WOW...
11/29/99
While watching Liberate Technologies soar, StockHouse.com grabbed the CEO of the leader in interactive television, WorldGate Communications for a Hot Seat interview. Hal Krisbergh widely opened the barn doors in this insightful interview about his company's future plans. Some of the revelations include negotiations currently underway to offer service in Hong Kong and Japan; planned deployment to begin offering services in Spain, Poland, Australia, and New Zealand; the hint of a blockbuster announcement in the very near future; and "conservative" projections of $22/monthly per set-top box.
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WorldGate [WGAT] has two key features. The company delivers Internet access to your television through your cable television system with a set-top box. With its Channel HyperLinking, TV viewers can click to web sites associated with the television programs they are watching. The Television-Internet convergence is expected to become of the key growth areas next year, along with wireless data expansion and B2B Internet. Major competitors include Wink Communications [WINK], Liberate Technologies [LBRT], ACTV Inc. [IATV], OpenTV Corp. [OPTV], Blue Zone [BLZN] and Spyglass [SPYG] which recently sold its web content filtering system.
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StockHouse: Your stock has performed nicely since the middle of November.
Hal Krisbergh: It's about time. We had done very well in the IPO. Then what happens in any new company, we had a lot of locked-up stock that couldn't be sold. I think in October the lock-up ended, and they were allowed to sell stock-not that they sold everything they had, but even a small amount of the 20 million outstanding shares put a lot of downward pressure on the stock. We got through that, and the stock just took off. We've got five analysts covering us, all recommending "strong buy". So I think that's what certainly resulted in the recent upsurge. And of course, everybody knows that we're going to win.
StockHouse: In the interactive television sector, there are Liberate Technologies, Wink Communications, ACTV Inc., and a little upstart called Blue Zone. Is WorldGate the leader?
Hal Krisbergh: On the TV platform there's a lot of things. There's pay-per-view. That's interactive. Program guides are interactive. Wink has something called enhanced broadcasting. ACTV has multi-channel interactivity of some sort. WorldGate does Internet access and channel hyper-linking. These are all products that are being put onto the TV set platform. It doesn't mean that they're all competitive. My aspect of that platform - Internet access on a TV - we're clearly way out in front. The segment we provide services on is bringing the Internet to the TV platform, allowing consumers full, two-way, real-time transactional communications. Wink is simply an overlay that provides some added information to the content you're watching on TV. That's an interesting service. But what we provide, obviously, is full Internet-transactional in nature and full web sessions with all the color resolution of a full web session and so on-on the set-top platform that's real time.
Wink is not real time. And we also provide the ability of the consumer to link to a full web session while they're watching TV programming content. So it's not just giving them a limited amount of information on the set, it's giving them a full web session. Wink might say, "I don't think all consumers want to do a full Internet session. Some of them may want just a very limited amount." That's fine. But as far as the players that we just talked about, none of them are really in my segment, which is full Internet access. We've got over 32 patent claims approved covering this whole space of linking television. People say, "You don't mean to think you've got linking Internet to the Internet as your patent protection." The answer is absolutely, because we were doing this four years ago.
Let me say this. We are really the pioneers here. The traditional view of TV Internet access is [that] you shut off your television, you turn on your web browser or your e-mail. Like Web TV has also worked on and pioneered. Our view is it's a very great market. You're doing it on cable, which now everybody agrees is the way to go. It allows the two-thirds of the homes in the United States that aren't connected to get access to the Internet. That's a nice business. The thing that we've really pioneered, however, in addition to doing it on cable, was the realization [of] why only do it when people aren't watching television? Why not let people interact with the Internet while they're watching television? Not to just browse, but to literally be watching something on television and want to go from a news story, from an ad, from a sporting event, to related web content. Not just to get information, but to chat, to transact, actually purchase stuff. Like you may be watching an ad, you may want to buy AT&T long distance service or something. The ability to transact, to interact, to communicate is so much more valuable. In fact, I would argue that it is the most fundamental change in television since television's introduction. It changes television from a passive broadcast medium into a fully interactive transactional platform. It changes television.
StockHouse: In a November 1 news release, you withdrew your registration for secondary offering. Was there a lack of interest?
"We're talking about $22 a month with very conservative assumptions on click-to rates and very conservative assumptions on what the advertiser will pay. $22 a month, with no incremental costs to get that $22 per month. You didn't have to put in more equipment or anything. It was just overlay over existing platform. The cable operator now gets more for channel hyperlinking advertising than he gets for basic cable. I mean this revolutionizes everything."
Hal Krisbergh: No, what happened was that lock-up. Our stock was at $40, so I decided to do an S-1. Then the lock-up hit, and the stock went down and I said, "Hold it, I have $85 million in the bank." I just have a lot more confidence in my stock. It was just that I had this anomaly of having the stock freeing up in the market. Our objective was to sell, or possibly do a secondary when the stock price was higher. Obviously my decision was right. It was the wrong time to do it. I didn't need the cash immediately, and by waiting, the stock has now come back. I'd like to see it come back a little bit more and we will consider doing a secondary again.
StockHouse: You don't want your stock higher?
Hal Krisbergh: I said, "Let it go up a little bit more." I feel there's a lot more room in the stock. I think the coverage, and the analysts, and their strong support of us is excellent. I think that it wasn't anything more than I just had to get through and digest that lock up.
StockHouse: When are you again looking at a secondary?
Hal Krisbergh: Oh, it depends upon the stock. Again, there's no urgency. I would like to maybe do some acquisitions, but we have enough funds to keep the company well funded for the next 2«--3 years. The real issue here is more the opportunity to take advantage of a lot of support in the marketplace for getting some cash and maybe do some acquisitions. I think the spring, maybe first quarter, early spring would be a time to consider it.
StockHouse: What about the ratings study you did with the Nielsen ratings service?
Hal Krisbergh: We decided it was time to really start demonstrating to the world how viable this is in terms of a very official evaluation. Not just WorldGate saying, "I think it's great." So we got AC Nielsen to work with us. We got a whole bunch of networks and a whole bunch of advertisers to really do a very detailed, formal study of consumers interacting with what they're watching on television. That's why this study is just awesome. First, is this really a passive couch potato or lazy interactive player, as some people would call it? Or, as we demonstrated, this isn't hypothetical -these consumers are interacting, utilizing the TV set for Internet access on average [of] an hour a day. An hour a day! That's equal to or higher than people that have PC access. So, clearly, people who interact with their TV platforms do not have a problem using the TV set. Big, big conclusion. Number two, hyperlinks: the ability to link from an ad you're watching to a related web site. On the Internet the people that hyperlink from banner ads to related web sites-we're getting up to five times the response rate. That doesn't surprise us. This is a full, interactive television commercial, full-motion video, right? So people say that's not surprising. I know it isn't surprising. It's just revolutionized television and revolutionized advertising. It takes 7« hours a day that people watch television. By the way, people only browse an hour a day and that's only in 25% of homes. TV is on in 99 million homes, 100 million homes.
StockHouse: Is this the big convergence that everyone's talking about?
Hal Krisbergh: Absolutely. That's why we got Nielsen's imprimatur. For years we were the missionary. For years we were saying, "Isn't this going to be a great opportunity? Come watch the marriage of the Internet and TV?" What we're reporting here is very substantial. It's done. We've hit oil. It's there. The oil is coming out. Now let's go pump!
StockHouse: How are you going to make money at this?
Hal Krisbergh: The monetary model is almost the easiest part. Right now an advertiser will pay 2½ per pair of eyeballs to have them see an ad. In truth, 98% of the people watching this ad aren't interested. What would you pay for an ad that people are interested in? Well, we went to AC Nielsen, and we said how much do you think they'll pay? They say it could be as high as ten times for that, for the reason I just gave you. On the other hand, they said look, we know it could be even as low as only 37½ because we know that's what banner ads get. As weak as banner ads are, people pay 37½ for banner ads. That's what the going rate is - to click through a banner ad. But it could be as high as $2, maybe even more. We said okay, let's use 37½. That's a very conservative number per click-in. But this is a platform that's on 7« hours a day. Well, the click-through propensity's up to 2-2«%.
Let's say we only got a 1% click-to propensity; in other words only 1% of the people that saw the ad even clicked on it. Not 10%, but 1%. Well, 1% of the 180 ads that pass through in a day, in 7« hours, is two ads a day. If all you got were two click ads a day, that would be worth 75½ a day. [It] Doesn't seem like a lot. Thirty days a month, every day that happens. We're talking about $22 a month with very conservative assumptions on click-to rates and very conservative assumptions on what the advertiser will pay. $22 a month, with no incremental costs to get that $22 per month. You didn't have to put in more equipment or anything. It was just overlay over existing platform. The cable operator now gets more for channel hyperlinking advertising than he gets for basic cable. I mean this revolutionizes everything.
StockHouse: Don't you have to build up your subscribers though?
Hal Krisbergh: Of course we have to build up our subscribers. That's what we're doing. We're launching - we're in systems all around the country. We're launching around the world. That was the whole purpose of our SURFview announcement with General Instrument Corporation [GIC] where we're going to have a box that's going to cost the operator less than $1 a month to put in the home.
StockHouse: When are you going to launch overseas?
Hal Krisbergh: We're already launched. We're in the Bahamas. We're in Peru. We should be up and running shortly in Argentina. We're up and running in Singapore and Hunan.
StockHouse: You're going for offbeat places like Peru instead of the United Kingdom?
Hal Krisbergh: I wouldn't call Singapore offbeat. I'm going up in Spain, I'm going up in Poland. About the U.K., let me say what my problem is. I work with the GI/SA platforms, which are about 80% of the worldwide market, and domestically are 90% of the market. Those are the platforms I work on. In the U.K., GI and SA have not deployed their digital product. GI is deploying in Australia, and we have some deals we hope to announce.
". The whole TV platform, the most pervasive platform in the home has been ignored. No one's touched it. All of a sudden, the last several years, we've been working at it, working at it, doing everything we can to make it clear to everyone that the future is the TV set platform. It's very clear everyone now buys that."
StockHouse: In Australia?
Hal Krisbergh: Oh yeah, and also in New Zealand.
StockHouse: What about Hong Kong?
Hal Krisbergh: We're in discussions with Hong Kong, but [in] Singapore we're up. And we're up and running in China, we're up and running in the Philippines. We haven't announced anything yet in Japan, but hope to, soon. We're in Korea.
StockHouse: How many subscribers are you up to?
Hal Krisbergh: Well, what we've reported as of the last quarter was 11,500 - about 15 systems that were up.
StockHouse: Do you think you'll break 100,000 this coming year?
Hal Krisbergh: You're getting me into a projection when I don't want to make one. I'll say this. Installed base of boxes that can take a WorldGate download - not need a new box - is 10 million by the end of this year. By the end of next year, we'll be somewhere probably about 18 million.
StockHouse: So 10 million installed by the beginning of this coming year, the year 2000?
Hal Krisbergh: And 18 million by next year, which are capable of a download. So the only question is, when does the cable operator want to move aggressively onto this platform? I think the answer to that is clear. The industry has now made Internet on the TV the new battleground. It is where everybody wants to go, where everybody's now focused. Look at the New York Times this (past) weekend - major story on interactive TV. Look at the Wall Street Journal-major story on interactive TV. Cablevision magazine this month, the whole issue was interactivity on the TV, and Internet on the TV. WorldGate is the leader. That's not me just saying it. It's the industry in a broad sense. By the way, Motorola spent $11 billion on what? On GI, to get access to the TV set top. Microsoft spent $5 billion with AT&T. Why? To get on the set top. There are four IPOs out there: we have Wink, Liberate and WorldGate, all with cumulative values of somewhere around $7-$8 billion in capitalization, and we [now] have Open TV. It's not just me saying it's the hottest area. It's clearly the financial community, the investment community, the media and the cable industry.
StockHouse: What's the deal with your recent announcement about your E-Commerce group partners?
Hal Krisbergh: We're not going to reinvent wheels here. I don't want to set up my own web sites. The trick is to partner. Through partnering, we can accelerate the industry's ability to get into this business. Remember what we're doing here. We're bringing this whole industry called the Internet [and] this whole industry called television together. Up until now, those have been walls that were 8 foot apart - two separate industries that hadn't figured out how to get together. WorldGate is the link that brings these two together. But we have to sort through them. Some things don't make sense for the television environment; some [others] do. Some are appropriate, some need to be modified and changed. What we've done is, we've brought on a whole succession of players that are all focused on bringing this content to the TV platform in an interactive mode, in a very new world that has not been defined up until now.
Just think about it. The whole TV platform, the most pervasive platform in the home has been ignored. No one's touched it. All of a sudden, the last several years, we've been working at it, working at it, doing everything we can to make it clear to everyone that the future is the TV set platform. It's very clear everyone now buys that. Now it's a race. Right now we're way ahead of the race. Can we hold onto that lead? Maybe, maybe not. But one thing is clear - the Internet on the TV is here.
StockHouse: What price targets have your analysts set for the end of the year?
Hal Krisbergh: The lowest analyst we have on us is $42. The others are at $49, $75 and $60.
StockHouse: Are you doing a lot of media interviews right now?
Hal Krisbergh: Yep. I think the activity level has dramatically increased. I think in the last several months the realization of the power of the cable set-top has come front and center, and we're the leaders. Obviously we're going to get a lot of attention. And the answer is yes, it's a good time, and yes we are there, and yes I do a lot of it (media interviews).
StockHouse: Will you make any major blockbuster announcement between now and the end of the year?
Hal Krisbergh: Absolutely! I think there are a lot of deals that we're talking about. We're clearly the players - the industry's clearly got the attention. Will it close by the end of the year? Will I make it within the first quarter? I believe that certainly, within the first quarter, if not sooner, we will be making very significant announcements. By the way, we already have major announcements under our belt. Comcast [CMCSA], Charter [CHTR], and worldwide deployments and all this other stuff going on, but are there more to come? Absolutely!
StockHouse: Thank you very much. |
