Typically, when someone throws a bucket of cold water and ice over your head, you’ve just won the Super Bowl. Such is not the case with cable and IPTV providers who were told this week by Yankee Group senior analyst Daniel Taylor to start facing the facts about their ability to provide interactivity. One fact is that their inability to do so is causing them to lose billions of dollars of advertising revenue to ISPs.
And when people say, “It doesn’t get any better than this,” they typically mean things are pretty swell. But when Taylor said it in his report, The High-Water Mark for Interactive Cable, he meant it literally – cable companies’ ability to provide interactivity won’t get any better.
“Interactive television will remain well beyond their grasp for years to come,” Taylor said.
And without interactive television, there are no interactive advertisements. Together cable television and IPTV operators still can capture $3.8 billion in ad revenue in the U.S. by the year 2012. That’s significant, but it is a small slice of the $294 billion currently available, according to the December 2007 Universal McCann Insider’s Report.
Taylor said cable companies in particular need to stop promising interactivity, but that both telco and cable providers need to get a handle on where they fit in this marketplace.
The bottom line is that cable companies will only reach 45 percent of U.S. households in the next five years with digital service. Broadband Internet already reaches three out of four households. In addition, ISPs don’t need to invest in advertising infrastructure, but it would cost cable providers billions to upgrade their digital head ends to provide interactive television and advertising.
“By the time cable and IPTV operators will be able to deliver interactivity to a large enough number of households, content owners and advertisers will have already made long-term interactive platform investments online,” Taylor said. “You’re talking about billions of dollars to upgrade, but we’re probably not going to see tens of billions coming out of it. The best case scenario is a break-even proposition,” Taylor said.
Besides the cost of infrastructure, the world simply is changing around broadcast television providers. The ratings game has changed – it now measures the number of people actually watching advertisements. Viewing habits have changed, including time-shifted viewing thanks to the use of DVRs. And the demand for targeted ads has increased dramatically.
