After Moore’s law and Metcalfe’s law, the third law of the digital economy could go something like: The amount of positive hype and adulation that accompanies a new technology as it launches, is directly proportional to the amount of negativity and derision it meets on the way down.

This is certainly the scenario facing interactive TV advertising. Having been caught up in the over-promises and unrealistic expectations that accompanied the launch of digital TV in 1998, there is now a degree of disillusionment surrounding the technology: creatives berate its clunkiness and lack of flexibility, media buyers see it as way too expensive and think consumers will lose interest once the novelty of interactive TV has worn off.

What should worry digital TV platforms and broadcasters more is the fact that so few marketers understand the opportunities presented by the technology, let alone its potential role in an advertising strategy. In compiling a report (see: http://www.e-consultancy.com/book/itv_advertising/) on the topic I recently held a series of interviews with key platform owners, agencies and marketers. My first conclusion was that the biggest problem facing the industry is the level of confusion and lack of knowledge (amongst advertisers) as to how to create successful campaigns.

There are some other serious challenges facing interactive advertising. The number of people it reaches, for a start. There are now more than 8million digital TV households in the UK. Sky Digital has 5.5million; the two cable networks (NTL and Telewest) together account for about 1.6million and ITV Digital a further 1.2million. But if you’re looking to launch an interactive campaign there are a few other considerations. Interactive commercials are not yet available on cable and the ITV Digital platform does not feature a return path from consumers, making it impossible to receive any feedback from them or allow for any kind of offline fulfilment. Sky Digital is clearly the key player, but interactive campaigns are only run from channels represented by Sky and Flextech airtime sales teams. ITV have only just negotiated a deal to appear on the Sky EPG and Channel 4 have so far refused to allow any interactive commercials on their digital channels. Advertisers should therefore have no illusions about the size of the audiences involved.

But should size of audience be a critical factor? Not if you consider the key attributes of interactive advertising:

Firstly, its ability to build brand awareness in a unique way, amongst high-income digital consumers. Over 50% of ABC1 households subscribe to digital TV, and the pay TV audience as a whole accounts for almost half the spending power in the UK. Recent campaigns for Virgin Mobile and Panasonic have shown that a 30” commercial has the potential to become three minutes of exposure to a high quality prospect who is willing to proactively search for more information. Yet, because so many interactive campaigns have been experimental in nature, there has not been enough investment in developing creative solutions and truly compelling interactive experiences.

Another key attribute of interactive advertising is its direct response capability. Instead of cannibalising each other’s revenue, airtime sales teams should use this to divert some of the £10billion annual spend on direct marketing (compared to just over £3billion for TV). To date, the most successful campaigns have been those that aim to build customer data or initiate an ongoing offline relationship with viewers. For this reason, when it comes to evaluating interactive campaigns, media agencies need to look beyond the audience ratings associated with an ad break. For example, in the Virgin Mobile campaign run on Bravo, the average rate of response was 40% higher in daytime viewing than peak time viewing. A costing model that takes into account the value of each respondent therefore makes far more sense.

And what will be the key developments in 2002?

Telewest and NTL have together been conducting tests of a set top box middleware upgrade that will allow them to offer interactive commercials and a launch is expected in Q1. This has taken far longer than expected, but the networks should be credited for being thorough (crashed set top boxes and mismanaged consumer expectations are detrimental to the industry as a whole.)

Intelligent marketers will also start to view interactive TV in the context of a wide range of emerging interactive media platforms. Mobile phone take-up has outstripped digital TV and currently stands at 70%. TV advertisers should leverage the penetration of this platform amongst the youth, its ability to reach viewers once they have left the living room and the astounding popularity of SMS. A new generation of interactive TV ads could use the mass appeal and richness of TV content to drive interaction with brands. Once the relationship is established, the campaign could move on to coupon distribution via SMS, email contact or direct phone conversations from call centres.

Longer term, the digital TV audience will continue to grow steadily, although the government’s ambition to switch off the analogue signal by 2010 is still unrealistic. More importantly, the proactive approach to developing interactive TV formats (especially from the BBC, Sky and Channel 4) will result in a digital audience that is comfortable to interact with their TV sets in different ways.

On the whole the future is bright. As pressure mounts on traditional TV advertising, the opportunities provided by interactive TV technology may create essential new revenue streams for broadcasters. Marketers who acknowledge the long-term benefits of reaching a digital interactive audience will move beyond experimentation and start to refine the formats that marked their introduction to the medium. The current economic climate will also motivate them to define more rigorous performance criteria for their campaigns.

[This opinion piece first appeared (in edited form) in the November 28 edition of Revolution magazine.]

Murray Anderson is Managing Director of Steelside and e-consultancy's resident interactive TV expert. Steelside is a consultancy dedicated to identifying new revenue opportunities from interactive TV and broadband consumer channels.

“Interactive TV Advertising: A Marketer's Guide” is co-published by Steelside and e-consultancy. Go to : http://www.e-consultancy.com/book/itv_advertising/.