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Company tries tailoring ads to TV audience

An interactive TV company is preparing to let viewers receive ads, programming and sales pitches tailored to their tastes.

An interactive TV company is preparing to let viewers receive ads, programming and sales pitches tailored to their tastes.

Mountain View, Calif.-based OpenTV announced a deal late Monday with Predictive Networks, a marketing technology company, to begin building OpenTV's operating system for set-top boxes that incorporates profiling software.

Financial terms of the deal were not disclosed.

Under the three-year agreement, OpenTV's new operating system, due out this fall, will let marketers deliver targeted advertisements to consumers based on the shows they watch while maintaining consumers' privacy. The technology will also have a built-in mechanism that determines who's in front of the television based on how they use the remote control--an attempt to solve one the chief problems of one-to-one marketing on PCs and televisions with more than one viewer.

Industry executives say that the power to target advertising could mean additional ad revenues and could prove attractive to cable operators, which are increasingly looking to find reoccurring revenues. As competition in the interactive TV market heats up between the likes of Microsoft, Liberate and OpenTV, providers with tools to deliver targeted advertising via set-top boxes could gain advantage over rivals.

"It's one other tool in the box that will hopefully pay off," said Mark Snowden, senior research analyst at Gartner.

Predictive's software, already used on the Net by several Internet service providers including PSINet and AT&T WorldNet, collects data about consumers based on Web sites they visit or TV programs they watch and delivers targeted ads to those viewers. The technology uses artificial intelligence, not personally identifiable information, to determine someone's tastes and the kinds of ads that person might want to see.

In addition, the Cambridge, Mass.-based company can determine who is using the remote control based on that person's distinct typing pattern. "Of course, when you have three people sitting around the TV, we haven't solved that," said Devin Hosea, CEO and founder of Predictive. "We're working on it."

Still, by identifying the viewer, the software can better target ads and content based on the profile assigned that person.

"It doesn't ever ask the user to tell that they are a man or woman or anything personal about them. It just figures out who they are based on their viewing habits, creating a digital silhouette," said Hosea.

Despite such efforts to maintain consumer privacy, fears about Big Brother sitting inside the set-top box have haunted the interactive TV market. Because the set-top box is much like a PC, capable of storing information on consumer habits and whereabouts, there have been concerns that personal data will be used to create elaborate databases on consumer profiles and then sold to third parties.

Earlier this year, a well-known privacy advocate accused digital video recording company TiVo of misleading subscribers, saying it can gather more information about its subscribers' viewing habits than the company revealed.

TiVo acknowledged that it does collect information about what its subscribers watch but that it stripped names out of the data. The company said it plans to sell the anonymous information to networks and advertisers, but it has yet to do so.

Analysts say that despite such problems, anonymous profiling technology has a future within interactive TV.

"Once the fear of privacy violation dissipates and people get comfortable with the idea of receiving relevant content, this type of thing will become popular," said Mary Joy Scafidi, senior analyst at IDC. "And we'll probably see more of these partnerships."

Alec Livingstone, senior vice president of applications engineering for OpenTV, said that targeted profiling to sell goods and deliver ads help add to the bottom line.

"We've done enough with our customers to figure out what makes money; it's commerce and advertising that make money," he said. "You can increase the value of both of those by targeting. Then the advertising is worth more."

The interactive TV market is poised to generate $19.2 billion annually by 2006, according to recent research from Allied Business Intelligence. At the end of 2000, 14.9 million homes worldwide used interactive TV. By 2006, the report predicts it will be in more than 244 million homes.

Interactive TV offers features such as digital video recording, video on demand, pay-per-view events, TV-based gambling, commerce, interactive gaming and Internet access. OpenTV software is used to operate roughly 16 million digital set-top boxes worldwide, primarily in European countries.