The U.S. interactive television market is likely to see a great deal of innovation in the coming years as penetrating this market segment takes on increasing importance for global pay-TV operators.

DirecTV Inc. and Echostar Communications Corp. are at the forefront of the interactive revolution in the United States. The two operators, who combined have more than 25 million subscribers, are ramping up their interactivity development efforts and the United States is likely to be one of the most vibrant interactive markets. Already this year, Echostar launched nationwide interactive sporting and karaoke channels for its Dish Network Service. DirecTV announced in January that it will launch a number of new advanced television services that offer viewers more control throughout their viewing experience.

Both operators admit that interactive offerings will become a larger part of the overall picture. “Echostar has made interactivity one of the five key things it is focusing on throughout the next year,” Scott Higgins, director of interactive programming at Echostar, told Satellite News. “That gives us the resources to do what we can do.”

For DirecTV, making the interactive experience more fluid and user friendly will be key, said, Eric Shanks, senior vice president of advanced services and content. “We definitely have the next 12 months planned out in terms of the launch of interactivity and DVR applications but probably we will be very fluid,” he said. “What you see 24 months from now maybe very different what we have on the air today. We are really going to pay attention to research and really pay attention to what the consumers are using.”

Following BSkyB’s Model

It is fair to say that U.K. satellite pay-TV operator BSkyB has led the way in terms of deploying interactive services to consumers. Through its coverage of sports, gambling, gaming and shopping, BSkyB created a model for other companies to follow in the interactive space. But there is more to developing the market in the United States than simply adopting the BSkyB model, Higgins said.

“I think you will find similarities, but exactly what works for BSkyB will not exactly work in the United States,” Higgins said. “I think we have to tune in to what consumers are doing on their television sets. In the United Kingdom, this started years ago with teletext and using the TV to do interactivity. In the United States, interactivity is a brand new concept and [right now] we are not using anything other than a remote control for switching the channels.”

The Americas accounted for only 8 percent of the worldwide market, of 2.3 million interactive set-top boxes shipped in 2005, according to IMS Research. The European-Middle East-Africa market accounted for 55 percent of the demand, with the Asia-Pacific region taking the remaining 37 percent.

In 2006, IMS forecasts that the Americas should account for 15 percent of the 3.7 million set-top box deliveries but interest by U.S. consumers will continue to trail the rest of the world, said Anna Hunt, manager of the Digital Consumer & Broadband division at IMS Research. “It may be used as a differentiator, but it seems that U.S. viewers are more interested in DVR, [high-definition] and on-demand,” offerings, she said.

DirecTV and Echostar are hoping to teach U.S. pay-TV customers to use the remote control in a new way in order to increase the demand for interactive offerings. “I think that consumer behavior and cultural factors here will make the usage and the behavior different from the United Kingdom,” Shanks said. “Interactivity in the United Kingdom came along so much earlier than over here. People were used to using interactive television in the United Kingdom before broadband was really big. Over here, that is not necessarily the case. So, people expect something different from interactive TV. I think the usage models will be different.”

Sports As An Interactive Driver

One of the key battlegrounds for attracting interactive customers will be in broadcasting sports. The content itself lends itself to an interactive approach, attracting users who love statistics, as well as multiple camera angles. BSkyB pioneered the use of multiple camera angles, on-screen statistics and having fans comment on the game.

Both DirecTV and Echostar are showcasing a number of innovations in the sports arena. Earlier in July, Echostar announced it was launching the Sporting News Interactive TV Channel, which provides coverage of the National Football League (NFL), the National Hockey League, Major League Baseball, the National Basketball Association, Nascar and college football and basketball.

Higgins believes more personal coverage of the events will make it dramatically different from traditional broadcasts and draw customers. “One of our goals is personalization and what Sporting News allows us to do is personalize some sports news, so they can find out about their local favorite sports team,” he said. “We think that adds a lot of value to customers.”

DirecTV believes its coverage of the NFL could break new ground for interactive services in the United States. “If the programming is good around NFL Sunday Ticket or Nascar or if it is a good interactive TV game, people will use it,” Shanks said. “The advantage that we obviously have in television is that [watching games] is something that has not been able to become really prevalent on the Internet just yet. People still today don’t sit down for seven hours on Sunday to watch their computer for NFL games.”

DirecTV’s interactive plans for covering the NFL could include a mix of channels, including watching up to eight games on a single screen, Shanks said.

Interactive Advertising

Another hot market is interactive advertising. With DVR (digital video recorder) penetration continuing to rise, many observers have warned that DVRs are going to put pressure on advertisers as users have more opportunities to skip ads. With that in mind, advertisers may well have to look beyond the traditional 30 second spot as a way of effectively reaching their audience.

Shanks is confident advertisers can rise to the challenge of engaging viewers in a DVR world. “We are getting a massive amount of interest from agencies and advertisers about the capabilities of our platform, and I think that people who think that DVR is going to spell the death knell for TV advertising are very short sighted and myopic,” he said. “DVRs are an advantage for a couple of reasons. Our data shows people are willing to spend extended time with a brand that they are interested in. DVRs allow advertisers to reach consumers in multiple ways.”

Advertising is becoming increasingly important for DirecTV, Shanks said. DirecTV has started an advertiser developer program to help develop interactive advertising technology, such as with Chrysler Group. “This program will enable DirecTV and Chrysler Group to not only collaborate on customizing advertising campaigns targeted toward specific customer markets, but it also will allow Chrysler Group to help define the technology while gaining valuable research [on] viewer acceptance and usage,” he said.

Higgins also believes advertisers can use the DVR to their advantage. “In the next year, I think you will see advertisers really change and start using this interactive TV platform to make it a lot more exciting and edgier, and I think that is a great thing,” he said. “If they think the 30-second spot is the only way to advertise, perhaps they will find themselves a little bit archaic. If they look at interactivity as a way to communicate their message, the DVR is a great way to get more penetration for ad campaigns.”

Individual Goals

While both operators have similar goals in terms of boosting their interactive offering, both also have specific agendas. For DirecTV, making interactivity a TV experience is key. That may seem like a simple comment, but according to Shanks this is much harder to put into practice. “I have used almost all of the interactive services from our competitors in the U.S.,” he said. “The problem is they were content just to put what it seemed were like small Web pages on television without audio and without video. That is not why people watch television. They watch television to have the audio, video entertainment experience. That is key for everything that we do.”

DirecTV is trying to avoid falling into this trap. “We have launched an interactive home page called DirecTV Active, which is very rich in audio and video,” Shanks said. “That is really a key for us making sure that the interactive TV experience is not lifeless. Our experience always has video and audio going on, which is something you don’t necessarily get from broadband. We trying to keep this as an entertainment experience.”

The operator also is planning to launch more on-demand content for users based on a new DVR launch in September, said Shanks. According to Shanks, DirecTV has moved incredibly quickly in the whole interactive arena. “It feels like it has taken a long time, but we have only been here about 15 months,” he said. “This could be the fastest interactive TV launch in the history of television. We launched our first interactive application within 12 months of not having any interactive capabilities and any boxes in the field.”

Echostar also is looking to increase the effectiveness of its interactive offering in a number of areas, Higgins said, “I think one thing we are trying to do is create content utilising some of our enhanced TV, which is working with a lot of our video broadcasters,” he said. “We are looking at more transactional type of interactivity, as well as a lot more personalised type of interactive type of applications. Therefore, we can make our [set-top boxes] more unique compared to our competitors.”

–Mark Holmes

(Bob Marsocci, DirecTV, ramarsocci@directv.com; Kelley Baca, Echostar, Kelly.baca@echostar.com)