The Financial Post (Toronto)
February 5, 1994, Saturday, WEEKLY EDITION
Is USA Video a stock play or a technology one?
BYLINE: John Schreiner
DATELINE: Vancouver, B.C.
BODY:
The seventh most active issue, by value, on the Alberta Stock Exchange last year was USA Video Corp., trading a total of $27.8 million.
It has been setting a hot pace this year. On Jan. 28, for example, USA Video (USV/ASE) was the most active issue, trading $520,849 worth of shares that day. It closed that week at $1.37, up 19 cents, well above the 52-week low of 78 cents. Its previous high was $2.95.
Among those following the share price closely is Regina businessman Joel Steinberg. 'When it gets to $3, I'm going to short it,' says Steinberg, who thinks USA Video may be more a stock play than a technology play.
Steinberg runs a company called Acme Video Inc. which is taking a technologically different approach to the same business USA Video wants to be in: delivering video on demand to viewers at home.
TOUGH CALL
For investors trying to decide whether to bet on USA Video or against it, it is an extremely tough call that requires wading through technical information perfect for the baloney-baffles-brains scenario.
USA Video is aggressive in trying to get through to investors via the general and financial media. And each news story that results - whether in Multichannel News, a trade journal, or the New York Times - is faxed across USA Video's distribution network in North America.
USA Video formerly was called Micro Metals Canada Corp., controlled by Gordon F. Lee. It became USA Video in a 1992 reverse takeover that brought the company video-on-demand technology developed by two Dallas inventors.
Lee, who runs USA Video from a headquarters in Beverly Hills, Calif., also has several other junior companies trading in Canada.
Force Resources Ltd., which trades on the over-the-counter Canadian Dealing Network, has just completed a $275,000 acquisition of a garbage hauling business (four trucks) on British Columbia's Sunshine Coast. Bigger things may be in store for this company since the name is to be changed to Force Technologies Inc.
Approach Resources Inc., which trades on the Vancouver exchange, plans to change its name to Future Media Technologies Corp. and to develop software for compressing video signals.
USA Video is among a growing number of companies, many of them substantial, setting out on the so-called information superhighway.
In Regina, Steinberg's Acme Video - a national distributor of videos - is involved in a trial with Saskatchewan Government Telephones to test the market for video-on-demand. The test uses SaskTel's switching gear and fibre-optic capability to allow subscribers to view movies at home from a limited movie menu.
USA Video says it takes advantage of compression technology to offer a huge movie menu. Its delivery system downloads the consumer's selection in a digitally compressed form to an electronic box on the subscriber's television set. It may be viewed anytime within 24 hours. After that the image disappears.
The first modest test is scheduled next month with about 100 subscribers of Rochester Telephone Co. (which has invested $1 million in USA Video). This test was supposed to start a year ago but was set back, Lee says, by a delay in supplying circuit boards.
Bell Atlantic, which has its own technology for delivering video-on-demand, also is to test USA Video's system this spring on 2,000 homes - once video suppliers agree to pay the cost. As well, USA Video plans to begin selling its technology to hotels.
USA Video has already announced strategic relationships with entertainment companies to be assured of a supply of videos, but Lee is looking at other information that can be offered. The Rochester test also includes offering video games, home shopping and children's programming.
'I suspect that what will be important will be the video yellow pages,' he suggests. Advertisers rather than consumers will pay for this. 'The revenues will far eclipse revenue from movies. Movies will be the sizzle to the steak.'
PROTOTYPE BOXES
USA Video's strategy for gaining credibility has been to associate itself with such majors as Bell Atlantic and Rochester Tel. South Korea's Samsung Electronics has made the prototype boxes that sit on a consumer's television set. Digital Equipment Corp. has provided USA Video with computers.
L.H. Alton & Co., San Francisco, has been engaged as the company's fiscal agent and dutifully put out a report last October, predicting USA Video will be 'a $250 million company within five years.'
Lee would like to do a significant financing for his company if share values rise to a less dilutive level. He figures the price has been held back in part because the company lacks a Nasdaq listing, and in part because of a huge overhang of 65 million earn-out shares. With a deemed value of 25 cents, these are to go to Lee and his inventor partners over seven years, based on the company's cash flow.
Lee is now in discussion with the Alberta exchange to roll back the number of shares.
Meanwhile, Joel Steinberg is watching that share price. He thinks the sticker shock of pay-per-view services will send consumers right back to cheap rentals.
'Home video rental rates have not risen in 10 years,' he adds. |
