New York -- Despite unmet promises in the past, interactive
television is close to reality because its cost structure is finally under control and
cable operators have a bona fide interactive revenue stream in video-on-demand services,
executives testified at a conference last week.
Interactive television is about a $700 million business
today -- including subscription, advertising and electronic-commerce revenue -- but it
could grow as large as $28 billion by 2006, according to Jack Myers, publisher of The
Myers Report. The Myers Group LLC sponsored the conference.
Gary Lauder, Lauder Partners' managing director and vice
chairman of interactive-television-service provider ICTV Inc., said VOD will most likely
fuel that growth.
Although past failures in interactive television -- notably
Time Warner Cable's hyped Full Service Network trial in Orlando, Fla., in the mid-1990s --
caused the industry to lose credibility, "the herd left the arena and stopped paying
attention for too long," Lauder said. "VOD is already economical."
He added that video servers now cost about $350 per stream
and component costs are declining by 30 percent per year, which is shaving costs per
subscriber to record lows. "Assuming a 10 percent simultaneous use, costs are $35 per
subscriber. That's nothing," Lauder said.
But despite the lower cost of providing service -- helped
by the fact that many cable operators are progressing well with upgrades to at least
750-megahertz capacity -- the business model for interactive services still needs to be
worked out.
Movies are a natural first offering for VOD, and they will
enable new forms of interactive content, he said, most likely short, niche, time-sensitive
programming and targeted advertising.
Lauder said the evidence so far points to VOD and other
interactive services becoming predominant within 10 years as upgraded plants will be able
to support 100 percent VOD use. "Cable operators don't realize this," he added.
"They haven't done the math."
He said cable operators instead have chosen to conserve
bandwidth, rather than putting more capacity in their customers' homes. Instead of
concentrating on putting disk drives in set-top boxes -- which are limited and become
obsolete too soon -- cable operators should instead move the functionality to the headend.
Aside from VOD sales, cable operators should also begin to
see additional revenue streams from interactive advertising -- so-called rich media --
soon after they begin to offer interactive services.
"Advertising can pay for the entire platform,"
Lauder said. "Ads created by PCs should be easy to port, but banner [ads] won't do
it."
Interactive services aren't the only new revenue streams
that cable operators can rely on, however. High-speed Internet access and gaming also have
great potential, Lauder said, adding that telephony revenue -- one item AT&T Corp. is
banking on for its cable systems -- is likely to be marginal, at least for the short term.
On another panel, Cablevision Systems Corp. director of
new-media projects Robert Rosentel said his company remains excited about VOD, but it is
less enthusiastic about another hot industry topic: Internet access via the television
set.
"We have tremendous interest in VOD," Rosentel
said. "It's easy for people to get their minds around it, and at Cablevision, we have
been driven by the deployment of digital set-tops. But I don't believe the customer is as
interested in the Internet on TV. What we're headed toward is getting Internet technology
behind the TV. New things can be developed behind a standard."
With Internet-protocol technology behind the set, Rosentel
said, rich-media advertising also comes closer to reality. But it raises questions of
customer privacy, as the technology enables cable operators to compile more detailed
information on their subscribers.
Rosentel and several other panelists said the biggest
challenge is educating customers that much of the information compiled is general
demographic information, rather than personal buying habits. "Privacy laws restrict
the collection and use of certain data by a cable company," Rosentel said. "The
customer's perception is a tough one."
But by compiling these data, customers will be able to get
services that are tailored specifically for them, which might ease some of their privacy
concerns.
"The issue of privacy and personalization of service
-- they are two sides of the same coin," Rosentel said. "With advertisers
getting personal information, I can get a personalized service delivered to me. That will
be the driver to get around some of these issues."
