Interactive television is about to go through a key period in the United Kingdom, with most of the innovation likely to take place on BSkyB’s satellite platform. In its most recent results, BSkyB gained GBP81 million ($157 million) in interactive revenues in the quarter ending September 2004, so it is a vital part of the business. Of this GBP81 million, GBP59 million ($114.4 million) came from SkyBet, its interactive betting service.

At this stage, BSkyB’s interactive services far outweigh the alternatives on cable. Ian Shepherd, managing director of Sky Interactive said, “We have hundreds of millions of pounds of interactive revenues in the Sky business already. We are the largest interactive business in the world. We are very proud of the fact that, not only because of what we do, but also because of the interactivity that exists elsewhere on the portal, the digital satellite platform is very well-differentiated against other platforms in the United Kingdom in terms of having rich interactivity for people to use.”

Shepherd is a firm believer that interactive services are a key factor, not just in boosting revenues, but enhancing the overall proposition of digital satellite platform. He said, “There is no question that the volume of interactions going on, on the satellite platform, the proportion of customers using interactivity on a satellite platform, and the numbers of hours of television programming being enriched by interactivity have all dramatically increased. We are very proud of what we have done in Sky Interactive with our own businesses to try and innovate in that area.

Sheperd added, “We are also very proud in what we have done to help other TV channels. We are partners with ITV, Channel 4 and Cartoon Network and we are behind them somewhere, helping some aspect of their interactive technology. We have done that deliberately for two reasons. Firstly, it is a good business for us in our own right and secondly it is very positive for the satellite platform that there is so much going on.”

BSkyB takes interactive services very seriously. At this stage, it pretty much offers a blueprint to other satellite pay-TV operators globally in terms of running interactive services. It is now aiming to take interactive services to the next stage. It has just announced a dramatic relaunch of its interactive services portal as it bids to make interactive services a staple part of the viewers’ day.

In addition, BSkyB is bringing a more televisual element to its interactive approach with a lot more video content behind the services. It is creating a magazine-style channel that offers on-demand entertainment and information. What this means is that boundaries between traditional linear television and interactive applications are blurring. “What we are seeing is that just as television channels are trying to add interactivity to their broadcasts, what we are trying to do is add television to the traditional interactive portal. There is a very rich seam in the middle. So, when you look at things like Sky Vegas live, which is our interactive gaming channel and is a television channel listed on the EPG, it is all about playing along. It is all about playing the Keno game and interacting with the presenters. Its entire business model is based on people interacting. The area between traditional interactivity and traditional linear television is a very interesting space,” Shepherd said.

The re-launch of its new interactive services portal took place in late November. As well as blurring the lines between traditional television and interactivity, it almost aims to be a substitute for viewers who want a fix of daily news/information. Sky has done considerable consumer behavior research in this area and one of its key findings is that it is not technology early-adopters that are using interactive services. Shepherd added, “The vast bulk of the regular usage of interactive services comes from people who are much more normal, mass-market. The Sky Active audience definitely skews toward women rather than men. There is a big daytime element to it as well as a big late evening element to it. It is the people consuming women’s’ weekly magazines, tabloid press, daytime TV and they are consuming interactivity. The realization is that our audience is mass-market entertainment audience who therefore needs a mass-market entertainment solution.”

Shepherd expects the interactive business will remain a lucrative one for the operator, as well as the scene of many innovations. He said, “Combining interactive technology and broadcast video technology inside the interactive menu has not been done before. It has taken us seven months to be able to do. It is a first on our platform. That is important to us because Sky Interactivity has been a good growth area for us in revenues over the years. I would anticipate that it continues.”

ITV

While Sky will continue to pioneer interactive services in the United Kingdom, it is up to other parties to also bring innovative user-friendly interactive services to the mix. One of the main broadcasters deploying interactive services is ITV, one of the U.K.’s largest broadcasters, which has some of the most widely used interactive applications in the United Kingdom. Its voting applications have posted some impressive numbers in the United Kingdom. In 2003, ITV posted more than 37 million votes. In 2004, it is likely to break through the 40 million barrier and be around 41 million, which is a pretty staggering statistic when you consider the amount of revenue that it can generate.

Jane Marshall, the controller of ITV Interactive believes the interactive industry has reached a point where it is being embraced more fully. She said, “I have been in this industry for five years and there have been an enormous change in the last 12 months. Prior to that, we had to push this thing up the hill. Now, it has a momentum all of its own. You can see that in the TV production companies. You can see that in the advertising community. Some of the creatives had previously seen this as a technology issue and shied away from it for that reason. Our job in the next year is to take it back out to them and say it is not about technology, it is about viewers and it is about getting more interesting and engaging programs on to screen.”

The possibilities to grow a strong, long-term growth business in interactive television have never been better. Users in the United Kingdom are used to ‘red button’ functionality and have been shown to embrace interactive services when they strike a chord. Marshall is confident that ITV will build a strong interactive business. But, interactivity will not just be about content providers competing, it will ultimately act as a platform differentiator. Marshall said, “We are seeing an industry that is becoming mature and it is starting to show what it can really do. The television marketplace in the United Kingdom is so competitive, all broadcasters and platforms are looking at interactivity and how they can use it as a platform or channel differentiator, or a tool for marketing or revenue generation. The competition among broadcasters is good because it will drive the industry on.”

Business Model

What is happening in the U.K. digital television market offers some key lessons for other satellite pay-TV platforms. As BSkyB begins to see its subscriber growth slow down, it will ultimately look for other services to play a key role in reducing churn and boosting revenues. Interactive services are a big business. It can allow content providers a way to bring a richer ex-perience to viewers, boost ratings etc. For platforms, it will be a differentiator going forward. Satellite pay-TV platforms, particularly in Europe, have aggressively pushed interactive services with many being ahead of their cable counterparts in offering these services.

The United Kingdom will be interesting to follow as Sky aims to take interactive services to the next level. Other satellite pay-TV platforms would do well to examine how successful BSkyB is in the next 12 months. It aims to make interactive services an integral part of the viewer experience and increases the frequency levels in which people use interactive services. If its new interactive service portal is successful, it will offer compelling evidence for satellite pay-TV operators where to gain a competitive advantage in terms of interactive services over other alternative platforms.

–Mark Holmes

(Robert Fraser, BSkyB, e-mail, [email protected]; Emma Harvey, ITV Broadcasting, e-mail, [email protected])