Competition between direct-broadcast satellite and cable will help fuel interactive TV, according to a new report from the Yankee Group.
The study suggested that cable would dominate the video-on-demand category, while direct-broadcast satellite may have an edge with digital video recording.
"Competition will drive ITV deployment among all multichannel providers," said James Penhune, director of media and entertainment strategies at the Yankee Group. "ITV and other value-added services are necessary both to generate new revenue and to retain existing customers."
DBS has a head start with interactive TV, Penhune said, as DirecTV Inc. has employed America Online Inc.'s "AOL TV" and EchoStar Communications Corp. has partnered with Web TV Networks Inc. TiVo Inc., Wink Communications Corp., Ultimate TV and others also have made DBS inroads.
Interactive TV also will be key to sustaining DBS growth, Penhune said. "To stay competitive with digital cable, a new generation of DBS receivers will bring ITV to satellite customers."
Yankee predicted that DBS would grow from 14 million subscribers today to 25 million in 2005.
According to research the Yankee Group conducted with the Satellite Broadcasting Communications Association, 32 percent of DBS subscribers were interested in selecting program camera angles. Other popular ITV choices were Web browsing and playing PC or video games.
The same study also found 16 percent of DBS subscribers were somewhat or very interested in digital video recording.
"We see DVR as a potentially killer app on the satellite side," Penhune said. But given the paucity of stand-alone DVR sales, Penhune sees growth coming from bundled packages, such as EchoStar's DishPlayer.
"Bundles do significantly better," said Yankee Group senior analyst Michael Goodman.
The Yankee Group estimates the installed base of DVR players stands at 450,000 today, and will rise to 37.3 million by 2005. About 25 million of those 37.3 million will be in cable set-tops, 10 million in DBS boxes and 2 million will stand alone.
Cable's two-way plant will give it a leg up in terms of video-on-demand services, Penhune said. The sector's installed 7.7 million-unit digital set-top base will grow to 27 million by 2005, surpassing DBS, Penhune said.
But only about 48 percent of all cable homes have set-tops, so operators need to find services to expand overall set-top penetration, the Yankee Group said.
"Cable operators see VOD as the leading edge of their interactive TV platform," Penhune said. Of the 7.7 million digital set-tops deployed at present, the Yankee Group estimates, 400,000 are VOD-capable and 300,000 consumers are using the technology.
In 2005, when Yankee estimates 27 million digital set-tops will be deployed, 18.9 million will be VOD-capable and 14.2 million customers will be ordering VOD.