Study: U.K. ITV Needs Better Business Model

By MATT STUMP -- Multichannel News, 1/29/2001

A new study predicts interactive television in the United Kingdom is headed for trouble unless content producers and middleware/service providers develop a more equitable economic model.

A Forrester Research report said cable and direct-to-home satellite operators need to make ITV easier to create-and more cost-effective for content providers-or the nascent industry will take a nosedive.

The lessons are important, because U.S. ITV advocates often look to the pioneering work done by U.K. companies as a model for domestic rollouts.

ITV is available in 25 percent of U.K. homes, paced by walled garden television-commerce applications from mainstream companies.

"However, high participation costs have made investment decisions difficult for retailers," said Tim Grimsditch, a Forrester analyst.

"Impoverished by digital set-top-box rollouts, carriers embarked on a frenzy of walled-garden development-hoping to recoup their investment through a share of retailers' revenues," Grimsditch said. "Retailers, optimistic about interactive TV, took the opportunity. But now they're laboring under the weight of carriers' demand."

Forrester estimated that walled-garden t-commerce services would reach 5.4 million cable and DBS subscribers this year. Telewest Communications plc alone sports 126 t-commerce content providers.

And consumers are using the services. DTH provider British Sky Broadcasting Group plc reports 13 percent of its subscribers bought goods through its OpenTV Corp.-enabled platform in October 2000, up from 10 percent in May.

But content providers suffer from high tenant fees and complex technical requirements, Forrester said.

And few providers have delved into interactive advertising, another potential revenue stream for broadband service providers.

As if the high fees weren't enough, Grimsditch said "

proprietary middleware platforms require costly repurposing, with BSkyB's OpenTV platform creating the greatest headaches."

For instance, of 119 t-commerce companies surveyed by Forrester, 89 show up on only one walled garden due to of high repurposing costs.

Some 16 show up on two walled gardens, nine on three walled gardens and only two companies write software for four different walled gardens-Domino's Pizza and the Thomas Cook travel agency.

Those problems add up to a cautious attitude among retailers. "Retailers are thinking long and hard about t-commerce and spurning carriers' advances in the meantime," Grimsditch said.

Grimsditch said BSkyB and Open TV, the two largest players in the market, need to work with walled-garden tenants to generate usage, purchases and revenues, with better revenue sharing agreements that induce interactive advertising spending.

"Today's carriers make less than £100 million pounds in fixed costs from walled garden-fees," Grimsditch said. "However, the weight of these costs on marketers threatens to destroy the embryonic industry.

"There is little natural consumer demand for t-commerce services, and without interactive broadcast ads, usage and purchases on walled gardens will remain low."

Although there are more than 100 t-commerce content providers, Forrester says only retailer WH Smith Group plc has ventured into the interactive-advertising arena.