Study: Interactive TV Won't Find Success on the Web

The PC will not be successful as a hub for watching interactive video, and business ventures based on selling movies over the Internet are destined to fizzle out before they begin, according to a Jupiter Media Metrix (Nasdaq: JMXI) study released Thursday.

Only 11 percent of consumers surveyed by Jupiter said they would be interested in viewing movies online, mainly because they thought Internet connections were simply too slow to watch videos.

Consumer aversion to watching interactive TV over the Web may change down the road, Jupiter analyst Lydia Loizides told the E-Commerce Times. At this time, however, consumers "want something where they can sit and relax and enjoy" videos, rather than merely view them over a PC, Loizides said.

"As you look into the future, what becomes more interesting is some type of home media server" that would connect to the Internet and distribute programming to different devices in the home, Loizides said.

TV's Promise

By contrast, for those in the TV industry, the market for video on demand (VOD) is growing, Jupiter said. Among online consumers surveyed for the report, 28 percent said they would be interested in ordering movies or other first-run events to watch on their TV sets. Jupiter estimates the market for such services will total US$642 million by 2006.

Jupiter said motion-picture studios should work with cable and satellite TV operators, as well as "potential content distributors" like iNDemand, Starz Encore and Intertainer.

In the meantime, Loizides said the movie-rental business has nothing to fear. According to Jupiter, VCRs have three times the market penetration of premium cable services.

Moreover, only 9 percent of the consumers surveyed for the report said they expect to purchase or upgrade cable services over the next year. Eight percent said they will upgrade their VCRs or buy new ones, and 16 percent will buy new or better DVD players.

No Threat to VCRs

"The industry heralded VOD as the entertainment technology that would unseat the VCR from the home and obliterate the video rental market," Loizides said. "That's unrealistic."

On the other hand, the report found, consumers who currently use their cable or satellite companies' pay-per-view services are likely to turn to VOD if it becomes available.

"The greatest value lies in shifting the pay-per-view audience to VOD and generating incremental revenues," Loizides said.

"Studios, operators, cable networks and the rental market must prepare to counter the effects, both positive and negative, of VOD on their businesses," she added. "Failure to do this will result in another blow to the advancement of interactive television."

Consumers Want More

Right now, these companies are not doing all they can to give consumers what they want, according to the Jupiter survey. While 45 percent of the Internet users surveyed said they rent videos at least once a month, only 6 percent order pay-per-view movies or events during a given month.

"There is opportunity for content owners to create a new, incremental VOD channel around the pay-per-view and rental window while off-loading the customer-acquisition and capital-investment costs onto the operator," said Loizides. "Studios should directly cut deals with operators and other distribution partners, such as HBO and Blockbuster, and become their own distributors."

However, cable and satellite companies will need to improve customer service to deal with the increased business, she added.

Changing Market

Just how quickly the VOD market evolves depends on factors such as how the infrastructure is set up, who owns the assets, and the precise nature of consumer demand, the report found. Consumer demand will develop as customers become more educated about the advantages of VOD.

"It's really up to the operators to instill the virtue of the service," Loizides said.