U.S.-Based NTL Presses Interactivity, U.K. Style
By JANET STILSON -- Multichannel News, 1/14/2001 7:00:00 PM
As a relatively small universe of U.S. cable subscribers test the waters of interactive television, a New York-based multimedia company focused on Europe-NTL Inc.-is starting to reap the benefits of far-more-advanced offerings.
It's also in the process of testing even more sophisticated propositions in alliance with two choice programmers that also have Stateside roots: MTV International and Arts & Entertainment Television Networks.
"We were surprised by the amount of games playing," NTL president and CEO Barclay Knapp said in his native Nebraska-clipped accent as he spoke of the interactive results from NTL's U.K. operations. NTL is the largest MSO in that country.
"It's a lot bigger than we supposed," he said.
Electronic mail-over-TV is another big winner on the systems, said Knapp. NTL's interactive services also include applications such as interactive banking, shopping, news and education.
But "we think [games] will be a strong driver of our high-speed access service," he said. As a result, NTL is setting aside more bandwidth for gaming.
The interactive engine NTL is building is one key reason why the operator projects its monthly average revenue per user will jump from £35 ($52.35) as of year-end 2000 to £60 ($89.74) in 2005. That's for customers who currently receive analog TV, telephony and Internet access, compared with those who will receive video-on-demand, broadband services, digital TV, telephony and Internet access in five years.
BRIT-STYLE BUNDLING
"Our magic bullet will be our basic proposition to the consumers," Knapp explained. That involves bundling, with a capital 'B.'
The U.K. operator had set its prices so one month of digital basic, telephone service and high-speed Internet access was equivalent to British Telecom's price for telephony alone. A Jan. 5 report on NTL by Goldman Sachs Global Equity Research also noted that BT and direct-to-home satellite provider British Sky Broadcasting just pushed through price increases, to £11.99 ($17.93) per month.
Were NTL to inch up £2 a month, to a competitive £11.25 ($16.82), it would add £75 million ($112.18 million) in annual cash flow, the report forecast.
Clearly, NTL can use a few magic bullets as it faces the future. Large as it may be, it must deal with significant competition from two companies that are both pay-TV rivals and allies: the heavyweight direct-to-home player British Sky Broadcasting and the fledgling ONDigital digital-terrestrial television service.
Those aren't the only companies to cast a wary eye. As a provider of telephony and Internet access, NTL also goes head-to-head against such companies as British Telecommunications plc, which happens to be a partner in a BSkyB interactive bouquet of services called Open and is also conducting a separate video-on-demand trial.
If Knapp makes good on his plan to lease capacity from some of the winners of 3G (third-generation) mobile phone licenses in Europe, there will be a whole slew of cell phone companies to joust with as well.
And as NTL competes for more investments, it's going up against such shop-happy U.S.-backed ventures as United Pan-Europe Communications Inc., Callahan & Associates and Telewest Communications.
With a little assist from one notable shareholder-France Telecom-NTL has also quietly but steadily amassed a large number of systems in the U.K. and some 10 European markets over the last couple of years. It grosses a total of 8 million cable TV, telephony and Internet customers, and had 20 million under franchise as of Sept. 30.
Combined with business-telephony customers and its broadcast-transmission services, NTL had annual run-rate revenue of £2.2 billion ($3.3 billion) as of the quarter that ended Sept. 30.
"NTL is in a highly dynamic environment with a lot of consolidation and uncertainty in U.K. TV at large. It's very much an industry in flux," says Alan Yates, vice president of sales and marketing for Microsoft TV. Its parent company, Microsoft Corp., has invested some $500 million in NTL-and additional sums in UPC and Telewest.
The latter company pretty much divides up the U.K. with NTL, and it's widely believed the two could eventually merge-if their respective shareholders can ever settle their differences.
"The European TV marketplace is different [than the U.S.] in that there are a lot of low-end interactive systems pursued with a fewer number of channels," Yates explained. By that, he refers to the digital DTH systems across Europe that aren't driven by the Internet, but by broadcast carousel-based solutions-putting content on a satellite and sending pages out over and over again for pickup by subscribers.
"What we're planning with NTL is a new level of advanced products," Yates adds.
COUNTING ITV HEADS
None of the continental European systems-which account for a little under half of all franchised homes-"are interactive at this time, [but] all will have some interactivity by the end of 2001 or early 2002," Knapp said.
But in England, Knapp expects 500,000 TV households will have the ability to access the interactive services the company had rolled out by the end of 2000. That's on top of a base of more than 2.5 million cable subscribers, 3 million telephony users and 1.5 million Internet-access customers.
Though BSkyB's digital base is far larger-more than 4 million subscribers as of Sept. 30-the two companies have become friendly by necessity when it comes to programming. NTL is a major client of Sky's huge assortment of channels and is also in cahoots on new interactive applications for the DTH company's sports services.
To facilitate its grand digital plan, NTL has built a £66 million ($98.72 million) digital media control center and initiated a five-year, £25 million ($37.4 million) fund to help the British production community generate new digital-content ideas. The first £5 million ($7.5 million) of that amount is dedicated specifically to enhanced-TV projects.
Still, there's a potential dark side to this moon. Chase H & Q, a division of Chase Securities Inc., in October initiated a "buy" rating for NTL shares, which are listed on the New York Stock Exchange and EASDAQ.
Cable companies with hardwire lines, like NTL, presently enjoy a return-path advantage, the report noted. However, DTH platforms could have the bidirectional problem resolved "in the next 12 to 18 months."
The Chase report also said, "We believe NTL needs to aggressively boost its competitiveness in [interactivity] through additional content deals, developing its own content and continuing to focus on building interactive strategy."
The more recent Goldman Sachs report recommended NTL at $26.56 per share, setting a 12-month target price of $81.
"We believe NTL's current valuation offers investors a unique opportunity to exploit the convergence of broadband telecommunication companies in Europe," the report summarized.
NTL clearly has more in store. It is developing interactive content with MTV International, British Eurosport and A & E Networks. Helping to prime the pump, recently created subsidiary Brigadoon Ventures has strategic investments in VOD company Diva Systems Corp., enhanced-TV services firm Two Way TV and software-on-demand service Into Networks.
NTL is also spreading the wealth by making its interactive services available to subscribers of the DTT platform ONDigital, which also uses NTL's broadcast-transmission services. Opening up to ONDigital is just one indication that NTL doesn't believe the secret to its success lies in the walled-garden approach espoused by BSkyB and Telewest.
That strategy, which restricts customers from accessing the Web, was used by Cable & Wireless PLC, which introduced digital-TV service in August 1999. NTL later acquired its operations.
Those systems still account for most of NTL's interactive subscriber base. But NTL is now tearing down that wall.
The no-walls policy sets NTL apart from the rest of the U.K. cable and DTH pack. NTL was also distinguished in an August 2000 report authored by Reineke Reitsma, an Amsterdam-based consumer analyst at Forrester Research.
Of all British interactive-services providers, she scored NTL highest for technology, text-based services and pricing. That's particularly interesting because of the late-to-the-party status of NTL's systems, excluding those it acquired from C & W.
"[NTL] was the last to launch digital," said Geoff Metzger, managing director of the U.K.'s The History Channel, which is backed by BSkyB and A & E.
That "had to do with the fact that they wanted their boxes to do so much more," said Metzger. "Interactivity was a big part of their proposition."
When NTL reportedly couldn't get PowerTV Inc.'s operating system to settle down in its boxes, it opted for C & W's platform of choice, from Liberate Technologies Inc. That company's software was recently chosen as the operating platform across all of NTL's British systems. It's now equipped to deliver broadband services to 90 percent of its 11.8 million franchise homes in the U.K. and Ireland.
NTL's approach to interactive content also has its unique aspects compared with BSkyB's Open bouquet.
Open "is focused very much on shopping as being the killer application," said Andy Crossley, NTL's commercial director of interactive. "We think you don't go shopping every day on TV. It's much more about communicating, gaming and entertainment.
"That's what we tried to work on and build.It's all about building up a long-term relationship with the customer, as opposed to buy, buy, buy." (Open officials did not reply to requests for a competitive response.)
Right now, most of the interactive content on NTL is text- and graphics-based.
Enhanced-TV content-utilizing video feeds-will roll out at the end of the first quarter. VOD will start next year as well.
While NTL's projects in conjunction with the Sky sports channels involve applications that provide games at multiple camera angles, "we're not doing different camera angles and that sort of thing" as a general rule of thumb, said Knapp.
Metzger provided some insight into what The History Channel is planning with NTL. He said viewers will be able to drill down through programming on screen to three different options. One option will enable viewers to access more educational, or "enhanced information."
Another area is electronic commerce and includes shopping and auction opportunities.
"The third area is what I'd call more about the history community," he said. "You can find out about what [history-based events] are going on in your area."
Added Metzger: "NTL has been a driving force, in terms of consolidating the market. Eventually, that's going to be good for programmers, both in terms of marketing and relationship management.
"As a single entity, they become quite a powerful partner for us," he said.
Decision Time at Vivendi
09/20/2009U.K.'s NTL, Telewest Gang Up on BSkyB
07/22/2001Verizon Expands in New York
12/14/2007Post-Bankruptcy NTL Stumbles on Day 1
01/19/2003
