Introduction: The promise of Interactive Television — hundreds of channels, digital video and audio, and revenue-generating interactive services and games delivered via cable, satellite, or terrestrial broadcast — is real. Just as real, however, are the challenges that remain before Interactive Television can gain consumer acceptance and develop into a sustainable market.

However, the emergence of the Internet as a vast source of consumer-oriented content, the slow roll-out of Digital Television with its capabilities of additional channel capacity and enhanced picture and sound quality, and the significant decrease in the cost of computing power have ensured that the promise of Interactive TV is slowly being transformed into reality.

The Basics of Interactive TV: Very simplistically, iTV can be said to be the meeting point of the television and the Internet. Interactive TV allows the viewer the flexibility to personalise the kind of programs he watches, besides allowing a host of commerce activities like online shopping, playing games etc. iTV integrates traditional TV programming with the interactive nature of the Internet and enhances the viewer’s television experience by offering additional services like TV-based browsing as well as Electronic Program Guides (EPGs).

Strategic Drivers for Interactive TV: Several strategic business factors and market dynamics have led to the emergence of Interactive TV. Consider the following:

The entire cable system currently operating in India is not digital. While some plans are underway to upgrade these systems in isolated cases, Internet-based services, advertising, and interactivity can enable operators to significantly increase their revenues from their current analog systems.

Consumer electronics companies facing declining margins and fierce competition on core television products have begun to look at Web functionality and other interactive, Internet-based applications as features that could not only increase margins, but could also enable them to tap into recurring revenue streams (e.g. Samsung, Videocon etc.)

Finally, the projected growth and penetration of the C & S homes itself (which will be the largest delivery medium for iTV) will also be fuelled by the introduction of Interactive TV as people get used to the idea of availing services like Video on Demand, Pay Per View, Interactive shopping, Distance Education and a whole slew of Internet-based services, all through the medium of their television. An illustrative Forrester example for the US is that 22 million new viewers will be added to the CATV fraternity through EPG users, Video recording facilities and WebTV console games like Sega, Nintendo etc.

Components of the iTV chain: It is interesting to note that each individual application, whether it is Web access, an on-line game, or any other application, actually plays only a small role in the entire system. The entire chain for Interactive TV can be thought of as consisting three distinct entities: The Content Providers (both traditional TV content as well as Web and Interactive content), the Access Provider (cable / satellite / telephone lines) and finally the equipment provider in terms of set-top box/modems/Web enabled TV etc.

The Hiccups: The key problem facing this whole initiative is the adoption of a uniform technology standard across the industry. The pace at which new technology is being introduced, adapted, and implemented in the Interactive Television market is startling. However, this brings a host of disturbing questions… When TCI selects PersonalJava on Friday and Windows CE on Saturday for inclusion in their set-top boxes, what does it mean for the rest of the industry?

Also, as there are no proven business models for Interactive Television from either the standpoint of consumer electronics companies or cable/satellite operators; costs — particularly on the core enabling technologies — need to be kept down. For the near-term, cost will remain the number one barrier to acceptance on the part of companies, like cable operators, considering launching new interactive services.

The Foreign Market Scenario and Projections: As of today, less than one per cent of North American households are interactive TV subscribers, according to technology research company Forrester. But Gartner sees iTV in 17 million US homes by 2004 and about 2.5 million homes in the next 12 to 18 months. Gartner sees the industry generating about $11 billion in annual revenues in five years. Meanwhile, Forrester expects program guides, enhanced broadcasts and TV-based browsing to generate $11 billion of annual revenue in ads and $7 billion in commerce over the same period. As far as the penetration levels are concerned, Forrester estimates that 42per cent of US and 26per cent of European HHs will have iTV.

Microsoft's Ultimate TV service, which will be available on satellite operator DIRECTV later this year, offers live TV controls, Web access and 500 hours of interactive programming that lets viewers play along with game shows. Companies are also beginning to provide Web features over TV so viewers can access email, get information or respond to polls via their TVs rather than using their PCs for that purpose.

In the meantime, cable and satellite players are also sprucing up their act to offer Interactive TV services. Excite@Home Corp. is focusing on "broadband TV" to deliver entertainment, music and games through its high-speed data pipe and pacts with cable operators. DIRECTV recently launched a receiver with TiVo that uses satellite technology to produce a better picture and TiVo technology to let users control their viewing. It is still developing platforms with AOLTV and Ultimate TV.

In Britain, the most successful interactive TV provider so far has been British Sky Broadcasting, with its majority-owned Open service. About 60 per cent of Sky's 4.7 million digital subscribers are estimated to use Open at least once a week -- amounting to nearly 3 million regular users. The reception to Interactive TV has been much warmer in England than the rest of the world. 23 per cent of households in England are expected to use some form of interactive TV this year, according to Jupiter MMXI, a research firm, compared to 9 per cent in the rest of Europe and 7.5 percent in the US.

The Scenario Today: Portugal's TV Cabo became the first cable company in the world to deploy advanced set-top boxes running Microsoft TV software. TV Cabo, which has almost 1 million subscribers, will market set-top boxes with a broadband modem providing online shopping, home banking, games, digital video recording, Internet access and e-mail through TV sets.

However, to say that the iTV experiment has been a runaway success is not entirely true. BskyB has been reporting mounting losses for the third successive year, primarily dues to the cost of going digital. Also, Television commerce (or T-Commerce) has not really taken off with only 10per cent of BskyB subscribers actually making a purchase using the medium.

The Indian Context: In India, the advent of Interactive TV looks to be a few years away. The principal causes for this delayed rollout will be the expenses incurred in the digitisation of the carrier (which will be cable in our case) and the uncertain consumer demand for such services given the relatively expensive CPE.  However, there is no gainsaying the fact that major players have to be ready to exploit a particular part of the iTV value chain as and when this entertainment revolution arrives in India.