Can interactive TV ever make money?

Recent announcements from BSkyB, NTL and Telewest suggest that interactive TV is failing to fulfil its much-touted promise. Sonoo Singh reports

Just as cable giants NTL and Telewest announced the launch of a shared ad sales venture on their broadband and interactive services to challenge Rupert Murdoch’s BSkyB, the latter decided to downgrade its loss-making interactive platform, Open.

Sky’s decision to merge Open with its Sky Interactive operation, at a cost of &£40m and an estimated 300 job losses, raises more questions about the future of interactive television and highlights the format’s failure so far to make any real impact on digital viewers.

In the first six months of BSkyB’s financial year, Open, which offers a range of interactive, banking, travel and games services, lost &£116m.

BSkyB now intends to roll out services, including betting, which are tied to its sports coverage as well as selling merchandise linked to programmes such as The Simpsons and Temptation Island.

It is estimated by BMRB International that about 30 per cent of adults in the UK have access to digital TV at home, but how well the medium actually “interacts” with the consumer remains debatable.

Some analysts believe the coming together of the two cable companies is a tacit admission that interactive TV isn’t working.

Mark Howe, sales director of Flextech Sales – a division of Flextech, the content arm of Telewest – which will handle ad sales for the joint venture, admits the deal between NTL and Telewest was triggered partly by BSkyB’s decision to merge Open with Sky Interactive, but adds: “Irrespective of what Open is doing, the shared ad sales venture is simply a common sense solution. This deal is not intended to challenge Sky.”

An industry insider says interactive services on the cable platform are still fairly basic and “clunky” compared with those available on satellite. “Cable is not working at the moment for advertisers or consumers, and it is for good reasons that NTL and Telewest have decided to integrate their services,” he adds.

BSkyB has 5.4 million digital subscribers, compared with NTL’s 757,300. Telewest claims to have over 500,000 subscribers.

NTL is confident in its prediction of 1.2 million digital customers by the end of the year and claims it is tackling the issue of “managing demand” from potential customers.

The company also plans to launch its enhanced-TV service, which will allow viewers to interact with programmes, by the end of this year.

According to BMRB International, only four per cent of digital viewers see interactive services as a major benefit of digital TV. Most believe the main benefit is a greater choice of channels (MW March 8).

Richard Townsend, head of interactive advertising at MediaVest, says: “We are getting to a stage where agencies and clients have a better understanding of the medium – the agencies have set up interactive divisions and the clients have become Internet savvy. But the missing link is still the consumer.”

In theory, interactive TV provides a quick and efficient way for people to shop for products and services. But in reality the amount of effort required by the user and the slowness of the service has left many consumers frustrated.

NTL director of interactive services Bill Goodland believes consumers want “interactivity” with their TV set, pointing to the popularity of “interactive programmes” like Big Brother and Popstars. But he agrees there are lessons to be learnt from what has happened to Open. “Two years ago the concept of interactive TV was slightly over-hyped. Now is the time to learn how to make it work.”

Procter & Gamble head of media Bernard Balderston says the NTL and Telewest deal will make life easier for advertisers, but concedes that interactive services are still fairly limited.

Earlier this month, P&G unveiled its first interactive ad campaign – for Pampers – on Sky Digital. It is understood that the initiative was meant as a branding exercise rather than a direct-selling campaign.

It is interesting to note that most companies are unwilling to reveal their retail revenue figures for interactive TV. Although the success of Domino’s Pizza on Open is cited by media experts as an example of what interactive marketing can achieve, it is unclear whether consumers can be pushed into buying toilet paper or pints of milk through their TV.

Kevin Morrison, managing director of the international division of infrastructure company RespondTV, says: “The industry needs to be more realistic about what can be sold through interactive TV. Most people browse their digital TV sets only when there is nothing better to watch, or during ad breaks.”

Morrison says interactive television has still not been actively promoted as part of digital viewing, adding: “With its technological capacities, the cable network can give satellite a run for its money.”

Howe adds: “Over &£3bn is spent on advertising each year in the UK, and &£10bn is spent on direct marketing, so there are huge revenues to be made. We are confident there is a long-term opportunity for the cable operators.”

There is no doubt that consumers will continue using the television for entertainment and information. But as for persuading consumers to view their TV set as an interactive tool rather than a passive medium, for now it is back to the drawing board for cable and satellite operators.

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