Euro Vision

In January, digitally savvy young danes became pioneers in one of the worlds first live interactive TV shows. Each week, about 250,000 interactive viewers tune in to watch ROFL — roughly translated, it means "more bang for your buck" — which is quite impressive, considering the population of Denmark is 5.3 million.

The program covers hip consumer issues for a teen audience and has live, interactive features embedded in the entertainment format. Viewers can zap between video streams to get different angles or watch other parts of the studio. They also use the TV handset to access interactive links that display information about products. They can enter quizzes and vote on a range of program topics, from the coolest snowboards to the hottest pizzas.

Its an example of how Europe is creating the new wave of interactive information and entertainment services that will beam into living rooms around the world in the next few years. The international Electronic Multi Media Awards Foundation hailed the show as "a truly interactive TV experience," and last year awarded its iTV award to Danish Broadcasting and New York consulting firm Agency.com, which jointly developed ROFL. Jesper Knutsson, vice president of iTV at Agency, believes ROFL represents another stage in TV development. "We are slowly changing TV as we know it to something much more dynamic, which entertains and informs," Knutsson says.

In Europe, iTV is growing rapidly, especially in northern European countries such as Belgium, the Netherlands, Scandinavia and the U.K. There, viewers of digital TV, via cable and satellite, account for about 20 percent of the market, according to Knutsson. Forrester Research says that iTV revenue in the U.K. will hit around $14 billion by 2005.

European shows like ROFL are leading the way with innovative iTV programming. But eventually, America will have greater momentum. Research firm Jupiter Media Metrix predicts that iTV penetration in the U.S. will surpass that in Europe in the next few years — rising from 8 percent today to 43 percent of U.S. households by 2005. That compares with an average of 26 percent across all of Europe by 2005, according to Jupiter.

Both the U.S. and European markets will stay fragmented for some time, but for different reasons, says Jupiter analyst Lydia Loizides. "In the U.S., it will be a platform, middleware and coverage issue, while in Europe, which has heavier satellite penetration, it is split more by country, language and consumer behavior," Loizides says. "But the numbers are there for critical mass and now is the time to invest, because as the market matures, the costs of entry will rise."

Worldwide, a third of all households TVs will be digital by 2006, according to Ovum, a U.K. research company. Thats more than 350 million homes — and the number of digital customers using interactive services on their two-way TV sets will shoot up from 20 percent to more than 60 percent at the same time, Ovum says.

The Video Emporium

On top of these expanding digital networks is a growing range of interactive services, from todays popular applications — like simple electronic program guides and video-on-demand — to a rapid increase in Web access; direct viewer participation; access to local databases and shopping, called "t-commerce"; and a host of advanced video-based services. Ovum predicts that interactive service revenue worldwide will increase from $3 billion today to $107 billion by 2005, with pay-TV and t-commerce accounting for most of the business.

AOL Time Warner, Microsoft and a host of other media and technology companies are already preparing their stalls for the new market. Broadcasters around the world also want a piece of the action. In Spain, for example, Quiero Televisión plans to start digital broadcasting this year after winning the Spanish digital terrestrial broadcasting license, the third such European license so far after the U.K. and Sweden.

Cristina Meijide, content manager of Quieros interactive services department, plans services including online banking, forums, chat rooms and games. "We are also developing a shopping mall with recognized brands and shops," Meijide adds, "and were working on push services like impulse buying and integrating interactive services directly into entertainment channels."

ITV may well have enormous potential, but despite the scattered successes of shows like Danish Broadcastings ROFL there are still few precedents. It wont be easy for aspiring iTV players to get the right balance of technology, information and entertainment to make the new services work.

One of the most immediate issues for iTV is that Internet developers are accustomed to creating applications for one or two people at a distance of about 18 inches — not a roomful of viewers at 8 feet. TV producers, meanwhile, certainly know how to play to larger audiences, but theyre not used to throwing text all over the screen or, even more worrisome, providing the viewer with "options."

"Its going to be a clash of two very different industries: the Internet companies and the media broadcasters," says Katharina Grimme, senior analyst in digital media and e-services at Ovum. "They have different structures, approaches and objectives. Broadcasters tend to look at market audiences as a whole, while the Internet is more about customization and vertical strands."

Those who create iTV content will have to think on many levels at once, and the technological challenges could be significant. "What companies need to do is redesign the screen and adapt navigation so it is easy to do through a remote control," says Agencys Knutsson. "They must also appreciate that TV viewers want a much more TV-like experience behind the content, not just flat, textual information."

The way both Internet and TV creative communities design and deliver content on a screen is going to have to change in order to be successful.

"For a good revenue business model, you have to make programs available across the network — to niche broadcasters, personal video recorders and telecom [services]," says Mathew Horsman, research director at Investec Crosthwaite Securities in London.

So, after spending the last decade packaging information and services for the Web, and then adapting some simple parts for access from wireless mobile phones, are we now looking at going through the whole process again for iTV? Not necessarily — but there are no easy answers, Grimme says.

"Companies will certainly need to develop multi-access strategies to deliver their information and their services in the future," Grimme says. "Theyll have to present similar content on a range of different devices. But there are still lots of problems in integrating the different networks, and every device has its own characteristics and patterns of use. If content providers and portal operators dont realize this, then its simply not going to work."