A few interactive-TV companies, such as Wink Communications Inc. and Gemstar-TV Guide International Inc., are slowly gaining distribution. But their ability to generate advertising revenue — which ITV companies have long said would drive their industry — is another story.
This year's soft ad market has sales executives hustling to sell inventories at traditional broadcast and cable networks seen by millions of viewers. ITV services, which are available in far fewer homes, have proven a tougher sell, leaving bargain rates for ITV media buyers, some executives said.
"We're getting a phenomenally good price as they try to build a track record with advertisers for the future," said HotJobs.com Ltd. vice president of advertising Marc Karasu. The online recruiter last week cut an agreement to advertise on Gemstar's interactive program guide.
Gemstar also announced IPG advertising deals with MasterCard International Inc. and The Clorox Co.
For a major media company like Gemstar, a slump in the ITV advertising business won't drag down the company's earnings. Indeed, the $20.5 million that Gemstar's interactive-platforms sector generated in the second quarter — most of which came from IPG license fees and not ad revenue — represented just 6 percent of the company's $334 million in consolidated revenue.
A slow ITV ad market may be more ominous for Wink, whose entire business is built on charging fees to programmers and advertisers for ITV enhancements made to their programs and ads.
Last week, the seven-year-old Wink disclosed in an earnings report that "no significant transaction fee revenue has been recognized to date," and that it has no advertisement agreements that extend beyond this year.
The company attributed the lack of fees from advertisers to charter agreements "that provide for a flat fee to be paid in lieu of transaction fees." Most of the revenue Wink generated in the second quarter came from engineering, consulting and installation services, the company said.
Wink counts about 4 million subscribers, and bills itself as the largest ITV service in the U.S., even though Gemstar surpasses Wink with its 8 million TV Guide Interactive users and an additional 5 million homes with access to the Guide Plus IPG installed in many new television sets.
Wink has agreements with about 50 advertisers, including Pfizer Inc., DaimlerChrysler Corp. and E*Trade Group Inc., said vice president of Eastern ad sales Peter Kranzler. Kranzler said he did not know how many advertisers place ads through Wink each day.
One source said Wink enhances ads for fewer than a dozen advertisers on any given day.
Though Wink is available in 4 million homes, few of them are using the service. Kranzler said the company's average response rate (the number of subscribers that click on Wink-enabled ads) is just 1.6 percent. But that exceeds the response rate for the average Web site, as just 0.2 percent of Internet users click on banner ads, he noted.
Although companies like Wink and another competitor, WorldGate Communications Inc., have made major strides on the distribution front in the last year, their small viewing universe can still make the platforms a difficult sell to advertisers.
"The reason is the advertising community is looking for broadband deployments they can sink their teeth into," WorldGate president Gerard Kunkel said. "Today, with our roughly 300,000 [subscribers] out there, it's not a significant number for advertisers."
WorldGate hasn't generated "any significant revenue" with its Channel Hyperlinking interactive-advertising product, said Kunkel. Most of the $3.5 million in revenue WorldGate generated in the second quarter came from fees generated by its Internet television service and the sale of servers for the Internet product and its TVGateway IPG joint venture.
Andy Prakken, senior partner and executive director of communication planning at ad agency J. Walter Thompson, said he's optimistic about the long-term prospects of interactive advertising. Clients of Prakken that have bought interactive ads include Ford Motor Co. and Domino's Inc.
"Right now this stuff is absolutely in a learning phase, but it doesn't mean that we're not acting on the responses," Prakken said. "A lot of these things are in their pilot phases, but they are generating customer dialogue opportunities, and we take those very seriously. We just don't let them go."
With many ITV companies eager to demonstrate that their products work, media buyers can find some pretty low rates in ITV ad deals, said TN Media director of research Dan Ernst.
"I think there's the opportunity to negotiate. There's a lot of pressure from Wall Street for these companies to perform," Ernst said.
Gemstar president of media sales Jeffrey Mahl said the company often packages ads for the IPG in broader deals that give media buyers ads in the TV Guide
print magazine and spots on the TV Guide Channel.
It's also important to not to raise the advertising community's expectations for ITV too much, Mahl noted.
"I am very careful, when we speak to advertisers, that we don't promise more than we can deliver right now," Mahl said. "We don't want to fall into a similar trap that the Internet fell into when people had expectations of a performance level that got weighted down."