Interactive TV and Retailing - The Honeymoon is Over

Retailers face a new set of challenges on interactive TV. Initial investments may not have yielded significant returns, but the first movers may now be in a stronger position to take advantage of the next wave of interactive retail applications. There is no doubt that future success in interactive TV will be determined by allowing consumers to act on the transactional impulses generated by the primary entertainment stream.

So what is the current state of the market?

Despite recent scepticism about the future of digital TV, penetration levels are impressive – especially compared to other consumer technology innovations. The market currently stands at about 30% of households and platforms seem to have convinced the “innovators” and “early adopters”*.

Sky Digital has been the success story. Their dominance of subscriber market share has been complemented by a proactive and efficient approach to developing interactive services. And the other platforms are consolidating: Telewest and NTL are starting to share services and some form of full merger will be essential to present a united front against satellite and market the unique attributes of the cable technology. The re-branding and restructure of the digital terrestrial platform (ONdigital becomes ITVDigital) is evidence of a new focus from the digital terrestrial platform.

In general, all platforms are capitalising on the commercial learning of the past few years. This will create a much more stable environment for interactive TV commercial and technological developments.

But there are some serious challenges facing the market. Profitable business models have yet to emerge and the following issues are of particular relevance to retailers:

1: Lack of interactive shoppers: It’s clear that not all digital TV subscribers are potential shoppers. Many cable and terrestrial subscribers simply do not have access to the interactive services that provide retailers with a transaction channel to consumers. More importantly, of those consumers who do have access, many are simply unaware of their presence or are uninterested in using them.

2: Walled gardens don’t meet expectations: The walled garden has been the core focus of many retail iTV strategies to date and, on the whole, has not lived up to expectations. Amidst the rush to sign up retailers and convince consumers, the platforms were guilty of raising expectations too high. Many of the drawbacks of the applications were actually evident at the time of launch and include:

- Separation from broadcast content: Sky were criticised for having their service “walled off” from the Internet. The greater problem is that shopping applications on all platforms are effectively walled off from the primary broadcast stream. Viewers have to sacrifice their TV show (in most cases the reason why they are switching on in the first place) in order to browse and transact.

- Slow navigation: Response times are slow and pages take too much time to download – especially for experienced Internet surfers. Sky Digital suffers from the “carousel” method of downloading content, and cable is often affected by network congestion.

- Remote control difficulties: The remote control is not well suited to completing many of the functions required. User registration, or any action that requires text input, is difficult. The infrared keyboards provided by the platforms do make things easier, but only about 10% of the market has taken up this option.

- Poor product display: Low-resolution TV screens means product display images are often low quality with poor colour rendition. This problem is exaggerated by the fact that most viewers interact while seated at some distance from the screen.

- Disappointing virtual malls: In addition to the above (inherent) problems, the interactive shopping malls are not helped by the poor offerings from many content providers. Many are brochure-like and clearly experimental. The user is left with the impression that interactive shopping on TV is nowhere near a complete service.

But the disappointing usage levels of interactive services and the demise of the walled garden does not mean the end of retailing through interactive TV. There are some positive prospects:

- Consumers are becoming more aware of interactive services. Applications linked to flagship sports programming and providing alternate content (e.g. Sky Interactive Sports, BBC Wimbledon 2001) will educate viewers as to some of the basic applications associated with digital TV. As platforms shift focus (from acquiring subscribers to maximising revenue per subscriber) they are also starting to promote their interactive services more effectively.

- Enhanced programming formats, with transactional support, are emerging. 2001 will be the year when contextual interactive commerce emerges i.e. using the primary broadcast stream to generate sales impulses, which the viewer can act on immediately. The development process remains complex but agencies and production houses that understand the relevant regulatory, technical and consumer issues, have emerged.

- Interactive advertising is not a gimmick. And it’s particularly well suited to high street retailers. Exorbitant media and production costs have hampered development, but expect these to come down as platforms move beyond the experimental phase and compete for big name advertisers. Other advertising opportunities are also becoming available. For example, banner space on the EPG (Electronic Programme Guide) – an essential application for digital viewers and the entry point for all other content.

So, how should retailers respond?

- Maximise existing properties.
Despite the drawbacks of the walled garden, investments have already been made and many properties could be radically improved through sound usability testing and application of a few fundamental televisual design principles.

- Define your interactive TV retail strategy.
Move beyond experimentation and be clear about the objectives of your move into interactive TV. It is surprising how few retailers have set targets for their interactive TV properties, be they for sales revenue or number of users.

- Be more tactical
Its now clear that profits will not be driven by a full-product-range, interactive shopping site. Retailers need to use the available technology to develop a more tactical approach to generating revenue from digital TV subscribers. Target particular consumers, during particular programmes with particular products. Information is scant at the moment but quick-turnaround private research projects aimed at building a user profile should be considered - “In the land of the blind, the one-eyed man is king.”

- Meet the players
Enhanced programming will definitely be key to the future of t-commerce. Retailers should initiate discussions with content creators and platforms. Speak to the technology and design experts as well - after two and a half years, development agencies have emerged with unique experience of the interactive TV medium.

- Investigate Sky’s WML browser
Sky’s new browser will be the foundation of their future interactive shopping capability and, as market leaders, the platform should be seriously considered by retailers. The browser has various advantages over the current Open… platform, not least: ability to now integrate with the retailer’s existing digital solutions, retaining the primary broadcast stream in quarter-screen, lower development costs and easier, faster access for the consumer. The platform recently completed formal introduction of the technology and training for certain
development agencies.

I would be interested to hear any comments on the above.

Murray