IATV: Initiating Coverage of ACTV, Inc. with 1-1 Outperformer Rating (Part 1)
Gruntal & Co. L.L.C.
Equity Research Note
August 8, 2000
Company: ACTV, Inc. # IATV - $13.50 a/o 7:30 AM EDT
Industry: E-commerce
Intermediate Rating:1 - Outperformer Target Price: $28
Long Term Rating: 1 - Outperformer Target Price: $35
Suitability: Aggressive
Initiating Coverage of ACTV, Inc., Leading Digital Media Company
with Intermediate- and Long-Term Outperformer Ratings
*We believe that ACTV, Inc., is well positioned to benefit from
the rapid growth of digital broadcast transmission and digital
set-top box deployment.
*We expect ACTV, Inc.'s unique patented technology and powerful
network of relationships to drive the penetration of its
products. Our five-year projected compound annual revenue
growth rate is 150.9%.
*Our intermediate- and long-term target prices are $28 and $35,
respectively.
Annual Dividend: $0.00 Revenue Multiple 2000E: 131.3
Yield: NM Revenue Multiple 2001E: 41.6
Book Value / Share 3/2000A:$3.33 52 Week Range: $51.75 -$8.88
ROC 2000E: NM 2000E Cash flow/sh: ($0.55)
Institutional Holdings: 46.1% 5yr Estimated Revenue CAGR: 150.9%
Insider Holdings: 11.4% Shares Outstanding (MiL): 49.6
Next Reporting Date: 08/11/00 Market Capitalization (Mil):$669.6
Year End December 31 Float (Mil): 37.4
EPS($) Q1 Q2 Q3 Q4 Year Consensus
1999A (0.23) (0.14) (0.08) (0.18) (0.61) -
2000E (0.10A) (0.15) (0.15) (0.14) (0.54) (0.36)
2001E (0.08) (0.10) (0.10) (0.10) (0.38) (0.03)
2002E - - - - 0.04 0.05
2003E - - - - 0.34 N/A
2004E - - - - 1.05 N/A
Quarters may not add to year due to rounding and changes in share
count.
Rev($mil) Q1 Q2 Q3 Q4 Year
1999A 0.40 0.45 0.48 0.79 2.1
2000E 0.84A 0.90 1.6 1.7 5.1
2001E 3.2 3.7 4.3 4.8 16.1
2002E - - - - 53.9
2003E - - - - 107.6
2004E - - - - 201.7
E = Estimate, A = Actual
Company Description
ACTV, Inc., is a digital media company that has developed and
provides patented, software-based technologies for interactive
digital television and enhanced television. The company's core
products are One to One Television and HyperTV. One to One
Television enables television programmers and advertisers to
create programming for digital television tailored to the
viewers' preferences. It also enables advertisers to deliver
precisely targeted marketing messages to individual consumers.
HyperTV enhances standard television content with informative,
interactive companion web sites. ACTV, Inc. has a solid patent
portfolio and partnerships with Motorola, Inc., Liberty Livewire
Corp., Liberate Technologies, Inc. and OpenTV Corp. The company
was founded in 1989 and is based in New York, NY.
Investment Opinion
We are initiating coverage of the common shares of ACTV, Inc.,
with intermediate-term and long-term ratings of Outperformer.
ACTV, Inc. has unique technology, multiple revenue streams and a
meaningful network of partners. Its portfolio of patents creates
significant barriers to entry as well as high-gross-margin
revenue streams from licensing fees. We believe that ACTV, Inc.'s
products will become indispensable resources as cable and
satellite companies, broadcasters and advertisers prepare to
deliver digital, customized programming and advertising. Our five-
year projected compound annual revenue growth rate is 150.9%. Our
intermediate-term price target of $28. Based on based on its
current valuation relative to the S&P 500 multiple, we believe
that ACTV, Inc., merits a long-term price per share of $35,
representing potential appreciation of 154.6% from current
levels.
Products and Customers
ACTV, Inc. designs and implements enhanced video compression and
advertising services using its patented technology. The market
for ACTV, Inc.'s products includes television programmers,
advertisers, cable operators, and consumers that want to
capitalize on digital television and the broadband
infrastructure. We believe that consumers are increasingly
demanding more customized media experiences. The rise of personal
video recorders (PVRs) testifies to consumers' interest in
personalizing their TV viewing experiences. The popularity of
customized homepages such as My Yahoo! illustrate that consumers
want instant access to relevant information. Moreover, consumer
receptiveness to custom retail experiences such as Amazon.com,
Inc.'s recommendations indicates that consumers prefer relevant
marketing messages. ACTV, Inc.'s products exploit the
opportunities of the new digital infrastructure and offer their
clients means of additional revenue streams to monetize their
digital infrastructure investments.
One to One Television
One to One Television enables viewers to instantly customize
their television content and advertising based on their profile
stored in their digital set-top box and on choices made through
the remote control. It is compatible with digital TV transmission
systems and set-top boxes supplied by the leading U.S.
manufacturers. Users can design their own interactive experiences
by choosing camera angles, deciding among TV commercial choices.
Broadcasters and advertisers are well aware that consumers have
the tools (remote controls, VCRs, PVRs) to skip TV commercials so
they are constantly making them more relevant and entertaining -
perhaps even enjoyable. By empowering viewers to select the
commercial they see next, we believe that they are more likely to
pay attention and absorb the message. The advertiser records the
viewers' expressions of interest and can make sure that future
ads reflect their profiles. ACTV, Inc. markets One to One
Television to cable operators as a tool to generate incremental
advertising revenues.
Digital broadcasting increases the bandwidth that a broadcaster
has available to deliver programming. Broadcasters can use that
bandwidth to send High Density TV signals, which take up most of
the available bandwidth, or they can offer more channels. A third
option is to offer ACTV, Inc.'s One to One Television, which
appears to the consumer as one channel but requires four channels
to deploy. A code is embedded in the TV set top, which stores
viewer choices made with the TV remote control. Content and
advertising messages can be tailored to the profile created by
those choices. One to One Television takes advantage of the
increased channels available with digital television. The cable
operator effectively sends four broadcast signals to the viewer,
whose set-top box seamlessly switches channels based on the
viewer's choices or stored profile, without a perceptible delay.
ACTV, Inc., developed this process and has a patent on it. Users
are not required to have a real time return path to the cable
company for One to One Television to function. ACTV, Inc. is
working with Motorola, Inc., and has integrated this
functionality into its set-top boxes and cable plant equipment.
Consumers have demonstrated through their Internet usage behavior
that they prefer a personalized experience in which they control
what they see. Nielsen NetRatings, Inc. has found that users of
custom homepages MyYahoo! and My Netscape spend three times
longer and view four times more pages per visit than users of the
standard portal homepage. The research firm also found that
portals offering personalized homepages can increase overall
traffic and revenues by as much as 30% if one in ten visitors use
the personalization features. We believe that broadcasters will
embrace ACTV, Inc.'s tools to translate these results to TV-
watching.
LMC IATV Events L.L.C.
ACTV has formed a joint venture with Liberty Media, LMC IATV
Events L.L.C., to incorporate One to One Television into national
and international marquee events including sports, concerts, and
theatrical events. A third partner, iN DEMAND (a distributor of
pay-per-view programming), plans to market and distribute the
venture's programming in the U.S. The viewer of a national or
international pay-per-view sporting event, with a simple click of
a standard remote control, will be able to select such features
as different views of the action, highlight packages, statistics
or instant replays. ACTV, Inc.'s share of the income from this
partnership is reflected in our model as LMC IATV Events
partnership income.
#Gruntal & Co., L.L.C. makes a market in this security.
SpotOn
ACTV, Inc. recently announced the formation of Digital ADCO
International in partnership with OpenTV Corp. and Motorola,
Inc.'s Broadband Communications Sector division, which develops
set-top boxes. Digital ADCO International's core product is
SpotOn, a targeted advertising service for interactive
television. ACTV, Inc., owns 51% of Digital ADCO.
SpotOn enables advertisers to deliver commercials to digital
cable TV viewers based on their interests, their geographic
location, and their language. SpotOn also gives viewers a choice
of commercials, like ACTV, Inc.'s One to One Television service.
SpotOn services are designed for digital cable operators,
satellite system providers, digital broadcast and cable
television networks and programmers, consumer product
advertisers, advertising agencies, and media buyers. The goal of
these features is to improve the efficiency of TV commercials,
which enhances the MSO's attractiveness as an advertising
platform, thereby maximizing advertising revenues.
ACTV, Inc. licensed five of its patents and Motorola, Inc.
licensed six patents and invested $5.0 million in cash in Digital
ADCO. OpenTV Corp. brings its prominent technology platform,
strong international presence and installed base of over 7.8
million set-top boxes worldwide. OpenTV Corp. made an undisclosed
investment in Digital ADCO International and plans to assist the
company in integrating its advertising solutions into OpenTV
Corp.'s operating system. Digital ADCO has partnered with
advertising firms Young & Rubicam, Inc. and Starcom Worldwide to
bring SpotOn into the advertising marketplace. ACTV, Inc. plans
to use Net Perceptions, Inc.'s personalization software to
enhance SpotOn's targeting capabilities. Net Perceptions, Inc.
uses a process called collaborative filtering to suggest products
to consumers by cross-referencing their purchasing history with
the purchasing histories of other consumers. For example, if a
customer buys a Harry Potter book, Net Perceptions, Inc. will
check which other books that Harry Potter readers buy and suggest
those to the customer.
ACTV, Inc., Motorola, Inc. and OpenTV Corp. will be equal
partners in a newly formed entity, Digital ADCO International. We
believe that Digital ADCO International can leverage the existing
Motorola, Inc./OpenTV Corp. infrastructure to a global customer
base.
Addressing the difficulty in gauging the effectiveness of
advertising, ACTV, Inc. has partnered with Nielsen Media
Research, Inc. to measure the results of SpotOn and to determine
the best way to report those results. For example, advertisers
can be informed of when a spot was shown and whether the viewer
took any action, such as a request for further information. We
believe that the results will serve as an important marketing
tool for SpotOn, as few advertising outlets offer such a level of
accountability. This, in our opinion, will make it an
indispensable resource for cable operators in vying for
advertising business.
HyperTV
HyperTV enables broadcasters to deliver PC-based Internet content
that is synchronized with the program and advertisements they are
watching on TV. HyperTV is currently a two-screen experience; it
is designed for users with both a TV and a PC in the same room.
Research firm Dataquest, Inc. (a division of Gartner Group, Inc.)
refers to consumers that watch TV and use the Internet
simultaneously as "Telewebbers" and estimates that there are 44
million of them in the U.S. currently. Dataquest, Inc. projects
the number of Telewebbers to reach 52 million by the beginning of
2001. HyperTV essentially provides a companion web site that
enables consumers to drill deeper into content and advertisements
viewed on TV and make transactions. HyperTV is a patented,
software-based service that requires a PC, a television, and a
standard digital set-top box. Over 100,000 copies of the HyperTV
browser plug-in have been downloaded. The HyperTV service
benefits many companies within the interactive television/T-
commerce space. Television programmers will likely adopt this
service in an effort to enrich the viewer's experience and
increase advertising revenues. Advertisers are attracted to the
ability to generate customer profiles, allowing them to develop
more effective and targeted advertising campaigns.
Recent HyperTV initiatives include a partnership with
SporTVision, Inc. to add enhancements to sports events and a deal
with broadcaster TV Land to add and interactive element to a game
show. SporTVision has a method of enhancing sports broadcasts
instantly with real-time statistics, such as TeeVelocity, which
measures golf club and ball speeds. In conjunction with the
partnership, ACTV, Inc. participated in SporTVision, Inc.'s most
recent round of financing. ACTV, Inc. is also developing the
interactive portion of TV Land's Ultimate Fan Search game show.
Participants can answer trivia questions and win prizes. Key
content partners include New Line Cinema, a unit of The Seagram
Co., Ltd. (Austin Powers: The Spy Who Shagged Me), Showtime
Networks, Inc. (a unit of Viacom, Inc.), The Box Music Network
(24-hour-a-day interactive music television network), and Turner
Entertainment, Inc.'s TBS and TNT networks (subsidiaries of Time
Warner, Inc.)
ACTV, Inc., announced this morning that cable network TBS
Superstation has introduced regularly weekly programming enhanced
with HyperTV. TBS Superstation has branded Wednesday night as
iWatch Wednesday and will promote HyperTV for its shows Ripley's
Believe It or Not! and WCW Thunder.
Liberty Media Corp. subsidiary Liberty Livewire Corp. is also an
important partner providing marketing expertise and production
and hosting scale to the HyperTV model. Seventy-five percent of
all TV commercials produced involve at least one Liberty Livewire
Corp. participant. ACTV, Inc. is using its access to Liberty
Livewire Corp.'s extensive production facilities to scale
HyperTV's content offerings. The two companies refer to their
marketing venture as "HyperTV with Livewire."
Revenue Streams
ACTV, Inc. generates revenues in a variety of ways, both directly
from customers and shared with partners. With respect to direct
revenues, the company makes money through licensing, hosting
services, and creative services such as content development and
consulting. ACTV, Inc. charges licensing or hosting fees per
program, which comprises a flat fee and then an override amount
based on the number of HyperTV users that tap into each program.
There exists the potential for ACTV, Inc. to generate "shared"
revenue through participating in the incremental advertising and
e-commerce revenue that is generated from each program.
Furthermore, we expect the company to derive revenue from
database management as advertisers increasingly seek access to
valuable demographic information and customer profiles stored in
the set-top box. We also expect ACTV, Inc. to sell advertising
inventory both on line through HyperTV and on the television
through One to One Television.
Another revenue opportunity is licensing its patented channel
switching technology for digital ad insertion. Inserting a
specific, targeted ad in a digital satellite feed without
noticeable interruption is complex, yet ACTV, Inc.'s switching
technology, which already resides in the system, facilitates
insertion. ACTV, Inc. has also licensed its patented TV-Internet
bookmarking technology to Evolve Products, Inc. for integration
into its Second Screen universal remote controls. Evolve
Products, Inc. will pay ACTV, Inc. a licensing fee for every
remote control it manufactures that uses ACTV, Inc.'s technology.
* One to One Television and SpotOn: ACTV, Inc., fees for One to
One Television events, based on the number of subscribers it
reaches. ACTV, Inc.'s subsidiary, Digital ADCO, Inc., generates
revenue from annual software licenses to MSOs, fees for
"striping," or digitally encoding targeted commercials, and t-
commerce transaction fees. The creation of Digital ADCO, Inc.,
brings additional revenue streams to ACTV, Inc., through
processing the data that SpotOn gathers, as ACTV, Inc., provides
advertisers with aggregated information on prospective customers,
while protecting their anonymity. These recurring revenues are
primarily software- and information-based, resulting in
comparatively higher gross margins. Early applications of One to
One Television include enhanced regional sports programming,
which makes good use of the company's seamless switching
technology. We expect these revenues to One to One Television
gain traction in 2001 and grow rapidly as the products are rolled
out, climbing to $55.3 million in 2004.
* HyperTV: Users of HyperTV must register and download the
browser plug-in, software necessary to use the service. Through
the registrations, ACTV, Inc. gathers such information as
location, age, email address and interests. This information is
used to tailor content and advertisements to the user, given the
user's consent. The first application of HyperTV was eSchool
Online, which develops Internet content to enhance educational
video programming. HyperTV currently represents 100.0% of ACTV,
Inc.'s revenues. We project HyperTV revenues to be $6.5 million
in 2000, rising to $146.4 in 2004.
Partnerships and Investments
ACTV, Inc. has relationships with many of the dominant
participants in the interactive television and digital technology
fields, including key strategic relationships with Liberty
Livewire Corp., Liberty Digital, Inc. and Motorola Inc.'s
Broadband Communications Sector. ACTV, Inc. works closely with
its partner Liberty Livewire Corp., a unit of Liberty Digital,
Inc. (a subsidiary of Liberty Media Corp.), in developing a rich
HyperTV experience. ACTV, Inc. also works with Liberty Digital,
Inc., in its joint venture with iN DEMAND, LLC (formerly Viewer's
Choice) to develop pay-per-view programming for cable and
satellite television. Liberty Digital, Inc. owns a 25% stake
(fully diluted) in ACTV, Inc. ACTV, Inc. has relationships with
both OpenTV Corp. and Liberate Technologies, Inc., market share
leaders in interactive television software platforms. ACTV, Inc.,
has agreements with Motorola, Inc., Scientific-Atlanta, Inc., and
Pioneer Corp. to ensure compatibility of ACTV, Inc., software
with their set-top boxes. Gemstar-TV Guide International Inc.,
announced plans to deploy ACTV, Inc.'s interactive advertising
into the TV Guide Interactive portal. This service is expected to
reach over 2 million digital subscribers. ACTV, Inc., also joined
with Motorola, Inc., OpenTV Corp., Gemstar-TV Guide
International, Inc., Liberty Digital, Inc., Adelphia
Communications Corp. and Shaw Communications, Inc. to invest
$87.0 million in ICTV, Inc. ICTV, Inc., develops software that
runs on cable companies' head-end equipment, from which TV
signals and interactive applications are delivered to viewers.
Patents
ACTV, Inc., currently has 19 patents that are currently in force,
with additional patents pending. The patents expire at various
dates from 2003 to 2016. Corresponding patents for some of the
above U.S. patents have been granted or are pending in Canada,
Japan, Australia and the European Patent Office. ACTV, Inc.'s
patent on HyperTV's method covers the synchronized delivery of
televised programming with related Web content and chat.
HyperTV's functionality is extended by the patented Wolzien
Process, which enables users to retrieve relevant Internet
content to enhance TV programming or to communicate. ACTV, Inc.,
also has a patent on its seamless channel switching technology,
which is the cornerstone of One to One Television.
Recent Results
Since its inception in 1989, ACTV, Inc.'s operations have been
focused on developing the company's suite of interactive
television services. The company has just begun to aggressively
market and roll out its services. ACTV, Inc.'s financial results
reflect this stage in the company's development.
For the first quarter ended March 2000, revenues increased 109.6%
to $840,237. All revenues through the first quarter of 2000 were
derived from the company's HyperTV product. The company reported
a gross margin of $516,500, or 61.5%, on cost of sales of
$323,700. ACTV, Inc.'s net loss for the first quarter of 2000 was
$4.7 million or $0.10 per share, versus $7.4 million or $0.23 per
share, for the first quarter of 1999.
For ACTV, Inc.'s full fiscal year 1999, the company reported
total revenues of $2.1 million, an increase of 50% to over fiscal
1998 revenues. The majority of ACTV, Inc.'s revenues in 1999
were derived from HyperTV software, service and related hardware
sales. ACTV, Inc.'s cost of sales declined 20% to $174,032,
resulting in a gross margin for the year of approximately $1.9
million, or 91.8%. This decline in cost of sales can be
attributed to the company generating a larger amount of service-
driven revenue, which has proportionately less associated direct
costs than does product-driven revenue. Total operating expenses
increased 57% to $24.2 million on a year over year basis due in
large part to the continued expansion of its HyperTV unit. ACTV,
Inc. reported a net loss for fiscal 1999 of $23.4 million, or
$0.61 per share, compared to a net loss of $20.9 million, or
$0.98 per share for fiscal 1998.
Earnings Outlook
For the second quarter of 2000, we project revenues of $901,900,
a 98.8% increase over second quarter 1999 results. Our loss per
share estimate is $0.15 versus a loss of $0.14 per share. Our
2000 revenue projection for ACTV, Inc., is $5.1 million, a 139.8%
increase over 1999. Our loss per share estimate is $0.54 in 2000,
compared to a loss per share of $0.61 in 1999. We expect the
company's revenues to grow at a five-year compound annual rate of
150.9%, driven by increasing penetration of digital set-top box
households and by growing usage of HyperTV. We expect revenues to
be driven also by a growing number of events employing ACTV,
Inc., technology, as well as expansion of its data profiling
business. Our revenue projection in 2004 is $201.7 million, with
gross margins of 82.0%. We look for operating margins to reach
48.8% in 2004, when we project the company to earn $1.05 per
fully diluted share.
Financial Observations
ACTV, Inc. completed its initial public offering in May 1990. The
850,000-share offering was led by Josephthal, Lyon & Ross, Inc.
and proceeds to ACTV, Inc. were approximately $4.68 million less
underwriting fees.
In February 2000, ACTV, Inc. successfully completed a follow-on
offering of 4.6 million shares resulting in net proceeds to the
company of $129.7 million. The underwriters for the offering
were Credit Suisse First Boston Corp., Bear Stearns & Co., Inc.,
Lehman Brothers, Inc., and Salomon Smith Barney, Inc. (a unit of
Citigroup, Inc.) The company use of proceeds included repaying
all of its outstanding debt, funding general operations and
pursuing minority investments and strategic alliances. In 1999
Liberty Media Corp. invested $9.0 million in ACTV, Inc. In April
2000 Liberty Media Corp. invested an additional $20 million in
ACTV, Inc. through the exercise of a warrant for 2.5 million
shares, bringing its equity stake to 25% (fully diluted).
ACTV, Inc.'s cash balance as of its most recent completed quarter
was $153.1 million. We expect ACTV, Inc.'s current cash balance
to be more than sufficient until the company becomes cash flow
positive, which we project to occur in 2002. Further, Liberty
Media Corp. holds warrants for an additional 2.5 million shares
priced at approximately $12.00 per share and 2.5 million shares
priced at 15.00. The exercise of these warrants would result in
an additional cash infusion into ACTV, Inc., of $67.5 million.
Valuation
We expect ACTV, Inc.'s share price to respond positively to
certain catalysts, including agreements with broadcasters and
cable and satellite operators to roll out its products, and
increasing digital set-top box penetration. Our 2004 EPS estimate
for ACTV, Inc., is $1.05. The shares are currently trading at a
multiple of 13.1 times our 2004 estimate, a 6.4% discount to the
2004 S&P 500 multiple of 14.0. With a projected earnings growth
rate of 35.6% in 2004, about three times the growth rate of the
S&P 500 projected earnings, ACTV, Inc.'s shares are trading at a
P/E-to-growth (PEG) ratio of 0.4, compared to the S&P 500 2004
PEG ratio of 1.2. We believe that ACTV, Inc. merits a PEG ratio
within a 20% discount of the S&P 500 PEG ratio, resulting in our
long-term target price of $35
Management
William C. Samuels, Chief Executive Officer, Chairman, Director
Samuels has been CEO of the company since August 1993, a Director
since August 1989, and Chairman of the Board since November 1994.
In addition, Samuels is Chairman of the Board of both ACTV
Entertainment, Inc. and HyperTV Networks, Inc., each subsidiaries
of the company. From August 1989 to February 1999, Samuels also
served as President of the company. He is a trustee of Howard J.
Samuels Institute at City College in New York, and is on the
Board of Directors of the Council of Economic Priorities.
Bruce Crowley,Executive Vice President,President-HyperTV Networks
Crowley has served as an Executive Vice President of the company
since October 1995 and President of HyperTV Networks, Inc., a
subsidiary of the company, since December 1995. He has also
served as a director since December 1995. Crowley joined the
company as President, Distance Learning in October 1994. He had
previously been employed by KDI Corporation.
Christopher Cline, Senior Vice President, New Business
Development and Finance
Cline has been the company's Senior Vice President, New Business
Development and Finance since December 1999. Prior thereto, he
was the company's Chief Financial Officer since November 1993.
David Reese, President, Chief Operating Officer, Director
Reese has been President and Chief Operating Officer of the
company since February 1999 and has served as Director of the
company since 1992. From November 1992 to February 1999, Reese
was an Executive Vice President and President of ACTV
Entertainment, Inc., a subsidiary of the company since November
1994. He has been employed by the company since December 1988,
and served as the company's Vice President of Finance from
September 1989 through November 1992. Reese is the chair of the
advisory board of Pennsylvania State University's School of
Information Science and Technology.
Melvyn N. Klein, Director
Klein has been a Director of the company since December 1999. He
currently is a general partner of GKH Partners, L.P., an
investment partnership. Klein is also a principal of Questor
Management Company and director of Anixter International, Inc.,
Bayou Steel Corp. and Hanover Compressor Corp.
Steven W. Schuster, Director
Schuster has been a Director of the company since May 1996.
Schuster has been engaged in the practice of law for more than 16
years, most recently since January 1996 as a partner with the law
firm of McLaughlin & Stern LLP. From June 1993 to December 1995
he was a member of the law firm of Shane & Paolillo, P.C.
William A. Frank, Director
Frank has been a Director of the company since April 1996. Frank
currently serves as the Chief Operating Officer of Cognitive Arts
Corp., a position he has held since June 1997. He was formerly
the Chief Executive Officer of Greenwich Entertainment Group and
from 1991 to 1996, he also served as Chairman of the Board of
Directors of Corsearch, Inc., a data research company.
Risks
Advanced Digital Set-top Box Penetration
Our projections of ACTV, Inc.'s revenue growth assume increased
penetration of advanced digital set-top boxes. If the leading
manufacturers of these devices, Motorola,Inc., and Scientific-
Atlanta, Inc., were to experience production bottlenecks it may
adversely impact the roll-out of ACTV,Inc.'s products.
Simultaneous Use of TVs and PCs
ACTV, Inc.'s primary revenue generator, HyperTV, depends upon
increased usage of TVs and PCs simultaneously. If this usage were
to decline, we believe that it would negatively affect the demand
for HyperTV. Our projections for Telewebber growth are
conservative and we have conviction that they are achievable.
#Gruntal & Co., L.L.C. makes a market in this security.
This report includes information obtained from sources believed
to be reliable but no independent verification has been made and
we do not guarantee its accuracy or completeness. Opinions
expressed are subject to change without notice. This report
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