Interactive Television: A Primer

By Denise Garcia and James Brancheau

The interactive television landscape can be confusing to advertisers. As many as five different services operate in the United States, each with its own technology. Although technology options are plentiful, only a few business models integrate interactive advertising into television content and advertising sales. The following primer is intended to provide a clearer understanding of the fastest-growing interactive advertising opportunities now available.

Technology Providers

Interactive Program Guide (IPG)
The IPG is an interactive application through which viewers select channels, products, and services. Also known as an electronic program guide, the IPG is sometimes referred to as a TV portal, since it is the first thing consumers look at to find out whatÕs on television. In the cable TV market, Gemstar TV Guide Interactive dominates. Recent patent rulings against Gemstar have brought into question its lock on this market and could open it up to new entrants. This may be good for consumers, but not necessarily for advertisers. Advertising opportunities vary widely. Most advertising within the IPG is limited to Internet-type banners, but each guide has its own specifications, size requirements, and pricing models. The next generation of IPG technologies supports video ads that are not unlike standard television commercials, except they are selectable by the viewer. The IPG will slowly evolve into a portal for all TV-based interactive services and shopping.

U.S. Availability: 26 Million HHs
Pricing: TV GRPs or Web CPMs

Personal Video Recorders (PVRs)
TiVo, SonicBlue (ReplayTV), Microsoft (Ultimate TV), EchoStarÕs Dish Network, and others offer PVR devices that are similar to VCRs, but record to a hard drive rather than tape. They typically include features such as live TV pause, program recording, commercial-skipping, and their own program guide. The PVR program guide may be melded with the IPG or offered as a separate Ñ even competitive Ñ entity.

Advertising options vary by supplier and network operator, with each having a distinct subscriber base. Advertising on the PVR program guide is similar to advertising within an IPG. On the plus side, PVR guides may also include in-depth, enhanced advertising options for TV viewers to drill down for more information on live ads without losing their place in the program they are viewing. The PVR automatically records the live TV stream so the viewer can return to the show without missing any of it. This is a distinct advantage PVRs have over other interactive TV technologies and a major reason why PVR technology is being built into more set-top boxes.

U.S. Availability: 1.4 Million HHs
Pricing: TV GRPs or Web CPMs

Cable Video-on-Demand (VOD)
VOD services, such as Concurrent, nCube, SeaChange, and Diva, allow users to select programming that begins whenever they want it to. True VOD lets viewers see what they want, when they want Ñ with complete control to play, pause, rewind, or fast-forward. Cable operators are leading this space and are in the best position to dominate it. Unlike with broadcast television, which is restricted to a limited, 30-second commercial break, time is VODÕs major advantage.

Since viewers access programming via dedicated VOD servers, advertisers can use the same technology to access stored commercial content. VOD technology allows users to respond and click on ads and continue their VOD session when they are ready. This format will work particularly well for an advertiser that doesnÕt have the content or budget for 30- to 60-minute infomercials but wants to deliver more than a one-minute message. These long-format ads are generally delivered to viewers who have agreed to watch ads before a show, during intermission, and/or after a show in return for a free or discounted rate on their VOD order.

U.S. Availability: 6-8 Million HHs
Pricing: Price per interaction

Enhanced TV
Services such as Wink (EchoStar), OpenTV (DirectTV), and ACTV allow consumers to interact with broadcast TV shows and advertisements. By clicking on an interactive logo on the screen, consumers can reply to free offers, buy products, get updated sports scores and weather, participate in games, and respond to advertising. Viewer opportunities for interaction are synchronized to television programming and advertising, thus closely tracking the consumersÕ primary interests. Interactive enhancements are available that let viewers choose what they want to do when watching the enhanced show or ad. For example, viewers can order products or request information, play trivia games related to the primary show, look at statistics on a ballgame, and more Ñ all while continuing to watch the program in a viewing window. Advertisers can get more in-depth information about how viewers with enhanced capabilities responded to their ads and information requests.

U.S. Availability: 10 Million HHs Pricing: CPM and cost per click

Communications services like MSN TV Ñ the category leader Ñ and AOL TV let users send instant messages and email, manage buddy lists, and chat through a special set-top box and keyboard. Advertising opportunities here are similar to those found on the Internet and the IPG, but most future Internet-over-TV set-top boxes include PVR capabilities. Microsoft leads with its Ultimate TV service offered through DirecTV. The service combines PVR capabilities with MSN TV (formerly Web TV). Advertising on communications services like email, instant messaging, and chat is limited to simple banners.

U.S. Availability: 1 Million HHs
Pricing: Web CPMs

Paths to ITV Success

While a number of companies will compete to dominate interactive TV advertising activity and revenue, the successful ones will possess the following:

A Large and Varied User Base
Advertisers want to reach as many of their customers as possible for the lowest cost. They will be amenable to paying higher prices to reach their desired target, but no more than they would pay for other media. Development costs are high because of limited audience reach and lack of standardized content models. As interactive TV advertising sellers are able to increase their reach within any interactive TV advertising model, buyersÕ development costs will decrease. The interactive TV advertising sellers that decrease these costs most by increasing their user base will be among the most successful.

Sophisticated Segmentation Opportunities
As with other interactive advertising opportunities, advertisers want to take advantage of the one-to-one marketing capabilities of interactive TV. To do this, advertising technologies must be able to segment their audience to respond to advertisersÕ unique needs. By providing sophisticated segmentation opportunities to advertisers, interactive TV service providers will attract and retain more advertising dollars and be able to charge higher prices for that segmentation.

Enhanced Advertising Formats
Interactive advertisers will continue to advertise on the Internet unless interactive TV can deliver different advertising formats to their target. These formats should capitalize on TVÕs high-bandwidth capabilities to deliver branding as well as in-depth product information through interaction. Richer ad formats on the Internet are more effective in terms of awareness, recall, and interaction, and this advantage will be accentuated on interactive TV, where the audience is conditioned to high production values. Until interactive TV can compete in terms of reach with other interactive ad platforms, it will have to create ad formats that can compete on quality rather than quantity.

Ability to Entice Top-Spending Advertisers

Advertiser activity and subsequent revenue levels will ultimately determine which type of interactive TV is the most successful. Selling to the widest variety of advertisers will determine the long-term success of interactive TV advertising services. Advertisers that sign long-term contracts, renew them, and are financially strong are also some of the most active advertisers. Activity and acceptance by advertisers with large budgets that advertise cross-platform will be important. The most critical types of advertisers are automotive, entertainment, and consumer packaged goods.


ConsumersÕ adoption of new television technologies and their increasing interactions with television content will force interactive TV service providers, networks, broadcasters, and advertisers to address the issues that hinder interactive TV advertisingÕs growth.

On the supply side, interactive TV advertising sellers and content creators will have to change their existing business models to include interactive advertising.

On the demand side, advertisers will have to make careful and calculated risks to make sure their competition does not get there first and win the battle for consumer mindshare. The way interactive TV advertising evolves will be important. If it is implemented incorrectly, broadcasters and networks will cannibalize their existing revenue models. If it is implemented correctly, they can mine a rich source of incremental revenue.

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