Major initiatives are looming to boost the service's interactivity and personalization.

IPTV today is just beginning to reach U.S. households in major metro areas, but it is already delivering more than entertainment. More personalized content — such as on-demand access to stock quotes, sports scores and weather/traffic reports — is already showing up in early versions of the service. Richer search capabilities, interactive games and, where legal, network-based video recording services also are at hand or on the immediate horizon.

These capabilities are giving IPTV a somewhat different look from existing cable TV services, but they haven't yet established it as something unique — although IPTV technology companies say that time is near.

“We've seen some coming into the experimental phase, but nothing has hit the market that makes you say ‘Wow,’” said Vince Vittore, analyst for Yankee Group. “The biggest differentiator is going to be on the wireless side, when IPTV providers have the ability to have all those eyeballs — the combination of wireless subscribers with the IPTV subscribers — but that is still very much in the works.”

The “in the works” description applies not just to the technology, much of which is in the labs or even in field trials, but to the business case of such potential new IPTV features as targeted and interactive advertising.

In any case, IPTV is beginning to live up to its potential as a differentiated entertainment and interactive service. Here's what those new features look like, today and in the immediate future.

Both Verizon, through its “widgets,” and AT&T, through new interactive features, offer subscribers the ability to access information such as stock quotes, weather forecasts and traffic information. AT&T customers set up preferences through a “U-bar” on their PCs; they then access the information on the TV screen. A new feature at YellowPages.com lets users conduct interactive searches for local businesses on the TV screen, as well.

Interactivity, however, still has a long way to go.

“We see a lot of interest in interactive overlays or magazine-type formats that is coming in,” said Tiaan Schutte, vice president of the convergence business group for Alcatel-Lucent. “There is information in deep portals within the video channels, but it is tied to user interest and activity. If you are watching a show on CNN and you want to go deeper, you can click on something and see a split screen with more channels. You can make it as integrated as you want, or you can go to a CNN portal, explore RSS feeds being scrolled over your screen, or it might display four channels in a split screen, and you navigate to the one you want to watch.”

The capability is being tested right now, but it could be available as early as Q1 2008, Schutte said.

Beyond finding specific information within shows, however, IPTV has the ability to answer the age-old issue of “500 channels and nothing to watch,” said Christine Heckart, general manager of marketing for Microsoft TV. She believes it has the ability to make the entertainment/information experience of video in the home more enjoyable and less stressful. With the launch of its Microsoft Mediaroom brand last June, the software giant introduced new features such as home media sharing.

“What consumers are really interested in is having a good experience,” Heckart said. “Many people cannot find something they want to watch, or they don't know how to find things they might want to watch. Making TV more on-demand can make this experience easy — and not expensive — so that it is a standard part of the service.”

IPTV's advantage, Heckart said, lies in the difference between “search” and “discovery.” Making it easy to search for content via keywords or other things such as actor's names is one challenge. Enabling consumers to discover content that matches their interests is the more compelling proposition, she said.

“Discovery is the hard problem, and we haven't fully cracked the code, but we will,” Heckart said. Part of that is being able to predict what viewers want to watch based on previous viewing, and part of it is erasing the “silos” of content that exist today — broadcast, recorded by user or on-demand — so that consumers can perform comprehensive searches. Another critical piece is making the user interface for all this activity simple to operate.

“The ease and pleasantness of the experience with Mediaroom is going to be something we use to differentiate,” Heckart said. “We have a set of researchers whose jobs are just to do that. We are constantly comparing ours with others and specifically seeing what users report, so in places where we are not easy to use, we can correct the problem. We are using rich metadata in ways to make the experience easy and intuitive, and I think that puts us at the front of a new field in figuring out how to do discovery very easily.”

Part of Microsoft's research also involves looking at the different types of consumers and how they view TV and entertainment so that products can be developed that target specific consumer segments or meet their experience needs. (See sidebar on page 26.) Of the nine consumer groups Microsoft has defined, its efforts are focused on five — Trendsetters, TV technologists, Moderates, Individualists and Simply TVs — as the likely candidates for new and better TV experiences.

Outside the U.S., particularly in the Asian market, online games and features such as karaoke are popular IPTV attractions, said Weijun Lee, vice president of ZTE USA. “Karaoke is very popular in China and Asia,” he said. “Online gaming over the IPTV platform [and] video monitoring using IPTV for enterprise services [are] also popular. Online albums, based on media hosting where you upload to a Web site but you can see it on a special TV channel so that parents and grandparents can watch it — these are all features beyond traditional cable TV.”

For example, video monitoring also allows parents to see their children in a day-care setting through online access to the day-care provider's video system, he added. Other services still being tested enable viewers to locate additional information about things such as how to purchase the dress worn by an actress in a drama.

“The business model needs work, yes, but this is the advantage of IPTV,” Lee said. “The advertising, e-commerce and entertainment are all built on the same platform, so it is easy to put all these services together. You could do the same functions over cable TV, but you would have to pick up a cell phone and get out a credit card. We will be able to make the transaction simpler.”

In areas where network-based digital video recorders (DVRs) are legal, the ability to search for content that has already aired but is stored within the network is popular as well. Providers decide how far back they are willing to let viewers look — a day, a week or more — depending on how much they want to spend on network servers.

In the U.S., network-based DVR capabilities are illegal pending further appeals of a case involving Cablevision, but cable operators such as Time Warner have negotiated rights with content owners to offer a similar look-back service — but one that doesn't have the ability to fast-forward through commercials.

One of the big promises of early advertising, notably from AT&T, is the ability to carry content with you as you move from a TV to a cell phone to a PC. While still a major promise of IPTV, that capability is not a reality in today's market.

“At the next level, we will make the experience for the consumer pretty dramatically different in terms of having the home connected and making the experience simple, elegant and non-stressful to not only find content, but to take it with you to other devices in other locations,” Heckart said.

IPTV services such as AT&T's U-verse already offer more diverse DVR capabilities, including multiroom recording and playback, but providers want to be able to include picking up recorded or live content on a cell phone screen as you leave the house. In-home networking capabilities already enable things like personal slide shows, based on digital photos stored on a PC, and personal music played on a home entertainment center.

It's not entirely clear how Web-based video will make the jump from PC to TV, analyst Vittore said, because of differing quality expectations.

“Nobody expects a PC-based video to have HD-quality,” he said, “but when you start moving to the big-screen TV, expectations change.”

One of the reasons Verizon believes its fiber-to-the-home FiOS build is important is that the upstream channel will enable more user-generated content to find its way into the IPTV realm, its chief technology officer Mark Wegleitner has publicly stated. That would provide a major differentiator over the limited upstream bandwidth of a cable system.

An all-fiber system also has advantages in terms of maintenance, service continuity and quality, said Bill McDonald, director of marketing for Centillium, which makes silicon for passive optical networks (PONs).

“Cable companies have beaten up satellite companies for quality issues for years,” he said. “With an always-on, high-quality PON infrastructure, service providers could turn that competitive message on its head and argue that your fuzzy 1970s-era cable connection is much less reliable.”

WHICH TV WATCHER ARE YOU?

Through its research, Microsoft has identified what it calls nine TV “personalities” based on the way people use and enjoy TV and other entertainment options. By going online to http://mstvpoll.ignia.com and answering 11 questions, you can determine your type.

Value maximizer

This individual focuses on value and will buy rather than rent DVDs to watch more than once. Any TV service has to be something everyone in the family will use and enjoy a lot to be a good value.

Simply TV

This person has time to relax and enjoys watching TV, especially sports, and likes the idea of watching on his or her own schedule, if it's not too hard to do. This individual likes to watch TV, go to movies and rent DVDs, but isn't interested in the technology.

Satisfied status quo

This group loves TV and spends a good deal of free time watching favorite shows and movies. Having a lot of channels is important, but there's little incentive to change what's working right now.

Trendsetter

Entertainment is important to this group; being on top of TV, movies, games and music is part of their social life. Trendsetters want entertainment services that are easy to use and buy, but they aren't afraid of technology.

Moderate

People too busy to watch much TV, who therefore want to maximize their time by watching what they want with their family. For budget reasons, they may get music and TV over the Internet.

Individualist

This person doesn't find TV of much value but would like worthwhile programming that is sometimes hard to find, such as arts, documentaries, sci-fi and foreign shows. Packages of channels and services have little appeal to one who will spend money but is very particular.

Moderate

People too busy to watch much TV, who therefore want to maximize their time by watching what they want with their family. For budget reasons, they may get music and TV over the Internet.

Show-me

Individuals in this group often have TV on as background noise and don't prioritize entertainment as a spending option. They do go to movies, rent DVDs and occasionally buy a pay-per-view show, but they would have to be convinced to try new TV features.

TV technologist

In addition to loving entertainment, a TV technologist wants to have the latest and greatest in TV innovations, but also wants everything to be easy, including purchasing, setup and use.

Otherwise occupied

People in this group are too busy to watch TV and often don't find much that interests them. They do watch with their kids, however, and want more family-friendly programs. They also buy a lot of music.