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T-Commerce: Turning Television Sets Into Cash Registers

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T-Commerce: Turning Television Sets Into Cash Registers September 12, 2000 S&P 500 Index: 1,489.26 Catherine M. Skelly, (212) 820-3610, [email protected] Matthew Weiss, (212) 820-3681, [email protected] New Media/E-Commerce T-Commerce: Turning Television Sets Into Cash Registers Source: Gruntal & Co., L.L.C. New technologies have enabled a shift from a few program guides, and communicate. By 2005, media choices consumed by mass audiences to Forrester Research, Inc., estimates that interactive highly individualized experiences unique to each television will generate incremental revenue of consumer (see Table 1, inside front cover). $25.0 billion, including advertising, television-based Interactive television transforms a passive and transactions (t-commerce), and subscription fees. linear viewing experience into both a participatory Television-based program guides are expected to medium and a platform for commerce and reach 87.0 million homes in the next five years. By communication. We believe that relevant timely 2005, interactive television is expected to be information and offers presented seamlessly with available to 65.0 million U.S. households. content will create value for the consumer and generate incremental revenue streams for This report examines the investment opportunities broadcasters, cable operators, and satellite yielded by the convergence of traditional media, providers. The information captured through commerce, and the interactivity of the Internet. We interactivity brings advertisers the tools they need discuss t-commerce participants, how their business to conduct true one-to-one targeting and to acquire models are changing, and the factors that will customers efficiently. We believe that in five years, motivate them to embrace interactive television. We most U.S. households will use their remote controls also include complete reports on ACTV, Inc., to interact with graphics on their television screens, Princeton Video Image, Inc., ValueVision enabling them to request information, make International, Inc., and Wink Communications, Inc., purchases, participate in activities, navigate as well as profiles of many industry participants. Table 1 THE EVOLUTION OF TELEVISION Broadcast TV Cable/Satellite TV Web-Enabled/Interactive TV Programming Choices Few Many Virtually infinite Advertising Mass market Targeted Precise, high response Audience Characteristics Captive Fragmented Singular Level of Interactivity None Limited Full Commerce Opportunities Direct response TV (DRTV), Home shopping, DRTV Embedded offers in programs and infomercials, commercials with interactive commercials, Internet retail, 800 numbers home shopping, DRTV, premium services, video on demand Recipients of Commerce Revenue Advertisers Advertisers, home shopping Retailers, broadcasters, cable providers, networks, cable providers satellite providers, advertisers, interactive service providers Source: Gruntal & Co., L.L.C. 2 Contents I. Interactive Television/T-Commerce Industry Highlights.....................................................................................................................................................9 Investment Thesis ......................................................................................................................................10 Interactive Television Market Validation........................................................................................10 Interactive Television Defined...................................................................................................................11 History of Interactive Television.....................................................................................................11 Why Past Attempts Have Been Unsuccessful .................................................................................12 Why We Think The Situation Is Different This Time.....................................................................12 ATVEF Standard.............................................................................................................................16 Conversion to Digital Transmission...........................................................................................................17 Digital Infrastructure Enables Incremental Revenue Streams and Interactive Services..................18 T-Commerce Relationships........................................................................................................................19 Strong Foundation...........................................................................................................................23 Interactive Television—The Demand Side................................................................................................26 Broadcasters and Advertisers ...............................................................................................................26 The Threat of Commercial Zapping and Time Shifting ..................................................................26 Is Broadcast Doomed?.....................................................................................................................26 Converting Viewers to Shoppers.....................................................................................................27 Driving Traffic ................................................................................................................................27 So Many Channels… ......................................................................................................................28 Instant Lead-Generation Mechanism ..............................................................................................28 Economics of TV Commercials ......................................................................................................29 Increasing Advertiser Return on Investment...................................................................................30 Interactive Television Delivery Systems....................................................................................................34 Cable Multiple System Operators (MSOs)......................................................................................34 Satellite Providers ...........................................................................................................................37 EchoStar Communications Corporation ....................................................................................37 DirecTV, Inc. (a unit of Hughes Electronics) ............................................................................37 Telephone Companies.....................................................................................................................37 Interactive Television—The Supply Side ..................................................................................................38 Interactive Television Applications ......................................................................................................38 T-Commerce ...................................................................................................................................38 Electronic Programming Guides (EPGs).........................................................................................38 Enhanced Advertising .....................................................................................................................39 Enhanced Broadcasting Services.....................................................................................................39 TV-Based Internet Access and Other Subscription Services...........................................................40 Home Shopping Channels...............................................................................................................40 Video on Demand (VOD) and Personal Television ........................................................................40 Individualized Television................................................................................................................42 Direct Response TV (DRTV)..........................................................................................................42 Aggregated Consumer Information.................................................................................................42 Consumer Hardware and Peripherals ..............................................................................................42 Datacasting......................................................................................................................................43 Interactive Games............................................................................................................................43 Convenience, Communications and Other Services........................................................................43 Set-Top Box Operating Systems................................................................................................................44 Set-Top Box Manufacturers.......................................................................................................................45 Boxes Support Multiple Functions..................................................................................................45 Retail Availability ...........................................................................................................................45 Thin Clients Versus Fat Clients.......................................................................................................46
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