Major advertisers are relishing the power of interactive TV - a medium that allows viewers to shop, email, play games and control what they watch - to target finely-tuned audiences.
There is a hitch. New technology, such as personal video recorders, also enables viewers to skip commercials.
But from an advertisers' perspective, interactive TV, or iTV, can provide vital information about consumer preferences, and the industry is rising to the challenge.
Last week, Coca-Cola Co. launched its first interactive advertisement via service provider RespondTV. Viewers with digital set-top boxes can use a remote control to click on an icon of Coca-Cola's popular "Polar Bear Twins" and have a toy bear sent to them in the mail, free.
And Coca-Cola Co. is not alone.
Wink Communications Inc., a creator of iTV ads, has clients that includes automakers General Motors Corp., Ford Motor Co. and DaimlerChrysler, home product makers Unilever Plc and Clorox Co. and financial service firm Charles Schwab Corp..
"(iTV ads) are yet another way to reach out and touch consumers directly," said Coca-Cola executive Mart Martin. "It's the connection. You can watch a cute little polar bear on our commercial, click on the icon and we will deliver it right to your door."
A NEW DIRECT MARKETING TOOL
Technology research house Forrester estimates that the traditional commercial model provides TV networks with some $75 billion a year - a figure which is expected to peak at $86 billion by 2003 - while new forms of advertising could generate $17 billion in new revenues by 2005.
As a mass market medium that reaches millions of viewers, advertisers have traditionally never been sure whether consumers are watching ads or going to the kitchen or bathroom. As a result, the primary goal of an advertisement is to blitz viewers with a message and build brand awareness.
But iTV changes that model and makes the TV a direct marketing tool in the same way companies for years have used the postal service to target specific consumer groups.
That idea scared the major broadcast, cable and satellite TV networks only a couple of years ago because it would give advertisers information on exactly who was watching ads and whether they were interested in the products being sold.
Although privacy issues are still bound to arise, most companies and marketers are quick to say they will respect the consumer's right to have their private information kept private.
And the intimate contact with the consumer is considered invaluable.
"The economics are such that the contact - the name of the consumer - is worth 100 times as much as a general impression," said Josh Bernoff, principal analyst with Forrester.
Personal video recorders from the likes of TiVo and Replay TV, which are having their software put inside the TV set-top boxes of many iTV systems, have so far proved that viewers are fed up with old-style advertising and often choose to skip commercials.
In common with others in the industry, Scott Sassa, President of NBC West Coast, said advertisers will have to create more exciting ads to keep viewers glued to their sets.
He likened the situation to magazines like "Vanity Fair" or "Fortune" to which people often subscribe for the sake of their advertisements.
For major networks in the United States, widespread iTV is probably more than five years away, as cable, satellite and broadcast TV operators upgrade systems to handle the prerequisite digital signals.
But the market is growing rapidly. Forrester expects about 4.9 million U.S. homes to have interactive video by the end of 2000, rising to 12.2 million in 2001 and 65.2 million in 2005.
And Europe is further down the road. Britain alone is expected to have more than four million interactive TV homes by end 2000.
Bernoff sees the amount of traditional ad money lost five years from now to be about $18 billion, whereas revenue gained from interactive video and other services would be about $23 billion, for a net gain around $5 billion.
As the market grows, TV networks are expected to be paid by advertisers on the basis of the number of customer contacts made when ads air. At a later stage, they will share in any t-commerce sales generated from a specific ad.
A question that remains is whether viewers want to sit up and work with the TV or recline on the couch and watch.
In Britain, where penetration of digital technology into homes far exceeds the U.S., iTV provider OpenTV launched its service in October last year and now reaches about one in six British homes.
More than 10 percent of those homes have bought a product over the system and of those, 35 percent are repeat buyers.
"The idea that the television was somehow not meant to be interactive is as silly as saying the PC wasn't meant to be interactive," said RespondTV President Richard Fischer.
It was only about five or six years ago that the average PC was good for little more than word processing and spreadsheets - and we all know the Net has changed all that.