Television is predicted to overthrow the Internet as the main source of home shopping over the next ten years, but this particular revolution will not be televised until brand owners have come to terms with a perplexing choice of platforms.
Following a strong Christmas performance through interactive satellite channel Open, which notched up &£1m in sales a week, attention has switched to cable companies’ efforts to crank up their own home shopping services.
And this summer, BT launches its ADSL system, which will offer home shopping through television with a connection down the copper telephone wire. A variety of other gizmos are also on sale, enabling direct contact with consumers in their homes through e-mail or a mixture of TV and the Internet.
But this array of choice threatens to bewilder brand owners. Where once their goods and services were sold through a store or mail order catalogues, they will soon face a burgeoning number of interactive TV platforms, as well as the Internet.
Add to this the arrival of mobile phone technology and it is clear that banks, retailers and brand manufacturers are caught in a whirlwind of new technology.
It’s not only confusing, but is sure to prove expensive. As well as having to set up the backroom systems to offer services through interactive TV, brands will have to pay “rent” to the service providers on whose platforms they appear.
They believe, however, that it will prove cost-effective in the long term – as Barclays demonstrated last week with the closure of 172 rural branches and its move onto the Internet.
Getting the digital habit
Abbey National offers its services through Open and has also signed up for the interactive TV service launched by Telewest in March.
Ambrose McGinn, Abbey’s retail e-commerce director, says: “We believe digital TV is going to facilitate the revolution in e-commerce for most people in the UK. As a consequence, we have signed more digital TV contracts with suppliers than anyone else. We will be wherever our customers are.”
Even HSBC bank, which has a 20 per cent stake in the Open network, admits it is considering offering its services on cable networks.
“Open has such a march on cable, we will have to see which way consumers walk. If they do not move in Open’s direction, we may have to rethink,” says a spokesman.
In the new landscape, there will be little room for exclusive deals with broadcasters: brand owners will have to be on all competing platforms.
The race is on between the cable companies and Open to secure the greatest number of customers and to sign up the top brands for their services. Some observers believe the retailers and brands on the Open platform have already stolen a march by being first into the market.
“There is a great advantage to being first mover, because you get the early learning, and you can get good deals. It has the effect of changing the operation, changing the infrastructure. To change a company – that takes a long time,” says Paul Longhurst, managing partner of Quantum New Media Services.
Cable companies have long been trumpeting the arrival of their digital interactive services as the way to drive take-up of cable and start raking back the billions they have invested in laying cable. They believe their services will outstrip those of Open.
Telewest’s director of interactive digital, Chris Townsend, says: “Cable has more bandwidth than satellite, and we have capacity for hundreds of content providers. We’ll have 200 next year, and 300 the year after, across a wide range of services.”
The company’s interactive TV service was launched in the Midlands on March 27 and is now being rolled out to other areas. There are no figures yet, but Telewest is understood to be looking for about 500,000 interactive customers by the end of the year.
Townsend explains Telewest’s advantages: “We are not restricting product lines. For Woolworths, Open has 200 product lines, but Telewest can offer all its 30,000 products. “We have 63 content providers, and will have 80 signed by June 1, and we want 100 brands running on the system by October 1. We believe it will be the largest interactive TV service in the world.”
Problems with take-up
But however bullish Townsend may sound, there are still big questions about the ability of cable operators to sign up customers. Only half the country’s households are passed by cable, and only a quarter of these are connected.
For this reason, cable operators are likely to use BT’s ADSL system, which offers national coverage and an opportunity to fill in the areas that are not reached by cable. Even so, Townsend believes interactive services will encourage greater take-up of cable. “This is the type of service which will drive the number further. We will roll it out fast over the next four to five months,” he says.
Yet cable companies have long been derided for their inability to offer convincing marketing strategies. As one source says: “They are technology companies, not marketers. Telewest’s proposition is fantastic, but there has got to be real marketing behind it. I am not convinced there’s enough priority behind the marketing.”
The cable companies’ coverage is regional, making national ad campaigns uneconomical. Most of their work is done through direct mail, which is less powerful in brand-building than an expensive national TV campaign.
Telewest, which is merging with Flextech, has hired Saatchi & Saatchi to develop a &£30m marketing campaign, aimed at rectifying the marketing shortfall. It is also about to rebrand itself with a new name.
Meanwhile, rival cable operator NTL, which uses the slogan “Technology Tamed”, has yet to say when it will be able to offer its customers interactive cable TV. In fact, it is launching an interactive analogue service which receives signals through TV aerials.
NTL refuses to comment on its interactive cable scheme, but it is believed the company has been unable to work out how to run its interactive digital services through its cable network. It claims its services, when they arrive, will be far superior to anything that has gone before. “Everyone is trying to get the customer into outer space, but we are trying to take them to the other end of the universe,” says an insider.
One observer says it “sounds more like technology gone wild than technology tamed”. While most industry insiders believe NTL’s boffins will eventually solve the problem, its competitors are exploiting their troubles to the full.
Cable & Wireless launched its digital interactive services last year and has signed up 90,000 households. The scheme, offering about 50 brands, is being rolled out across the UK. The company aims to recoup a &£550m investment in developing its interactive services. CWC’s merger with NTL will not lead to their interactive TV systems being automatically merged, as they operate in different franchise areas and are incompatible.
Undoubtedly, initial technical problems will eventually be overcome. Open got off to a slow start but, once the system started working properly, it showed that interactive television can be a winner for brand owners – its turnover for Woolworths is now as large as the retailer’s 173rd-largest store (there are over 800 stores in all).
These are early days for interactive technology and there will be more problems before armchair shopping and banking becomes established. It will be a hard graft persuading consumers that they need to be able to interact with their TV sets, and heavy marketing will be required.
Brand owners are queuing up to exploit it, but it will not be plain sailing. There are plenty of pitfalls for those putting themselves in the hands of the broadcasters.
SERVICES ON OFFER
– Open: Launched through Sky Digital last October, it processed some 128,000 orders by January. It is now in some 2.8 million homes, and plans to be in 3.3 million by the end of this year. It has up to 40 content providers but has been criticised for being slow and cumbersome. It has high-quality graphics but offers a limited number of products. This problem will be addressed soon, when it launches “extended retail”, allowing more providers and products.
– ONdigital: Is bypassing the walled-garden approach by launching a full Internet service for its 673,000 customers this year. “Having HSBC on your system is fine unless you are a Barclays customer,” says a spokesman, pointing to the limitations of offering selected brands.
– Cable & Wireless: Launched its interactive service last November, and now has about 90,000 customers. It has 50 content providers and uses Pace set-top boxes with the Liberate operating system.
– Telewest: Launched interactive services on March 27, but has no figures yet for take-up. The cable operator hopes to sign up 500,000 subscribers within 12 months, and believes it will overtake Open.
– NTL: Technical hitches mean the launch of its interactive digital cable service has been delayed. The company launched an analogue interactive service on March 31 1999, with limited success. After it launches digital cable, it will offer digital terrestrial TV, giving it national coverage.
This offers full Internet, video on demand and other interactive services through existing telephone wires. BT has installed the capability in 460 out of a total of 1,000 exchanges, and expects it to reach one-third of the country by the middle of next year. Telewest, AOL, BT Internet, UUNet, VNL and YesTV have taken part in trials. Kingston Interactive Television and Home Choice are also involved.
Analogue box/Internet companies
– Bush TV and Web2U.