Reality set in for workers at interactive-television companies last week, as a drain in the capital markets, slow deployments and a stock-market slide sparked dozens of layoffs at several players in the sector.
WorldGate Communications Inc. cut 60 employees or 20 percent of its workforce last Wednesday, the day its stock hit a 52-week low of $2.90. The next day, video-on-demand and digital ad-insertion vendor nCUBE slashed about 50 jobs, or 17 percent of its 280-employee work force.
Days earlier, interactive advertising company RespondTV Inc. and television-commerce player Commerce.TV Corp. announced major layoffs. RespondTV handed pink slips to 25 percent of its staff, after letting another 25 percent go in February. Commerce.TV cut 30 employees, after canning about 30 staffers in December.
"It's something we did to trim down our costs, given the challenges in the current capital market," said Commerce.TV CEO Matt Kay. "I think investors are putting a lot of pressures on companies like ours to reduce spending."
Ironically, the Commerce.TV cuts came just about one month after it signed its first big cable-distribution deal, with Adelphia Communications Corp. Kay wouldn't comment when asked how much cash the privately held company had left, or how long it could continue to operate.
The fate of most ITV players is tied to how quickly cable operators deploy digital set-tops, and how much MSOs are willing to spend on interactive television — a nascent industry with unproven business models. RespondTV CEO David Kaiser maintained the outlook for his company is good, but spending cuts by MSOs have made an impact.
"It's not an economy where the capital budgets of the operators who are deploying set-top boxes is in good shape, so we're just responding to the market," said Kaiser, whose company has a single distribution deal with AT&T Broadband.
AT&T plans to deploy RespondTV's interactive- advertising platform through advanced digital set-tops from Motorola Inc. The MSO has said it will conduct trials of the advanced digital set-tops this year, but the company hasn't announced plans for a commercial rollout.
WorldGate — the only publicly traded ITV company involved in the recent layoffs — has watched its market capitalization plummet by 85 percent, from $459 million in October 1999 to $66.8 million at last Wednesday's market close.
The company's stock closed at $34 on April 15, 1999, the day of its initial public offering. It soared above $50 that year and made millionaires of several employees who cashed in at much-higher levels, including CEO Hal Krisbergh.
Now, the company has just $46 million in cash left in the bank. Krisbergh said that's enough to continue operations for another 18 months.
Krisbergh said the company must cut 60 employees across the board in order to live up to a promise he made to Wall Street. The company would reach cash-flow break even in 2002, Krisbergh had vowed.
"We had committed to the financial community, or felt comfortable in our recent guidance, that we would reach cash breakeven with no need to get more money from the capital markets," Krisbergh said. "Of course, that didn't provide any cushion."
WorldGate expects the cuts will eliminate $10 million per year from its balance sheet, Krisbergh said.
The layoffs are WorldGate's first staff reduction since the company was established in 1996, Krisbergh said. In the last year, before the cuts, WorldGate doubled in size to 320 employees, he added.
The cuts at nCUBE will come from both its ad-insertion and VOD divisions, a company official said.
"We, like any company, are going to be prudent, and we're going to adjust appropriately for the economic times," said nCUBE president Michael Pohl. The company's cost cutting moves won't "gore" nCUBE's business so deeply that it won't be prepared to react quickly when network service operator spending levels improve, he added.
"Granted, the traditional VOD business is not what we thought it would be earlier this year, so we will adjust appropriately for that," Pohl said. Despite criticism that VOD is deployments are moving along slower than expected, nCUBE "has a robust business" in that area, he said.
For 2000, nCUBE said it generated $17.4 million in residential VOD revenue. The company's latest VOD deal came from Kingston Communications, a U.K.-based service provider that plans to roll out the service via asynchronous digital subscriber lines.
As the stocks of most publicly traded ITV companies hit the basement last week, UBS Warburg analyst Tom Eagan pounced on them, initiating coverage on seven companies and slapping a buy or strong buy rating on five firms.
Gemstar-TV Guide International Inc., which hit a 52-week low of $20.25 last Wednesday, received a strong buy rating from Eagan. The stock surged on Thursday, closing at $28.50.
He also assigned a strong buy rating to Wink Communications Inc. But Wink's stock didn't budge on the news, closing flat on Thursday at $3.06.
Amid the massive layoffs at its ITV competitors, Wink took a not-so-subtle shot at the competition on Thursday, sending out a press release touting the fact that it's still hiring.
"Wink Communications continues to grow staff," read the headline on the press release, which said Wink has hired 15 people this year, and is still looking to fill several positions.
Eagan issued buy ratings on VOD vendor SeaChange International Inc., WorldGate and OpenTV Corp. He placed a hold rating on Liberate Technologies Inc. and TiVo Inc.
Jeff Baumgartner contributed to this story.