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Report: Interactive TV Will Generate $20 Billion by 2004

Interactive television will generate $11 billion in advertising, $7 billion in commerce, and $2 billion in subscription revenues by 2004, says a new research report.

The report from Forrester Research Inc. says the prime beneficiary of these cash flows will be the early movers -- cable and satellite operators.

"Interactive TV has gone from being a laughingstock to becoming a potentially massive revenue generator," said Josh Bernoff, principal analyst for Television Research at Forrester. "As an advertising medium, it will rival the Internet within three years."

The report contends that three applications will transform interactive TV's revenue stream into a torrent: electronic program guides (EPGs), enhanced broadcasts and TV-based Internet access. EPGs will be the vanguard of iTV, reaching 55 million homes by 2004.

Advertisers will rush to reach viewers through EPG banner ads, info pages and buttons, generating $3.2 billion in advertising and $1.1 billion in commerce within five years, predicts the report.

Enhanced broadcasts will build more slowly, eventually pouring into 24 million homes in 2004. The interactive programming in enhanced broadcasts, like play-along game shows and special events with enhanced content, will build viewer loyalty and create new e-commerce opportunities. Forrester estimates that enhanced broadcasts will generate $6.2 billion in advertising revenues and $3.8 billion in commerce by 2004.

Five years from now, TV-based Web browsing in 13 million homes will generate $5 billion in revenues from subscriptions, advertising, and commerce, the report predicts.

"Interactive television will turn the media industry inside out, with EPGs touching more Americans than any other media property," Bernoff said. "As ITV sweeps across the consumer landscape, it will pull advertising dollars away from existing media, including television and the Web."

The majority of iTV revenues will go to cable and satellite operators and technology vendors like Wink, Liberate, Microsoft and America Online, says the report.

For the report entitled "Interactive TV Cash Flows" Forrester interviewed executives from more than 60 companies, including broadcast networks, cable networks, cable and satellite operators, advertising agencies, producers, and technology vendors.