Full report. Dig that 12 month price forecast
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September 20, 1999
RECOMMENDATION: BUY
ACTV, Inc. (NASDAQ: IATV)
ACTV and Viacom?s Showtime Networks Announce Agreement For Synchronized HyperTV Convergent Experience For Showtime?s Sci-Friday Lineup and Boxing Franchises;
Second HyperTV / Viacom Convergence Programming Deal
Reiterating BUY Recommendation, and Target Price Range of $32 - $35 Per Share
MARKET DATA:
Exchange Symbol IATV (NASDAQ)
Price of Common Stock (9/17/99) $14.56
30-Day Average Trading Volume 576,954
Shares Outstanding 41.4 million
Market Capitalization $602.9 million
52-Week High/Low $25.25/$1.50 ACTV CORPORATE INFORMATION:
Address 1270 Avenue of the Americas
New York, NY 10020
Telephone 212-217-1600
Chairman & CEO William C. Samuels
CFO Christopher C. Cline
Website www.ACTV.com
COMMENT ON RECENT ANNOUNCEMENT
Last week, ACTV and Showtime Networks, Inc. (a wholly owned subsidiary of Viacom, Inc.) announced an agreement to enhance Showtime?s television programming with synchronized HyperTV programming on the Internet. ACTV?s HyperTV software enables the synchronized delivery of relevant Web content, Web-based advertising, e-commerce and community chat sessions. Per the agreement, Showtime Online and ACTV?s HyperTV Networks will collaborate on the development of HyperTV-enabled TV/Internet convergence programming for viewers of Showtime?s Sci-Friday programming lineup and boxing franchises. We feel this deal, which is ACTV?s second HyperTV programming agreement with Viacom, is important validation of ACTV?s technology, its current ?2-box? convergence approach, and its patent position, and believe it establishes ACTV?s position as a leader in the convergence arena. We also believe it will facilitate marketing efforts at other leading media/programming companies who are actively seeking to leverage its proprietary content into new advertising and e-commerce opportunities. We reiterated our BUY recommendation, and our 12-month target price range to $32 to $35 per share.
Showtime has been a leader in developing an understanding of the viewer who has a TV and PC with online access in the same room ? the ?2 Box? convergence experience. In June, it published a market study (together with Paul Kagan Associated) on the behavior and demographics of the convergent household. One of the conclusions was that 25% of all US households co-located TVs and PCs in the same room, and roughly 80% of those simultaneously watch TV and use online services (Source: 1999 Paul Kagan Associated and Showtime Networks).
We believe that HyperTV Networks offers programmers like Showtime, with the technology, infrastructure and programming capability, to develop leadership positions with respect to convergence programming, and to develop a new type of relationship with the ?convergent? viewer (to include targeted advertising, viewer feedback, enhanced market research, and e-commerce). We believe the ?convergent audience? will be highly desirable to advertisers and marketers, because these viewers are more likely to (1) subscribe to premium cable channels, (2) be early adopters of new technology, (3) and to spend more of their incomes on new information services, consumer services and new technologies.
Why is the Showtime Announcement So Important?
We are not surprised that Viacom?s Showtime Networks, Inc. (?Showtime?) subsidiary is one of the ?first movers? with respect to HyperTV programming. Viacom, and Showtime in particular, have been pioneers in the convergence ?space,? and has been active in exploring alliances and making investments in companies and technologies that may assist them in gaining first mover advantage. Some important facts for investors include:
 Who is Showtime? Showtime is a wholly owned subsidiary of Viacom, Inc., and owns the premium television networks Showtime, Showtime en Espanol, The Movie Channel, and FLIX. Showtime also operates and manages The Sundance Channel (co-owned by Showtime, Robert Redford and Universal Studios), and markets and distributes sports and entertainment events to subscribers on a pay-per-view basis. We are excited about ACTV getting involved with Viacom, a major media powerhouse with numerous programming entities that could benefit substantially from synchronized HyperTV programming.
 Viacom and CBS: Viacom and CBS announced last week a ?merger of equals,? creating another media powerhouse. We like the idea of ACTV getting close to Viacom/CBS for a variety of reasons. First, both Redstone (Viacom?s CEO) and Karmazin (CBS? CEO) have repeatedly stated their desire to focus heavily on the Internet, and the opportunities emerging from the convergence of broadband cable and the Web. We expect the merged firm to push convergence opportunities aggressively, and we are pleased that ACTV is positioned well with this new Showtime agreement. Second, Viacom/CBS have very significant assets in the music business, including MTV and the vast Infinity Broadcasting assets; both music television and radio are particularly well suited to take advantage of the e-commerce and e-Advertising potential of HyperTV. ACTV has already signed agreements with The Box Music Network, a division of MTV, and we anticipate further HyperTV programming events to arise this year from this agreement as well.
 Convergence Behavior Growing: We have reviewed some interesting market research that shows that households are becoming increasing convergent ? i.e. are watching TV and using the Internet simultaneously. Between late 1997 and early 1999, the number of US households with personal computers increased 6% (from 42 to 45 million), and the number of ?online? households increased 46% (from 23 to 33 million). Most importantly, the number of convergent households (those with the PCs and TVs in the same room) increased a whopping 83%, from 10 to 18 million homes, and the current number of convergent homes is thought to be in excess of 20 million (or roughly 20% of all US households).
 The Market is Ready!: There have been many recent ?convergence? events that have shown the great potential for synchronized TV/Internet programming. In all cases, the demand for this type of programming was so significant that web-servers were overburdened and often crashed. Viacom?s Showtime has direct experience with this phenomenon: during a pay-per-view boxing match featuring Mike Tyson and Evander Holyfield, viewers were prompted that they could interact with the broadcast by logging onto a specific website where they could get additional information and ?score? the rounds. The hits on the website surged dramatically within seconds of the TV announcement, which is indicative of both the number of convergent homes as well as the desire to actively participate with the TV experience. This type of ?trial? experience clearly influenced Showtime?s desire to participate with ACTV on HyperTV events. Investors should note that ACTV?s first HyperTV web-server POP (point of presence) is fully operationally and stressed tested for 100,000 users, and additional POPs will be deployed as additional programming is launched.
 Enabling e-Commerce: Viacom has realized the added benefits of the convergence of broad-band cable and the internet- the ability to receive significant revenues through e-Commerce and additional advertisement. HyperTV enables Viacom to augment its sales of Showtime merchandise and secure ?in the moment? impulse purchasing while enhancing the viewer?s entertainment. Because of the added influence of advertising on HyperTV, Viacom can gain more revenues through advertising on the HyperTV programming, which benefits the cable network, the cable company, the advertiser, the viewer and ACTV. The benefits to the industry include:
Benefits to the Programming Companies like Showtime:
 Enhanced viewer statistics: who?s watching what and when
 Ability to quantify effectiveness to advertisers on their network
 Increase penetration of traditionally broadcast-only advertisers
Benefits to the Advertiser:
 Highly targeted ad delivery and reach accountability (ability to validate effectiveness of message)
 Interactive ads enhance retention and recall
 Ability to collect viewer data, response data and to generate sales leads
 Permission marketing services designed to provide advertisers and programmers with turn-key solutions for implementing targeted, database driven marketing programs.
 Lower overall cost per targeted thousand (CPM)
Benefits to the Cable Operators:
 Incremental revenue opportunity with same inventory of availability ad space
 Additional revenue per interactive spot
 Revenue potential from sales lead generation
 Digital ad insertion on the regional and local basis (see below)
Again, we are very excited about the ACTV/Showtime agreement, and believe that this is just the first of many HyperTV-enable convergent programming events to be announced and rolled-out this year. We think that this announcement, and anticipated future announcement of events, will focus investor attention back onto ACTV and encourage new institutional participation from those that have awaited launching of ACTV-enhanced programming.
BRIEF UPDATE ON HYPERTV ESCHOOL BUSINESS
ACTV continues to drive the HyperTV eSchool side of its business. The Company has recently signed new agreements the California Department of Education, the Texas Education Agency, and the Center for Advanced Research and Technology in California, in addition to additional business with the school systems of New York City and Philadelphia. We continue to believe that this is a significant opportunity for ACTV going forward, and that ACTV?s ability to sign new agreements, and retain former eSchool customers, is indicative of the quality of ACTV?s HyperTV programming and services.
RISK CONSIDERATIONS
This section of the document is provided to remind potential investors to undertake a prudent level of due diligence prior to making an investment in the securities of ACTV, Inc. For a complete description of risks and uncertainties to ACTV?s business, see the ?Risk Factors? section in ACTV?s SEC filings, which can be accessed directly from the SEC Edgar filings at www.SEC.gov on the Internet. Other potential risks include:
 Market risk: Investors should consider technical risks common to many small-cap or micro-cap stock investments, including liquidity levels, small float, risk of dilution, dependence upon key personnel, dependence upon single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
 Business risk: ACTV has limited experience in emerging business of interactive television programming and internet educational software and support. Many of its products and services are in the early stage of commercialization. There can be no assurance that ACTV?s business or the markets in which it competes will materialize or achieve the desired levels of revenues or profitability as expected.
 Competitive risk: The entertainment and software industries are extremely competitive, and many perceive the barriers to entry to be low. Added competition could lead to price competition and lower margins.
FOR ADDITIONAL INFORMATION
Please visit our website at www.SmallCapsOnline.com for copies of our earlier research reports on ACTV, Inc.
Contact SmallCaps Online LLC ? 212-554-4158
SOURCES FOR ADDITIONAL INFORMATION
The following are website addresses offering related information, and links to other sources of information.
www.ACTV.com ACTV?s corporate website
www.SmallCapsOnline.com SmallCaps Online?s site for company information and research
www.FCC.gov Federal Communications Commission homepage (information on digital TV)
www.NAB.org National Association of Broadcasters homepage
www.TCI.com Tele-Communications, Inc.?s homepage
www.skyconnect.com Skyconnect?s homepage
www.GI.com General Instrument Corporation?s homepage
www.Scientific-Atlanta.com Scientific-Atlanta?s homepage
www.pbs.org/insidepbs/dtv Public Broadcasting System digital television information
www.SEC.gov U.S. Securities and Exchange Commission, with links to EDGAR filings
www.showtimeonline.com Showtime?s Home Page
www.viacom.com Viacom?s corporate website |
