, companies need to understand that certain consumer segments have very different preferences and attitudes toward interactive television. These companies must also know how consumers differ, why these differences exist, and how they can determine the success of a given product or service.”

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