ITV Promises Cash, Delivers Little

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Blame the slow growth of digital cable. Blame integration issues. Whatever the reason, interactive television hasn't yet grabbed a foothold in the cable industry, save for a few video-on-demand deployments.

While ITV companies continue to hype potential new revenue streams from interactive advertising, Web surfing via the TV and personalized television, few operators are making money from interactive services.

At last year's Western Show, attendees crowded the booths of companies like Liberate Technologies Inc. and Wink Communications Inc. Since then, Liberate, Wink, WorldGate Communications Corp. and ACTV Inc.-which position themselves as leaders in the sector-have seen little growth in the U.S. cable market.

Liberate won't disclose how many subscribers it counts in the United States, but senior vice president of corporate development Dave Limp conceded it's less than 100,000.

He said the company has been content to score what he calls "design wins," with America Online Inc., which has used Liberate middleware for its AOL TV launch in a few cities, and with Comcast Corp., Cox Communications Inc. and Insight Communications Co. Inc.

Limp insisted Liberate is only one quarter behind schedule, and noted that the company had hoped to launch trials with Cox, Comcast and Cablevision in the third quarter.

"They're going out in the fourth quarter, but that's not materially different than what we've said," Limp said.

Liberate expects to surpass the 100,000-subscriber mark next year and expects "mass deployments" in 2002. "Nobody at all has done a mass deployment," Limp said, defending the company's lack of distribution in the U.S. market.

Publicly traded ITV companies have been hammered on the stock market this year, and Liberate has been one of the biggest losers. Its stock is down 85 percent from the beginning of the year.

Four years ago, ACTV announced its first deal involving its "Star Cam" and "one-to-one" technology, in which operators that carry Fox Sports Net could offer subscribers a service that would let them pick their own camera angles or access in-depth statistics.

ACTV claims it ran 200 events with Fox Sports Net through the Ventura County, Calif., system then owned by Tele-Communications Inc. But that trial run only lasted a year.

YOU NEED A PC, NOW

These days, the only interactive-television events ACTV is selling require the use of a personal computer. The company's HyperTV unit has a few deals with programmers such as Starz Encore Group, which uses HyperTV to offer subscribers Web content synchronized with movies, as it recently did with
The Sixth Sense
.

"Given the situation with some of the cable operators and the integration of different guides, and their operating platforms, these things have taken longer than people have expected," said ACTV vice chairman Bruce Crowley, discussing the slow growth of the company's interactive programming product, which requires a digital set-top.

ACTV shares have been battered and are down about 80 percent this year.

About a year after forming the Digital ADCO interactive-advertising subsidiary, ACTV announced a trial for the "SpotOn" targeted-advertising service earlier this month.

Wink boasts it is the leading interactive-advertising company. But it counts just 450,000 cable subscribers after seven years of operation.

Charter Communications Inc. is Wink's largest distributor, with 280,000 subscribers. It also has a few individual system deals with AT&T Broadband, Adelphia Communications Corp. and Time Warner Cable.

Wink did launch last summer on DirecTV Inc., and counts about 800,000 of the direct-broadcast satellite provider's homes. But beyond Charter, Wink has no big commitments from the major MSOs.

It suffered a setback earlier this year, when AT&T Broadband selected new interactive advertising competitor RespondTV Inc. to provide the back-end interactive advertising infrastructure for its advanced-digital rollout, which will begin next year.

While Wink claims deals with 35 advertisers to produce interactive ads-and that 5,000 hours of TV programming each week is Wink- enhanced-the company disclosed in its earnings report earlier this month that it has generated no "significant" advertising or transaction revenue to date.

Wink vice president of cable sales Melinda White downplayed the company's lack of advertising revenue, and insisted it expects to generate "robust" ad revenue next year, when it will be available to a larger DirecTV subscriber base. She also attributed low ad revenue to several "charter" ad deals it has cut to offer its service to early advertisers at a deep discount.

"The primary focus was getting the application aired, taking advantage of interfaces that we've built with programmers and getting the consumer behavior moving," White said. "And that's exactly what we've done."

A PLUG FOR WINK

Charter Communications senior vice president of corporate development and technology Steve Silva said he's optimistic about Wink's potential, and that other cable operators are missing the boat.

"I find it kind of embarrassing for our industry to see DirecTV ending the year with 3 million interactive customers using Wink, when we've had that technology in our industry for quite a long time," Silva said.

Wink's stock has also taken a beating on the NASDAQ, dropping about 75 percent since the beginning of the year and hovering around $10 for much of November.

After four years of marketing its Internet-access-to-the-television service, WorldGate Communications Inc. now counts 68,000 subscribers.

The company, founded by former General Instrument Corp. executive Hal Krisbergh, hadn't signed a deal with a major MSO until last summer, when it reinvented itself by offering an interactive program guide in addition to its Internet service.

Krisbergh said he believed one of the reasons WorldGate wasn't able to cut deals with top MSOs was because Gemstar-TV Guide International Inc. was "reticent" in integrating its interactive program guide with WorldGate, hindering operators from picking his product.

"You have to ask the question, why wasn't there a lot going on, and one of the reasons was this imbroglio that was created by TV Guide," Krisbergh said. "In order to get into a box that had TV Guide in it, you had to integrate with TV Guide. Well they weren't particularly forthcoming in doing that."

In July, WorldGate formed a new company to distribute an IPG called TVGateway, signing Cox, Comcast, Charter and Adelphia.

The MSOs, which have said they'd consider using the IPG as an alternative to the TV Guide IPG-which has a lock on most of the industry-were also offered warrants in WorldGate as an incentive to roll out the Internet-via-television system.

While Krisbergh acknowledged TVGateway helped open some doors at the top MSOs, he said WorldGate expects only a small percentage of its annual revenue to come from the 20 percent stake it holds in the IPG consortium.

It's still not clear whether the MSOs in the consortium will even use the IPG. Charter's Silva declined to comment when asked if the MSO would deploy the IPG.

Cox senior vice president of strategy and development Dallas Clement emphasized that the company wouldn't let its WorldGate investment affect any decisions to widely deploy the company's Internet TV service or IPG.

"My market cap is $25 billion to $30 billion. I put $10 million into WorldGate," Clement said. "So am I going to let a $10 million investment in WorldGate drive the successes or failures of a $25 billion to $30 billion market-cap company?"

Shares in WorldGate are down about 70 percent for the year.

'THIN' IS IN

Krisbergh has been a huge advocate of "thin-client" architecture, and spends much of his time telling cable operators and industry conferences that MSOs can roll out ITV services like WorldGate by placing servers at headends and using low-end digital set-tops like the Motorola Broadband Communications Sector DCT-2000.

WorldGate competes with ICTV Inc., another company that hawks the thin-client approach. ICTV's Internet-over-television service relies on personal computers installed at the headend, and the company boasts that it can offer Internet plug-ins like Macromedia Inc.'s "Flash."

The 10-year-old ICTV is another company that has tried to reinvent itself after failing in its early years, when it focused on offering an analog-based interactive-game service to cable operators.

The company's only deployment is on the independently owned St. Joseph Cablevision system in St. Joseph, Mo.

ICTV CEO Bob Clasen said the company is not ready to throw in the towel, despite its inability to secure a single distribution deal beyond that small system. The company recently signed a letter of intent with Cox to test its Internet access service on a 10,000-subscriber system. But Clement emphasized Cox still hasn't decided whether it'll go forward with the trial.

"At this point it's in the hands of the operators, whether they want to do trials," Clasen said, noting that he hopes to sign agreements for two or three trials next year. "I hear them saying they want to do a few things in 2001, and they want to focus on VOD, and that's too bad, from my perspective."

ICTV has struggled for distribution, but the company did raise $87 million in June, which Clasen said was the company's key objective for the year. Investors include Adelphia, Liberty Digital, Motorola, OpenTV Corp. and Shaw Communications.

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