Just shy of its two-year birthday, interactive TV startup Commerce.TV Corp. has landed its first big cable deal-with Adelphia Communications Corp.
Under terms of the agreement, which the companies plan to announce this week, Adelphia will offer Commerce.TV's interactive shopping and advertising applications to its digital subscribers. The rollout will begin sometime this year.
Adelphia, the No. 6 MSO with more than 5 million subscribers, bought an undisclosed equity stake in Commerce.TV as part of the deal. Commerce.TV executives said they're looking to sell equity stakes to other MSOs in exchange for carriage.
"I think it's critical in this space to incent cable operators with equity for distribution," said Commerce.TV CEO Matt Kay.
The deal is a big boost for Commerce.TV, which had only reached smaller carriage deals with Susquehanna Communications, Blue Ridge Communications and Insight Communications Co.
The Braintree, Mass.-based company previously sold $5 million equity stakes to Insight and OpenTV Corp. It's also backed by Motorola Corp. and Citigroup.
Commerce.TV has two core applications: "TV Mall," which lets subscribers buy everything from golf balls to Eddie Bauer clothes with the click of a remote; and "TV Select," an interactive-advertising platform similar to the product offered by Wink Communications Inc.
Adelphia, which cut a deal with Wink last fall, will deploy both Commerce.TV and Wink, MSO chief financial officer Jim Brown said.
Although Wink and Commerce.TV offer similar products, Brown noted the ITV industry remains nascent and each company could develop separate interactive advertising or content deals with advertisers and programmers.
"Depending on how the business develops, if Commerce.TV has a deal with Fox Sports and Wink has a deal with ESPN, it's not clear to me why I want to cut one out," Brown said.
About 50,000 Adelphia subscribers have access to Wink, Brown said.
Commerce.TV's "TV Mall" application occupies one channel on a digital cable system and offers subscribers about 1.2 million products. Retailers such as Lillian Vernon pay Commerce.TV a 15-percent commission on each product, and the company shares that revenue with the cable operator, Kay said.
On a $100 item, Commerce.TV would get a $3 fee while the operator collects $12. If the operator wants Commerce.TV to take on customer-service responsibilities, then the vendor takes a bigger cut, Kay said.
If a cable programmer uses Commerce.TV to sell products (as ESPN did during the recent National Hockey League All-Star Game), Commerce.TV gets a $3 fee for processing the transaction. It splits that revenue 50-50 with the MSO, Kay said.
Although Adelphia will offer its subscribers TV Mall, Brown said he's more bullish on the TV Select interactive advertising product.
"I'm frankly less enthused about the virtual mall concept than I am the programming [enhancements]," Brown said. "I don't see that as being the big opportunity for Adelphia or its customers."
It's tough for television commerce to compete with the Internet, since cable subscribers can surf to such Web sites as mySimon.com to search for the best prices from the catalogs of countless retailers, Brown said.
"I think electronic commerce in that [t-commerce] format is proving to be a tough business to make a margin on," he added.
Brown said his vision for t-commerce is based on big-ticket items like personal computers. If Dell Computer Corp. or another other PC manufacturer uses an interactive ad to sell a computer, Adelphia would like to get a piece of that transaction, he explained.
TV Mall is currently available to 12,800 Susquehanna subscribers in York and Williamsport, Pa. About 1.5 percent of the York subscribers have shelled out an average $26 to purchase products through Commerce.TV, Kay said.
Adelphia has had discussions with RespondTV Inc., which competes with Commerce.TV and Wink, Brown said. But RespondTV is focused on offering its interactive advertising platform through advanced digital set-tops, while Adelphia is focused on thin-client devices.
The MSO plans to offer Commerce.TV through Scientific-Atlanta Inc.'s "Explorer 2000" and Motorola Broadband Communications Sector's "DCT-2000" set-tops.