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Interactive TV tunes into privacy concerns

Consumer advocates charge that interactive TV companies are counting on targeted advertising and Big Brother tactics to turn a profit--at the expense of privacy.

When David Limp bought a new computer, he installed 15 software packages and spent hours hunting down the checkmarks that would have automatically opted him in to spam and a range of unwanted services.

"I missed a couple, and now I have an enormous amount of new e-mail," Limp complained. Targeted pitches can pose an invasion of privacy, he said, noting that viewers are not going to tolerate that kind of encroachment over their television programs.

"A spam that walks on top of the final episode of 'Survivor' is not tolerable, and I hope with my very small sphere of influence I can prevent that," Limp said. The odds are with him, considering that as chief strategy officer of Liberate Technologies--the company building the software that allows cable companies to monitor TV viewers--he has an impressive sphere of influence.

Consumer advocates charge that interactive TV companies are counting on targeted advertising and Big Brother tactics to turn a profit--at the expense of privacy.

While the debate over privacy rages on, financial analysts have been quietly picking up coverage of the sector, and they're betting that wherever the line is drawn, companies in the interactive TV field are bound to succeed. Williams Capital Group on Tuesday raised its stock price target on Liberate Technologies, adding that momentum is building for interactive TV. Other brokerage firms have recently issued optimistic research notes and started tracking the sector.

Meanwhile, cable companies and other players in the interactive TV industry are trying hard to ensure they don't make the same mistakes as DoubleClick, a company that has been criticized in the past over privacy concerns.

Rewind to January 2000. DoubleClick, a successful Internet advertising firm, then valued as high as $134 a share, announced that with its purchase of offline market researcher Abacus Direct, it was going to create a database of consumer profiles that would tie Web surfers' online purchase histories with their real-world statistics, including name, address and demographic data.

The news outraged privacy advocates and put the company in a sticky legal situation that dented its stock price and sparked a firestorm.

Even though the plans to combine the data were quashed, DoubleClick's practices are still a contentious issue.

"We're heading for the same set of mistakes the Internet made," said Jules Polentsky, chief privacy officer at DoubleClick, who spoke in a panel discussion on privacy and interactive TV at the ITV Content E-mergency conference hosted by Columbia University's Interactive Design Lab in New York in July.

He said that if DoubleClick could do it all over again, "We would have worked out the rules in an open environment. That should be done in advance before going ahead and doing the most robust data collection."

He advised the interactive TV industry to work on "getting ironclad rules, and getting them off the table." That's because, he said, "when there's no rules, it's chaos. Businesses don't know how to compete."

But the border between private and public space is anything but well defined. The Cable Communications Policy Act of 1984, which prohibits cable companies from collecting and disclosing information about users' viewing habits, doesn't cover users of satellite or telephone-based systems. That leaves most of the country in hazy territory.

Big Brother is watching
Several companies have already hit the "play" button on business plans that monitor consumers.

TiVo's personal video recorder allows viewers to record and watch their favorite shows at any time, and it tracks their choices along the way. The company's subscription service then provides an interactive program guide and suggests shows based on individual viewing habits.

ACTV is working on a service with Motorola and OpenTV, called SpotOn, that will offer targeted, interactive advertising. Liberate makes Web-access software for set-top boxes, smart phones and other next-generation appliances that can track users.

OpenTV's software for digital interactive television also allows targeted advertising and "t-commerce," or television-based commerce, while viewers shop, bank and use e-mail.

And cable companies have their hands in the pie already: AOL Time Warner owns a 15 percent stake in TiVo, AT&T unit Liberty Media Group owns 15 percent of ACTV and International pay TV company MIH Limited controls 90 percent of OpenTV.

All this amounts to a "spy in your home," the Center for Digital Democracy charged in a June report entitled "TV That Watches You: The Prying Eyes of Interactive Television." The 30-page report says that in the face of industry opposition, no action is being taken to prevent the collection and distribution of data about TV viewers.

The report says the NCTA (National Cable & Telecommunications Association), which represents major companies like AOL Time Warner, AT&T and Cox Communications, has been trying to revise the Cable Communications Policy Act to eliminate most restrictions and give cable companies the same ability to monitor consumers that an Internet service provider would have.

Industry advocate group Association for Interactive Media (AIM) has issued a reply to the report, calling it "misleading" and arguing that cable and interactive TV software companies are in no danger of violating privacy standards.

Columbia University's privacy panel brought the two groups head to head to hash out the issue further, revealing that it isn't as clear-cut as either group has said.

AIM said the 1984 cable act specifically governs how any enhanced or interactive cable TV service may treat personal identifiable information; it prohibits them from sharing information with any third party without user consent.

Interactive TV "falls under the existing cable act; they can't sell to third parties," said Ben Isaacson, acting executive director for AIM.

But Jeffrey Chester, executive director of the Center for Digital Democracy, sitting on the edge of his chair throughout the panel and speaking directly to the audience, argued that all a cable company has to do is send users to a Web environment, and they won't be protected anymore.

Chester's main beef is that the technology to monitor viewers is being built into interactive TV--enabling devices before the rules even get ironed out. "TiVo is a good example of how companies will set the agenda: Half the hard-drive space is reserved for them to sell to advertisers," Chester said.

A TiVo spokesperson called that allegation "preposterous," and explained that the company has talked about dedicating hard-drive space for advertisers but has yet to do so.

The company has come under fire for not fully disclosing its privacy policy in the past. The Federal Trade Commission is questioning whether TiVo adequately disclosed its collection of viewing habits, and whether the information it collected became connected with personally identifiable information in its servers.

As a result of the FTC's inquiry, sparked by a Privacy Foundation report in March, TiVo filed a white paper to the FTC, explaining its policies and practices in detail.

TiVo explained in the white paper that at no point does the information it collects become connected with personally identifiable information.

However, the company does automatically opt users in to a data-collection plan that covers what it calls "anonymous viewing habits," and sells that information to advertisers, cable networks and "other third parties."

This information enables TiVo and third parties to determine other shows or advertisements viewers would be most interested in seeing, the company said. However, users must give TiVo permission, through opting in, before the company can collect "personally identifiable information," which connects viewers' habits with their identity.

TiVo's spokeswoman said the company won't divulge to the public the number of customers that opt out of anonymous data collection, or opt in to personal information collection.

She did say that the FTC approved the company's practices as "sound" since the white paper was filed, but she added that there is room for TiVo to improve communication with customers about its practices. It currently informs them through its Web site, manuals and e-mail.

Engineering safeguards
Industry analysts and company executives said they're building their technology with privacy concerns in mind.

"It's so early on you could design privacy safeguards into the technology from the outset," said Gerard Klauer Mattison analyst Michael Cristinziano.

That's just what Liberate is working on, according to Limp. "As an industry we are trying to be proactive. You want to be ahead of the technology. The Wild West nature of the Internet was that the technology got ahead of the policy," he said.

"Privacy issues around TV are paramount to what we're doing," Limp said, so Liberate is doing two things to ensure it doesn't pull a DoubleClick. The company is building all its technology so that customers will have the option to opt in, and once they have allowed access to personal information, Liberate throws up tight security around it to guard against intruders.

"People's relationship with TV is an intimate one; mess with it at your peril," Limp said. "Think about the Nielsen family," he urged. Nielsen asks and then pays viewers for the privilege of collecting data about them. It's a very different standard from the thousands of cookies that collect data about Internet users every day, he said.

The financial promise
Fast forward to 2006. There will be 61.5 million interactive TV cable and satellite users, according to statistics from the Carmel Group. And cable companies can count on subscriber revenue as well as advertising dollars; this means that, unlike the Internet, which offers its content for free, targeted advertising may not be as essential for these companies' financial success.

That's a reason some industry watchers, as well as financial analysts, don't think privacy will be the kind of business-breaking concern it has been for Internet companies.

I'm not up on privacy issues, admitted analyst Cristinziano, who covers interactive TV companies from a financial perspective. Though some companies may be affected by privacy legislation depending on how much they rely on advertising, "in any case, there will be lot of money made," he said.

Ilario Pantano, senior partner of interactive-TV consulting firm Filter Media, who also spoke at the panel on privacy and interactive TV, has another take. Companies are "more interested in competitive practices than aggregating data for advertisers," so by concentrating on what consumers want, the industry is likely to regulate itself.

"Especially in a cable environment, privacy becomes one more level of the service offering," Pantano said. "The extent to which your data is protected is part of the competitive offering."