The Interactive Future

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One of the most widely anticipated consequences of News Corp.’s acquisition of a controlling interest in DirecTV Inc. is how much interactivity it will introduce to the platform. But there’s still no clear picture of what new technologies and ITV services U.S. consumers will embrace.

DirecTV expects to launch new ITV services by the end of this year, according to the direct-broadcast satellite provider’s senior vice president of advanced services and content Eric Shanks. But he says it’s too early to detail specifics.

“An awful lot of the future depends on two things: what they’re able to bring from [News Corp.’s U.K. platform] BSkyB and their ability to market to consumers in the U.S.,” notes DBS analyst Jimmy Schaeffler, chairman of consulting and research firm The Carmel Group. “It’s a different culture, and a different mix of programming providers — satellite to cable. They’ve got their work cut out for them.”

This much is clear: the key ITV drivers for News Corp.-affiliated providers worldwide have been sports first and news second, says Shanks. “Everything else is a bit below that.” Applications for ITV sports include instant access to scores and statistics, as well as multiple video feeds, such as showing an auto race from the perspective of different drivers.

“Sports data will be big here, and people will pay for it,” Schaeffler predicts. “DirecTV’s advantage in interactive television is its tie to the [National Football League] and other Fox Sports packages.”

Interactive wagering on high-profile sporting events has proven popular in Europe. Indeed, in its latest quarterly report, BSkyB stated that it had garnered £123 million ($224 million) from its betting services in the first nine months of this fiscal year, up more than 80% from the same period last year.

Yet nobody’s betting that television wagering will take off easily in the U.S. Forrester Research Group principal analyst Josh Bernoff notes that because gambling laws are different across all 50 states, it would take a near-impossible lobbying effort to legalize television gambling nationwide.

News Corp.’s TVG horseracing channel, available on DirecTV, allows viewers from at least 13 states to place bets — but via a Web site, rather than by using a remote control as is the case with BSkyB and other European platforms.

“There may be things we could do with gambling [over the remote] that people would want,” Shanks says. But he adds that the company would have to walk a fine line between pleasing customers who want to wager and protecting DirecTV’s relationships with professional sports leagues. Clearly, that hasn’t been a problem in the U.K., where BSkyB offers subscribers the ability to bet on everything from the results of an upcoming sports game to horseracing.

Leichtman Research Group president Bruce Leichtman predicts that gaming, like gambling and multiple camera angles, would offer DirecTV niche — not mass — market appeal. He says it may be too late to garner much interest in services such as interactive banking and shopping, which are better suited to the Internet than ITV.

DirecTV has some experience offering enhanced programming content through its relationship with Wink Communications Inc., which ended late last year. Bernoff doesn’t think consumer confusion over newer services will hurt DirecTV’s ITV launch.

“The main problem is not skepticism,” Bernoff says. “It’s apathy.”

RECEIVERS UP AHEAD

The legacy boxes that offered Wink technology will not be compatible with DirecTV’s new ITV services, which will require new set-top boxes just now entering the distribution pipeline. DirecTV expects to downlink initial software upgrades via satellite later this year.

The software upgrades will complement a new electronic programming guide that DirecTV introduced with its newest receivers. DirecTV’s goal was to standardize the EPG across all set-top box manufacturers “so you’ll have the same guide in the living room as you have in the den and the bedroom,” Shanks says.

The standardized EPG offers new menus that allow viewers to quickly search by genre or movie director. It also includes programming alerts to let the viewer know, for example, when a Tom Hanks movie is about to start somewhere on the platform.

Because there’s a 12-million-plus subscriber base with legacy hardware, the challenge of introducing ITV goes beyond finding a killer application. DirecTV must also place the new hardware in front of existing customers.

“Eventually we’ll see if it’s important enough for us to swap out boxes,” Shanks says. If there’s a successful revenue model, DirecTV may subsidize the replacement hardware, but if the ITV application is attractive enough to consumers, they may do it themselves, he explains.

“In a perfect world, Murdoch would want to start fresh with new boxes to all his subscriber homes,” Schaeffler says. But even if money were not an issue, timing would be.

“One of the major decisions is: When do you just close the box and ship it? When does it have enough stuff that the box will work well for the next five to seven years?” Schaeffler says.

MAJOR DVR ROLE

The digital video recorder is destined to play a big role in DirecTV’s future. “Our DVR is what’s retaining our customers,” Shanks says. “We have one-third the churn among DVR customers as we do with other DirecTV customers.”

A good percentage of DirecTV subscribers who have embraced DVRs also have multiple DVRs in their homes, Shanks says.

Combination DVR and high-definition television receivers are so new for DirecTV — and the supply so tight — that it’s a very big item on eBay, Shanks notes, adding, “[We’re] trying to get our hands on as much quality high-definition programming that’s out there as possible.”

Several programmers contribute content for the demo loop that helps sell DirecTV HD at retail. “Any time consumers can sample our content is beneficial, especially with advanced technologies,” says Ken Kay, Showtime Networks Inc. vice president and general manager of direct-to-home. “If a retailer displays our content, that can only help DirecTV and us.”

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