Interactive TV: Progress on Billing and Shared Revenue

Although not picked up after its debut in the mid-1990s, interactive TV has returned with an improved supporting cast. It could be next season’s hit if multiple system operators (MSOs) can unravel future revenue strategies and integration snags.

Interactive TV, for some viewers, is a contradiction in terms. The demands of pull technology from a relaxing horizontal position seem excessive. Since many TV watchers have a hard time even making it to the refrigerator between shows, tracking down a credit card number to make a purchase or clicking on a Web site “for additional information” during shows is difficult to imagine. But legions of believers discount this viewing habit as insignificant.

America Online, AT&T and Cox Communications have all announced interactive TV trials. AOLTV and AT&T launched services this summer, and Cox Communications has scheduled a launch for later this year. These new services are available to subscribers in specific regions and metropolitan areas at an additional monthly cost. Although the first planned revenue stream is flat-fee subscriptions, interactive activists envision a lucrative future encompassing shared revenue, on-site purchases and advertising opportunities.

A major obstacle for the plans, though, is the conspicuous lack of successful, tried-and true business models. Carriers hesitate to discuss future service offerings for two main reasons. The first is that the services haven’t been completely defined. At this early stage, at least three different types of services are being touted as “interactive TV”: video on demand (VOD), video replay technology, and Internet over TV (see sidebar, “The Interactive TV Grab Bag,” for an overview of these current and future services). The second reason is that carriers don’t want to tip their hand to competitors.

For these new offerings, cable operators are bringing some new players into the supply chain. They are looking to these suppliers and forward-thinking traditional providers to help them provision, enable and bill for interactive TV.

Positioning for Interactive TV

Almost four years ago, when cable operator Time Warner first tested the interactive TV waters—offering services such as home shopping and banking—it contracted with Convergys to supply the billing. Convergys will also provide the billing for its new video-on-demand offering.

“VOD is a significant step forward for carriers,” says Curt Champion, director of cable and broadband marketing at Convergys. “Operators are familiar with transaction-based services like pay-per-view, which groups transactions together by a predetermined time and cost, with basic authorization and basic fulfillment, but VOD has considerably more requirements.”

Because subscribers can’t be bundled together for VOD, each customer has a unique session on the server. In some instances, a customer may have multiple authorizations, or PINs (personal identification numbers), that require additional security. These authorizations are often established on the billing system. For instance, a family may have a master PIN for the head of the household and additional PINs for children. The children’s PINs would have restrictions associated with them, such as viewing privileges or spending limits.

In the case of Time Warner, CSRs will use a viewer profile to set up any number of PINs with charging limits, security profiles, rating restrictions, and so on, which the module shares with the VOD server and other network devices.

Convergys uses a standard API to move customer transactions from the provisioning software to the billing system. The API is written in RGP3 and has multiple interface points. The billing provider can also write interfaces for CORBA or any other native language used by the proprietary system. “If we’re gathering transactions from unknown devices, we use a CORBA interface,” says Champion. “Typically, companies provide a semi-proprietary interface that opens up and allows standard calls.”

Internet over TV

DST Innovis is one company currently addressing Internet over TV. The billing provider has developed technology that recognizes when customers turn the Internet service on or off, and captures online transactions. As advertisers begin recognizing these new ordering portals, it is expected that cable operators will demand a percentage of the transaction revenues.

“No one has decided who will own the transactions, and operators are hesitant to take on transactions in these early trials,” says Bob McKenzie, senior vice president of strategic marketing at DST Innovis. “I suspect MSOs will commit to taking transactions in the near future.” In this case the MSO would bill for the transaction and be responsible for seeking payment.

DST Innovis uses APIs in XML to interface with the e-commerce site. Its rules-based rating engine records when the service is turned on and off and the goods purchased, and then transfers the data to its billing system. Depending on how many services the operator offered, subscribers could receive a single bill for cable service, phone service, Internet service, interactive service and the goods purchased. DST Innovis has already created these interfaces to Microsoft’s TV platform (MSTV). MSTV is partnering its client/server technology and the set-top box with DST’s billing server.

To gather output for one bill, DST may have to pull together records from separate billing systems, transaction records and usage records using mediation software and data collection software. Its biggest challenge is to integrate its system with all the various players’ systems. The set-top box market alone has more than 40 companies and no standard interfaces. As new services bring more providers into the supply chain, integration will only become more complicated.

“There can be any number of partners, and they all have unique interface requirements,” says Craig Hanson, CTO at DST Innovis. “If we adopted standards, it could make things simpler. We don’t want to create specific interfaces for 500 different services. We want to be able to turn it on and turn it off and have the mediation software or provisioning system make the translation.”

Newcomers Enter the Field

Convergys, CSG and DST Innovis, as well as the cable operators, are turning to new suppliers to enable the interactive services. Wink Communications, Commerce.TV, Liberate and WorldGate are some of the new players hoping to become indispensable. These companies are developing tools for operators that allow viewers to interact with the TV. With an enhanced set-top box, viewers can click on a Web site or advertising promotion created specifically for the interactive TV network. They can also access other sites on the Internet, but the advertiser’s goal with the interactive content is to return the viewers to the broadcast or have them remain on the advertiser’s site.

For now, these suppliers offer systems that allow viewers’ transactions to bypass the operators’ billing systems and work directly with the advertisers. Billing developers have been discussing how they can integrate their systems with the interactive devices to garner revenue on a per transaction or percentage basis.

One of the interactive TV providers, Wink Communications, has developed ICAP (Interactive Communicating Application Protocol), which enables older set-top boxes and TVs to use a browser and HTML. The set-top box uses this protocol to broadcast the interactive content. Wink offers authoring tools, a broadcast server, client software and a response server. Combined, these tools allow viewers to interact with advertising or programming content. An onscreen icon alerts viewers that the show or advertisement carries additional online content, such as sports scores, advertising offers or promotions. Time Warner, Cox, AT&T, Insight, Charter and Comcast have chosen Wink to provide Internet over TV advertising opportunities. If hordes of consumers begin ordering from advertisers’ interactive TV sites, then another layer of transaction middleware will be necessary. Attempting to solve this problem is Commerce.TV’s Commerce Control Network. Using distributed databases, this nationwide network combines product information with television schedules and local channel lineups to present targeted purchasing and advertising opportunities. The network aggregates orders nationally and forwards them to merchants using a standard, two-way XML interface. Insight Communications has signed on as Commerce.TV’s first cable operator. In addition to Commerce.TV and Wink, Insight is using Liberate’s client and server software. This middleware gives consumers access to network operator-branded applications and services, and television programmers are using it to develop Internet content. AOL, Cox, Comcast, MediaOne, Cable and Wireless, and a number of other providers are using Liberate to offer consumers interactive applications.

Worldgate, another contender, delivers Internet service over analog cable using the vertical blanking interval (VBI). Worldgate allows subscribers to connect directly to a Web site associated with a TV show or commercial. Advertisers and carriers can easily track viewers who use the interactive content by reading the server logins. Once viewers leave the advertiser’s site, though, it is impossible follow their path.

The Advance Troops Prepare

The new players serve up the typical interface challenges for billing providers. More devices at the head-end mean additional development work for the billing companies. In many cases, as well, these startups have developed proprietary technology on devices that will need to interface with the billing systems.

As carriers add interactive TV services, they will need additional equipment to compress data sent to the broadband plant, and set-top boxes will require more advanced controllers to send provisioning requests, receive records, and handle errors. “We will have to be prepared and willing to gather data from any number of new devices,” says Convergys’ Champion.

Even with these impending obstacles, Cox Communications remains undaunted. Scott Hatfield, senior vice president and CIO at Cox, foresees a mixture of subscription- and transaction-oriented revenue. To track the transactions, Hatfield knows Cox will have to impose some device or software on the server that will monitor the transactions as they go by, or a device that will track and record the transaction traffic.

“The system should work similar to long distance or pay-per-view, where the activity is kept on a switch. The billing system can pull the data, rate it, and post the activity to the user’s account,” says Hatfield. “For interactive TV, we will have another box, the Web server, that will monitor packet flow, and we could poll it at whatever frequency and rate or price. The concept of external devices that forward data to the billing system is hardly foreign.”

What could pose problems, however, is the diversion of multiple revenue streams to advertisers and middleware providers. For those business models, carriers will need multiple accounts receivable. “Every service could have an account receivable, or they could be rolled by product type,” says Convergys’ Champion. “These multiple accounts would allow operators to split revenues with advertisers and direct shares away from some revenue streams.”

Interactive TV’s Second Season

This rebirth of interactive TV isn’t being marketed as an alternative path to the Internet. The players are intent on keeping the television audience. By luring viewers to content and advertising hosted on their own Web servers, cable operators keep potential buyers away from all the distractions on the Internet. This strategy augments the proven revenue model of targeted advertising, and it reduces potential billing complications by confining transactions and usage records to the operator’s network.

The new players’ tools synchronize Web content with advertising and television promotions. This content is not designed to send viewers into the open Internet, but direct them to specific material and return them to their favorite TV show.

For this strategy to work, though, Cox and its competitors will have to improve the content that they host. “When the subscriber escapes your recommended content, it becomes difficult to capture possible revenue. We will concentrate on higher quality content that we organize and promote,” says Hatfield.

Sidebar: The Interactive TV Grab Bag

Since interactive TV is in its infancy, the term is still a catchall phrase that encompasses any two-way action over a cable system. In this early stage of its development, carriers are contemplating three interactive services: video-on-demand (VOD), replay, and Internet over TV.

Video-on demand. Unlike pay-per-view systems, VOD servers can hold hundreds of videos that will be available at any time during the day. The technology for this service is already available, and it is being tested by carriers such as Time-Warner.

The flexible nature of VOD challenges provisioning and billing systems. Unbundling the video service requires users to open a session on a server that authorizes their account when they log on using a PIN, phone number, credit card or other recognized user ID. The subscriber information and order is then passed to the billing system. Multiple PINs, viewing restrictions for children, security and prepaid limits are a few of the issues facing carriers.

Replay. Some carriers are leasing or selling set-top boxes from companies such as Tivo and ReplayTV. Using these devices, consumers can store up to 30 hours of television on the hard drive, which they can view at their leisure. Some operators are charging consumers usage-based fees, while others charge flat monthly rates.

Subscriptions are one revenue stream, but carriers expect to add advertising. Advertisers are interested in prime space on the interface that viewers use as they choose their shows to download. What people are viewing is also of interest to the advertisers, because they can use the information to target specific demographics for marketing campaigns. As advertisers wait for the replay boxes to gain a following, carriers are creating and purchasing tools that will simplify provisioning, compile and analyze customer viewing habits, and make individual viewer recommendations.

Internet over TV. Of all the planned services, Internet over TV offers the widest and most diverse options for revenue sharing. Carriers are partnering with companies such as Wink Communications, Commerce.TV, Worldgate, ICTV and iMagicTV to combine the Internet with TV. Online shopping, access fees and advertising are a few of the potential revenue strategies.

Before these business models materialize, however, carriers must make some hard decisions. Online shopping has many facets—order tracking, fulfillment, delivery, billing, and so on. A company may want to pass the billing aspect to the carrier, but for what price? What will it be worth for a carrier to open up its network? And as consumers move from the TV to a sponsored Web site, will advertisers pay carriers for the new eyeballs? Will they pay per eyeball, share a percentage of the purchases, or pay flat monthly sponsorship rates?

The strategies may be unclear now, but you can expect that marketing and business development heads will work them out. “There isn’t a technological hurdle that must be jumped,” says Keith Kennebeck, an analyst covering the cable market for Strategis. “The industry just has to figure out how and who will be billed.”

There isn’t a technological hurdle that must be jumped, the industry just has to figure out how and who will be billed. --Keith Kennebeck, Strategis

“No one has decided who will own the transactions, and operators are hesitant to take on transactions in these early trials.” Bob McKenzie, DST Innovis