Not to be left behind, its rival NTL revealed Government approval for its plans to buy the consumer TV interests of Cable & Wireless, making NTL easily the UK's largest cable TV company in terms of territory covered. And now Yes TV, a pioneer of ITV services such as video-on-demand, has unveiled its plans to float on the London Stock Market, valuing the company at £800m. It will be followed by its rival, Video Networks, later in the year.

These are just a few headlines from little more than a week of activity in the UK. As they illustrate, the ITV market is developing rapidly in Britain, which is now one of the most advanced markets for interactive television in the world. But even while the opportunities multiply, so too do the barriers created by the differing strategies and technologies adopted by competing broadcasters.

Competing platforms deter advertisers

Perhaps the biggest obstacle to progress, from the perspective of the advertisers at least, is the fact that there is no standard platform for delivering interactive television. There are four main service providers - ONdigital, which uses a terrestrial broadcast network; Open, which broadcasts via the BSkyB satellite; and the cable providers NTL and Telewest. ONdigital has an MHEG-based system, the two cable providers both base their services on HTML and JavaScript, while Open has its own proprietary technology.

As a result, any advertisement designed to run on all networks in the UK would have to be remade several times in order to be tailored to the different systems. Although there is talk of developing an industry standard, the body to organise and administer it has yet to be created and it is far from certain that all the broadcasters would sign up.

There is also confusion amongst potential subscribers, who find it difficult to differentiate the offer made by each platform. Each has different services at different stages of development. Surveys suggest that the British public sees the number and variety of channels as the main offer made by the broadcaster and that there is only a limited perception of the potential of interactivity.

The talk becomes reality

This is perhaps understandable, since the picture is far from clear. Much is being promised and rather less delivered. Only last week, Tony Illsley, Chief Executive of Telewest, commented, "Despite what one reads, the reality is that most of the broadband applications people talk about and even seem to take for granted actually do not exist - or if they do, not on a large scale, reliable basis."

In theory, only the cable broadcasters are able to deliver the full potential of interactive television, as they use a relatively new, broadband network which is capable of delivering true video-on-demand. However, much of the running has been made by Open, even though it delivers its service via a combination of satellite broadcasting and local telephone lines, which are comparatively old and slow.

Open was the first broadcaster to offer a national interactive service, which launched before Christmas. It quickly demonstrated just how great the potential for ITV will be. Though the service was only available through untested technology in a limited number of homes, purchases through Open quickly hit £1m a week, beating all expectations. The service has been rolled out quickly and Open now provides shopping, banking and email services to 2.8m subscribers.

Sparkling long-term prospects

As these figures indicate, the short-term problems created by the competing platforms are dwarfed by the opportunities on offer. Public perceptions will change quickly once ITV services are actually being advertised and delivered to meaningful numbers of people.

The market researcher BRMB International now predicts that TV shopping growth may well outstrip the rise in e-commerce in the UK this year, while the Henley Centre for Forecasting predicts that digital TV will become the main channel for online transactions by 2008.

These predictions may well be conservative, as the promises made by broadcasters become reality. For example, when Telewest announced its results last week, one of the highlights was the faster than expected take-up of its TV and telephone services.

The pace can only accelerate as new services are launched - and Telewest also heralded the launch of Active Digital, which will offer a comprehensive range of interactive TV services. It promises to deliver email, home banking, shopping, and interactive entertainment via the TV by this summer. These services will be available to all Telewest's 110,000 digital subscribers, helping it increase its subscriber base to a predicted 500,000 by the end of this year.

Not surprisingly, Tony Illsley is predicting that interactive services "will drive significant revenue and margin streams." His confidence is evident in the company's strategy. It is already in the process of acquiring Flextech, owner of the Discovery Channel, and is looking for further acquisitions. In turn, Microsoft has just acquired a 29.7 stake in the loss-making company - a clear vote of confidence in its future.

Once NTL has absorbed the former Cable and Wireless network, it will have a subscriber base that already includes 2.2m homes and the potential to sign up a further 10m. However, it has been slower to launch its services - estimates suggest that interactive services will be available to around 250,000 digital subscribers by the end of this year.

Meanwhile, ONdigital and Open both look set to benefit from the widespread introduction of ADSL lines by UK telecoms providers. It is predicted that these will reach 80% of the UK population within three years. They offer these broadcasters a broadband line to homes independent of the existing cable network, giving them the potential to provide significantly improved levels of interactivity.

Most of the major players in broadcasting have spotted opportunities in ITV and are launching services to ensure they are fully involved. Recently, for example, the BBC proclaimed the launch of three new interactive services, made up of two text-based information services and Voyager, an interactive children's programme.

Unilever pioneers interactive advertising (br>
Most analysts agree that advertising will be crucial to the future of ITV. Last year, Forrester Research was forecasting that the total ITV market would be worth US $20bn by 2004, of which $2bn would be subscriptions, $7bn commerce, and more than half, $11bn, would be advertising revenue.

So Unilever's decision to run what is described as the UK's first interactive television advertisement last week represents a milestone. The ad, for Van Den Burgh Foods' Chicken Tonight sauces, offered the opportunity to receive a recipe book and a money-off voucher, with the option to see recipes via a link to a Website.

It exploited one of the key strengths of ITV technology for advertisers - the fact that all the data on viewers is already held in the system, so there is no need to enter address details or complete long forms. The viewer simply clicks on an icon to receive the on-screen offer.

News of the response levels achieved by the advertising is eagerly awaited - but they may be small, given the media strategy. While there was widespread press interest and PR teams obviously worked hard to gain the maximum news coverage, the ad itself was surprisingly difficult to find.

In fact, the advertising team was nervous of running a high-profile test on an untried system and, so far, the ads have appeared on relatively low rating channels. This is likely to be the route taken by other ITV advertisers, until they become more confident of the technology and have sufficient data to forecast response.

Agencies unsure of the future

It is an indication of the nervousness with which the UK advertising industry views interactive television. While some brave spirits have embraced the technology and are eager to sell it to their clients, many key industry figures have reservations. Unlike the Internet, where the US had a clear lead and it was easy to forecast that what had succeeded there would be repeated in the UK, there are no precedents for the development of ITV.

As a result, few companies have been willing to invest heavily. As a delegate to the TV 2000 conference in Lisbon commented, "It's a bit like the Wild West, where the pioneers are going in and getting scalped, then other people can come in and make a success of it."

Richard Forbes-Robertson is head of Mad Cow Productions, a leading UK TV production company, and advises some of the biggest agencies and clients in Europe on television advertising. He argues, "The claims are wonderful, but we want to see the reality. Advertisers are deterred by the number of competing platforms and are not sure how the technology will develop. It's not yet clear how quickly broadcasters will be able to deliver on their claims - and few advertisers will commit serious budgets until they have hard facts."

Even so, he sees enormous opportunities for ITV and Mad Cow has been one of the first production companies to source the new media skills required to provide ITV production facilities.

For others, the very pace of change is causing problems, as advertisers struggle to keep up with the latest developments. On top of that, there are cultural and organisational challenges to overcome in many of the largest advertising agencies, those on which interactive broadcasters might expect to rely for the majority of their income.

This is because large agencies tend to be rigidly structured to handle precisely defined fields of advertising and marketing. Above-the-line, below-the-line and online media divisions sit in different parts of the building - or different buildings - and rarely talk. Interactive television brings all these disciplines together and so may require new structures if its opportunities are to be fully realised.

Instead, many agencies have given responsibility for developing ITV strategies to smaller 'interactive' units filled with new media specialists. These lack the full creative, planning, production and account handling facilities normally associated with television advertising. At the same time, many clients are turning away from their normal agencies and going direct to new media companies for advice, even though these may have little television advertising experience.

Shake-up in ad sales imminent

The picture may be about to change. ONdigital, which, of all the ITV broadcasters, had been the least interested in pursuing advertising opportunities, has dramatically reversed its policy and is to recruit a 25-strong sales team to focus purely on interactive advertising. To put this in context, at the time of the Unilever ad, Open had just one advertising sales person.

Now BSkyB, Flextech/Telewest and NTL have responded with a proposal to merge their sales teams. It's a significant development, according to Tony Darell-Brown, Managing Director of Direct Broadcast Media Services and one of the UK's leading experts on direct response television media.

"If the alliance goes ahead as planned, it will give a real impetus to the development of interactive television advertising," he argues. "There will be one central source of information for the three biggest ITV providers, which will make it far simpler to plan, buy and produce interactive campaigns across the different platforms. That can only be good for the industry."

However, Tony also cautions that many of the answers simply don't exist yet. "Everything's new - not just for advertisers and agencies, but for the stations themselves," he points out. Where television companies themselves have not made key decisions about their services, they cannot provide the information advertisers need.

Once these issues are resolved, it's difficult to overstate the longer-term potential. Today, interactive advertising offers the opportunity to order a product or further information, plus the chance to click-through to a mini-Website which can give more information about what's on offer. On its own, this makes television a far more powerful advertising medium than ever before.

As the industry matures, there will be opportunities to run advertisements that use video-on-demand to play like games, offering different endings depending on the actions the viewer takes. At the same time, targeting will become far more sophisticated. NTL is promising that it will be possible to isolate viewers who have responded to a particular type of advertising before and send ads to this group only. Equally, it will be possible to target ads to a particular street or town, or to specific age groups and income-brackets.

How quickly will digital become the norm?

It will take more than developments in technology for this to happen. Enough people must sign up for digital broadcasting to make this kind of campaign feasible. Predictions suggest this will take several years.

Today, less than 3m households in the UK have access to digital TV, but this is forecast to rise quickly. A recent Government report on the Future Funding of the BBC predicts that there will be over 8m digital subscribers by 2003 and 18.5m by 2008. Broadcasters envisage that the growth in digital will mean that they can switch off the analogue television signal by 2010.

The rewards may be enormous for those who enter the field now, but equally, the risk of failure is high. Nicola Prehn is one of those who believes there's no time to be lost if you want to amongst the winners. She is currently writing her MBA thesis on interactive TV, while working with other* towards the launch of a new agency which will focus specifically on ITV advertising.

"Interactivity will change television advertising completely," she says. "Many people are apprehensive about getting involved, because so much has still to be decided, but we see this as an opportunity. It may take several years before the medium really comes into its own, but if you want to see the benefits when that happens, you have to get involved now."

All this is happening at a time when other new media also offer revolutionary routes to market. Developments such as ADSL, which offers much faster access to the web, mean that for many consumers, television and the Internet will offer increasingly similar experiences, accessed via the TV. As Nicola points out, "the combination will be perhaps the most powerful new medium of communication since the invention of the written word."

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Jon Dobinson is Managing Director of other*, a young and creative London-based advertising company, which creates television advertising for clients such as Newsweek across Europe. To comment on this article, please email jon@other.co.uk and itvt@itvt.com. Thank you.

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