September 1994

Denise Caruso
Editorial Director and Publisher
Technology & Media Group, Inc.

I.  How the Interactive Consumer is Different

A. The “couch potato” begins to sprout

Over the past 10 years of writing about computers and technology, the one common thread I’ve seen is that every new gadget, platform or software genre starts out as a solution in search of a problem.

And always, despite a remarkable lack of interest on the part of potential customers, vast amounts of hype draw a great deal of public attention to these new technologies until eventually there is a backlash that says “this will never happen!”

Then the dust settles, everybody gets back to work and eventually, with luck and vision, useful products come to market. Witness graphical user interfaces, artificial intelligence and multimedia CD-ROM.

Interactive TV ﾑ or more accurately, wide-area broadband digital networking ﾑ is no exception.  What is unprecedented, however, is the wide swath that the concept of interactive TV has cut.

From cable, to film,TV and music, print publishing and pure technology, every industry clearly believes that its future success hinges in some degree on whether it can convince the world’s consumers that interactive TV is an idea whose time has come.

Though the technologies which enable interactive TV are critical to its success, it’s been clear for some time that interactive programming ﾑ in other words, the media ﾑ will make or break the medium.

Today, that programming comes mostly in the form of narrowband applications such as CD-ROM, video games and online services.  Some are more successful than others, and all of them are primitive.

But if we boil them down to their components, we can look to them as precursors for the success stories of the interactive TV future.

B.  Sophistication of next generation

At 38, I do not consider myself “old” in any way, but it’s clear that people even of my generation cannot conceive of the technical sophistication already possessed by today’s school children.

They have grown up with personal computers and video games and Walkmans and multimedia, and they are not afraid of technology.

Things that adults consider marvelous or overwhelming or incomprehensible, they consider ordinary.

I recently attended one of the Lollapalooza music festivals in the States, where a company called Interval Research had set up something it called the “Electric Carnival” tent.  It was crammed full of interactive media, and hundreds of kids and young adults waited in line in the hot sun, away from the music, for the opportunity to play with a wide variety of sophisticated media products.

There were very few people over 30 years old in that line.  Though I find it somewhat unnerving that age is a factor in the acceptance of interactive media products, I find it very helpful to keep this picture in mind.

C.  Connection, community, control

Though interactive media clearly has roots in the mass media that have come before, it is fundamentally different in what it delivers.   At the risk of sounding clich仕, I’ll repeat Marshall McLuhan’s most famous statement:  The medium is the message.

In the same way that books provide us with the best medium for encouraging linear, progressive thought, and television provides a powerful medium for influencing the minds and hearts of viewers, broadband network technology has very specific strengths.

Above all, it provides people with the ability to connect with each other, virtually instantaneously, anywhere on the planet, and send representations of their thoughts ﾑ in text, image or sound ﾑ to those they connect with.

This in turn allows them to create global communities of interest which are every bit as strong, if not stronger, than the physical communities in which they live.

And just as important in a world where we are swamped with media and information at every turn, interactive network technologies allow people to control the tidal wave of data that surrounds them.

As we become more accustomed to surfing this wave of data, we will find that the influence of today’s mass media will wane.

Though there will be certain kinds of information we hope will continue to be of universal interest  ﾑ news, weather, and sports, for example ﾑ the population at large will be able to select narrow areas of interest and follow them closely without the “noise” factor created by today’s mass media.

It is in this context that today’s presumed interactive TV applications must be rethought.

II. Today’s ITV Applications Must Be Rethought

A. Video-on-demand, home shopping too lateral

Based on the specific benefits delivered by interactive TV technology, it is an error to believe that home shopping, movies on demand, and other forms of “repurposed” content will produce sufficient consumer demand to finance the multi-trillion dollar global network infrastructure required to make interactive TV viable.

To date, there is no compelling data to show that consumers are on the edge of their sofas, waiting for the opportunity to make a lateral move from video rentals to movies on demand.

In fact, if you put together some disparate pieces of the puzzle, it’s clear that consumers want better access to pay-per-view technologies so they can be more selective ﾑ that is, to better control ﾑ the media that comes into their homes.

B.  Growing popularity of home PC a critical factor

That’s why the growing popularity of home PCs for entertainment and education is a critical trend that interactive TV programmers should watch closely.

One report shows that some households are cancelling their premium movie channels because they are spending less time watching TV movies and more time interacting with online services and CD-ROMs via their home computers.

These households are mainly interested in movies on demand because it will allow them to pay only for what they want to see.

Some interactive TV trials in the United States point up this trend in a different way.

In the Viewers Choice interactive TV trial conducted by TCI, AT&T and US West in Colorado, consumers purchased movies on demand ﾑ at a cost competitive with video rentals ﾑ at a rate almost 50 percent lower than the national average.

In addition, the trial’s sponsors dropped their initial plans to charge a subscription fee because they were unable to sign up the requisite 300 households ﾑ even after they had inundated the community with direct mail, a telemarketing campaign and door-to-door sales.

Similarly, home shopping as we know it today is equally unappealing to potential interactive TV consumers.

One study had respondents ranking home shopping as the interactive TV service they desired least. Another showed only 12 percent of respondents interested in such a service.

Why, then, is home shopping always ranked so highly as an interactive TV killer application?  Maybe it’s because Barry Diller made it seem so glamorous.

But surveys of TV shoppers reveal that those who frequent today’s services suffer from loneliness and low self-esteem and ﾑ this is really scary ﾑ they often consider the show hosts to be their friends.

There are other gating factors to home shopping via interactive TV.

The first is that to date, there are very few truly useful items available.  One can only buy so much jewelry and sunglasses.

Another, related factor is how the information is delivered.

If vendors are thinking correctly, they should not be targeting today’s TV shopper, but instead should be targeting the vast catalog shopping market.

But the images delivered over television today are terrible in comparison to the high-resolution, perfectly calibrated color images in catalogs.

Thus the products are unappealing  ﾑ if the show host’s face is slightly green, how can a potential customer know for sure what color a sweater or duffel bag will be when it arrives?

In addition, today’s brand of home shopping doesn’t allow customers to shop when it’s convenient for them.  They have to know when a certain product category will be presented, or go through some series of machinations to tape it for later viewing and ordering.

Certainly this can and will change, but it will be years before the kind of sophisticated search-and-retrieval, and transaction processing, technologies are in place to make TV shopping over two-way networks a broad consumer application.

Later in the presentation, I’ll show you a couple of viable alternatives to this scenario.  Not surprisingly, both are based on personal computers ﾑ not settop boxes ﾑ connected to networks.

C. Technology still in the labs

Technology itself is another of the most significant gating factors to the kind of widespread acceptance of interactive TV today.

First, there is the question of standards.

There’s an old joke in the computer industry:   What’s great about standards is that there’s so many of them.

Unfortunately, that also holds true for interactive TV.

You cannot discuss the reality of global interactive TV networks when today there are about a dozen video server technologies, none of which are compatible.

Programmers can’t be expected to reconfigure their content for each of the standards that will be deployed; whether the network provider or the programmer pays for it, the cost to do so is prohibitive.

In addition, there are multiple media and standards for transmission ﾑ  fiber coax, copper wire, ADSL, ATM, et cetera.

Anyone who has been assigned the unpleasant task of snapping together something as basic as a local-area computer network, or who spends a lot of time working online, knows how many things can ﾑ and do ﾑ go wrong on a regular basis.

Imagine this on a large scale and the problems ﾑ  of latency, reliability, contention and interconnectivity ﾑ increase exponentially.

Not even video compression technology ﾑ which sits at the core of interactive TV programming ﾑ is ready for prime time. Though many of us may still be impressed with technologies such as Apple’s QuickTime or even with MPEG, viewers say they find the image quality unacceptable.

And the difficulties inherent in such key software technologies such as online transaction processing and “virtual VCR” will keep success at bay for the near term.

D. What do consumers really want?

The bottom line, of course, is that we must balance what consumers want with the limitations of the technology that can deliver it.

AT&T’s Chicago trial revealed that the most popular interactive TV applications included some form of entertainment, transaction, communication and information.

In addition, participants said they wanted to be able to vote in elections, access local school information, participate in opinion polls and attend electronic town-hall meetings via their TVs.

That’s what they believe they want today, based on the limited choices and real information that’s available to them.  The truth is that no one really knows what new applications will spark them.

However, as I said earlier, some of today’s most popular applications in interactive entertainment and information services hold at least partial answers to the question of what consumers really want.

III. Interactive Entertainment

A. Evolution of the videogame, migrating to ITV

Though videogames are relatively uninteresting to me ﾑ I’ve never been a big fan of gratuitous violence, no matter what the medium ﾑ what is important about them in this context is that they are the only real examples of interactive entertainment we can observe today.

Though today these games are delivered either via CD-ROM or cartridge to proprietary videogame devices or personal computers, the end game is clearly to obviate these proprietary platforms by advancing the state of settop and network technology.

I’m going to show three examples of game companies using advanced technology as examples of where interactive entertainment programming may be going.

Please look beyond the promotional bent of the videotapes I’m showing to the potential of what you see.

1. Digital Pictures:  Using video in novel ways

Digital Pictures is a company in Menlo Park, CA, which was first to market with true interactive video.  It uses a proprietary video compression algorithm that makes for very fast interaction, unlike most games using video which noticeably pause when a player makes a move.

(Show video)

The video looks pretty rough, but keep in mind that its target platform today is a 16-bit Sega CD machine.  Thus the quality can only improve with time.

It was also the first company I know of that actually shot movie footage specifically for a game ﾑ the infamous Night Trap was first, but equally impressive is Ground Zero Texas, and they also sell a really interesting and fun game called Switch.

I am particularly fond of the unusual perspective that many of Digital Pictures’ games provide their players, as well as the fact that it is branching out beyond “twitch” games to more broadly interesting themes, such as story telling.

As more evidence of this move, Digital Pictures recently announced an investment by Times Mirror to create multimedia information products.

2.  Catapult Entertainment:  Creating true transaction

Next:  A new Silicon Valley company called Catapult Entertainment. Catapult has invented an early version of what’s likely to be a popular category for kids using interactive TV services ﾑ multiplayer video games.

Though both the technology and parental control issues over time spent on the network are potential gating factors to its success, I see Catapult’s XBAND system as the first step toward finding low-cost ways to connect the large, existing community of videogame players.

The XBAND modem costs only $70 and the XBAND network service starts at $8 per month.  No matter where the players reside, a neat little technology trick allows each to pay only for a local phone call.

(show video)

I expect the company will hit some rough patches ﾑ one of its key technology advances, synchronizing the games, is likely to be difficult on a broad scale since even machines that run the same cartridges aren’t always identical.

But Catapult’s model of combining existing, proven platforms with an information service is a step in the right direction toward shaping a new, online community and an ongoing revenue stream.

In theory, this is exactly the right idea for interactive TV entertainment.

3. Rocket Science Games:  New tools and filmic sensibilities

Now almost everyone has heard of Rocket Science Games.  It is the quintessential “Hollywood nerd” company, with veterans from the computer graphics community joining forces with some of Hollywood’s best known designers and effects specialists.

Its producers come from Industrial Light and Magic, Lucas, MTV, Marvel Comics, Amblin Entertainment, General Magic and 3DO.

Rocket Science has three notable goals:

One: It intends to bring the filmic sensibilities of authorship and chararacter development ﾑ and Hollywood-style image quality ﾑ to video games, by using state-of-the-art film production techniques.

Two:  The company is creating tools that allow producers to  make a title once, then easily move it to whatever platforms are en vogue.

And three:  It clearly has interactive TV in its sights.

(show video)

I would be far less interested in this company if it weren’t moving in a direction I find really fascinating.

First, it embraces rather than fights the reality of today’s chaotic platform market, where new machines with impressive capabilities are announced every few months.

Instead of trying to make sure that each new title is compatible with older video game machines ﾑ in other words, trying to preserve the value of a consumer’s investment in a particular device ﾑ Rocket Science sacrifices compatibility for maximum performance.

It has designed an entire production system, called the Game Composer, around this concept, which allows producers to create games at the very highest quality and only in the final stages transfers them into separate formats for each platform.

This is good news for interactive TV vendors who want to be sure there’s exciting and innovative programming available for their systems.

These kinds of production tools also provide them with impetus to get the most capable hardware into consumers’ hands as quickly as possible without looking back at “old” content or worrying too much about support from the developer community.

And like Digital Pictures, Rocket Science plans to broaden its charter beyond twitch games into the creation of more “Myst-like” environments for users other than adolescent boys.

Though most of Rocket Science’s planned games are admittedly “adventure and injury” oriented, with some form of “winning” as the end result, the company says future products will be much more experiential and situational.

The emphasis on high-quality imagery moves it quite naturally into the creation of virtual reality, in fact ﾑ simulation-type scenarios which should prove very popular to the wider audiences sought by interactive TV programmers.

IV. Information Services

A. Evolution of online services, from text to World Wide Web

But if interactive TV is going to reach its full potential at the center of each household’s activities, information services will clearly be an important piece of the applications puzzle.

Most of the interactive TV services that consumers know they want today are centered upon the delivery of useful, timely information, as well the ability to communicate with others and transact business over the network.

The flood of new subscribers to online services and the Internet is one clear indication that this is an area ripe for exploitation.

In addition, it’s also clear that the vast archives of information ﾑ as opposed to entertainment ﾑ that are already available in digital form can be put to good commercial use.

1. Reuters New Media/Liberty Media: Multimedia news

Most of the interactive news I’ve seen in demonstrations has been not commercially viable. No one discusses how difficult and expensive it is, on a practical level, to fully “produce” lengthy news segments on the off chance that someone may want to view a more indepth story on African elephants rather than the goings-on in global politics.

But I recently saw a demonstration of a multimedia news project called “What On Earth” that I found most impressive. It’s the first product of a joint venture called InGenius formed by Reuters New Media with Liberty Media.

Unfortunately, I was unable to weasel a demo tape out of them, but I’ll describe it.

The product is aimed at schools, and allows Reuters to use its vast, global media resources ﾑ in text, video and audio ﾑ to create a daily, multimedia “newsletter” for use in classrooms or by individual students.

Reuters says it’s found a way to make production quick and easy ﾑ a critical factor for a daily newsletter ﾑ by creating templates that can be easily refashioned for different age groups.

I wish I could show it to you ﾑ it’s really attractive and fun to use.

Though the subject matter is somewhat limited at this early stage, it’s not hard to imagine “What On Earth” as a filter for all kinds of news and reference information as Reuters continues to digitize and archive its resources.

2. Q Online:  Shopping for real people

Earlier I discussed what’s wrong with the concept of shopping via interactive TV.  Luckily, I was able to get hold of a prototype for an online service being developed by QVC that I believe is more appropriate to what people want from online shopping and how they behave in the real world.

It’s called Q-Online, and it’s centered around the idea of “agents” or filters that can solve many of the problems I mentioned earlier, such as image quality, product categories and the “time to watch” issue.

I’ll show you a few screens.

First, look at the quality of the image and the colors.  This doesn’t even do it justice ﾑ I’ve only taken a screen dump and pulled it into a word processor. It’s really quite beautiful.

The point is that personal computers, because they’re being used so heavily for print production, have been working hard ﾑ and solving ﾑ problems with color calibration and resolution. They’re a much more useful device for displaying products for sale.

Next, what sets Q Online apart is that it utilizes intelligent filters, sometimes called agents, to help tailor the service to each shoppers’ individual interests.

The details of the interface are quirky and keep changing to hold your interest.  For example, the opening screen changes regularly, either based on your interests, such as surfing, or with what’s in the news, such as the World Cup.

But it’s really the agents that make this prototype interesting.  The idea is when you first join the service, you can choose to fill out an extensive questionnaire about your “values, attitudes and lifestyle” preferences.

This creates an agent that can ferret out products or services that should be of interest to you. New surveys always appear to keep the agent fresh.

QVC’s Steve Tomlin calls it “VAL typing on steroids.”

In addition, you can drag-and-drop icons of people onto a calendar so the service can remind you of birthdays and other opportunities to buy presents.

If you join the “Club” that’s available ﾑ  you don’t have to ﾑ you can buy goods at cost.

The customer service icon connects with a live “chat” link to have a real person answer your questions.

And a key component to the service is signing up publications to deliver independent judgments about products and services, thus helping customers make buying decisions. You find them under the “research” icon.

As someone who is particularly concerned with privacy and security in digital networks, I was happy that this prototype encrypts all transmissions and that the user can opt not to use the agent at all. In addition, though it is not specified in legal terms, the company does not today rent its customer list to anyone.

Please keep in mind that this is only a prototype, and may never see the light of screen. But this is the first shopping service I’ve seen that actually has the customer in mind, and uses what’s fun about technology to excellent advantage.

3. Time-Life’s Virtual Garden: Taking advantage of brand

The last prototype I’ll show you tonight comes from Time Life Books. It’s called the Virtual Garden, and it’s been designed for the Internet’s World Wide Web protocol.

Please keep in  mind that this is only a test, not a product and not a product announcement. I would greatly appreciate it if you would not take photos of what I’m about to show you or reproduce it in any way, based on the wishes of the people who generously allowed me to show it to you tonight.

This is not a live Internet demo, and I’m not a Web jockey, so I’ll have to build some of the graphics on the fly.  Bear with  me.

The idea behind Virtual Garden was to find a way to exploit all of the intellectual property within Time (and some outside as well) on a certain subject ﾑ in this case, gardening. It’s a good place to start, since 2/3ds of all Americans have a garden.

John Papanek, who is in charge of developing the prototype, calls it “a natural extension of what we create,” and I agree. Because they are using existing products ﾑ including the very standardized platform of the Internet ﾑ they can do market research and product development at the same time. Such a deal.

Starting at the top, users can browse through all kinds of garden-related information, as general as photographs of famous gardens to problems with specific plants.

They can browse gardening articles from Sunset Magazine, Southern Living and Martha Stewart Living. They can look at information from outside of Time, such as the New York Botanical Garden.

They can look up specific questions in the Complete Gardener Encyclopedia.

They can read book excerts from Bulfinch, a Time imprint.

A transaction  mechanism is under development so that they can order the books and subscribe to the magazines.

In many ways, this is the best information service prototype I’ve seen. It takes advantage of a totally standard platform ﾑ the Internet ﾑ and doesn’t expect you to graze through a lot of useless information you aren’t interested in.

In an area where there might be more real news, such a service could easily offer a subscription to a “newsgroup,” and deliver it to the desktop, without the user having to ask or look for it, in addition to providing all the reference and background information available on a given topic.

Many of today’s online services looking to the future could take a lesson from the Virtual Garden, even in its nascent form.

VI.  Content as Gating Factor

To close, I’d like to say that as a long-time follower of technology, what’s clear to me is that technology will continue to march ahead, providing faster and cheaper and more powerful products as it always has.  This law of nature is what brought personal computers and CD-ROM into the home, and makes it possible for us to even consider interactive TV as a possibility.

The question is how long it will take programmers to understand what’s different about interactive media, and how to make it appealing.

A. Quality

Clearly, quality is one of the major considerations.  Quality is not just image quality or performance, but quality of the content itself. Does it provide a real service that people need? Does it exploit the strengths of the technology? Is it fun?

B.  Cost

Many developers are also tackling the vital issue of cost.  There will be no interactive media for consumers until the cost of development comes down to the same level as the price-performance curve of technology.

C.  Innovation

And finally, and most critically, content developers must learn to be as innovative as some of the examples shown here tonight. Today’s consumers are far more sophisticated than we give them credit for.

Even the most uneducated couch potato knows a bad TV picture when he sees one.

The next generation of interactive media will probably bear very little resemblance to what’s in the works today.  But it’s clearly possible, based on what you’ve seen here tonight, to take existing properties and product concepts and make them into useful, innovative and viable interactive products.  If the end goal is to make interactive TV a commercial reality, more of this kind of thinking will be required.

Thank you.