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October 25, 1999 OPENTV INC (OPTV) S-1 Filing (SEC form S1) We are the leading worldwide provider of software that enables digital interactive television. Our software is running on over 4.3 million set-top boxes worldwide, with 22 network operators in 17 countries having selected our OpenTV Runtime software as their interactive platform. Our digital interactive solution enhances a television viewer's experience without changing viewing habits and provides a rich audio and video television environment for enhanced applications such as e-commerce. Using a standard remote control, viewers can: . access real-time statistics, buy team merchandise and purchase tickets while watching a sporting event . purchase compact discs and learn more about recording artists while watching music videos . purchase vacations, clothing, groceries and other merchandise through dedicated interactive channels . transfer funds, view account balances, borrow money and engage in other banking transactions Our patented software platform provides a comprehensive solution for the development and delivery of digital interactive services by network operators to television viewers. Network operators, which include cable, satellite and terrestrial broadcasters of television content, use our software platform to transmit a continual stream of interactive programming to viewers. Specifically, our software platform includes software that resides both at the network operator's central broadcasting facility and within the viewer's set- top box. Our central broadcasting facility software enables the streaming of data from such facility to subscribers' set-top boxes where our operating system enables digital reception and manages the interactive television environment. The OpenTV system has been designed to enable network operators to deliver interactive content through a low-cost, digital set-top box for viewing on existing analog televisions. Our software platform, therefore, operates within today's infrastructure, allowing network operators to rapidly deploy digital interactive television to a large number of subscribers without incurring prohibitively expensive hardware or infrastructure upgrade costs. In addition, our software is designed to exploit the capabilities of emerging infrastructure developments such as broadband transmission networks and digital television sets. Digital television set manufacturers can incorporate our software, which is platform-neutral, at the time of production, or our software can be subsequently downloaded via broadcast from a network operator (a "flash" download) into digital television sets for the reception of digital interactive television without a set-top box. The majority of our revenues today are generated from royalties and fees related to our core software platform. In addition, we are developing interactive applications that we intend to license to network operators in exchange for a share of advertising and e-commerce revenues. Market Opportunity Found in nearly one billion households worldwide, television is the most widely adopted form of home entertainment. According to Nielsen Media Research, the average U.S. household has a television turned on for over seven hours a day. As a result, advertisers use television as a cost-effective medium for reaching a large number of consumers. Zenithmedia estimates that $117 billion was spent on television advertising worldwide in 1998, representing 28% of total advertising expenditures. Increasing competition to acquire and retain subscribers is driving network operators to differentiate themselves by providing enhanced television viewing and other interactive services. These network operators are rapidly shifting to digital technology, which allows them to cost-effectively deliver interactive services and more channels than with traditional analog technology. The digital set-top box, which enables reception of digital interactive television, will provide the bridge to mass adoption of digital technology prior to the eventual proliferation of more costly digital television sets. We believe that digital set-top boxes will become one of the world's fastest growing consumer electronic appliances. According to estimates by Intex Management Services, total worldwide annual shipments of digital set- top boxes will increase from 16 million in 1998 to over 34 million at the end of 2001. We expect that the rapid migration of television households to digital technology will create a vast market for our products and services. With the success of home shopping channels on television and e-commerce over the Internet, consumers have shown a desire to purchase goods and services through an electronic medium. Two dedicated shopping channels, Home Shopping Network and QVC, have used the emotion of television to generate approximately $3.5 billion of revenue selling goods and services in 1998. In addition, International Data Corporation estimates that consumers purchased approximately $15 billion of goods and services over the Internet in 1998, with a projected increase to approximately $114 billion by 2002. Digital interactive television allows advertisers and retailers to create an interactive shopping experience with the emotion that only television-quality audio and video can deliver, combined with the immediate gratification of electronic purchasing. As advertisers recognize the power of interactive television, we believe a substantial amount of television advertising expenditures will migrate to digital interactive advertising providing significant revenue streams for network operators, content providers and application developers through revenue sharing agreements. Forrester estimates that the interactive television industry will generate $11 billion annually in advertising revenue in the United States alone by 2004. The OpenTV Solution We believe our software products are accelerating the acceptance and use of digital interactive television worldwide. Our solution facilitates the widespread adoption of digital interactive television without significant investment in hardware or digital infrastructure by network operators. We offer a comprehensive and highly portable solution that makes interactive television viable today for network operators, television programming companies, advertisers, e-commerce merchants and viewers, providing them with the following benefits: . cable, satellite and terrestrial broadcast network operators are able to attract subscribers and create additional sources of revenue from e-commerce and advertising by providing compelling interactive services . television programming companies and advertisers are able to attract additional viewers and generate more revenue by creating interesting and compelling television content . e-commerce merchants, including banks, retailers and travel and event ticket brokers, can access a direct, mass market avenue into consumers' homes . viewers are able to enjoy interactive programming and convenient e- commerce opportunities in a relaxed and entertaining manner As the availability of bandwidth increases, our software will enable even more robust services, including video-on-demand, and will serve as a bridge to the future by providing digital interactive television over both existing and broadband networks. Strategy The following are principal components of our business and growth strategy: . Expand our global presence. Our OpenTV system is the first digital interactive television software being deployed worldwide by multiple network operators and set-top box manufacturers on a significant scale. . Capitalize on worldwide transition to digital television. We believe the existing installed base of one billion television households worldwide will rapidly migrate to digital technology, thereby creating a vast market for our products and services. . Enhance and extend our technology. We are continually enhancing and upgrading our software to anticipate and exploit new technology. . Encourage independent application development. As the volume and quality of interactive content and services provided using the OpenTV system expands, we expect that more viewers and customers will be attracted to our solution. . Develop our applications business and share revenues from advertising and e-commerce. We are creating, with our content and e-commerce partners, a core set of turn-key applications, and we expect to participate in the recurring advertising and transaction- based revenue generated by these applications through revenue sharing agreements. Recent Developments In October 1999, we completed a private placement of our Series C-1 Convertible Preference Shares and Series C-2 Convertible Preference Shares and warrants to purchase our Class A Ordinary Shares to America Online, Inc., General Instrument Corp., Liberty Digital, Inc., News Corporation, Time Warner, Inc. and Sun Microsystems, Inc. for net proceeds of $31.0 million. Upon consummation of these offerings, our convertible preference shares will convert into our ordinary shares. In connection with the investments, we entered into strategic agreements with America Online, Inc., News Corporation and Time Warner, Inc. These investments and strategic agreements will allow us to increase our market penetration in the United States and expand the range of interactive applications available to our global client base. These investments and the strategic agreements between us and the new investors are described under the "Business--Strategic Partners" section of this prospectus. Company History Our operating subsidiary, OpenTV, Inc., was formed in July 1996 as THOMSON SUN Interactive, LLC by subsidiaries of THOMSON multimedia S.A. and Sun Microsystems. OpenTV, Inc. was incorporated in 1997. MIH Limited became a shareholder of OpenTV, Inc. in July 1997 and purchased Thomson's ownership interest in March 1999. OpenTV Corp., a British Virgin Islands international business company, was formed on September 30, 1999 as a holding company to own shares of OpenTV, Inc. Pursuant to a reorganization that occurred in October 1999, MIH Limited exchanged its shares of common stock in OpenTV, Inc. for ordinary shares in OpenTV Corp. As a result, and after giving effect to transactions subsequent to the reorganization, as of October 21, 1999 we own 78.5% of the common stock of OpenTV, Inc., while Sun Microsystems owns 19.5% and various individuals own a total of 2.0% after having exercised options obtained through our employee stock option plan. After giving effect to the exercise of outstanding employee stock options and the issuance of additional shares of common stock of OpenTV, Inc. to OpenTV Corp. at the closing of these offerings, we, Sun Microsystems and various individuals would own %, % and %, respectively, of the common stock of OpenTV, Inc. After giving effect to these offerings, MIH Limited will own % of our ordinary shares. MIH Limited is listed on the Nasdaq National Market and is a subsidiary of MIH Holdings Limited, which is publicly listed on the Johannesburg Stock Exchange. For a discussion of our agreements with Sun Microsystems regarding governance of OpenTV, Inc., see "Transactions with Related Parties". | ||||||||||||||
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