Will interactivity equal revenues?

Part 6 of 6 – read part 1 and part 2 and part 3 and part 4 and part 5 here.

Features that increase customer stickiness are great for loyalty plays, but most businesses aren’t built on loyalty. Even when the technology and competitive issues are sorted through, television service providers have to work out the business case for interactivity before diving in head first. Widget-driven application stores have exploded on mobile, spawned by Apple’s success, but will the TV follow suit?

“Many of the features of interactivity are churn reducers and things to inspire subscriber loyalty or bridge between different platforms, like caller ID on the TV,” said Kevin Wirick, vice president of marketing for Motorola’s IP video solutions group. “For most business models that carriers are putting together for IPTV, the primary revenue is traditional pay TV. There is not a large element for extra revenue beyond video on-demand.”

VOD, one of the first and most successful instances of interactivity, has had a clear-cut business case since day one, but others forms of interactivity are less proven. According to recent research from Parks & Associates, however, there is a place for paid apps on the TV. Parks’ surveys found that 33% of US broadband households were interested in TV widgets and might even pay for the really good ones – either in the price of a TV or as an additional subscription cost. Outside of that, advertising could be where the real money lies, according to Kurt Scherf, Parks’ vice president and principal analyst.

“Widgets, in and of themselves, present the opportunity,” Scherf said. “Verizon can deploy a feature like a casual games service and, using EBIF, allow the sales team to sell static ads that wrap around the user interface for that application itself. Any ad revenue that the operator can get is a plus for them at this point.”

Existing models today shut service providers out of the majority of the revenue in advertising, Scherf added. For every hour of programming they deliver, they traditionally get two minutes to sell the ad slots – the rest of the ads are sold by the programmer. For the operator, the next best thing to introducing more minutes to the hour is taking advantage of interactive apps to sell ads, he said. Services like t-commerce to place an order direct on the TV screen or telescoping into ads to receive more information, on the other hand, just haven’t been practical to do yet. These features have been discussed for some time, but the business model – and content rights – have yet to be worked out yet, Scherf said.