Enhanced content is pivotal to the future of TV networks, but today’s industry practices won’t scale to future demand, according to a new Report by Forrester Research (Nasdaq: FORR). To survive, channel networks must adapt to multi-revenue TV — supplementing advertising with new revenue streams. Other industry players must regroup and find their place in the new TV supply chain.

“Obviously, programme enhancements must come second to the quality of the regular content itself,” said Forrester analyst Tim Grimsditch. “So, why is enhanced content so important? Because enhanced TV can provide companies with the premium content and new revenues that they desperately need. Indeed, terrestrial channels need to fight audience fragmentation, digital channels need additional revenues and pay-TV providers need a differentiator.”

As the industry realises the strategic importance of enhanced TV, the amount of interactive content produced will rise dramatically, supported by an influx of cash from new interests like advertisers and technology providers. The TV industry will fail to keep up with the demand owing to three critical weaknesses: 1) cost-plus budgets fail to account for new revenue potential; 2) the creative-commercial divide makes negotiations impossible; and 3) putting networks in the production process muddles the supply chain.

Enhanced TV complicates the economics of today’s networks by mixing traditional revenues with new interactive cash flows to create multi-revenue TV. To thrive or even survive in multi-revenue TV, the networks must scrap the traditional programme budgeting process and begin directly comparing the costs and revenues of new programming. They must also close the gap between internal creative and commercial interests by creating a broadcast business team and ultimately remove themselves from the production chain by outsourcing technology management.

Once channels have adapted to a multi-revenue world, the enhanced-TV arms race will begin providing new roles and revenues for companies in the industry. However, multi-revenue TV won’t be a repeat of the Internet circa 1999. Marketers and retailers must carefully assess their opportunity to stop costs from outstripping revenues. Meanwhile, today’s intermediaries must evolve their offerings to match the needs of their clients. Finally, production companies must work within the existing industry framework to attract new revenues from increased production spending, technology template licensing, and marketers’ research and development budgets.

“Despite the hype about interactive programmes built around car brands and buy-what-you-hear music programmes, commissioning editors will still hold the balance of power,” added Grimsditch. “In light of this, marketers interested in creating interactive programmes must focus on finding a balance between infomercial and compelling content. Retailers will have an easier task of creating compelling content, but revenue shares will slash margins.

“The notion that enhanced TV will change the balance of power between channels and production companies is misplaced. Rather than wait for these problems to be corrected, production companies must make the best of the current environment and fight for enhanced-TV projects, exploit technical rights, as well as attract marketers and retailers by promoting the potential benefits of enhanced TV.”

For the Report, “Changing Channels For Enhanced TV,” Forrester interviewed 60 executives from production companies, channel networks, pay-TV operators and technical agencies.