The future of European TV is being bet on gaming.

The European TV landscape has changed dramatically in the past five years. The proliferation of digital channels and the Internet have cannibalized and dispersed the audience. Advertisers, once the backbone of commercial broadcasting; are refusing to stump up the cash to reach an ever-declining audience.

As a result, the European TV industry--from niche digital channels right through to some of the industry's largest commercial terrestrial channels, such as U.K. commercial broadcaster ITV--have embraced new ways of generating revenue by leveraging the audience's love of interactive services, especially gaming.

Content creators such as Endemol, producer of Big Brother, and Celador, which brought us Who Wants to Be a Millionaire, realized years ago that getting audience participation through premium rate telephone lines--and latterly through premium rate SMS (cellular text messaging) services--not only allowed for better brand buy-in from the audience, but was also a valuable new revenue stream. The reduction of advertising revenues in European TV has helped this area become one of the key new revenue drivers among broadcasters and content creators.

But while simple premium rate interaction has proven lucrative, many within the European TV industry are looking at how to drive this model to its maximum potential and make more money. Currently, the key driver is adding a gaming element to program interaction.

Speaking at the last World Telemedia conference in Budapest--the leading European conference and exhibition for interaction services--key players from across the media stressed the importance of gaming as the next stage in developing TV interactivity as a truly viable alternative to advertising revenues.

Sarah Bellamy, head of Gaming at Endemol, said the time is right to offer them much more exciting interaction opportunities. "Terrestrial TV stations held off from call-TV for two years, because they were focused on chasing ratings," she said. "Now that ad revenues have fallen so dramatically, even [terrestrials] are embracing call-TV shows--which means that it is very mainstream and ripe to be exploited further."

In the call-TV business model, a content creator inks a deal with a telecommunications service provider (usually an incumbent Telco like BT in the U.K., or Verizon in the U.S.) to provide the call-in platform--typically offering phone and text and, in some cases, email options. The platform supplier (i.e. the Telco) will offer calling rates and agree with the program maker and telephone network operators that will carry the calls on how the call revenue should be split. This can be anything from 80:20 in favor of the network operators (i.e. Telcos) to 20:80--it all depends on the show and what sort of call levels it is going to get.

Once this is in place, the program makers agree on a separate split of their slice of revenue with the broadcaster. Big Brother in the U.K., for instance, has a 60:40 split between program maker and network operator and a 60:40 split between broadcaster and program maker.

Simple gaming added around TV shows has generated a lot of money for some broadcasters. They simply put up an anagram quiz and a premium rate number and watch callers pour money into the system. However, these services don't offer the brand loyalty around the show itself that many broadcasters see as essential to making call-TV/gaming-TV business models sustainable.

Additionally, with so many call-TV quizzes on terrestrial and digital TV, it's hard to attract loyal audiences, and the customer base flounders between rival services. In fact, call-TV shows experience a loss of audience (also called "churn") as high as 70 percent. "The key is to move it closer to the gaming model, where churn is only 30 percent," Bellamy said.

What Endemol envisions is bringing the call-TV model closer to the gaming model seen on specific gambling channels as well as exploiting the mass-market appeal among users to chase their "15 minutes of fame."

"Basically it offers fame and fortune," said Bellamy. "We just have to position it right so that we are competing with people's booze, cigarettes and MySpace spend--we are not seeking to take on the gambling companies."

The route to market with these services is initially being paved through U.K. satellite broadcaster Sky. Sky sees mobile technology as providing a major opportunity to integrate gaming-TV. "Mobile has already played a big part in direct revenue generation through premium rate SMS voting and quizzes and so on," Greg Houfe, commercial director at BSkyB, said. "But there is also a very important indirect revenue stream that mobile offers--return path access to existing betting accounts, so you can bet with TV or mobile."

Houfe identified mobile as a key marketing tool. "It's a very rich source of data and offers excellent chances to cross-sell, such as texting odds to a football viewer on who will be the next scorer."

Houfe sees the mobile phone as "another remote," allowing multiple users to interact with a TV program without having to fight over one red button.

This is nothing new. Call-TV quiz services are already well-established and very popular in Eastern Europe, relying on everything from simple Interactive Voice Response systems (where a computer on the other end takes in commands) to mobile and red button to make them work.

"Quiz-based call-TV is very popular--particularly in the mornings and late at night," said Richard Jakab from Hungarian company 2WayTraffic. "Most shows in the region have some element of interactivity--imposed by the program maker to generate extra revenue--it is now part of the TV business model."

But Jakab was dubious as to whether or not there is a strategy behind it. "The real gold lies in the state TV channels, but these don't allow interaction unless it will generate money for charity. So most channels use Western programs or formats and stick excessive interaction into it. But people want local programs and innovative interactive services--this would help pull mass audience away from state television and into these channels," opined Jakab.

The key to the future of commercial television--in Europe at least--lies in developing the interactive elements to the fullest and working out how to monetize them so that they are cheap enough for people to repeatedly interact with their favorite shows.

"We need to move on from where we are at the moment," said Peter Cowley, managing director of Endemol. "We need to move toward community-based services, where we understand customers fully and can offer them services--and programs--with which they actually want to interact. This means better data mining and making things simple. It's a challenge, but it is the future of both the telemedia industry and commercial TV."

Paul Skeldon is editor of World Telemedia magazine