March 2001

The world's biggest independent games company Electronic Arts has thrown down the gauntlet to the fledgling interactive TV business. E.A. says the future is on-line and that TV companies should be afraid, very afraid. "Gaming will be the fourth wave of the Internet," EA President John Riccitello told an audience at the Milia interactive media market in Cannes. First there was email, then chat rooms and then e-commerce, but Riccitello predicts that interactive entertainment will be the next big thing, becoming a $5 billion business by 2004 (that's compared to an $82 million business in 1999)."People will be watching a lot less TV," forecast the man whose company has already sold 600,000 CDs of its game Ultima Online and has 240,000 gamers who pay $10 a month for a subscription to play the online version.

Not to dispute EA, but gaming is one of the killer applications for interactive media, full stop, be it on the PC or the TV or the mobile phone, for that matter.Look at Vivendi Universal. In February, the mega-media giant announced it would spend about $142 million in cash for Uproar, an on-line gaming site whose stock had been faltering. Vivendi Universal (VU) believes that by folding Uproar into its Flipside publishing unit it can save $30 million in operating expenses. Making the games available on all platforms -- the Net, pay TV and wireless devices means the new Flipside/Uproar will be profitable before the end of this year. In the context of VU, Flipside/Uproar is a small one, but it is part of a much bigger strategy.

VU boss Jean-Marie Messier's plan is to be "positioned better for content on all devices regardless of the technology." Given that the annual worldwide business of gaming Ðsoftware and hardware- now surpasses the money taken in at the cinema box office, focusing on games seems an obvious move for both content and platform companies.

But it's up to TV companies to pump up their interactive TV (iTV) platforms to deliver gaming at a level that is at least as good as what the Net can deliver to a PC. If they don't, Riccitello's forecast could come true. Ramping up the TV platform won't be easy: digital satellite companies like BSkyB and Canalsatellite (part of Vivendi Universal) have to depend on telephone line connections to complete the interactive circle, which slows down real-time, group game play. And for cable operators, like Telewest, there's the threat of congestion on cable lines if hard-core gamers start hogging all the available bandwidth. And then there is the cost of translating interactive content from the Web to work on the rival iTV platforms. This costs an average $1.5 million per "site", according to Forrester Research. No wonder companies like E.A. are betting on the Net over iTV.

Clearly gaming and other interactive services are the future of iTV. BSkyB reports that it makes 10% more from its digital subscribers with access to interactive services and pay per view movies than it does on its analogue subscribers. Television Par Satellite (TPS), the rival digital satellite service to Canalsatellite in France, says that about 91% of its I million subscribers used interactive services in 2000, spending a total of FF500 million (£50 million) for various interactive services from TV email to gaming. Of that revenue TPS itself received FF37 million (£3.7 million), its share from hosting iTV services, as well as from sponsorship, advertising, T-commerce (TV commerce) and premium-rate telephone calls. This year TPS believes this figure will more tan double to about FF85 million. "We want to make the TV screen the home portal," says TPS Interactive head Alain Staron.

So what really works so far? Betting on horse races is very popular, attracting about 14% of TPS interactive users, but the biggest draw in 2000 were the 27% of users who played along with TV quiz shows, while some 13% played networked games against other TPS customers. Certainly for services like real-time weather, the TV makes sense. Who wants to boot up the PC to find out the weather? That's probably why TPS clocks up about 631,000 daily visits to its Meteo weather service.

In the UK BSkyB says the key is to make iTV services with a direct link to a TV programme. So if it's a cooking show, you could sell a cookbook, or its it's a football match you have a betting service. BSkyB has found that 50% of people viewing its Sky Sports channel "dip into" its Sky Sport extra service which gives statistics on the game, offers different camera angles and game highlights. "If you've got the right tool bar in front of them, you have a very good chance of ramping revenues higher," BSkyB CEO Tony Ball said at the company's financial results in February. Getting the tool bar right is the reason behind BskyB's recent purchase of control in British Interactive Broadcasting, known as OpenÉ Control will allow BSkyB to integrate the heretofore separate (and not very user-friendly) OpenÉ service more directly into BskyB's digital TV environment. Ball thinks that new iTV services will entice subscribers to spend £50 more, over and above their basic subscription, per year by 2005. This is not a trivial pursuit by any means.

The game now for pay-TV companies is to increase the revenue per subscriber and iTV is the key. The hardware guys are getting into the act as well. Set top box maker Pace Microtechnology will launch a set top box with an integrated Sega games console in it in the summer of 2002. The prototype box features a 40GB hard drive, capable of storing up to 60 games. Of course Pace would be more than happy to add other console technology, like from games market leader Sony Playstation, to its box! And TV software company Open TV is using its purchase of Web software company Spyglass to offer pay-TV operators templates for interactive content and media applications that will allow them to launch services faster.

E.A. believes that the winning games of the future will be ones that are so real they "invade your life." The company will launch its first game of this genre called Majestic this spring on ea.com and in association with AOL. The suspense thriller will call you and fax you and ultimately "play you", according to Riccitello. The nail-biting part for pay-TV operators is will they be able to support that kind of game on their systems? Now there's some suspense.