iTV Awaits Prime Time

Stop us if you’ve heard this before: the interactive TV market is beginning to take shape in North America, but it won’t rely on advertising and may never catch the European market.

Cahners In-Stat Group is the latest firm to examine the iTV market. Its report, “Interactive TV: On-Demand Services Prime the Pump“, recognizes that the biggest obstacle facing iTV in North America is confusion over what exactly iTV is. More important than what iTV is, however, is what consumers want it to be.

“After years of trials and tentative service introductions, the past year has seen interactive services become a common sight on most pay-TV networks. Cable TV operators, terrestrial broadcasters and satellite TV providers have all been active in testing different interactive applications in the quest to increase average subscriber revenues,” said Mike Paxton, a senior analyst with In-Stat/MDR. “The expanded capabilities that two-way, digital transmission networks offer to both subscribers and service providers have resulted in greater penetration of interactive applications like electronic programming guides and video-on-demand.”

In a recent survey of consumers, 75 percent of the respondents were familiar with several different iTV applications, but had rarely or never used them. “On-demand” applications, like video-on-demand and personal video recording, have sparked the most industry interest due to their great potential for adoption by today’s TV viewers. The number of television households using on-demand services worldwide will jump from 1.3 million in 2001 to over 33 million in 2005, In-Stat found. North American video-on-demand service revenues are forecasted to grow from $86 million in 2001 to over $1.75 billion in 2005.

The Yankee Group has already released research calling 2002 the year iTV will gain a foothold in the United States. The Yankee Group expects “TV portals” to introduce consumers to interactive offering through their televisions. It does not expect advertising via iTV to play much of a role as a revenue generator.

Next-generation television is nothing new in Europe where 16.3 percent of households have digital television, according to Strategy Analytics. Britain leads the way in Europe with 37 percent of households having a digital television. But Even in Europe there are questions with new TV technology. Only 8.2 percent of German households could watch digital TV, and Germany is Europe’s largest market.

In Britain four commercial digital TV access platforms (satellite, cable, terrestrial and DSL) provide competition. In Germany, by contrast, a major political battle between new cable investors and free-to-air broadcasters and regulators is looming. Strategy Analytics predicts that this could delay digital rollouts, making Germany one of the European laggards in advanced television services. Scandinavia is the next most successful region for digital television, with penetration rates in Sweden, Denmark and Norway all above 20%.

“We expect the majority of European homes to have digital television by 2006,” said Nick Griffiths, senior analyst with the Strategy Analytics Consumer Practice. “But analog switch-off remains a distant prospect for most countries until well into the next decade.”

Research conducted by Continental Research for Comverse Technology, Inc. found a strong interest among British digital TV subscribers to send and receive voicemail, SMS, email and instant messaging through their sets. Of the 400 households included in the study, 17 percent were currently using email over TV, and more than 30 percent surveyed would want voicemail over TV, and would pay on average £11 per message for such a service.

In addition, 24 percent see real value in accessing text messages (SMS) over TV, and would be willing to pay on average £12 per SMS message. Thirty-five percent of the respondents were interested in a TV yellow pages, and more than 30 percent were interested in a package that includes email, voicemail, SMS yellow pages and address book access over TV, and would pay £2.5 pounds or more per month for such a unified messaging service as a TV package.

“Unified messaging over TV has the potential to transform standard TV sets into home communication centers,” said Benny Einhorn, chief marketing officer of Comverse. “We believe the cable TV and satellite provider markets are about to embark on an evolutionary change in the coming years and the impact of these services could have a dramatic influence on their revenues, as was experienced when these services were introduced to the cellular markets.”

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