Wink Expenses Take Toll


Wink Communications Inc.'s strategy of paying cable operators for distribution has taken a toll on the company's stock price.

The interactive-television vendor recently disclosed that it took a $55.3 million non-cash impairment charge during the fourth quarter, which was tied to distribution agreements, adding $1.78 per share to the company's net loss.

News of the impairment charge — coupled with word from Wink that the company would adopt new accounting procedures that will change how it reports revenue — drove Wink stock down 20 percent early last week. Shares in Wink, which closed at $2.08 shortly before it released fourth-quarter results on Feb. 1, dropped to $1.65 by Wednesday's close.

Wink CEO Maggie Wilderotter boasted in a conference call with analysts that the company is most widely distributed ITV vendor in the United States, with 6 million subscribers. But that distribution has come at a high price.

In addition to paying cash and stock options to cable operators in exchange for carriage, Wink has agreed to give distributors minimum revenue guarantees.

And since Wink has yet to report any material revenue from its interactive advertising platform, the company has been forced to shell out up to $5 per subscriber annually to operators in order to meet those guarantees, according to Securities and Exchange Commission filings.

In June, Wink signed a three-year contract extension with Charter Communications Inc., its largest cable distributor. Charter will offer Wink to all of its digital cable subscribers within three years.

Wink agreed to pay the MSO revenue guarantees of up to $5.00 per subscriber annually for each Wink-enabled household during the first 12 months of deployment and $2.50 per year in subsequent years, according to its third-quarter earnings statement, which didn't mention Charter by name.

The ITV company also agreed to pay Charter $3.2 million through January 2003, plus a $1 million launch bonus in 2002 "if certain deployment criteria are met" and a warrant to purchase 1 million shares of Wink stock at $4.40 per share. Those options are under water, however, since the stock hasn't traded above that price since last June.

Wilderotter said the impairment charge isn't tied to launch fees or revenue sharing, but to the stock options Wink has granted to cable and satellite distributors as part of distribution agreements. Wink needed to take the impairment charge since the company's market capitalization has decreased tenfold since many of the warrants were issued, Wilderotter explained.

RBC Capital Markets analyst David Lee Smith said he thought Wink's stock was hurt by the impairment charge, and that the timing of the announcement — late on a Friday afternoon — compounded the problem.

"I don't care how bad the news is, if you release it on Friday afternoon, people say, 'What they are trying to do is sneak it out there,' " Smith said.

Wink also said in its fourth-quarter results that it would now offset the revenue generated by its affiliates against revenue sharing and launch fees expenses.

"With some new accounting rules, we can no longer take dollars in that are paid to us by partners and recognize those as revenue until the net difference is a positive to Wink on them paying us more than we pay them," Wilderotter said during the conference call.