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Universal is saving best features for television platforms

Almost lost in the Internet hype of the last few years has been the concept of the Web as a proving ground for interactive television.

Now that the Net has suffered its comeuppance, the ITV model has resurfaced; and Universal Music Group is about to raise the bar by offering a broadband Internet service that will eventually migrate on-demand music videos to a television platform with Canal+, Diva Systems and possibly other partners. Last September Universal launched The Viewing Lounge, a broadband service that allows Net music fans to choose from categories of music--contemporary, hip-hop, pop, country, etc.--and play a 15-minute set of videos with a click of the mouse.

The site's only source of revenue is a link to Get Music for purchasing CDs.

So far all videos are from the Universal label, but Lisa Farris, SVP-market development for Universal and its eLabs division, says her company is negotiating with other labels and intends to offer them on the upcoming commercial and ITV services. Even limited to Universal titles, The Viewing Lounge has been attracting 75,000 repeat visitors each week.

Although its online music videos are currently available on the open Internet through TVL.TV and other sites, Universal has partnered with RoadRunner, Excite@Home, Sprint and SBC to offer its upcoming commercial service, due to launch in the next two months.

"Once we launch commercially, our agreement with our affiliates is that our open Internet version will be scaled back to [fewer] videos, not as much customization, and quality limited to a certain bit rate," says Farris. "So you will get something less--a scaled-back service."

Viewers on the closed systems will see higher quality video, however, because the service originates from a server inside the network, instead of traveling through the open Internet, she says.

The test run on the open Net has allowed Universal to fine-tune its service for commercial Net and ITV use. For instance, one choice currently given Net visitors--random play, which mixes music from different genres--has received a tepid response, and will be replaced by a Latin music button.

Also with the commercial launch will come ad revenue, and eventually e-commerce, t-commerce and on-demand fees. Under its current contract, Universal will split revenue 50-50 with its affiliates, Farris says.

Like many other companies active on the Net, Universal has come to the conclusion that no single source of revenue will be sufficient, says Laura Bowling, VP-product development. Universal's interactive business model calls for revenue from ads, commerce and eventually on-demand services.

Ads will run TV-style, as part of the video and audio stream.

"Our site is banner-free," Farris says proudly. But a separate "action" window that allows a customer to click and buy, or receive more information about a product or service, will accompany the streaming ads.

Universal has been preparing its on-demand service since launching The Viewing Lounge last year. The company made an early decision not to allow customers to choose their own videos to whet their appetites for the planned pay service. When on-demand videos are launched as part of the commercial service, the virtual console that viewers see will remain intact, but a currently inactive red switch on the side will be activated, allowing viewers to compile their own music list.

Universal has yet to determine whether the videos will be offered on a pay-per-view or subscription basis. One possibility is a 24-hour rental window.

When the broadband Net service is up and running, Universal will launch its ITV initiative with Canal+ and Diva in the first quarter of 2002, Farris says. No cable operator partners have yet been announced, but negotiations are under way.

The Canal+ version will run on higher end boxes, while Diva will cover the lower end.

"We're technology agnostic," says Bowling. But she notes that in order to satisfy Universal and allow use of The Viewing Lounge brand, the company insisted that ITV providers meet a minimum level of interactivity.

The providers were eager to comply.

"Diva's vision has always been that video-on-demand is much more than just movies," says Bev Doughty, Diva's VP-programming and marketing, who notes that her company can supply The Viewing Lounge to all currently deployed digital set-top boxes in the United States.

Along with the Net services, the ITV version will offer "karaoke" features, such as running lyrics on the bottom of the screen so shameless--or solitary--TV viewers can sing along. Farris says fans have also demanded lyrics-on-demand, and those will be available in a separate window; Universal also plans to offer movie trailers with its music videos. All of this will be easily operated with a TV remote control.

Once the service is established, Universal estimates that 30% of its revenue will come from ad sponsorship, 20% from affiliate fees, and the rest directly from consumers, with music-related products at 1045% and music VOD at 35-40%.

Farris says that while Universal is ready for ITV early next year, the actual rollout will depend on its partners. The company will be happy with a few hundred thousand subscribers initially, she says.

"We know (the service) will augment what we are doing in this space," says Farris. "However, we believe that it could be something of substance in the next few years. It depends on how long it takes for set top boxes to roll out and how quickly the cable operators deploy these services."