Executive Summary

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1. Management Summary

Vision forecasts 30 million Euro Digiweb Homes by 2005

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There will be 30 million European Digital TV homes accessing the Internet by 2005, according to Vision's new 333 page report "Internet@Digital TV". The report comes with 91 Figures, 31 Illustrations and 37 key web site "screen grabs". 10 pages are in colour.

"Vision is enthusiastic about the potential for accessing the Internet via TV", says Barclay Dutson, President of Vision Group and the report's main author. "For many people the Internet will become a part of everyday life. TV viewers will increasingly be 'Internet trained', and the audience will want to access the Internet from several devices. Digital TV will certainly be an important, and relatively low cost, one".

Vision expands on the reasons for the growth of Internet services via TV in the new convergence report, that the company has been researching for the past 6 months in Europe and North America.

Reasons for Digiweb Growth

Interactive services such as Teletext and Ceefax have mass markets in Europe: more than 28 million a week access these in the UK alone, and 10% of the 22 million holidays sold each year are marketed through these services. This is evidence that people will interact with their TV set if the information is valued and useful.

Whilst there are as yet no precise figures on the correlation between the ownership of digital TV and of the Internet, there is evidence from the USA that a high proportion of Internet users are multi-tasking, with a reported 10 million simultaneous users of both TV and PC, from the 25.5 million Internet homes. In Europe, the German digital TV service DF1 already sells 10% of its Pay Per View movies via the Internet.

Vision forecasts that European digital TV will have 57 million homes by the year 2005. Forecasters for the Internet seem reluctant to look much further than 2002, but forecasts for Internet homes are consistently higher than those for digital TV. TV broadcasters now find themselves launching into what will be a much more Internet aware Euro audience than they first thought. The audience will increasingly want to use the Internet via their TV for the different kind of information they want from a leisure environment.

"Intelligent cache" computers store in real-time the most demanded pages on the www, with currently over 100 million pages stored. Digital TV broadcasters will be able to broadcast via services such as digital satellite (or a digital terrestrial multiplex - when more capacity is available - or digital cable) the most popular "consumer" pages selected from this cache.

Vision expects that the technologies enabling Internet via TV will develop dramatically. Already, web browser technology is being incorporated into chips for the first integrated digital TV sets and cable set top boxes. By the year 2000, the digital set-top box in your home is expected to incorporate a hard disk of 2 GBytes, rising to 100 GBytes by 2010. A recent US study by IBM found that as little as 6 GBytes of information provided the needs of 80 percent of Web users over a 30 day period. With falling memory prices, keener Web users will be able to purchase additional hard drive memory modules economically.

Web TV is already polling the hard disk on its subscribers boxes overnight to get detailed feed back for advertisers on viewing and surfing behaviour. These instantaneous audience research predictions will help forecast what the mass market wants on the Web, and the real-time web caches will provide the instant market evidence. It is already clear that services such as sports, news and weather are prime web audience drivers, with very high audiences at peak periods. The site for the soccer World Cup 1998 broke the record for the highest number of web site hits, with 1.7 billion. The new digital technologies developed for the net such as profiling, recommendation agents and ad serving, will help digital TV develop customised advertising; this will fuel new advertising revenues, as the TV market expands into the direct response domain previously claimed by the print and direct mail media.

Electronic programme guides are being developed to enable web access with the touch of a remote control button. Sky Digital is close to this already, and as its EPG is broadcast via a satellite transponder, it can easily be updated to achieve this. One leading digital TV player is considering using a wireless digital telephone connection between the modem and the telephone socket, so that connecting to your telephone is "wireless" and easier.

The price of Web access is coming down dramatically. In the UK, there is free web access. In Germany, Viag Interkom, BT's German joint venture, has launched Planet Interkom with Internet access for 3.5 pence a minute on top of the price of a local call. And soon, we will have 2 way high bandwidth service direct via your satellite dish with the new generation of Ka-band satellites. Astra is commissioning the first generation of 2 way satellite interactive terminals this year.

$5.5 billion in new revenues forecast

The revenue forecast indicates a business opportunity for TV of $5.5 billion by 2005. The key revenues are:

 1. Interactive TV advertising revenues

Vision believes that the proliferation of new digital channels, combined with access to the Internet portals and merchant Websites, will provide the opportunity for television to develop its interactive advertising and direct response business. This forecast provides a new revenue opportunity of close to $2 billion by 2005.

2. Telephony access and ISP revenues

Vision estimates annual telephony and Internet Service Providers spend through the Digiweb platform to grow to $3 billion by 2005. These are revenues that television operators should be able to negotiate significant shares in, particularly with the arrival of new independent telephone operators and networks. Alternatively, TV broadcasters may partner telcos, as Sky has done with BT in the UK to launch BiB.

In the longer term, towards the end of the forecast period, television operators may be able to gain much of this revenue through the utilisation of the Ka-band return path via the subscriber's interactive satellite dish, which will have direct links to the satellite, by-passing the terrestrial telephony networks.

Television operators may also be able to generate much of this revenue by broadcasting the most popular Websites via, for example, the high bandwidth of digital satellite transponders; the capacity of the hard drive on the digital set top box will increase dramatically during the forecast period, allowing Digiweb subscribers to store their most popular web sites in their home.

3. TV Ecommerce

Vision's forecast for direct Ecommerce for television operators are conservative, as Vision sees broadcasters as principally providing the platform for its advertisers and commerce partners, but this provides total annual TV Ecommerce of $585 million.

The Four Steps to an Interactive Heaven

There are 4 main stages for Internet delivery via TV. Vision believes that Internet via TV will develop in these phases, as set top boxes expand their capabilities and memory capacity, and as broadcasters grow in confidence, realising that they may not be losing their audience by releasing them onto the web.

1. Enhanced TV: this is an apparently interactive, but in fact one-way broadcast system. It offers news and information services, enhanced advertising and teletext services, weather and simple games. Perhaps as much as the most popular 80% of the web could be broadcast. The user selects from the broadcast streams, yet feels interactive. There are services of this type in France. TPS, for example, claim 96% of those who have the service, use it everyday. These include interactive weather and basic games.

2. The "walled garden": this is a closed loop online model, with restricted Internet access and content sectioned into categories, similar to AOL. BiB has said it is taking a 'walled garden' approach, with no open Internet access planned as yet. Delivery will be via digital satellite, terrestrial, cable or ADSL, using a modem plus phone line for the return path. This approach also means broadcasters should not lose their audience via leakage onto other sites. TPS in France already provides this environment for home banking, where the graphics are broadcast, but the account data is inserted via telephone.

3. The "portal TV" :Viewers have full Web access through a portal, which would direct them to their favourite areas, via an easy to use navigational system like an Electronic Programme Guide. This is the approach adopted by Web TV, and planned by UK cable.

4. High Bandwidth Interactive TV: High bandwidth interactivity via cable modems and ADSL, and eventually via new technologies such as fibre optic cables and Ka-band satellites. This will enable two-way services such as video telephony.

Vision believes the internet has an immense range of products, but little bandwidth. Digital television has immense bandwidth, but few new products (after all, Hollywood still only produces around 100 new movies a year). New technologies Vision has advised on, such as VCRs and the Astra satellite system, have reached 60% or more penetration within 10 years. Digiweb is expected to follow a similar growth rate. If web-surfing and e-commerce are made as easy as TV, and packaged in a way which makes them accessible to otherwise passive viewers, Vision forecasts take-up will be at least 30 million Euro Digiweb homes homes by 2005.