strategy for digital TV (1998)

Now digital is upon us and analogue is condemned, the choice is between sink and swim. Broadcasters can either invest in digital or hope to swim, or give up and sink. There is no going back.

Hereon the dabbling with interactive technologies and the Internet can change into business fortunes. That it is all about trade not techno toys is highlighted in a new report from independent analyst group, Ovum. Here they map out the factors in the development of the new digital market with the promise that the interactive services will yield significant returns.
Their first point is about content that they see as the key to success in winning viewers and advertisers. More channels will lead to competition for content, and increased demand will drive its price up – as we’ve already seen with the football league. And as we’ve seen with satellite channels, recycling of old TV content has been one way to make a commercial package to offer to subscribers. It makes sense that the attraction of the content, combined with enticing interactive services will win the day. What is important is the way that broadcasters migrate their viewers from analogue to digital.

Although it could be three or four years before the Internet might offer TV quality video, and Ovum estimate that the growth of digital TV will cause the penetration of the Internet PC to plateau, the Internet maybe more of a threat than an opportunity. For starters, both the Internet PC and Internet TV nevertheless compete for consumer time. In turn advertisers, who already enjoy the Internet as a low cost route to consumers, can shift their money there and thus away from broadcast.

Ovum consultant John Moroney says that suppliers need to develop a ‘walled garden’ so that they ‘own’ the viewers watching the content that will in turn build their relationship with the advertisers. One model of the ‘walled garden’ is where the viewers set top box has a modem to complete a return loop to the broadcaster. Viewers can respond to calls to action that currently need a phone call – they might buy a movie, a new service or some game time. They can respond to advertisements impulsively by say, buying replicas of the World Cup football at half time or interact in an advertisement where they take a virtual drive in a new car. While the new types content here are the stuff of digital’s promise, here is the opportunity for the broadcast service to offer advertisers a package of viewers and content that they can’t refuse.

Like the Web TV idea, some suppliers might offer a more enticing package – extending the hardware to technology with keyboards and Internet servers which provide threadbare Internet access. Their offer could include increasingly desirable e-mail services, Internet-style chat and interaction. This might also allow links in adverts to take viewers to the advertiser’s Web site. The lingering issue is about keeping the viewer inside the system and not allowing open Internet access – where the broadcaster can lose advertising revenue.

If it seems like trying stop the inevitable course of technology, Ovum estimate that by 2005, ‘walled garden’ services will represent $900 million or 20% of interactive services while those inevitable revenue losses add up to a reassuringly smaller $450 million. They stress the need to provide viewers a unique service with strong brand images to bring advertisers into their garden. They add that there will need to be a balance of free and pay per view content which will sway between how much the advertiser and how much the viewer pays. As John Moroney adds, “There is a view that you don’t have to anything. Opening up the service and letting the Internet roll over you will not be a successful strategy. You have to own the viewer and keep them in the broadcasting environment. The objective for the broadcasters is to provide access to interactive content through a single interface and keep the viewer in this walled garden.”

(by Roger Frost 1998)

Ovum’s ‘Digital Television: ‘How to survive and make money’ offers strategic guidance to those planning to invest in digital television or interactive services. The report is available in Europe price £1695. Contact: Ovum Ltd, 1 Mortimer Street, London W1N 7RH. Web: www.ovum.com