Open the interactive floodgates

With cable operators on the hunt for new revenue streams and ways to turn digital set-tops into floodgates to add depth to those revenue streams, Hal Krisbergh, WorldGate Communications' chairman and CEO, believes his company can help cable transform television into a fully interactive medium.
With agreements to deploy service and commence trials in 34 multiple-system operators in 17 countries worldwide, including AT&T, Adelphia, Charter, Comcast and Cox, WorldGate has been able to find believers in its approach.

Krisbergh recently took time out of his schedule to sit down with BROADCASTING
CABLE Associate Editor Ken Kerschbaumer to discuss all things interactive.

The theme of this year's Western Show is "Broadbandwagon." What's your take on that? Does it represent a shift away from pictures?

This is probably the most significant shift in cable television since its inception. Cable television is all about programming and video content. The era of interactivity, transactions, more information and Web-based surfing has not been the purview of television. In fact, one of the arguments in the PC-vs.-TV war is that consumers were couch potatoes. And of course, the reason they were couch potatoes is there was nothing else to do.

In truth, these couch potatoes were some of the most interactive people there was. They had five remote controls, and the argument that they weren't interacting is nonsense. And the final proof of that is that the second-largest driver of viewers to Internet sites is television: The same viewer that is watching television is the one being driven to the Internet.

What do you mean by that?

What drives people to the Internet is television-through advertising. And while there's a brick wall a mile wide between television and the Internet, and there's no interactivity on television, it's such a pervasive medium that just seeing URLs being advertised is driving people to the Internet.

What we're suggesting is that there are two opportunities. One is continuing what I consider to be the old paradigm, which is using the TV set as a display device. You can do browsing on it or watch movies like you do with a VCR. You can do e-mail, look for program guides. These are the old paradigms. You could argue that you're interacting with it, but it really has nothing to do with television from a programming point of view.

The big opportunity is the transition from not just using the TV set as a display device but interacting with TV content: reacting with the program itself and turning it from a broadcast, passive experience into a fully interactive and transactional platform. If someone is watching the news and they want more information, they hit a button. They don't have to write down a URL, run into another room, boot up a computer and log on. They have a simple, coordinated experience with more information and Web content. With the technology that is being deployed, the cable industry can allow the viewer to access not just a still Web page but a fully interactive and transactional video stream within four seconds.

Let's take an unenhanced program and a TV that is unenhanced. Can you walk me through how the content producer starts making it interactive and how that gets delivered to the home and what the revenue incentives are?

There are two elements. One is the programmer enhances his content and makes it more attractive. Second is the advertising opportunity to leverage the economic motivation for the programming.

Let's deal with the first one, which is enhancing the programming. Programmers today are developing Web content related to their programs, but you have to go to the Web sites to get the content, and it's rather primitive. But if you want more information on a program, you can get more. And we know that, for the news side of things, the potential is unlimited. Television has a lowest-common denominator phenomenon as far as what's shown on the news. But this will allow people who want more information that is more targeted to get it. And it's not like it needs to be created-it's already there.

I was on an interesting panel where someone argued that they didn't want to take the viewer away from the content. But two members of the panel said, "Hold it. I'm not taking them away from my content. I may be taking them away from the video content, but I'm taking them to another stream of video content that is more targeted and informative to them. It makes me, as a programmer, more competitive."

But do you let them go away during commercial breaks?

I don't think you mind when they leave your programming, if they go to your programming. There's advertising on all the content.

So you could see them matching up the on-air advertising to the online content so advertisers don't have to worry about losing eyeballs.

Absolutely. There's some logistics that need to be sorted out. But clearly the economic motivation from a programmer point of view is there. In fact, the ones who attack this area and sort it out will do better than those that are less aggressive and don't try to figure out how to manage this medium. It is a paradigm shift, and it will be challenging. But it will create new opportunities.

We've been deployed for about a year now, and already we're noticing things. For example, the peak for interacting is 3 p.m., when children get home from school.

We're also seeing shifts in behavior between where people go and the proactiveness of the programmer in providing content. For example, let's take CNN. You could hyperlink to CNN's Web site, and they could give us a link that will take the consumer to exactly where CNN wants them to go within the site.

How does the hyperlinking work?

It sounds complicated, but all that happens is that, when you hit a button on your remote control, it sends a signal to the set-top converter and that sends a signal to the headend, where it pulls the URL request out of a database at the headend. The information is already cached. It happens very quickly, and it's not very complicated.

The real issue isn't so much those logistics as it is the need for the network to provide a finer level of detail than they provide for electronic program guides. It may need URL info every five minutes or so instead of every 15 or 30 minutes.

What about the advertising side?

It's no surprise that advertisers will pay significantly more for an ad that results in a lead [responsive consumer] than one that just reaches a pair of eyeballs-but how much more? We asked AC Nielsen to help us figure that out, and they said only about 1% or 2% of people are really interested in an ad. So you could argue that an advertiser would pay 50 to 100 times more to place that ad because it's targeted. But let's assume they'll pay 20 times more. That would be about $1.50 per lead. So we then asked AC Nielsen how much click ads on banners would cost per lead, and they said it was about 37 cents per lead.

So you have a bottom of 37 cents per lead and a top of $1.50 per lead. Using those numbers, we asked how many click ads would they expect to result in leads? Nielsen says they know that click ads get about a 1% to 2% click-through rate. And during an eight-hour period, more than 237 30-second commercials are played on television. So if there are two clicks per day, that works out to 74 cents per day, which is $22 a month. That's more than a cable operator collects for basic cable.

What you now have is the drive to put an infrastructure in place, and what looks like an insignificant click ad becomes the core atom that drives the entire infrastructure for interactivity. And then things like VOD, Internet TV, browsing and e-mail get almost a free ride on a pure advertising driver. And then you have the proverbial feedback loop.

Are there shock waves that will come out of the AOL-Time Warner deal?

From a distribution point of view, it's only 20% of MSOs. The real issue will be how they control their own programming, like CNN. But they don't overly dominate programming; they just have a nice stake in it. And I think a lot of the efforts in the FCC and the FTC to make sure this thing is done right will provide the necessary guidelines so there aren't any abuses. I'm relatively comfortable about that because there is a lot of visibility and other networks have set precedents. Is it a concern? Yes. Is it a major one? No.

The tech stocks have taken a hit. The Internet stocks have taken a hit. So what is it that makes you think people want interactivity?

The dotcom phenomenon is simple. There was an explosion of dotcoms, and there had to be a shakeout. And so it wasn't so much that every one was failing but that too many people were doing the same thing. But on the interactive side, there isn't an explosion. If anything, there was a contraction because of consolidation and because the cable ITV space is much more complicated and the barriers are more significant.

We don't have the situation that was in the dotcom market, where there was a low barrier of entry. But as Microsoft learned, this is a complex market. This isn't about software and plug-ins. This issue is fraught with all sorts of problems, as two industries try to figure out how to work with one another, and not very successfully.

I would think that one of the big problems, as a cable operator, is that they walk around a show like The Western Show and see a lot of great applications, but they can't tell what's real and what isn't.

Well, the shakeout has occurred, and it took about a year for that to happen. The 5000 set-top boxes are not happening, while the 2000 set-top boxes are being broadly deployed. There may be some testing on the 5000 next year, but the industry has clearly decided to move ahead on the 2000. The good news is that the 2000 can do almost the complete set of applications that can be done on the 5000.

How do you view the deployment of the 5000 set-top? Will it be slowed down if the thin-client (requiring less computing power) software approach takes off, or will these start to hit the market?

I think the question is, 'What role will the 5000 play in the market?'The original view was that the 5000 was going to be a PC on top of the TV, so people didn't do anything on the 2000 waiting for the 5000. That paradigm is gone. And the current paradigm is clear: The 5000 will be an enhanced 2000, but it won't be an architectural change. It will still have thin-client technology, but it will be able to do more things than the 2000.

The cable operator will be willing to deploy it only to those customers who will be willing to pay twice as much for the service and who want those extra features. Even for the cable operator, that's relatively problematic because he has to market two services to the customer. But right now, I think it's simple. And right now, you have 14 million thin-client boxes out there and zero fat boxes.

I could argue that thin is better. But even if you argue that fat is better, that boat left the dock; it's over. The 5000 isn't dead yet. But as far as the fat-client concept having a major role in cable, that's dead.

Would you say WorldGate's service competes with cable modems?

Not at all, and this is one of the great anomalies. If you have a PC and you want to do desktop computing, the last thing you're going to want to do on your TV is word processing or spreadsheets. And the last thing you're going to do on your PC in your den is watch
Perfect Storm


What we're talking about are two very viable technologies not competing at all.

Is there some overlap? Sure. And for those who don't have PCs, Web browsing and e-mail on the TV won't be optimal, but it'll be better than spending $1,000 on a PC and all the complexities. But that's not the driver. The driver is the TV that is on eight hours a day and linking that related content and revolutionizing the TV paradigm. That is what will drive this technology-not Web browsing or e-mail. So the opportunity here is large, and there isn't any question that, in 10 years, the PC will be an important part of the home, and so will the TV. It's not at each other's expense. It's not a zero-sum game.

Do you feel that there's a belief by some in the industry that it is a zero-sum game?

If I were to say to you I was going to put a PC chip in a blender to make it perform better, you wouldn't say, 'Which is going to win-the PC or the blender? 'Just because it has PC technology, it's different platforms serving a different function. The TV is an entertainment platform. The PC is an educational or work-related platform. One is a desktop experience. One is a living-room experience. Will a TV get more computer technology in it, like the blender? Absolutely. Will the PC get more video experience than it currently has? Absolutely.

Well, related to that, one of the big fallout areas on the Internet has been online entertainment. How important do you think technology like yours will be in making online entertainment accessible through the TV?

Once the technology platforms are in, the barriers for people to develop content are nominal, and you're going to see an explosion. With TV, even if something has a half-percent penetration, that's a business. So in effect, you've lowered the barriers and have given enormous access to even niche players, so you'll have an explosion of content just like we had with the dotcoms. And it's an enormous opportunity for television, but the challenge is the networks and major players that have invested heavily to lead in that area and maintain brand awareness.

I'd like to do some word association of PC and Internet tasks that may transfer to the TV set, and get your take. I'd also like you to score them-from 1 to 10 in importance-in terms of revenue streams for cable operators, with 10 being most important. First up is the ability to surf the Web through the TV.

I would say that's about an 8. And that's because it is an important capability and there are a lot of homes that don't have access to the Internet. And I think this will broaden that access and also be a significant revenue opportunity for the cable operator. They don't need to charge $20 a month. They could charge $10.

How about e-mail?

Well, I put that together with Internet access. The e-mail piece reduces churn for the cable operator, and two out of three homes still don't have an e-mail address. So it's important for the cable operator to capture that service. So I'd rate e-mail about an 8.5.

Chat related to programs?

I'd give that an 8. While it's important, it's a more complicated response because, if you have 8 million people watching a program, the chat has to take a different form. You may have splintering, with people who like a certain actor talking about that actor. But I don't have a clue what would work there.

How about TV-commerce?

That's explosive, and I give that a 9.5. When you advertise a product on TV, you have to go to the store or order it. By doing it on TV and making it interactive, you purchase it instantaneously. If you think impulse purchasing is big in the supermarket, imagine it on television. A new book could sell out before the book is even read by a reviewer. TV is so powerful that a whole new genre of interactive advertising and commerce will explode.

What about electronic program guides?

They're interesting. If you've ever seen a dichotomy, that's it. They're the least valuable service, and you can't charge for it, because the consumer won't pay for it. But you have to have it. So it has this anomaly where it's important but has very low value. It's a 7 in terms of revenue but a 10 in terms of necessity.

So what's your final take on interactive television and how it will impact trade shows like The Western Show and others?

Stand back. The Western Show will explode, and interactive television will dominate other shows like NAB, because it's clear that this platform will drive so many things. The cable infrastructure, more so than the satellite or telephone infrastructure, provides this pervasive platform by having the infrastructure in place.