On the Verge of Something Huge

Although it's hardly a blip on the radar screen in the middle of 2001, some technology experts have big ideas for interactive television in the future, and gambling could play a major part in those plans.

The degrees of how the medium can and will be used in the future vary considerably from person to person, but there are some bold predictions surrounding the burgeoning market:

". . . Out of £60.2 million of interactive revenues in the nine months to March this year, no less than £55 million came from betting."

- Laura Norman, Microsoft TV Group

Forrester Research predicts there will be $20 billion worth of advertising, commerce and subscription revenue produced from interactive television by 2004.
The Myers Group expects revenues of $10 billion worldwide from iTV advertising, t-commerce and subscription services by next year.
Jupiter Communications predicts that 30 million U.S. households will have iTV capability by 2004.
A recent study by Dataquest showed that the number of people who surf the Internet while watching television rose from 8 million adults in 1998 to 27 million in 1999.
Microsoft has signed up 1 million subscribers to its WebTV service.
AOL plans to roll out is AOLTV platform by the end of this summer, targeting its 25 million plus subscribers.
A recent panel at TECHXNY (a trade show for the iTV industry) predicted that, by 2005, 45 million households will have iTV; 31 million homes in the U.S. will have more than one TV; and DVRs (Digital Video Recorders) will be in 42 million homes.
The Yankee Group predicts the VoD (Video on Demand) sector will generate revenues of $1.98 billion by 2005.

The role gambling will play in interactive TV's future is tough to predict, but many experts agree that the sector could be a key revenue producer for operators and developers of iTV.

"It's clear that gambling will be one of the services network operators see as being a money maker," said Laura Norman, the marketing manager from Microsoft TV Group.

A small sampling of gambling software developers and a recent industry trade show revealed that many companies had identified iTV as a future potential avenue for their product, but nearly all agreed there had to be more demand than there currently is for them to invest resources in it.

Most ITV insiders agree, though, that having global brands like AOL and Microsoft jumping on board to take advantage of the market will only help smaller companies spread the word about iTV.

Norman concurs.

"No other company has as much experience as Microsoft in building a broad consumer platform," she said. "Our experience in building large developer communities is invaluable to the iTV industry. Microsoft has a long history working in the interactive TV space. Starting with WebTV, Microsoft has worked hard to bring interactive TV to reality through technology expertise and a partner model that touches every company in the interactive TV value chain."

Officials at Microsoft admit that venturing into the ITV market is about the additional profit that can be generated. A recent article in the Economist (May 24, 2001) pointed out how sports gambling has proven a good source of income for one company.

"The real answer to whether interactive applications make extra money from viewers turns out to be betting and games," Norman said. "BSkyB, for instance, revealed this month that out of £60.2 million of interactive revenues in the nine months to March this year, no less than £55 million came from betting."

Norman says the company has shown that it means serious business.

"You can see Microsoft TV provides every type of solution to fit a network operator's vision for deploying interactive TV," she said.

According to Norman, the four areas of iTV for Microsoft include:

Enhanced TV - Enables consumers to get more information on a show of interest, access interactive sports and news content, play along with favorite shows, etc. Today more than 1,500 hours of enhanced TV programming are available each week in the United States.
Personal TV - Allows viewers to record live TV, pause or rewind live programming, add reminders for favorite shows, or create a channel lineup that contains only their favorite programs. Convenient and searchable electronic programming guides help viewers navigate throughout the channels, pay-per-view, video-on-demand and digital music services. The best example of this is Microsoft UltimateTV for DirecTV satellite subscribers. UltimateTV has many of the features described above and also has two tuners so you can record two shows at the same time. "It is arguably the most advanced service of its kind in the U.S. right now," Norman said.
Internet on TV - Utilizes the power of the Internet. Consumers can use their television to browse the Web, and take advantage of Internet-enabled services such as e-mail, instant messaging, chat and more.
Connected TV - The long-range future goal for Microsoft. In the future, it will bring high-speed Internet access throughout the home via a set-top box powered by Microsoft TV. Users will be able to link printers and other hardware or share audio and video throughout the home to other consumer electronic devices.

To facilitate these services, Microsoft TV provides a family of open standards-based software and server products that allow network operators to deploy interactive TV.

The wide array of options Microsoft provides to consumers doesn't end there either; the company also provides a wide range of options for service providers.

The company has Microsoft TV Advanced for advanced set-top boxes and Microsoft TV Basic Digital for current generation set top boxes. On the head-end side the firm offers Microsoft TV Server and Microsoft TV Access Channel Server.

Microsoft may be a giant in the technology industry, but it certainly isn't the only company that has ventured into the iTV market. Many smaller, regionally focused companies are offering iTV services to a highly segmented market, usually geographically based. One such firm is Kingston Interactive, which focuses on the delivery of broadband television to households in the Yorkshire area of England.

Tony Baker, the public relations manager for Kingston Interactive, says the company's KIT service represents the largest use of broadband communication in England.

Kingston's approach to iTV is different than Microsoft's but similar to numerous other companies worldwide. The company delivers customized multi-channel program to televisions through the existing phone line.

In addition to providing its subscribers with traditional television channels like BBC, ITV, Sky Sports, Sky Movies, MTV and Nickelodeon, KIT users also can choose from a range of services to add to their TV, such as Video-on-Demand, Internet and e-mail.

Gaming, according to Baker, will play a vital role in those other options. The company is planning to launch a game channel, which will allow players to play traditional arcade games like Doom, golf and football through their televisions. The company has looked into casino-style games, but it has no immediate plans for introducing a channel with those types of games.

"That will be possible in the future," he said. "But at the moment it would be difficult for that, but anything is possible with this technology."

Blue Square and Ladbrokes worked with the firm during the running of the Grand National back in March, giving subscribers a new platform for placing bets. Any future gambling integration into the KIT system, says Baker, would be left up to companies that specialize in that field.

"You could actually change horses if your horse fell at one of the fences," he said. "In terms of other things it all depends on how flexible Blue Square and Ladbrokes choose to be."

The beauty of Kingston's system, according to Baker, is that it gives additional avenues for retailers, sportsbooks and news providers to distribute their product.

"With our platform we encourage experts like Blue Square and Ladbrokes to come along," he said. "We don't have the ability to reinvent the wheel. We have a platform that is unique in its own little way."

Giving program developers and content providers the freedom to work with the platform is also a key element with Microsoft.

The Microsoft TV platform facilitates a wide range of services depending on what the network operator chooses to deploy. According to Norman, Microsoft TV can work with any vendor/content provider to enable the services that a network operator wants to provide to its customers.

Microsoft TV is already working with several content and gaming companies to develop interactive programming for interactive TV through its Developer Program, she said. This program provides the tools, resources and training to these companies to successfully develop and deploy interactive TV content running on the Microsoft TV platform.

Kingston, meanwhile, isn't trying to compete with giants like Rupert Murdoch's Sky Broadcasting. According to Baker, the company instead is trying to focus on a personalized product.

Like Microsoft, Kingston realizes that giving people what they want when they want it is a key to successfully implementing iTV.

"We are developing an on-demand service, which we hope to roll out in the next couple of months," Baker said. "We can't deliver as many channels as Sky can simultaneously. We can deliver a single stream of material with nearly 60 channels to choose from."

". . . The future of interactive TV won't replace the Internet and the PC. It won't really replace TV either; it is just going to change the way people use it."

-Tony Baker, Kingston Interactive

Over a million households have Sky service in their homes. Kingston's goals aren't as lofty, but Baker feels that it's more a matter of quality than it is quantity.

"We have our own special telephone network here to serve 170,000 users," Baker said. "We have been able to penetrate just over 8 percent of those users."

With the KIT service Kingston can offer its subscribers Internet, e-mail, a home shopping channel and a portal for local news and information.

"We are trying to showcase what we can do at the local level," he said. "We have developed material that delivers local content to the service."

Regardless of whether the approach is global or local, the iTV sector has taken off more quickly in Europe-- specifically in the United Kingdom--than it has in the United States and other parts of the world.

Baker attributes the surge in England to the lack of personal computer penetration that exists there.

"The market we cater for are the people who really haven't used the Internet before," he said. "I think the future of interactive TV won't replace the Internet and the PC. It won't really replace TV either; it is just going to change the way people use it."

Norman agrees with that assessment, noting that many European communities haven't been interactive for a long time and thus aren't reliant on the Internet as much. She also points to figures that show cable television is less popular than satellite providers.

"Only 24 percent of Europeans with digital TV have access from cable," she said. "That number is 42 percent in the U.S. The European satellite operators bundled in interactive services when they first went digital because they were able to offer more content without taking more transponder space, so they could bundle in iTV at no great extra transmission cost."

Norman feels that, once Microsoft and other companies spread the word about iTV in the United States, the trend will quickly accelerate.

"One of the biggest factors to making interactive TV successful in the U.S. is educating the consumer on all the services that are enabled with iTV to make their viewing that much better," she said. "The other big factor to iTV's success in the U.S. is making broadband available to everyone. It's key to enabling the rich, compelling services that consumers will want and use everyday."

Norman says that Microsoft, to reach that end, has invested resources in helping build a broadband infrastructure with leading network operators.

Baker also attributes the geographic size of the United Kingdom (small in comparison to the United States) in helping build a reliable infrastructure for iTV.

"We are a bit smaller than the U.S. so maybe we can make these decision quicker and with greater ease. We have had companies from all over the world taking a look at us to see how we have set things up."

Serving areas that consist mainly of towns and villages of nearly 10,000 people, Kingston is forced to use modern technology at a local level. Baker says it's nice to be able to provide localized services through the BBC and other areas.

"Whatever people might say anywhere in the world, people are more concerned with what is going on in their area," he said. "Getting the news and weather of your area is a very popular movement."

Norman agrees that there's a real niche in localizing iTV, but Microsoft is instead rolling out systems that are geared toward entire countries.

"In just the past six months, Microsoft TV has either deployed or has gone to trial with services in the U.S. (UltimateTV), Mexico (Cablevision), The Netherlands (UPC), Portugal (TV Cabo), Globo Cabo (Brazil), and France (TAK)," she said. "This is only the beginning."

It's that kind of global commitment that has Microsoft convinced that the next paradigm shift in modern communication will evolve around iTV. The gambling sector no doubt will play a key part in that shift. Money will be made for extra services consumers can subscribe to, and gaming could be a leading revenue producer.

"We take our leadership role seriously," Norman said, "and our broadband investments are helping to build the infrastructure necessary to make interactive TV a reality and success worldwide."