Enhancing the digital experience
Spinning globes, 3-D graphics, full-motion video and a veritable wonderland of on-screen, interactive visuals are incenting MSOs, programmers and advertisers to expand their creative use of set-top software to reduce churn, generate fresh revenue and add value to the customer's digital "experience."
The whiz-bang, "ooh" and "ah" appeal of way-cool graphics now beginning to permeate the on-screen experience via interactive program guides (IPGs), electronic program guides (EPGs) and on-demand applications is not only changing the way TV viewers navigate the puzzling maze of digital channels, but is personalizing the relationship between customer and service provider, and could potentially lead to fresh revenue streams. That's the idea, at least.
The reality is that many in the industry are practicing function over form, particularly with the use of on-screen digital programming and interactive guides for on-demand content. Get customers to their favorite channels, smooth and fast. That's the navigational mantra of MSOs for digital and on-demand services.
Yet, while most experts readily admit to the function-over-form mentality, they also understand the sizzling potential of software, graphics and a compelling on-screen experience for viewers, even when simply squishing a few buttons to find content.
"The core reason for IPGs, EPGs and UIs (user interfaces) is managing the increased number of channels. Before they become too much of an advertising and branding tool, they must be functional. Utility comes first before revenue opportunities. That's the business model," says Bruce Leichtman, president and principal analyst for Leichtman Research Group Inc.
With the digital revenue stakes rising, however, that model is changing, evidenced by the expanding use of compelling graphics and efficient on-screen interactive applications now being counted on to drive customers to new content and services. "Guides are increasing in value as on-demand services grow. Now, they're essential in driving the whole on-demand category," Leichtman adds.
And it's a hot category. Digital households are expected to grow from 41 million today to 69 million by 2008, with interactive TV households growing from 20 million to 54 million. Meanwhile, the digital video recorder (DVR) market will climb to 44 million households (25 million cable, 17 million satellite) by 2008, reports a fresh study from Jupiter Research.
In addition, more than 85 million digital set-top boxes are in use worldwide, with the market expected to be worth $1.7 billion by 2007, reports In-Stat/MDR, a media research and information group and sister company to CED.
Those numbers, along with the potential revenue from new services and advertising, coupled with branding and merchandising possibilities and churn reduction, are getting the attention of MSOs, and elevating the value of on-screen navigational tools and the graphics and software that drive them.
"We've almost quadrupled the number of channels and titles. With all this new content, we must improve the navigational tools," says Mark Hess, vice president of digital television for Comcast Cable. "There are interesting new revenue possibilities like QVC-type sales and enhanced TV such as sports scores while watching another program, and we're thinking of those things. But most of our effort is toward on-demand TV and enhancing content value. Then we'll move to commerce and advertising."
Once that move is made by MSOs, there's no shortage of graphic and interactive software providers lining up to help.
"Churn reduction and upselling key content like SVOD and VOD are keys," insists Bow Rogers, CEO of MyDTV, a software technology company that provides personalized content distribution for digital cable. "People are in a 10- to 12-channel comfort zone, and operators want to expand that because they're paying for the channels. A 'smart agent' embedded in the guides has to be helpful to subscribers; then the revenue opportunities can be significant."
Initially, the revenue is expected to come from VOD, SVOD and upselling. Advertising is not expected to be a factor just yet.
"Advertising on guides hasn't proven to be terribly successful, and guide experiences are clunky and slow. We wanted to build an easier, faster, better IPG that will allow MSOs to merchandise, and for VOD users to self-provision movies right from the screen," says Ed Graczyk, director of marketing for Microsoft TV.
Microsoft's Foundation Edition and IPG platform will enter trials later this year in Seattle with Comcast. Time Warner Cable is on board to test the Microsoft TV IPG in Beaumont, Texas.
Clunky and slow IPGs and EPGs are out. Zippy, simple navigational tools, cool graphics and smooth interfaces are in, especially when on-screen guides are expected to generate revenue.
"Operators aren't seeing the revenue from IPGs and are looking at guides to drive revenue for new release VOD movies, HBO and other content," says Ian Aaron, president of Gemstar-TV Guide International's TV Group. "How does a guide drive more advertising and programming revenue and from other services like PVR, DVR, cable modems? Clearly, the next opportunity is personalization with the subscriber, and operators love that, but how do you monetize it? It's really all about driving people to VOD, promos and new shows."
Gemstar, the leading IPG provider in the U.S., currently markets its Tan legacy guide and next-generation Blue guide. In December, the company will introduce its "best-in-class" product, i-Guide.
Driving VOD usage is paramount, experts insist, and customized, personalized on-screen guides and promos are crucial for its success.
"The on-screen experience is the key to VOD and it's getting more interesting how people use the guides. More than 40 percent of the people use them. That's sticky," says Bruce Kasrel, director of product marketing for SeaChange International. The next step, Kasrel adds, is a specific VOD guide such as VODlink, the company's on-demand guide.
"Networks have a certain look and feel and VOD must have that construct and texture to it," he says. "We want to create destination VOD, and that can't be handled by straight-up guides. We've gone beyond the business proposition to reality and software is the proposition now."
The on-screen guide experience is morphing into more than just a brief moment in time, however. Branding opportunities for MSOs and advertisers are also on the horizon, along with T-commerce.
"On-screen branding for MSOs is very important, and we're learning what operators are looking for and the set-top box capabilities," says Barbara Needleman, vice president of entertainment products for Tribune Media Services. "Our acquisition of iSurfTV and its 3-D based technology will really enhance a guide experience and we want to take that technology to the next level. We're hiring a great team of engineers for future capabilities."
Those capabilities include a more compelling on-screen look. Adds Needleman: "Operators will use the guides to market digital services and help people navigate channel lineups, but that doesn't mean it can't be an exciting, graphically enhancing experience. We should use this very highly visible medium."
Indeed, traditional guides haven't exactly kept up with the perceived "digital experience," especially graphically. "Cable hasn't had a good on-screen guide to navigate digital channels. Now, DVR, VOD and HD are emerging and branding makes it even more valuable. It needs a good on-screen experience," maintains Peter Kellogg-Smith, vice president of product marketing for Digeo Inc., designer of a line of media center products and the Moxi iTV software platform.
Hess concurs. "If you're in an IPG, you should get previews of shows and more ways to find content. It's really about enhancing a customer's experience, so we are always looking at the technology to robustly improve graphics and resolution, but from an ROI (return on investment) standpoint, there's a fine line between graphics and functionality," he says.
Fine line or not, some software/guide companies are pressing ahead with on-screen graphics and technologies designed to wow MSOs, programmers and advertisers. "Guide experiences have been flat and uninteresting, so we've incorporated full-motion video on IPGs which will allow 15 to 20 second spots promoting cable and on-demand content. It reclaims the guide as a video-centric experience and a reminder that cable's digital package has great value," explains Terri Swartz, vice president of product marketing for TVGateway LLC, an IPG maker/consortium that counts among its MSO backers Adelphia Communications, Comcast, Cox Communications and Charter Communications.
The company recently released its TVGateway 2.0 full-motion video product. Though Swartz admits that eccentric graphics and spinning globes aren't likely to be the routine on-screen experience anytime soon, the on-screen guide sector is definitely shedding its slow, uninteresting tag.
"We're moving away from slide shows to HD, VOD, SVOD, DVR and local content that reports emotional and psychological links to customers, and to personalization features not unlike a Web-like experience. That's where our resources are being spent," she concludes.
Most believe the money spent to graphically enhance the IPGs, EPGs and UIs will produce revenue down the road, but not immediately.
"There are lots of new revenue models that haven't been tapped yet," says Ed Forman, senior vice president of marketing for ICTV Inc., maker of the HeadendWare iTV platform for thin-client set-tops. "We're talking about how people interact with their TVs, advertising in the background, gaming and more. It's a revenue model waiting to happen, but for enhanced TV, overlays on screens, etc., I think we're a ways away from that."
The revenue model for MSOs and programmers may be at hand, however. At least, it had better be.
"Wall Street wants profitability and growth. That's the new mantra. But you can only cut costs so far before you have to show profitability and growth, and revenue must come from new services, and that's where IPGs can help drive revenues," maintains Gerry Kaufhold, principal analyst for converging markets and technology for
In-Stat/MDR. "There's great opportunity for upscale graphics and room for cool graphics, so whatever MSOs can do to make it a customer preferred service, they're all for."
With those opportunities come challenges and pressures for IPG providers to develop and integrate their software and graphics into the puzzling and disparate labyrinth of cable networks and legacy systems.
"There's lots of pressure on us to develop software to keep up with new releases like DVR, while on-screen guides and graphics are certainly evolving. Our whole focus is with cable, and Passport (a digital cable IPG) is our software business," says Neil Jones, senior vice president of Pioneer digital technologies group.
For companies such as Gemstar, transitioning from a standard IPG to a new era guide has its own unique pressures. Admits Aaron: "The guide business is only getting more difficult. The guide has to work on dozens of different set-tops with different features and software, so you need lots of resources and experience to cut across multiple boxes. So, we're looking at future services like a 'smart box' which talks about the top five channels people are watching and personalizing the guides. The perception of Gemstar is changing."
And so is the perception of on-screen guides. Says Graczyk of Microsoft TV: "We're seeing the creation of point-of-purchase capabilities, which you don't have with hierarchical guides, and driving viewers to movies during day parts, not just weekends. The biggest priority now is driving revenue, but you can't get too whizzy with the graphics. The guides must be presented in a nice, fast way."
And comfortably, maintains Rogers of MyDTV. "A smart agent finds things you enjoy. That's how we'll get people to feel comfortable. They can use a remote and squirt in preferences through a default tree in the software. And, we put up an on-screen alert to list what's coming on."
What's coming on next for IPG and related software providers is likely to be a full-throttle drive to enhance the on-screen graphics and interactive capabilities to drive viewers to VOD, gaming and DVR services, all currently or scheduled to be in the revenue mix at some point. And, with the branding and advertising potential of "storefront" graphics and messages, software is certainly a key ingredient.
In the meantime, trials abound for on-screen guides replete with personalization, customization features and a galaxy full of graphical and imagery magic.
Concludes Leichtman: "With 20 million digital households and growing, clearly, there's revenue potential from IPGs and on-demand guides. But they must be unobtrusive, because if they're overloaded with advertising, promotions and branding, that's not a good model. However, they must keep pace with customer expectations, and today, generic graphics just won't fly. They must be compelling."