Study: iTV to Hit Mainstream by End of 2002, But Ad Revenues Will Take Longer

Interactive television will gain a foothold in many American households as early as the end of this year, according to a new Yankee Group report — although as a potentially new advertising milieu, the medium will have to wait.

According to the Boston-based consultancy’s study, most consumers will be introduced to iTV applications by way of a concept called the “TV portal” — effectively a repository for interactive content, news, local information and so on, based on the model of Web sites like Yahoo! and Microsoft’s MSN.

Those TV portals are already being implemented in limited fashion by players like Insight and Cablevision, and by the end of 2002, many of the major cable operators are expected to roll out TV portals, said Adi Kishore, an analyst with the Yankee Group’s Media & Entertainment Strategies practice and author of the study.

AOL Time Warner, for one, has committed to offering a television portal service on its Time Warner cable systems, and already offers a similar (though not widely-used) iTV service via its AOLTV product.

As the trend toward TV portals catches on, cable operators will begin seeing immediate benefits by increasing subscribers’ satisfaction and therefore, retention. Meanwhile, interactive TV vendors like Gemstar-TV Guide, will benefit from revenues from the cable operators. And as network operators roll out new iTV applications, they’ll be more easily adopted by subscribers if they’re delivered through a familiar interface — the TV portal.

But despite a fair amount of hype about interactive television advertising — even during 2001’s ad industry contraction — use of the TV portal as sellable media remains distant, Kishore said.

“It’s going to be difficult to gain significant revenue in the short run from this sort of service,” he said. Advertising “is limited at this point … there are hardly any subscribers to the service. Even when users adopt it, usage will be very ‘bursty,’ with consumers using TV portals to check weather, program guides … Once they’ve got that information, they’re going to go back to … watching video content. It’s not the ideal environment for advertising at this point.”

Ultimately, Kishore did say he envisioned cable operators or iTV vendors also being able to sell sponsored ad space on TV portals. For instance, a portal could feature content from The E.W. Scripps Company’s HGTV channel, which would be sponsored by Home Depot.

“For [banner-like advertising,] that’s going to be a smaller element of the potential of this technology,” he said. “As portals evolve and become the launch pad for a whole host of interactive services … advertising will exist … in closer to more of a sponsorship environment, within microsites or walled garden content.”

But all that won’t be for years, anyway, he added.

“You’re going to see this picking up at the end of 2002, with more cable operators offering more of these services,” Kishore said. “But I think it will still be limited in terms of subscribers.”

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