More people surfing Web while watching TV

There's a growing number of consumers who are in tune with how the TV and Net feed off each other, according to a new study--and that trend could someday have a huge impact on the industry.

The move bodes particularly well for tech companies such as AOL-Time Warner and Microsoft, who are hoping to someday cash in on the convergence of the two mediums.

How and when convergence occurs is another matter, but in the meantime, Dataquest said that the number of adults who are integrating the Internet and TV experience on their own increased from 8 million in 1998 to 27 million in 1999, according to its survey.

They're being tagged with the nerdy moniker of "telewebbers," or people who surf the Internet on a PC while watching a TV, but the name isn't slowing the growth of this unusual pastime. Some 40 percent of these "telewebbers" interacted with a TV show's Web site at least once a week, the survey found. Others are looking online to see what TV shows are on while watching TV, still others just leave the TV on for background noise. This is not to mention the hordes that send untold millions of email messages each evening.

Promises of access to Net content, e-commerce and other services, and television programming via TVs have been hyped for years, but without much tangible success. The poll results on telewebbing therefore come as good news for companies such as AOL and Microsoft, which are promoting the convergence of Internet access and television programming through a single set-top box and entertainment that takes advantage of both technologies.

"The fact that the number of telewebbers is increasing attests to the potential for Internet functionality through television and interactivity in TV programs," said Dataquest analyst Sujata Ramnarayan, who authored the report.

AOL's entrance into the market for interactive TV services, in particular, will be the subject of much scrutiny. With the cost of the Time Warner merger looming over its head for the next decade, AOL needs to boost the bottom line with the new revenue promised by interactive services.

Merrill Lynch analyst Henry Blodget estimated in a new research note that the forthcoming AOL TV service could add at least $200 million in annual revenue for the combined AOL Time Warner. He based his number on an estimated $10 service fee plus $2 per month from increased ad and commerce fees if 10 percent of AOL's 22 million subscribers added the AOL TV service. Blodget said he thinks the devices could eventually appear in 30 to 50 percent of AOL's households.

Forrester Research thinks that interactive TV services could generate as much as $7 billion in commerce and $2 billion in subscription revenues by 2004. Advertising on electronic TV program guides alone could generate $3.2 billion in advertising revenue in the next five years.

There are already ongoing experiments in the area of television-based commerce, or what might be termed "t-commerce." New York-based 1-800-Flowers.com has been running interactive commercials on Echostar's satellite broadcast network that enables viewers to hit a button on the remote and order products from a special Web page downloaded by the receiver. Early results are promising, but even advocates of the technology say they have a long way to go.

So far, "TV-Internet convergence is clunky, but it's a first step," said Jim McCann, president of 1-800-Flowers.com. So-called "early adopters" are responding to the ads favorably, but it's too early to tell with any certainty if the mass market likes it, he said.

Blame reluctance on habit. Those in the industry say consumer habits and making interactive services easy to use remain key barriers. The TV-as-portal concept still also has yet to get a firm grip. WebTV has about 1 million subscribers, which is significant compared to most other ISPs, but AOL has 22 times that number accessing the Internet from computers alone.

Many of the several hundred orders received as a result of the ads may have simply been placed for the sheer novelty of it. Nevertheless, McCann believes that the technology does hold the promise to one day be a significant sales channel for the company.

"You can over-read the tea leaves," McCann said of both the Dataquest report and response to his company's ads. "It really has to be simple before you can reach a (mass market) audience."

Steve Hoffman, CEO of Spiderdance, sees telewebbing as an "organic convergence" that's grown purely out of people's Web surfing habits, and doesn't indicate that they won't adapt to new devices. Spiderdance provides server-based software that synchronizes TV broadcasts with Web-based content on PCs, and sees in its future a market for convergence devices like AOL TV and WebTV.

"I think it's a mental barrier more than anything else. People like to do things in patterns that they are comfortable with," Hoffman said.

Until those habits change, a growing number of other technology and service providers are targeting interactive, TV-like services exclusively through the PC right now, instead of WebTV or a hybrid TV and PC environment.

"Right now it's an unnatural act to have video on one screen, and then shift to a computer that's 18 to 12 inches away. That wreaks havoc on the cranium," said Roger Keating, president and CEO of Zatso. Zatso teams with local broadcast TV stations to offer video clips of news stories and in-depth information on the PC.

"What we are doing today is merging on the same computer screen video that viewers would otherwise be watching on TV," Keating said. Doing so is more a matter of practicality than anything; the PC audience is still larger than the growing core of telewebbers. But once the market adopts a device that can merge the Internet and TV, eventually Keating, too, sees his service being offered on the TV.

Dataquest's Ramnarayan, along with Blodget, said they think that interactive services will take off once companies are able to offer Internet access through multiple devices on a single bill.

"We believe that consumers will not want to access a different online service through each device but instead will want to access a single online service through multiple devices," Blodget said in his report. So far, he thinks, "(AOL) is in a good position to become the dominant consumer interface to interactivity across all devices."

If AOL TV, as well as the company's overall effort to offer service over phones and handheld devices, is anywhere near as successful as its efforts in the PC market, "We would regard it as analogous to Microsoft's control of the PC operating system," he said.