Interactive digital TV (iDTV) will generate only 18 billion euros in interactive service and application revenues in Europe by 2007 — €250 per household, according to a new report by Forrester Research B.V. (Nasdaq: FORR).

“Our analysis shows that the revenue prospects for iDTV remain bleak, ringing in a mere €18 billion by 2007 — about €250 per household,” said Forrester Analyst Hellen K. Omwando. “tRetail will generate the lion’s share with €8 billion in 2007, up from €234 million in 2002. iDTV doesn’t suit all retail categories. Products that are audiovisual (like CDs), contextual (like apparel), or entertainment-related (like video games) lend themselves to the TV medium. By 2007, leisure travel will generate €4 billion in iDTV revenues — more than half of total tRetail, but just 7 percent of the value of leisure travel booked via the Web. In 2007, apparel impulse buys like jewelry will add €1.1 billion to the till, alcohol will generate €256 million, and entertainment-related products like DVDs and music will contribute €319 million. Grocery will disappoint and only drive €224 million — just 1 percent of Web grocery sales.”

Contrary to industry belief, single and multiplayer games, voting and competitions, and betting won’t trounce tRetail, Forrester asserts. Collectively, these applications on iDTV will yield just €7 billion in 2007. Betting is iDTV’s cash cow today, capturing 61 percent of the revenue share. But as most Continental European countries outlaw online betting, growth remains restricted to France and the Nordics. As for gaming, pay-per-play is the only pricing model in the UK and will generate the bulk of the €917 million in UK game revenues by 2007. In the meantime, game revenues on the Continent will rise to €1.4 billion. Voting and competitions that engage consumers during the broadcast of intermittent blockbuster shows will contribute up to €183 million in 2007.

“Only 200 interactive TV ads (iAds) had run on BSkyB’s platform by year-end 2002, but this was still the largest number of iAd campaigns in Europe,” Omwando added. “So far, a complex set of variable costs and campaign processes have foiled iAds; low iDTV penetration, even in the UK, also leaves brand advertisers like Unilever reluctant to invest. But by 2007, the iAd market will have grown to €2 billion — 60 percent of which will come from the UK — as interactivity retains audiences, large broadcasters jump on board, and improved formats lure brands.

“All iDTV operators so far offer or plan to offer standalone, paid-for communication services. But the out-of-context nature of these standalone apps will lead to a disappointing collective turnover of €890 million by 2007. Here’s the split: SMS will drive communication revenues and will raise 92 percent of communication revenues by 2007, while email and IM will play runner up.”

For the report “Making Money From iDTV,” Forrester spoke with 32 iDTV operators, broadcasters, and retailers across Europe and 12 vendors that sell technology for iDTV.