SRCM - The Big Picture SRCM's Problems
Excellent post Stock Moper.
You present both good questions and an interesting opinion. I will address your post in two parts, the first dealing with the "Big Picture". SRCM's service, who buys it and how it fits in the evolving market place. The second post will address specific concerns about SRCM's patent protection limitations...
I must admit when I first looked at SRCM, I agreed with you on most points you made - which is why I went long. But then I looked a little harder. And after digging deeper, I now believe there is no real chance whatsoever of SRCM ever being purchased for their patents, or, even of SRCM signing any significant licensing agreements. I also think the insiders who sold 20 million bucks of stock knew this and that was why they sold.
Here are the "Big Picture" reasons I think SRCM's patents hold little value.
To start off you must understand that SRCM is selling to the cable industry, or developing a product with others or by others that will be sold to cable companies via cable (to make it simple lets stay away from satellite etc. since they are not nearly as viable at this point).
SRCM's patents address various forms of audio/video transmitted to a TV, (here are the patents - 5014125 : Television system for the interactive distribution of selectable video presentations; 4941040 : Cable television system selectively distributing pre-recorded video and audio messages; 4734764 : Cable television system selectively distributing pre-recorded video and audio messages).
Note - that all of the patents involve a TV system - that is key. To put this in another frame of context, the patents are useless unless you are working with a "Television System". Here are the major hurdles I see with SRCM's patents, hurdles IMO SRCM cannot overcome:
1. Internet access as proposed by SRCM via a standard television is cumbersome, difficult and IMO clearly a backwards step. You cannot link a PC to it like @Home. To surf the web, you use a remote to select buttons or can use an on screen keyboard. This is impractical for typing e-mail, chatting, playing on-line games or sharing files. Its real use is to check e-mail or general surfing. However, for e-mail, most people want it on their PC to keep addresses, type responses or print a hard copy. It is unclear if you once download e-mail to the Source server if you could then later download it to your PC. Compounding their problems is that the set top box makers have also said they may just build in a cable modem into the box.
2. SRCM has no product to sell. They have an early version buggy prototype system. Before they can sell cable operators a product, they will have to work bugs out and deploy it in a cable market in a trial. That will take time - likely 18 - 24 months minimum. Remember SRCM is made up and run by Yellow page sales guys, not techies.
So, lets agree for SRCM to be successful they must have a product they can sell to cable companies. I think it is clear they will not have a salable product for some time.
3. Meanwhile, technology will race ahead, which puts SRCM farther behind and significantly shrinks their target market. According to a report by Morgan Stanley on consumer PC & internet use, computer costs seem to be the only barrier preventing rapid infiltration of the Internet. But the introduction of sub-$1000 home computers is providing opportunity for more consumers to join the on-line world. According to International Data Corp., these lower priced computers have fueled an increase in US household penetration, spurring internet growth at an approximately 80% compounded rate. And growth is expected to grow even faster into the next millennium.
SO, more internet users is good for SRCM right? Well yes and no. Cheaper computers means more households will buy computers - not use a cumbersome TV internet system. Many new phones will be able to provide e-mail access over the phone - further shrinking the internet TV market.
So here's the really big, "Big Picture" problem..
Nobody not AOL, MSFT, YHOO - not anybody IMO, will pay for a product that is likely 24 months away from rollout, when it is likely the product will be dated and leapfrogged by better, more functional technology by the time it is ready to market. The target demographic of non computer owning, cable subscribing persons will only shrink as PC sales continue to skyrocket and e-mail phones become the norm.
The product lifespan of TV internet access would either be too short or non-existent by the time SRCM's product is ready for market. TV internet access is clearly a backwards step in functionality which would not likely be welcomed by consumers.
Since cable companies would need to buy the service - they would determine if they want to spend money trying to attract subscribers to a service that will be rapidly shrinking due to it's cumbersome functionality problems, or spend money attracting subscribers to a market that will blossom - like cable/PC access.
So with all that said, it seems likely at this point that the next step of internet access evolution will be cable to PC internet service, not cable to TV, due to SRCM's internet TV's limitations of use. Without the TV in the "loop", SRCM's patents are worthless... Even with a hybrid TV/computer IMO SRCM's patents are worthless. The market is moving away from SRCM's technology, not toward it.
With that said - I think we are all becoming more informed and thus able to make good investment decisions about SRCM. I personally feel there is big money to be made trading this stock.
Best of luck investing
Steve |
