A generation of individuals has grown up not knowing a time before automatic teller machines, cell phones, the Internet, palm pilots, and yes, satellite TV. What do these consumers expect of their cable TV service?
Interactive television on cable has hit a series of peaks and valleys over the last three decades. During each rise and fall, technology hurdles, insufficient content or excessive capital cost have troubled ITV. Today, these stumbling blocks are gone.
Technology is not the issue. The ability to take cable-TV service interactive is very real. It is deployed to approximately 1 million U.S. households in one form or another (excluding interactive program guides).
Content is not the issue. The rise of the Internet has created an army of creative talent, and content data feeds abound.
The cost of ITV technology and service is no longer a limiting factor. Multiple vendors compete in the market, with field-proven solutions for ITV that have initial costs of $5 to $10 per digital home served. By contrast, the cost of deploying a video-on-demand solution is estimated to be $75 to $100 per digital home served. With ITV coming in costing less than one-tenth the price of deploying VOD, why isn't cable making a business out of it? And why is VOD rolling out, while ITV isn't?
If it's not the technology, the content or the cost that's holding back ITV, then what is?
The common answer to that question is the lack of a proven return on investment for ITV. It's assumed there is no revenue to associate with interactivity. Not true.
Recognizing that there are both hard values (revenue) and soft ones (improved consumer satisfaction and reduced churn) to ITV on cable is a very important step toward the industry's future. There is also a unique cable opportunity here that operators are overlooking. This is the issue.
Within the technological advancements of the past five years hides a real killer application for digital cable — the combination of VOD and ITV. Few people doubt the value that VOD brings to differentiating cable from satellite. However, VOD is not yet well-packaged, presented or promoted to consumers.
The cable industry had a clear vision for broadband modems. That business model was built upon the belief that consumers would want a method of online communications that is "faster" than their current dial-up solution.
That new-business area is comfortably bringing $40 in new cash flow per month. Traditional video services bring another $40 to $50 per month, on average. Why aren't we looking at ITV as another business area? What about a simple messaging service (SMS) for television? It's taking off on cell phones and other simple devices.
The bigger picture
Cable operators need to stand back and look at the bigger picture. That is, consumers will
interact with the TV. Cable has the unique ability to let consumers interact with their TVs in a real-time, two-way system —and not just to order movies or to interact with TV game shows.
ITV has been viewed as a means to enable consumers to "interact" with their TV shows, or to purchase the products that they see their favorite stars use or wear. Why are we looking at ITV as a means to "enhance" the video service?
I believe that the key to this new opportunity is in understanding that ITV represents a new opportunity to create applications, based on the two-way broadband network. The most compelling opportunity may be an in-depth and entertaining navigation system for VOD assets.
Right now, cable operators can use ITV technology to create the best possible navigation for the myriad VOD titles currently being offered in simple tree and branch lists. Hollywood hits would not be hits without a serious investment in marketing and promotions.
Cable can utilize ITV technology to build a great-looking navigation system with promotions, previews, trailers and much more. Selection by category and title is not enough. ITV solutions can bring simple navigation to DVD-style extras, filtering and sorting data by actor, title, genre, director, year and much more. In addition, today's ITV technology can leverage data produced for the Internet to bring consumers in-depth database information on the movies and entertainment that they love.
Mistakes were made
This most recent exploration into ITV focused on TV programming enhancements and the false promise of super powerful set-top boxes, rather than consumer value. In a string of missteps, the marketplace attempted to rationalize an investment level of hundreds of dollars per home, rather than leveraging the installed base of existing digital set-top boxes.
While the concept of enhancing programming is novel, it's also fraught with problems. The now-infamous "Jennifer Aniston's Sweater" model involves too many business interests to happen in the early stages. Cable MSOs have the opportunity to define and deploy ITV without the distraction of a dozen other self-interested parties. Cable can define and launch ITV today with a strong package of entertainment, communications, and community applications from readily available sources.
In addition, ITV has never needed a "new" set-top box to get going. Would it be nice? Could you do more? Sure. But let's not forget the price.
The more sophisticated (read: more expensive) box will enable some unique applications, but most of those will enhance video programming. That brings us right back to all those other self-interested parties. Cable operators should use the millions of set-tops already deployed to deliver value, and to introduce ITV along with VOD. There's a tremendous opportunity here. Tens of millions of homes are ready for ITV, and these ITV applications are unique to cable.
Consider that two-way interactive features on cable are at the root of its competitive advantage over satellite. Both cable and satellite offer video-programming, movies, and with the advent of digital video recording (DVR) technologies, satellite can compete in the on-demand video market. Cable has to offer something greater.
Real two-way capabilities are not within the immediate grasp of the satellite players. It's a strong differentiation for cable. How will the product and marketing departments take advantage of interactive: New applications? Games? Communications applications? Targeted marketing? Improved customer care? All are possible.
Customer care as an ITV application is a great first step. If for no other reason, the reduction of call-center expenses should drive cable operators to deploy interactive-TV services to every cable home in the nation. But there is an even more important aspect of ITV-based customer care: relationship.
Cable needs to polish its reputation as an innovator and as a leader in the eyes of the consumer. Giving a subscriber the ability to manage his or her services — and communicate with their service provider "through the TV" — would be a major leap forward in relationship management. Simple and immediate applications, such as product help, contact information, and product marketing information are somewhat self-evident. Best of all — use an ITV customer-care package to educate consumers about interacting with their TVs, and to introduce VOD and other new services.
Do consumers care?
Yes, consumers do care. Research has shown that both usage and the premium service take rate are strong. At the root of understanding the consumer's desire for these types of services is the basic desire for choice, individual control and value. Another important factor: The world around us continues to evolve, with more and more devices becoming interactive.
As we move forward as an industry and provide exciting new products and services such as DVR, high-definition television, a litany of interactive applications and numerous unforeseen products, we have an opportunity to keep the evolution simple for consumers to grasp. Utilizing the technologies offered within the ITV marketplace would provide a framework to establish the newly learned behaviors that consumers will need to help propel cable forward.
Are U.S. cable operators overlooking an opportunity? Yes.