Digeo, Moxi to Combine Under Allen's Umbrella

Ending months of speculation, interactive-TV software maker and advanced set-top design firm Digeo Inc. is merging with Moxi Digital Inc., the much touted, all-in-one, entertainment gateway company created by WebTV mastermind Steve Perlman.

The merger unites the development design teams for two advanced set-top/home-networking boxes under one roof.

It also combines two companies that had been on the same development track. Digeo had been working on a sidecar Broadband Media Cent 8000 and standalone BMC 9000 set-top box with partners Motorola Inc. and Charter Communications Inc. Those units would feature a video-recording hard drive, central processing unit, Data Over Cable Service Interface Specification 1.1 modem and wireless home networking ports.

A month earlier Moxi unveiled its design for a Linux-based design and middleware gateway device with similar specifications, plus multiple ports, TV tuners and DVD functionality.

Digeo and Moxi would not discuss merger terms.

The combined company, which will be called Digeo, will fall under the control of Digeo chairman Paul Allen. The deal consolidates Allen's investments.

Allen, the primary investor in Digeo, joined AOL Time Warner, EchoStar Communications Corp., Cisco Systems Inc., Macromedia Inc., The Washington Post Co., Mayfield Ventures and The Barksdale Group in Moxi's $67 million first round of funding.

Allen will be the largest investor in the combined company, and is committed to funding it until 2004, when Digeo hopes to break even.

Jim Billmaier, Digeo's CEO will remain in that post. Rita Brogley, who recently took over Moxi CEO duties from Perlman, will be executive vice president of marketing. Combined, the companies have 328 employees.

Billmaier said the company's mission will be "to provide Media Center platforms and services that empower broadband operators to provide consumers with a better home-entertainment experience. The combination will create a more robust product line, better overall platform and services by fusing best-of-breed innovations and faster time to market."

In addition to creating the BMC 8000 and 9000 product lines, Billmaier said Digeo has deployed interactive virtual channels before 600,000 Charter subscribers.

The company's head start in interactive software design will join with Moxi's customer chip development, all-in-one hardware platform and satellite deal with EchoStar Communications Corp.

But there still was a significant amount of overlap between the companies. "The BMC 9000 was very similar to what Moxi has been showing," Billmaier said.

The cost of the complex boxes will be a key issue going forward. Digeo declined to discuss pricing when it first announced the BMC 9000. But Perlman originally suggested that an individual Moxi box would cost $425. For a two-TV-set home the price dropped to $250 and fell further to $200 for homes with four TV sets.

NCTA Displays

Billmaier said Digeo's new BMC boxes will be showcased at next month's National Show.

The company plans to build two boxes. One similar to Moxi's main box and companion slave box that will cost the same as two basic digital boxes today.

"Pricing is really a difficult one because it is timing and volume dependent," Billmaier cautioned. "I saw a lot of those different data points coming out of the [Consumer Electronics Show], and I think we are going to have to be a little more careful this time in describing exactly what kind of price points, when those price points will be hit and at what volumes it would take to make those price points."

Although Moxi was originally designed to be Linux-based, Billmaier and Brogley said Digeo is open to working with other vendors.

The new company will use set tops from Motorola and perhaps a few other companies. Digeo's BMC 8000 was designed as a companion box to Motorola DCT 2000 and Scientific-Atlanta Inc. Explorer 2000 units currently deployed by cable operators.

Despite the merger, Brogley said the company remains on track to conduct trials with EchoStar later this year.

Forrester Research analyst Josh Bernoff said, "This could potentially be an incredible cable box" because the inclusion of Motorola, and perhaps eventually S-A, solves the conditional access problem. "To have a commitment from Charter is hugely important," he said. (Charter uses both Motorola and S-A boxes.)

Bernoff believes the price will come down over time, making the box more than palatable to cable operators. And the box's attributes will appeal to consumers. "The basic value of video recording in any room will be attractive to consumers," he said. "This is a broadband box."

Perlman remains a shareholder and his future role is still under discussion. All Digeo and Moxi investors and employees will receive stock or stock options in the new company, Billmaier said.