• by June 28, 2000

While some industry watchers argue that the future of television lies in its becoming an on-ramp to the Internet, new research by Mercer Management Consulting indicates that the television platform is a sleeping giant about to wake up. The latent opportunity is to create richer, more personalized interactive entertainment, known as ITV.

"The next profit zone will be about leveraging digital technology to make televised entertainment more valuable to people," says Debra McMahon, a Mercer VP based in Washington. The trigger for unleashing valuable services and profits, she says, will be when some player -- be it a cable operator, Internet service provider, or a set-top box maker -- seizes control of television's interactive interface, the set's "home page", and creates a gateway to a richer, more satisfying personal entertainment experience.

"Whoever wins that viewer land grab will gain strategic control of the next generation's eyeballs and the emerging information and transaction flow that will happen over the TV," McMahon says, adding that "the key is making personalized, interactive entertainment exciting for the consumer". The rise of ITV, she says, will eclipse the trends of the past 20 years, which saw broadcast television stick with the same mass-market offering, causing viewership to be squeezed by the narrowcast infotainment experience offered by the PC and the Internet.

Early versions of interactive TV, such as programming with embedded content, program guides, and interactive shopping channels, are drawing a promising response among consumers in the United States and Europe. The U.S., which has long been a premium TV market, is seeing the first introductions of interactive TV services like TiVo, Replay, and AOL-TV. And Europe, the birthplace of interactive TV (or teletext), will experience a proliferation of true interactive TV offers from all the major pay television operators. Mercer expects leading markets like the U.K., France, and Germany to provide a window on the potential of interactive television in North America and elsewhere in Europe.

The management consulting firm exposed more than 500 Germans to a multimedia simulation of various interactive services and providers to evaluate potential demand sensitivity to service character, pricing, branding, and other factors that will drive demand. Mercer's study revealed a multibillion-dollar potential market for enhanced entertainment services, as well as several surprising ways in which interactive television could affect consumer behavior:

- Some 55 percent of cable or satellite subscribers were willing to pay additional charges of $25 per month or more for a full array of enhanced entertainment services -- more than enough to cover the investment necessary to provide them. - The most complex, investment-intensive services were not necessarily the ones most preferred. For example, more people wanted a searchable program guide than one that was intel