(UPDATE) Microsoft Said To Boost Stake In Data Broadcasting
Firm WavePhore
Dow Jones Online News, Friday, July 10, 1998 at 13:39
NEW YORK -(Dow Jones)- Microsoft Corp. is expected to increase its
investment in WavePhore Inc., spurring investors to pump money into the
provider of so-called data broadcasting technologies.
Such an investment isn't unusual for Microsoft (MSFT), which often
buys small stakes in firms with promising new technologies. Previously,
Microsoft has taken minority positions in video streaming outfits, voice
recognition firms and, more recently, Internet-software provider General
Magic Inc.
The software giant took a 2.9% stake in WavePhore in March, a move
that marked the interest Microsoft is taking in data-broadcasting
technology as a means of speeding up the delivery of multimedia to
personal computers. WavePhore shares (WAVO) soared 25% on the day the
investment was announced. Amid talk that Microsoft plans to raise its
stake, the shares Friday afternoon were up $2.438, or 22%, at $13.375 on
3.5 million shares traded. Average daily volume is about 684,000.
The latest speculation comes from the July 20 issue of Business Week,
which quoted First Albany Corp. analyst Joel Krasner as predicting
Microsoft will boost its stake. Since its initial investment, Microsoft
has been buying more WavePhore shares in the open market to bring its
stake to around 3.5%.
Glenn Williamson, WavePhore's chief operating officer, told Business
Week that he hasn't spoken to Microsoft about the recent purchases.
Microsoft declined to comment.
WavePhore, of Phoenix, is an early player in data broadcasting, an
emerging technique for transmitting text, video and other information to
users using the television spectrum rather than the Internet. Like other
companies, WavePhore crams data into a portion of the TV signal reserved
for closed captions called the vertical blanking interval - a chunk of
bandwidth that provides data transfer speeds up to 144 kilobits per
second, or five times the speed of typical telephone modems. Although it
isn't as zippy as cable modems and other speedy delivery schemes, data
broadcasting has an advantage: It's more efficient for sending the same
data - hourly newscasts, for instance - to large numbers of users
simultaneously.
That data is key to WavePhore's business. It makes money from
advertisements and electronic-commerce relationships with the
information providers on its service, including USA Today, Barnes and
Noble and The Wall Street Journal Interactive Edition. WavePhore also
makes the software, dubbed WaveTop, that lets users receive the data
broadcasts. To use the service, users must purchase an analog TV tuner,
a card costing about $95 that plugs into PCs. Microsoft is using WaveTop
technology in Windows 98.
WavePhore has also struck deals to include the software in most TV
tuner boards. The company expects to spend more than $2 million to
advertise WaveTop this quarter. Analysts don't expect WavePhore, which
is on a revenue run rate slightly above $30 million this year, to be
profitable in 1998. But they are betting the WaveTop service will
attract enough subscribers next year to bring the company into the black
by the third quarter.
WavePhore expects to make money on WaveTop through advertising by
content providers. Krasner said he expects the company to earn five
cents a share in 1999 on revenue of $63 million, about one-third of
which should come from WaveTop sales. The company reported a loss of 93
cents, excluding a charge, on revenue of $22.6 million for 1997.
Friedman Billings Ramsey & Co. analyst Robert Martin said he expects
WaveTop will have 500,000 subscribers by the end of next year. He sees
1999 earnings of 11 cents a share on revenue of $63.8 million.
Many analysts believe the greatest potential for data broadcasting
may ultimately lie in digital TV rather than the analog signals
WavePhore currently uses. Experts say a single digital TV channel can
transmit data at more than 1000 times the rate of average modems, though
the technology is years from being widely deployed.
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