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The New Game Machine: Your TV

By Olga Kharif You're sitting on your couch, clutching your cell phone and ready to pounce. No, it's not past midnight, and you're not waiting for the kids to come home. You're simply watching an interactive-TV show called Video iQ.

Following a music video, on-screen clues come up. You see pictures of a truck, a blond-haired girl, a hand pricking a balloon, and a fruit tart. Letters from the band's lyrics and snapshots from the video form "Semiretired blond pop tart." You punch the answer -- Britney Spears -- into your phone and send it as a text message to the show.

Right! You just earned points and increased your chances of winning prizes, according to the 24-hour music channel Fuse, which has been running Video iQ twice a day since November. And some of the goodies are quite valuable: Just a couple of weeks ago, a participant won a $7,000 TV set.

The program, shown nationwide through the likes of Cablevision (CVC) and Comcast (CMCSA), is among a handful of interactive-TV games available today. Indeed, Video iQ may represent the advance guard of a wave of interactive-TV programs aimed at viewers drawn to the allure of video games and online gambling.

YOUTH APPEAL. This increased interest in all things interactive directly results from growing competition between Internet service providers, satellite TV, and cable-TV outfits. "Companies are looking for features to differentiate themselves," says Phil Swann, CEO of consulting firm TV Predictions in Arlington, Va.

They're also looking for ways to reach a younger audience. Lots of today's youth, who grew up with Xbox and PlayStation video-game consoles and cell phones, find regular TV boring. A recent Nielsen/Activision study discovered that 18- to 34-year-old males -- a prime demographic for advertisers of products like cars -- are starting to watch less TV, opting to play video games instead. Service providers need to reinvigorate the TV viewing experience, and interactive TV games might prove just the ticket.

Later this year, telecommunications company SBC (SBC) will introduce interactive-TV software from Microsoft (MSFT) that should provide more interaction for viewers and enable features such as a better program guide and TV games. Satellite-TV service provider EchoStar (DISH) plans to offer TV-based horse-race betting this spring. Cox (COX) says it's also considering offering interactive-TV games this year.

STICKING AROUND. These companies are also taking a hard look at interactive programming like NASCAR in Car, which allows fans to view races from inside one of seven cars participating in a stock-car race. "You're seeing what the drivers are seeing," says David Asch, senior vice-president for programming at interactive-TV programming powerhouse In Demand in New York City. You can watch your favorite driver's face during a race. You can see him pressing the gas pedal. Using your TV remote control, you can also jump from one car to another.

While both NASCAR and In Demand, which jointly created the service, available from digital cable providers, decline to release their viewership numbers, Asch says the show has proven "very popular" in the U.S. "Once people buy it once, they buy it the next season as well," he adds.

Such experiences must have the big cable carriers thinking. Video iQ viewers also demonstrate more loyalty than those of your typical TV show, says Tad Low, the show's creator who also came up with VH1's popular Pop-Up Video program. Video iQ has also doubled participation in the show immediately following it, says Michael Goldstein, vice-president for interactive programming at Fuse in New York City, who declines to give specific figures.

ANY BOX WILL DO. Viewer loyalty scores major points with advertisers, which contribute the bulk of Fuse's sales. Plus, Fuse gets its share of the short text-messaging revenues: Whenever viewers pick the right answer on a multiple-choice question, Fuse charges them 30 cents. (No charge for wrong answers.)

Shows like Video iQ are only the start. Many service providers' networks still need work to enable cutting-edge interactivity like multiplayer gaming, -- which could happen in the next two years. Further spread of more advanced set-top boxes, with more memory and faster processors, will help as well.

In the meantime, digital pay-TV software maker NDS (NNDS) will soon unveil a special technology that can enable feature-rich games even on the most primitive set-top box. Using NDS's so-called middleware, or software that sits on a provider's server, games can be made graphically complex, allowing for, say, game sequences that give the viewer an impression of flying through a house.

COMING TO AMERICA. Impressed by all that, lots of companies creating content and enabling software that have made a killing in Europe and Asia -- where more than 30% of TV shows have an interactive element to them -- are moving into the U.S.

Interactive gaming company Zone4Play, based in Israel, plans to open a U.S. office in the next three months, says CEO Shimon Citron. It's working with EchoStar, which in three months expects to launch a bingo game, he says, in which TV viewers will pay $1 a day to compete against each other, -- at least in Nevada and a few other states where it could be legal.

Of course, plenty of obstacles stand in the way of making interactive-TV services -- gaming in particular -- as financially successful in the U.S. as they are in Europe. Viewers have to get used to not snoozing during shows. TV gambling, particularly popular in Europe, has to be legalized. Today, no state grants online poker licenses to for-profit entities, for instance. However, TV gaming is still uncharted legal territory, and many content and service providers are betting that lawmakers will, eventually, see things their way.

Still, as the wireless industry's experience in Europe and the U.S. has shown, "gaming is one of those things that do resonate really well with consumers," says Schelley Olhava, an analyst with tech research firm IDC. Indeed, who wouldn't want to win big prizes while sitting on the couch? Kharif is a reporter for BusinessWeek Online in Portland, Ore.

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