Source Media Revenue Falls

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Source Media Inc. pared its losses in the third quarter,
but its revenue fell 47 percent to $4.3 million in the period, mainly due to lost
advertising sales and a reorganization of its sales operations.

Net losses during the quarter were $8.1 million, or 60
cents per share, an improvement on last year's quarterly loss of $9.3 million (76 cents).
Revenue was down from $6.3 million in 1998, primarily due to a $1.3 million reduction in
advertising sales and a $700,000 shortfall in its systems-management-information services.

Source recently received a $13 million investment from New
York-based MSO Insight Communications Co. Inc., which is using the company's "Local
Source" Internet product in several of its systems. Source CEO Steve Palley said his
company is likely to sign with another MSO before the end of the year.

But the Insight investment came after an ugly battle with
TV Guide Inc., which pulled its agreement to invest $13 million in Source in July. TV
Guide claimed that Source improperly transferred Canadian patents for its technology.

TV Guide subsequently agreed to be purchased by Gemstar
International Group Ltd. in a stock and debt deal valued at $9.2 billion.

Although the deal between Source and TV Guide was scrapped,
Palley said the Gemstar/TV Guide merger will be good for Source.

"Obviously, the [interactive programming] guide in a
digital universe is a critical product," he said. "Without it, it would take 10
to 15 minutes to see what's on TV. We're pretty optimistic about the guide being a driver
for us in terms of distribution of all of our products."

Source's IPG product also has an electronic-commerce
component, which could be a lucrative revenue stream once the company begins to sign on
MSOs.

"In terms of the revenue opportunities we have, the
principal opportunity is adding to our carriage fees, e-commerce and the advertising-share
split with our cable partners," Palley said. "The share I am talking about is
one that is significantly less than the TV Guide/Gemstar share, but it will provide for us
a great revenue source. As data mining and other revenue opportunities present themselves,
we will have partnerships with cable operators to share revenue."

Palley said Source is in a unique position because its
technology can be used in both generations of digital set-top boxes -- General Instrument
Corp.'s "DCT-2000" and "DCT-5000." "The 2000 gives us the
first-to-market advantage," he added.

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