As part of its year-end business coverage The New York Times (Dec. 31, 2001) asked the question: Will 2002 be the year interactive television (ITV) happens in the United States?
Don't hold your breath.
Articles asking this question have been a staple of the news media and the television trades for almost a generation. TV sets are nearly universal household items. Only the telephone is more ubiquitous. The limitless promise of viewers buying goods, services, data and what entertainment industries call "content" has enticed corporations with bottomless pockets to spend endless amounts of money in attempts to make television interactive. Men as savvy as AOLTimeWarner's retiring chairman Gerald Levin deployed ITV platforms that were applauded by Street analysts and promptly disappeared. (Remember Orlando? Warner Cable does.)
What's wrong with this picture? Why is the local reception so poor? Couch potatoes in France and the United Kingdom are happily interacting through television sets in large and growing numbers. John Malone is sufficiently convinced that Germans, Europe's largest and most affluent television market, can be persuaded to do likewise that his Liberty Media is placing a very large bet on German cable. Dr. Malone is the shrewdest media baron of our time, perhaps, as Wellington remarked of the first Napoleon's abilities as a general, of all time; his competitors are not fools. Yet if you live in America and want to interact with your television set this evening you are out of luck.
As the Times observes, there is a simple explanation: lack of demand. ITV is something Americans don't know they need. (Parenthetically, they do know they don't need another box cluttering up their PC-filled home, which is why digital set-top boxes have been comparatively slow to penetrate American households.) Higher ITV household penetration rates in Britain and France are the product of differing histories. Long before the Internet, primitive interactive platforms (teletext in the United Kingdom, minitel in France) conditioned these markets to interactive services: Today such services are part of daily life in these countries, things taken for granted. That didn't happen here. Then in 1995 American PCs connected to the Internet, pre-empting ITV's low-hanging fruit.
This points up a larger truth: The telecommunications map developed differently in different countries. Before the Internet there were no global single-standard two-way pipes. Every country laid its own pipes into the home--pipes of different dimensions, different capacities and different purposes, and kept by different and highly parochial gatekeepers. North America got cable, Europe got satellites, Japan got wireless coming and going. Where two-way communications are concerned it remains a Balkanized world.
Gambling is one of the European interactive services--a big one. British viewers can place bets through their television sets. In its first year on French ITV horse racing generated 61 million euros Pari Mutuel Urbain, the governmental off-track betting operation. Television Games Network (TVG), the U.S. interactive horse race betting service owned by Gemstar-TV Guide, handled $37.9 million in its first 18 months of operations, generating just $4.6 million for the racing industry and $2.4 million for TVG itself.
While TVG struggled offshore Internet casino and sports and race betting services were generating hundreds of millions of dollars in revenues from U.S. residents. Internet platforms operated by firms ranging from William Hill down to kitchen-table servers are running away with the interactive gambling market. Online gambling volumes are already well up in the billions annually and rising. More big companies--MGM Mirage, Kerry Packer's PBL Ltd., Ladbroke--are joining in.
But the game isn't over. The Internet gambling industry was founded by lightly capitalized entrepreneurs and is still predominantly comprised of small companies dependent on operating cash flows. Few of these companies have access to equity or debt markets; most of the ones that do encounter extortionate rates. Interactive television is big-company business. Companies smaller than Vivendi Universal, News Corporation, Liberty Media, Comcast, AOLTimeWarner and their global peers can’t even try to compete. Access to capital, the ability to buy or acquire subscribers, staying power and control of content are the keys that are unlocking the potential of interactive television.
ITV is where the real interactive money is, in gambling as in many other goods and services. As ITV companies become more dependent on gambling revenues they will buy or deploy Internet platforms of their own, just as TVG appears to be doing with its U.S.-based Internet competitor Youbet.com.
The American interactive television market may be slow to develop, but the tide will eventually run.
This article was originally published at CCA-i.Com on January 3, 2002. For additional info contact: Eugene Martin Christiansen, Chairman, Christiansen Capital Advisors, 212-779-9797, email@example.com.