iTV…. Do You?

March 1, 2001

Digital TV offers it viewers an increased choice of TV channels, a much better standard of reception quality and the possibility of interactive TV. Andrew Steed and Rico Calleja focus on interactive TV, its predicted exponential growth, some of the new opportunities offered by the technology, its effect on the broadcasting market and the legal issues involved with this new medium.

What next? There have been a number of recent reports predicting the future, and their overwhelming view is that the future is interactive. A number of similar issues emerge, but the overriding theme is the power of interactive TV as a platform for electronic commerce. Research for Strategy Analytics Inc released in June 2000 predicted that more than 16.5 million people around the globe would have access to interactive TV services for shopping, e-mail and banking at the start of this year. The report further predicts that by 2005 179 million homes will access online services with their TV sets.


With the current absence of a universal standard for interactive TV, the Media Research Alliance have noted in another recent report that ‘the most sought after piece of real estate in the country at the moment is 18 inches underneath the TV where the digital set top box will go’. By way of an example, AT&T is pushing ahead in the USA with several iTV initiatives. Following a $5billion investment by Microsoft in May 1999, AT&T agreed to install Microsoft technology on at least 7.5 million advanced digital set-top boxes. However, AT&T is not putting all its eggs in one basket and is currently working with several other prominent technology providers to develop iTV software applications. The latest involved a deal with Liberate Technologies last September, although AT&T is also working with Excite @home, the high speed Internet access company (in which it holds a 25% stake) to develop iTV applications.

As AT&T leads the way, Forrester Research predicts that iTV services will generate revenues of $48.2 billion by 2005, up from about $848 million in 2000. Not just AT&T but cable TV operators generally (such as Cox Communications and ComCart) are looking to iTV as a means of adding additional revenue and keeping customers. AT&T’s attempts to speed things up also include a deal with Worldgate to allow the provision of some iTV services, such as e-mail and shopping, on its current generation of set-top boxes. AT&T planned to begin trials with Liberate and Microsoft by the beginning of 2001 with a view to offering iTV services commercially in 2001.


While US software companies battle it out over who will establish a common standard for interactive TV, it is perhaps somewhat surprisingly Europe which currently accounts for 81% of the world market and which is leading the way in rolling out iTV services. Arguably the most advanced services are offered in Europe by companies such as Teledanmark, TPS, Stream and Open Interactive Ltd in the UK. These services offer digital TV viewers the opportunity to e-mail, shop, procure financial services and utilise interactive programming from the comfort of their armchairs. Such services can provide operators with additional revenue streams as well as enhancing customer loyalty. According to Strategy Analytics, the UK is currently the world’s most advanced market, with an expected 29% of homes having switched to digital by the end of 2000, followed by the US (24%), France (15%) and Spain (15%).

The Nature of Television

The nature of the TV set makes it both an interesting and challenging medium on which to deliver electronic commerce services. The first point of note is the relative ubiquity of the TV set in households. Almost every adult in the UK has access to a TV at home. Contrast this with the results of a recent study by Marketplace which stated that only around 25% of UK adults claim to have access to the Internet at home. This has led the Henley centre to predict that by 2005 more people will access the Internet via their television than via computers. The relative availability of TVs as against PCs means that, provided set-top boxes are free or reasonably priced, the barriers to entry for viewers are very low.

The second point of note is the different way that users interact with their PCs as against their TVs. PCs tend to be used by the individual in a thoughtful and proactive manner, with users sitting close to their screens. For this reason, PCs are described as a ‘lean forward’ technology. By contrast, watching TV, especially prime time TV, is a shared, group experience and is viewed in a more passive way, with viewers sitting some distance from the screens. For this reason, iTV is described as a ‘lean back’ medium. A spokesman for Dominos Pizza recently noted ‘the whole process of ordering via the television is about leisure time, whereas the PC is a business tool. Interactive TV is more experiential – it is about sharing with your family and friends’. The practical effect of this different style of usage means that service designers must be conscious of providing a TV rather than strictly Internet experience to viewers. Accordingly, complicated search engines tend to be replaced with more intuitive methods of migrating around services which complement the use of a TV remote control. Text is used sparingly and there is a richer audio visual experience.

Finally, it should be noted that there is an arguable but encouraging case to be made that the emotional barrier to entering into electronic commerce via interactive TV is lower than via other means. The TV has formed a trusted part of family life for decades now. This, combined with the presence of famous high street names on iTV services and the common usage of closed networks or ‘walled gardens’ in some interactive TV services give viewers who do not fit into the typical early adopter profile the confidence to dabble with a new technology. These features contrast favourably with the Internet, which has a reputation for content which is edgy and anarchic, where obscene material is easily available and where breaches of security have been well reported. The confidence that viewers have in iTV services makes online banking a particularly good fit for such services.


Digital TV, with its greater choice of channels, will lead to audience fragmentation. In the face of massive choice, fewer TV shows will capture the imagination of sufficient numbers to attract mass audiences and the enhanced advertising revenues that such programmes attract. However, this will be compensated for by interactive TV which will allow advertisers to interact directly with their customers. Furthermore, interactivity raises great potential for permission-based marketing techniques, allowing advertisers not only to educate viewers in a more focussed way but also to learn more about their customer base and develop stronger relationships as a result. These stronger relationships should lead to more successful and individualised marketing techniques and higher transaction values derived from effective cross-selling. Providing access to its viewers in this way should allow broadcasters to generate new revenue streams. To provide some statistics, IDATE envisages that, in France alone, there will be over 14 million iTV users by 2005, with revenues generated by iTV service providers estimated at over FF20 billion made up of 55% advertising, 9% subscriptions, 1% service design and development and 35% from e-commerce.

The Buying Cycle

One of the most interesting possibilities offered by interactive TV is the possibility of links between the broadcast stream and the online portion. If ever there was a stimulus for impulse buying, this is it. The cross-marketing potential is incredible. Spiderdance, a US company, have synchronised an Internet site to MTV’s recently launched game show, Web Riot, enabling users to interact with the television programme by utilising their PCs. Similarly the ABC and ESPN networks offer viewers the opportunity of receiving enhanced content for sports broadcasts by logging onto Internet sites while watching broadcasts on the TV. Open Interactive Ltd is amongst the companies taking these concepts a step further by taking the PC out of the equation and allowing viewers to move from a Digital TV advertisement into an Interactive TV site by the click of a button. Furthermore, a recent documentary on the Harrods store on BSkyB allowed viewers to click from the documentary into the Harrods Interactive site to purchase goods. The potential of such links must surely represent one of the strongest justifications for predictions on the potential of interactive TV.

Early Regulatory Steps

However, advertisers and broadcasters must be careful to provide appropriate commercial input into draft legislation to ensure that heavy-handed legislation does not destroy the potential commercial opportunities offered by interactive TV. At the end of last year the DTI and DCMS published their White Paper: A New Future for Communications. This is the UK’s first real attempt to commit to the structure of regulation which will provide a coherent framework within which media and communications operators can offer new services such as iTV. The basic idea is to have a single regulator whose remit will cover both content and communications networks combining the roles of existing regulators including Oftel and the ITC. The Office of Communications, or OFCOM as it will be called, will implement a more flexible regime based on traditional sector specific regulation and co- and self-regulatory schemes. OFCOM will have direct enforcement powers to ensure that technical gateways such as Electronic Programme Guides and interface software are not blocked so as to impede market entry or gain competitive advantage. These are fundamental issues for iTV. Tiered content regulation will be introduced to cater for various levels of service offered along the digital spectrum, from public service broadcasting to the Internet.

Unfortunately the White Paper avoids going into detail on the mechanics of regulation of interactive services and does not deal with the complexities inherent in the regulation of audio-visual services which allow several levels of consumer interaction or control. Some of these issues were addressed by the ITC in Interactive Television: an ITC Public Consultation published in February 2000. In this document the ITC is at pains to distinguish between the Internet (which by definition is interactive) and interactive television services which are characterised by the prevalence of ‘walled garden’ services where a limited number of sites (whether Internet sites or sites held on a separate server belonging to the interactive licensee) are selected by the interactive licensee and re-authored for viewing through television screens.

The ITC envisages a system of signposting to alert the viewer that he or she is entering relatively unregulated areas, marking for example the transition from a linear programme to interactive sites or the Internet – in other words beyond the first click. Of course, once the viewer has made the decision to go to a commercial site, the full application of the ITC’s rules would be disproportionate. However, the interactive licensee would have similar responsibilities to a broadcaster in relation to the content that is transmitted through its service. The licensee would be obliged to ensure that it can enforce the regulator’s will through its own contractual relationship with the content provider. It could also be responsible for pre-vetting advertising displayed when the viewer makes the first interactive selection.


As analogue gradually gives way to digital, the spectrum of services within the audio visual sector broadens. Advertisers, retailers and broadcasters must be quick to seize the opportunities offered by this new medium, before their competitors do. Those seeking to obtain the maximum benefit from e-commerce must view the various distribution platforms in a complementary rather than cannibalistic and conflicting way. They must seek to touch their customers ‘24-7’ and derive maximum revenues from exploring the full potential of e-commerce via the Internet, television and mobile telephone. However, in order to be able to explore this potential, broadcasters, advertisers and retailers must be proactive in expressing their concerns and shaping the legislation that will regulate their electronic commerce activities to ensure that consumers are offered maximum choice and competition.

© McDermott Will & Emery and Open Interactive Ltd 2001

Andrew Steed, Legal and Regulatory Manager, Open Interactive Ltd

Rico Calleja, Information Lawyer, McDermott Will & Emery, London

Open Interactive is one of the leading interactive television service providers.