Chapter 5
Understanding the Development of the Market for Interactive Services to the Home

This previous chapter has provided a number of examples of the types of interactive learning services that are beginning to emerge through the use of digital broadcasting services. However development of the market for digital TV interactive learning services in Europe is very much dependent upon the development of the broader market for interactive services to the home.

This chapter aims to provide some observations and trends for the development of this broader market in terms of: -

5.1 Some trends and observations

Uptake of interactive services via computer predicted to continue for the foreseeable future

Although most European households have access to a television as the table (Figure 5.1) below shows, uptake of interactive services is only just beginning to develop.

Figure 5.1 Household appliances - % in European homes (Source Ethos )

Household appliance

Percentage of European homes

Telephone

90.7

Television

98.2

Cable Television

43.4

Satellite Television

13.7

Video Recorder

61.1

Personal Computer

27.7

Video Games

17.2

 

Uptake of interactive services via a computer is greater despite only just over 25% of European households having a computer. This is confirmed by a report by Datamonitor who predicts that this will continue for the foreseeable future with the growth in online-enabled computer households starting to reach its peak by 2002.

However, Datamonitor considers that the computer will remain the dominant platform for residential access to interactive services partly due to the higher current installed base of computer/modem households and partly due to the sluggish development and up-take of digital TV offerings in Europe. By the end of 2002, there will be 40 million online-enabled PC households in Europe, compared to 15 million households with digital set-top boxes. (Figure 5.2)

Figure 5.2

 

Datamonitor considers that there will be regional preferences for using either the computer or the TV as an interactive service retrieval device that will influence the business opportunities for device vendors. As the Figure 5.3 shows, France, Spain and Italy will be TV-focused, with more interactive TV households than PC ones. The PC as a consumer interactive device will dominate in the German-speaking markets. The UK, along with Sweden, will show a high penetration of both interactive technologies. This has implications for those considering developing interactive learning services.

Figure 5.3

Spreading the risk

It is very important to have some understanding of the dynamics of the market place for digital broadcasting technologies. With the exception of demand for high-speed access to the Internet, the home consumer is not demanding interactive TV services. Suppliers have to create new markets for such services and create a critical mass of early adopters before they can create a secure foothold in the market. Therefore all key players entering the market place through a number of different channels in order to spread the risk to themselves. This is resulting in a number of key players with a recognised brand name for one sector in this market place also investing in other sectors, which they may have once considered as competitors. For example:

In fact this is also linked up with the wider developments of convergence between the TV and the PC in the home as well as the development of mobile communications. Many companies are now considered to be integrated communications companies. It is very important for education and training providers not to "badge" or typecast a company or organisation as just providing one type of delivery mechanism.

Data broadcasting separate from digital TV

Providers of "satellite direct to PC" type services have largely operated as a separate market from that for the development of digital TV services. This is mainly because they have tended to offer their services to businesses although they are increasingly focusing on the home consumer with so-called "turbo Internet" type services. Curiously in Europe they have tended not to join forces with those offering digital TV services, which is particularly odd since both require similar equipment and both sectors could gain from each other's services. One factor may have been because "satellite to PC" services to the home has tended to be a very niche market compared to the Digital TV market. Providers of Digital TV services would also have their plans for offering interactive services including Internet services. However, in the United States some operators are starting to co-operate together - some like Hughes even offer both types of service - and there are signs that this may happen in Europe.

Broadcasters act as gatekeepers

Broadcasters are the prime gatekeepers of interactive TV services to the home. As they have done with traditional television they want to control what the user has access to as well as the quality of the services on offer and the development of these services. This clearly differs from access to interactive services on the web where the user has been actively involved in the innovation process as the services develop and evolve. This is may be a critical factor in the market uptake of interactive broadcasting services in general and could impact, adversely, on the development of learning services.

Dominant Internet players will emerge and compete with broadcasters

According to Strategy Analytics, by the new millennium most of the World's leading Internet players will have merged with complementary vendors in adjacent positions in the industry value chain - resulting in large dominant players. This process is also likely to involve web content providers who may eventually start to seek other channels through which to make their content available. The TV is a key possibility as there already are a number of offerings on viewing the web via a TV. Services that many European broadcasters are expecting to offer for free.

Interactive services predicted to be available to 25% of European and US households by 2003

A Datamonitor report also predicts that by 2003, service providers will be able to offer interactive services such as e-mail, interactive shopping and banking and web access via the TV set to one in four households in Europe and the United States. With television penetration close to 100% in Western Europe and the US, Datamonitor considers that the market for interactive TV will grow at a rate of 45% over the next five years, generating attractive revenue opportunities for the digital television and Internet industries. By 2003, more than 67 million households in Europe and the US (Figures 5.4 & 5.5) will be able to use interactive TV services including e-mail, interactive commerce and games. Although interactive digital TV services will be mainly exclusive, "gatekeepered" services, run by broadcasters and specialist service providers, in the short-to-medium term, Datamonitor expects unrestricted TV-based Web access in Europe and the US to increase from 790,000 households in 1998 to 10.9 million in 2003. The total user base of interactive TV services, including digital TV and dedicated Internet ones, will be largest in the US, followed by the UK and France.

 

Figure 5.4 Total interactive set-top box installed base in Europe and the US 1998-2003

000s

1998

1999

2000

2001

2002

2003

Dedicated STB

800

1,400

2,300

3,500

4,900

6,300

Interactive digital STB

9,500

16,700

26,500

37,700

48,400

60,800

Total

10,300

18,100

28,800

41,200

53,300

67,100

 

However, the strongest growth will be seen in the southern European countries such as Spain and Italy. This may have something to do with a lower penetration of computers per household.

Interactive services will become an essential feature of digital TV services from broadcasters, in particular digital cable TV operators, to attract more subscribers, and to establish a new source of differentiation and income. They will form part of television subscription packages and reach consumers as a bundled service together with television programmes. In contrast, dedicated Internet TV services have to be viable stand-alone.

Figure 5.5

The interactive digital set-top box will dominate the interactive TV market. By 2003, Datamonitor estimates an installed base of 61 million in Europe and the US, almost ten times bigger than the dedicated Internet set-top box installed base (6.3 million).

The success of dedicated Internet TV services will rely on the backing of major ISPs, such as T-Online and AOL, and content providers (e.g. banks, retailers). In the medium-to-long term increasing competition from large digital TV broadcasters will limit their growth which will peak in 2002 as the market approaches saturation.

According to Datamonitor, with increasing Web access and other interactive features offered through digital TV services, the dedicated Internet set-top box will lose market share and its functionality will migrate into the digital TV set-top box in the long term.

European consumers' use of digital TV is rising faster than in the United States

European households have access to interactive services via a computer and will increasingly have access to them via a television. According to research by Jupiter, European consumers' use of digital TV is rising faster than their US counterparts - interactive services will reach over 19% of households in the UK, 28% in Sweden, and 12% in France by 2002 (See Figure 5.6). The research also found that 33% of UK households and 29% of French households (See Figure 5.7) are willing to pay for interactivity on their television sets, services that many European broadcasters are expecting to offer for free.

European market more diverse than US

Currently nearly half of European households have cable television (both analogue and digital). Digital cable networks technically offer the best solution for broadband interactive services. But only a small percentage of European households have digital cable networks and many cable companies have still to incur major costs to upgrade their analogue networks. However, the country by country survey in chapter 3 has shown that this upgrading is happening in many European countries. A Datamonitor study predicts that by 2003 there will be 7.2 million cable, 17.4 million satellite, and 5.1 million terrestrial digital set-top boxes in Europe. (Note this is different from enabled households, as some set-top boxes will not be connected for interactivity) (Figure 5.8)

Datamonitor considers that while the US remains dominated by cable distribution, the European market is more diverse. Owing to the speed to market of satellite services, satellite set-top boxes accounted for over 95% of the digital installed base in 1997. Digital services are rolling out steadily on cable networks, while digital terrestrial launches are lagging behind.

 

European digital satellite set-top box installed base predicted to increase to 17.4 million in 2003

The digital satellite set-top box installed base in Europe will grow from 1.1 million in 1997 to 17.4 million in 2003. (See Figure 5.9) Growth will be strongest in the UK, France, Italy and Spain, where digital pay-TV operators such as BSkyB, Canal Satellite, Tele+ and Via Digital have appealing content packages.

 

European digital cable set-top box installed base predicted to increase to 7.2 million in 2003

Datamonitor predicts the digital cable set-top box installed base in Europe will grow from 70,000 in 1997 to 7.2 million in 2003. (Figure 5.10) Operators will quickly convert the current installed base of analogue set-top boxes to digital ones, but growth will be retarded by the underdeveloped cable pay-TV sectors in countries such as Germany, the Netherlands and Austria.

 

 

Digital terrestrial set-top box installed base predicted to increase to 5.1 million in 2003

For the digital terrestrial set-top box installed base, this will increase from 50,000 in 1998, to 5.1 million in 2003. (Figure 5.11). Datamonitor considers that UK and Sweden are leading digital terrestrial television (DTT) service provision, with a commercial service in the UK from ONdigital and a public service one in Sweden. Uptake will be strongest in the UK and Spain where set-top boxes will be subsidised.

 

 

A demand for video-on-demand services

Some evidence is emerging that there is a demand for video-on-demand services through digital TV.

Although not a particularly scientific survey ZDNet's Web site has been conducting an online survey relating to functions most wanted from a convergence device. The results as of 12 May 1999 (Figure 5.11) showed that over one third of respondents wanted video-on-demand. The ability to pause, rewind or fast-forward a program was demanded by another quarter of respondents. This may seem to suggest that there is a possible mismatch between the "wants" of end users and what can be offered at present.

Figure 5.11 Which of these five functions do you most want from a convergence device?

Surf the Internet over your TV

661

21%

View video-on-demand

2930

38%

Pause, rewind or fast-forward a program

1925

25%

Watch TV with a wraparound Web page

606

8%

Access an electronic program guide

653

8%

 

Microsoft's WebTV small-scale trial in the UK involving 115 household has also found that 73% wanted video-on-demand services.

Footnotes

  1. "Interactive Television Report", Ethos, November 1998
  2. "Consumer interactive services in Europe to 2002", Datamonitor Report, December 1998 - taken from Press Release "There will be 55 million interactive services households in Europe by the end of 2002", 14 September 1998
  3. Stewart, James, August 1998
  4. "Mergers within the Internet Industry Value Chain: Strategies for Success", Report by Strategy Analytics - information based on Press Release, 5 May 1999: http://www.strategyanalytics.com
  5. Datamonitor Press Release "Interactive digital television services in Europe and the US in 2003", 10 May 1999 - referring to report "Interactive TV markets in Europe and the US, 1998-2003"
  6. Datamonitor Press Release "Interactive digital television services in Europe and the US in 2003", 10 May 1999 referring to report "Interactive TV markets in Europe and the US, 1998-2003"
  7. Press Release from Jupiter, 27 October 1998
  8. "Set-top Markets in Europe and the US: profit opportunities in digital television", Datamonitor Report December 1998, taken from press release "Installed based of digital set-top boxes in Europe to reach 30 million in 2003", 14 December 1998. See http://www.datamonitor.com/dmhtml/dm/dmwtsnew.htm
  9. "Set-top Markets in Europe and the US: profit opportunities in digital television", Datamonitor Report December 1998 - taken from press release "Installed based of digital set-top boxes in Europe to reach 30 million in 2003" 14 December 1998: see http://www.datamonitor.com/dmhtml/dm/dmwtsnew.htm
  10. The web site where this could be found is at http://cgi.zdnet.com/zdpoll/question.html?pollid=12167&action=a Note the results are changing each time someone votes.
  11. Quoted in presentation given by Sharon Baylay, Microsoft TV, UK Manager on 15 July 1999.