In September, we looked at video on demand (VOD) as a demand trigger for IPTV (Internet Protocol TV) takeup. We reviewed aspects of VOD technology and key considerations in VOD content provider agreements for multichannel video programming distributors (MVPDs). This month we examine another IPTV demand trigger — interactive TV (ITV).

ITV is still in its infancy. Unlike VOD, which has its roots in cable television pay-per-view programming, ITV derives from computer and video gaming. Also unlike VOD, which allows interactivity by the subscriber only to the extent of choosing, starting, pausing, stopping and recording streamed and cached programming, ITV offers potentially unlimited levels of interactivity, ranging from e-commerce to education, financial services, on-line gaming, content manipulation and other activities for which the provider will invite subscriber participation. 

Two broad subdivisions have to date emerged. One is more “TV-like,” as the subscriber can interact with content-oriented traditional programming; while the other is more “computer/e-commerce-like,” because the interactivity is the core of the service and not based on programming. Examples of the former would be a feature to pull up battlefield schematics and troop dispositions during a war documentary or a feature to purchase products “placed” in programming by advertisers. Examples of the latter would be a brokerage service with charting tools that the subscriber could manipulate, video games or an e-commerce site. In the programming-oriented version of ITV, the MVPD is apt to be a more proactive participant in the content, storage, formatting, distribution and uplink management of the service. In the case of core interactivity, the MVPD is apt to be a more passive participant, essentially an Internet Service Provider (ISP).

Needless to say, ITV raises complicated legal and regulatory issues. In the United States, different levels of government and governmental agencies may assert jurisdiction to regulate some of these activities. Among the potential regulators are the U.S. Federal Communications Commission, Federal Trade Commission, Securities and Exchange Commission, Internal Revenue Service, and state and local tax and consumer protection agencies, depending on which ITV activity is concerned. In many cases, MVPDs have not been accustomed to the jurisdiction of these agencies. Even more complication arises from the fact that the laws and regulations may not be identical in every jurisdiction in which the MVPD offers ITV service. Contractual allocation of compliance with legal and regulatory regimes among satellite and terrestrial partners will be critical, but not necessarily dispositive, as a firewall against liability.

Also, the still-unresolved question of net neutrality — the extent to which Internet backbone providers will be forced to offer non-discriminatory access to ISPs, including major bandwidth users like Google, Yahoo!, Amazon and eBay, and to end-users at the network’s edges — will affect how ITV services will be offered. Since both Internet backbone providers and ISPs have consolidated into several giants facing off in the net neutrality debate, both satellite and terrestrial MVPD platforms will have a delicate balancing act in forming and maintaining alliances with the right combination of exclusivity and “most favored nation” treatment to ensure the widest and deepest access to ITV content and services for their subscriber bases.

The challenges of ITV are not only ones of legal and regulatory compliance. ITV implies much greater uplink access to the provider’s network than VOD does. Network integrity and security is therefore implicated not only by the intended subscriber uplink but by the enhanced opportunity to “hack” into the network that the uplink provides. The revenue streams from ITV services — accounting for them, reporting them and auditing them — will also be far more complex than the traditional MVPD model has been. A given ITV programming service might generate revenues from flat rate subscriber fees, premium service billing, commissions on transactions, royalties and fees or royalty discounts from content providers or ISPs on the basis of traffic or transactions passed. All of these revenue streams will have to be carefully segregated in the programming, content license, distribution, affiliation, retransmission rights and related arrangements between partnered MVPDs and with programmers, ISPs, broadcasters and other parties. Of course, that is why ITV has such promise for MVPDs. ITV’s unlimited services potential makes it a key IPTV demand trigger.

Next month we will conclude with the other two key IPTV service drivers, high-definition TV and the triple play of bundled voice, data and video services.