A costly experiment is drawing to a close for Pacific Century CyberWorks: the plug is finally being pulled on iTV. But does it signal a bleak future for interactive television or video-on-demand (VoD) services on the local entertainment landscape? There is little doubt that iTV was ahead of its time. It was an impressive service to have been launching back in 1998, even if it had a clunky beginning in terms of technology reliability. It was the world's first commercial VoD service - allowing instant access to movies and a range of other online activities like shopping, karaoke, music, racing and banking. It was launched at a time when most people in Hong Kong were only just hearing about the Internet, never mind using broadband to deliver interactive services down a telephone line - as iTV did. Everyone has their own view of what went wrong but they roughly condense into three areas: a lack of suitably compelling movie content; the ease of obtaining cheap pirated VCDs on the street; and that iTV was offered over a proprietary platform and users could only access the limited 'walled garden' of content that CyberWorks (or Hongkong Telecom originally) chose to put there. In contrast, the Internet was open, cheaper to access and users had a vast array of online destinations. But iTV has left Hong Kong a very positive legacy - a leading position in broadband Internet. Initially, broadband was attached to iTV as a sideline product but it was later de-coupled and the price cut to an affordable HK$190 per month. Hong Kong now ranks among the top three markets for broadband penetration worldwide. Having broadband in so many homes begins to create a market to deliver video and interactive content not to the television but the personal computer. This 'scaled-down' approach to VoD is the one that has been more commonly used elsewhere. In Singapore, SingTel's Magix VoD service to the PC has not been that successful but has at least recovered the costs of its investment. In South Korea - the market with the highest broadband penetration in the world - users can choose from several providers of VoD services to the PC. Indeed, both CyberWorks and i-Cable Communications now have their own multimedia content offerings, including video-based content, to the PC. However, it is widely accepted that the future of VoD is not on the PC but on the TV. It is a well rehearsed argument that people generally do not like to watch movies on their PC, preferring instead to lie back in an arm chair and watch them on TV. But as iTV found, bringing VoD to the TV is a risky business, involving expensive set-top boxes, proprietary standards and, most importantly, a business where the profit model remains unclear. Naturally, attention is now focused on whether Hong Kong's new pay TV operators have the ability to survive if iTV could not. Of the five companies that won licences last year, only Yes TV (via telephone lines) and Pacific Digital Media (via satellite) have committed to rolling out services. In form, Yes TV's is the most like iTV. It is concentrating on offering VoD and a range of streamed broadcast channels delivered via phone lines and set-top boxes. It, too, has had problems: CLP Telecom - which was set to be a major backer - pulled the plug on its involvement in January. Given the uncertainty and the cost, getting investors to put money into this sector is tough. It is something of a Catch 22. Operators are reluctant to move forward until they can find a business model that works but these will not emerge until business takes the plunge and explores them. News of iTV's demise will not make investors any more confident. However, despite the present negative sentiment toward the telecommunications and media businesses, moves are being made across the region to launch VoD services to the TV. Taiwan should emerge as a market to watch. The state-owned dominant telecoms carrier Chunghwa Telecom wants to move ahead with a 20,000-user trial of VoD and streaming television services over the telephone - the launch has been held up over arguments that it lacks a pay TV licence. At the same time, the cable TV companies have plans to launch their own VoD offerings over their networks. Taiwan already has very high penetration of cable TV into homes and it should prove an important test bed for the popularity of content 'on-demand' over 'scheduled'. Beyond the technology and business models, the key for this industry is content and applications. ITV failed because it did not get access to show the content that people wanted to watch. Others will fail too, if they cannot make their offerings appealing. There is evidence that while Asian audiences like their pop stars and soap operas to be local, when it comes to movies they want to see the big international blockbusters more than anything else. Hollywood movie studios that control this material are still grappling with the business and technology issues: how to distribute their movies electronically without them being copied and passed around the Internet for free. Slowly moves are being made and studios are beginning to make deals that allow their movies to be used for VoD services. Intertainer, a third party aggregator of movie content, claims to have deals with four large Hollywood studios that will allow it to distribute their products over broadband. It is rolling out services in Hong Kong through CyberWorks' NoW broadband content channel. At the same time, the interactivity of broadband and interactive TV services open the way for new applications. Research by music channel MTV has found that many of its viewers are surfing the Web for information at the same time as watching its programmes. This indicates that a whole new 'package' of offerings combining several media around a theme may be more interesting for the consumer of the future. The failure of iTV showed that the move to more widespread VoD interactive TV services will probably come step by step rather than with any big bang. Will Hong Kong suffer as a result of iTV's demise? Not really. With an increasing base of broadband users, Hong Kong is well positioned to form part of the next wave towards an interactive entertainment world. Andrew Chetham is a senior analyst (Asia-Pacific telecommunications) for Gartner in Hong Kong.