OpenTV tunes in $50 million IPO
By Tom Davey
Redherring.com
October 28, 1999
The great dream of "interactive TV" lives on.
Using remote controls and
televisions rigged to special
set-top boxes, interactive TV
promised years ago a new way to
make purchases, retrieve
information, and play games.
Computer firms, entertainment
conglomerates, and telecom
companies invested fortunes in the alluring concept.
Then the Internet revolution happened.
Still, the dream stays alive. The latest news: OpenTV,
one of the largest vendors of software for interactive
television, filed Monday to raise $50 million in an initial
public offering. In its filing, OpenTV also disclosed
recent equity investments from several major media
and technology companies.
The company's two largest
shareholders are MIH (Nasdaq:
MIHL) and Sun Microsystems
(Nasdaq: SUNW). OpenTV
received a new $31.25 million
equity round at $1.11 a share just
prior to the filing.
Although OpenTV is
headquartered in Mountain View,
California, the vast majority of its
current 4.3 million subscribers are in Europe, where
interactive television is more widespread. "They're far
more willing to go out on a limb in Europe because the
regulatory environment is different," says Kevin Hause,
an analyst at IDC. "Here, it's easier for cable
companies to become lax because they have a
monopoly."
OpenTV bases its service on MPEG technology,
which has gained a foothold for European interactive
television, says Josh Bernoff, a principal analyst at
Forrester Research (Nasdaq: FORR). In the United
States, developers are bent on developing interactive
television around Internet protocol.
The company already has enough clout to be a leader
in Europe. Its software is currently used by 22
network operators in 17 countries. OpenTV's biggest
competitor in Europe is Canal+ in France, which has
about 3.5 million customers hooked up to its
interactive satellite service.
Echostar's (Nasdaq: DISH) Dish Network plans to use
OpenTV's software in the U.S. early next year. Using
a standard remote control, viewers will be able to pull
up sports statistics, buy merchandise, purchase tickets,
and engage in banking transactions.
But the company faces a challenge to gain widespread
acceptance among U.S. cable providers. "The
OpenTV standard is a dead end here," says Mr.
Bernoff. He explains that it will be essential for the
company to build around Internet standards to be
compatible with most U.S. programmers and
advertisers.
OpenTV officials counter they can easily adapt their
technology to emerging standards whether they are
based on Internet protocol or Sun's Java programming
language. "We'll adopt whatever standard that emerges
in the U.S.," says Randall Livingston, OpenTV's chief
financial officer.
FREE-FOR-ALL
Several other companies are developing similar
software for interactive television in the U.S. The main
competition is Microsoft's (Nasdaq: MSFT) WebTV,
which already offers programming services via Internet
protocol. WebTV has around 800,000 customers who
use a newer version of the software that allows the
viewer to interact with programming rather than merely
surfing the Web on a television screen. Other notable
vendors include Wink Communications (Nasdaq:
WINK) and Liberate Technologies (Nasdaq: LBRT).
Anyone who can supply software to a significant
percentage of the world's 1 billion television sets
should strike gold. So far, OpenTV has tapped only
0.4 percent of that potential, yet it had $17.6 million in
revenue for the nine-month period ended June 30.
Among the many factors determining whether
consumers will readily take to interactive television is
how quickly standards groups agree on consistent
technologies, so that programmers can use a single
standard to create content for large audiences.
Another criterion for universal acceptance will be
affordability; OpenTV may have an edge here because
many box makers can use its software in low-cost
devices that don't require large microprocessors.
Last month, OpenTV Inc. transferred the bulk of its
ownership to OpenTV Corp., a holding company it set
up in the British Virgin Islands, to take advantage of
lower tax rates. According to the company's
preliminary filing, "There are no capital gains, gift or
inheritance taxes levied by the British Virgin Islands on
companies incorporated under the International
Business Companies Act. In addition, the common
stock is not subject to transfer taxes, stamp duties or
similar charges. There is no income tax treaty or
convention currently in effect between the United
States and the British Virgin Islands." Company
officials maintain that the business will still be based in
Mountain View.
In OpenTV's last funding round, investors included
Sun and America Online (NYSE: AOL), which each
gave $5 million; Liberty Digital (Nasdaq: LDIG), News
Corporation (NYSE: NWS), and Time Warner (NYSE:
TWX), which chipped in $6.25 million each; and
General Instrument (NYSE: GIC), which provided
$2.5 million. AOL officials have said they will work
with OpenTV to develop software applications.
The high-profile names and partnerships, however, are
no indication that these industry leaders have special
allegiance to OpenTV. Each of those companies has
spread many seven-figure bets across the market on
companies with similar technologies in hopes that at
least some of them will gain wide-spread market
acceptance.
At $1.11 a share, these industry giants paid about
one-tenth of what the stock will sell for when OpenTV
goes public. Even if the stock bombs, they'll likely see
a several-fold return on their money.
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