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Technology Stocks : NextLevel (NLV) -- Ignore unavailable to you. Want to Upgrade?

To: Yogi - Paul who wrote (371)	1/4/1998 12:57:00 AM
From: Don Dorsey	Read Replies (1) \| Respond to of 475

NextLevel Pursues Set-Top Partners By FRED DAWSON MSOs' high-profile efforts to put meat on the bones of their next-generation set-top box deal continued to generate more publicity than results as the year came to a close. The search for consumer-electronics-industry support has emerged as the latest source of speculation. NextLevel Systems Inc. was pursuing talks with a number of potential consumer-electronics partners in hopes of coming to terms "very soon," officials said last week. While Sony Electronics Corp. and Thomson Consumer Electronics Inc. were singled out in some press reports as the primary targets, discussions involved a broader range of players. These included Mitsubishi Electronics Corp., Toshiba Corp. and Matsushita Electric Industrial Co. Ltd., along with the possibility that more than one partner might emerge as the linchpins in winning retail distribution for next-generation terminals. "This is something that we're trying to walk through very carefully," said Richard Badler, vice president of corporate communications at NextLevel. "I can't say at this point whether it will be one or more than one partner." NextLevel needs the consumer-electronics connection for the brand recognition and distribution clout that go with MSOs' efforts to move box costs "off balance sheet" and into retail stores. Tele-Communications Inc. and eight other MSOs tapped the company three weeks ago as the supplier of upward of 15 million terminals to be delivered, starting in 1999. "We don't have the distribution experience, and we don't have a brand that's well known in the consumer marketplace, which are two things that you need to be successful in retail merchandising," Badler noted. One of the hazards that the industry faces in securing a place for its OpenCable standardized boxes -- both as stand-alone units and as components of TV sets on retail shelves -- is the fact that the technology could end up being too narrowly wedded to a single brand, sources close to the situation said. "What happens to our ability to sell advanced services if Sony is the only supplier of the set-tops?" asked an official close to the negotiations. But swinging a deal that involves multiple parties greatly complicates matters. "You can't get all of these guys in a room and ask them to sign on the bottom line," the source added, speaking on condition of anonymity. One possible model for moving forward might be the approach taken by DirecTv Inc., Badler said. Initially, Thomson, through its RCA brand, had the exclusive deal for supplying DirecTv's receiver and set-top components, which created a business structure that made it worth Thomson's while to sell equipment at volume-order price points. Later, contracts were signed with other manufacturers, broadening the distribution base. Both Thomson and Sony were respondents to the OpenCable Task Force request for proposals, signaling that they are prepared to adapt the technology that they've developed for digital TV in their satellite and European digital-video-broadcast businesses to the requirements of cable. Sony, in particular, has pushed development in this direction through its electronics subsidiary, Sony Electronics Co. of America, which is promoting a four-chip solution for advanced set-tops. The highly compact architecture employs software-operating-system "kernels" within each integrated circuit that can be programmed to accommodate a variety of external-operations programs. These include set-top microprocessor operating systems and the interactive TV "middleware" currently in development within the OpenCable initiative, said Vishvanath Nayak, director of marketing for consumer audio/video digital products in the Sony Semiconductor Group. This flexibility allows the company to leverage the costs of its components across a number of industry sectors, he added. "OpenCable is still a very broad concept, with several key issues to be resolved," Nayak said. "But we're confident that we'll be able to accommodate the final solution through our application program interfaces without having to change the hardware." While Nayak's unit must bid for Sony's set-top business against other potential suppliers, its ability to leverage the design across many platforms could be a key to making Sony a valuable ally in the push to deliver a low-cost OpenCable product to consumers. "Sony has more than just brand recognition going for it in these negotiations," said the cable source quoted earlier. As complicated as the effort to gain a consumer-electronics toehold is, it's only a piece of what TCI and its allies must accomplish if the OpenCable gambit is going to work. As TCI chairman and CEO John Malone has stated repeatedly in recent interviews, his company needs other partners to help cover the box costs and the risks associated with ordering so many units for services that have yet to be proven in the marketplace. An order of 15 million boxes by nine MSOs represents close to 25 percent of cable's entire current subscriber base. And, with regard to TCI's share of at least 6.5 million units, the projected purchase volume is equivalent to over one-half of the MSO's current subscriber count. To make such a purchase possible, "we need at least one anchor tenant," Malone said, in reference to potential partners that might reap the benefits of being exclusive providers of certain types of subscriber services or enabling software. So far, despite hints from senior executives that a deal for an anchor tenant is imminent, none has been found. Nonetheless, Malone said, "I have the sense that this is where we're headed."