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Interactive Veteran ACTV Finds Ways to Keep Going

NEW YORK — ACTV Inc., which has lasted for more than a decade while waiting for interactive TV to develop, showed last week how it has been able to survive the slow rollout of ITV services.

Its strategy: Continuing to branch into new businesses, like integration services or adult programming, as it did with last week's deal with Playboy.com Inc. And if companies aren't willing to license its patent portfolio, ACTV has shown that it's willing to sue those that offer similar products.

It also helps to stay alert in pursuit of possible intellectual property poachers.

On that front, tiny ACTV is taking on entertainment giant The Walt Disney Co. and could do battle with other deep-pocketed targets.

Like most ITV enablers, ACTV's former core products haven't made much of a dent in the television industry. Its "One to One" service, designed to let viewers control camera angles with their remotes, never made it in the U.S. beyond a brief Fox Sports Net trial in 1996.

Its HyperTV program-enhancing service generated most of the $8 million in revenue the company made last year. But all of the unit's deals were short-term agreements, and there are no new HyperTV-enhanced events scheduled anytime soon, company executives said.

Starz Encore Media Group used HyperTV to offer viewers with Internet-enabled computers Web content synchronized with the movie The Sixth Sense.

TBS Superstation used HyperTV to jazz up its weekly WCW Thunder
series, but that arrangement ended when TBS cancelled the show and sold World Championship Wrestling to World Wrestling Federation Entertainment Inc., spokesman Kevin Little said.

AT&T Broadband has committed to a trial of ACTV's SpotOn targeted advertising application in Aurora, Colo. But the company said it generated no revenue from its digital TV business last year.

Two firms that the company has acquired in the last year seem to be pulling their weight, however. ACTV bought ITV integrator and tools provider Intellocity Inc. for $32 million in stock in March. Intellocity pulled in $8.3 million in revenue in 2000, more than its new parent made.

Last August, ACTV bought online gaming company Bottle Rocket Inc. for an undisclosed sum. The ITV provider plans to use Bottle Rocket's technology in the Playboy.com deal, which vice chairman Bruce Crowley said should generate "seven figures" in revenue annually for ACTV.

Playboy Enterprises Inc. CEO Christie Hefner said last week that Bottle Rocket will develop a series of "event prediction" games for Playboy.com, called "Play4Fun."

In one game, Web surfers will be able to predict the Playmate of the Year, Hefner said in an electronic-mail exchange.

Members of the site's subscription-based Cyber Club will also be able to access new interactive elements, Hefner added.

"With our Cyber Girl feature, through interactive enhancements a subscriber might now be able to direct his own shooting, picking the location, wardrobe, poses, etc," she wrote. "Or they might have the opportunity to get special access to areas of the [Playboy] Mansion, download video from parties, and so on."

Eventually, the company plans to add interactive elements to programming on Playboy Channel, Hefner said. Night Calls 411
viewers could interact with the hosts via Playboy.com, and subscribers could vote on the outcome of a Sex Court
case via remote control.

The shift into adult programming is a departure from the types programming ACTV has enhanced in the past, mainly music videos and movies.

"Clearly we are working with the best brand in that broadly defined [adult] category, and we're excited about it. But I don't think this is a signpost that ACTV is just going to pursue this type of content," Crowley said.

Crowley said the company wouldn't pitch ITV deals to hardcore porn channels, but he wouldn't rule out such a move. "We'll work with everyone from Playboy to the other networks," he said. "Our technology and services are like Switzerland."

LITIGATION REVENUE?

Although ACTV executives concede that the company's HyperTV unit doesn't have any deals on the horizon, ACTV hopes to use its patent portfolio to generate revenue through licensing deals or litigation.

In January, ACTV sued The Walt Disney Co., ABC and ESPN, alleging that the "Enhanced TV" product that ABC and ESPN offer to viewers of Who Wants to Be a Millionaire
and the networks' National Football League coverage infringes on ACTV's patents.

The company also bulked up its legal team, hiring former Dorsey & Whitney LLC partner Scott Doyle as its chief intellectual property officer.

ACTV said it would go after other companies offering products that synchronize Internet content to television programming, but only those that are making money with ITV services.

"We are not focusing on little companies that have announced little demo products," ACTV CEO Bill Samuels said after the suit was filed.

Court records show that Disney filed a counterclaim in February, in which it alleges that ACTV's patents are invalid. Even if they were valid, Disney's complaint added, the patents are unenforceable.

Disney also asked the court for "a declaratory judgement of invalidity, non-infringement and unenforceability," and an order that ACTV pay its legal fees.

The case isn't expected to go to trial until August at the earliest, said a clerk at the U.S. District Court for the Southern District of New York.

ACTV warned in its annual report that "there can be no assurance that our patents are enforceable, or if challenged, that we can successfully defend them."

But Reese said the patents are "absolutely enforceable," insisting that the Securities and Exchange Commission filing contained "standard CYA [cover your a—] language."

ACTV rode the dot-com stock wave in 1999, heavily marketing its Internet-based HyperTV product at a time when investors were lining up to buy almost anything Web-related.

Shares in ACTV jumped from about $1.50 in April 1998 to $15.50 on April 26, 1999. The stock closed at a high of $45.68 on Dec. 31, 1999.

But the new millennium hasn't brought much good news for ACTV investors. The stock fell steadily last year, and closed last Thursday at $3.12.

HEATED RHETORIC

Reese conceded the company might have overhyped the potential of some of its products, as in a November 1999 announcement that read, "Viewers Choice, ACTV & Liberty Digital Join Forces to Revolutionize Pay Per View Programming."

The announcement claimed the companies would team up to offer cable subscribers ACTV's "Individualized Television" product, allowing viewers to control camera angles during pay-per-view sporting events.

Seventeen months after that announcement, the companies have yet to produce a single pay-per-view event that utilizes ACTV's technology.

Tele-Communications Inc. and Canadian cable operator Le Groupe Vidèotron Ltée. did offer ACTV's personalized television products on analog cable systems in the mid-1990s. Reese said the analog product didn't take off because it required too much channel space, and the digital version of the product hasn't gained traction because there aren't enough digital set-tops deployed to entice programmers to use the technology.

"I don't think there were flaws in our business plan," he said. "I think the problem was the deployment of our devices didn't happen nearly as quickly as we had hoped."

Reese insisted that the company's outlook remains strong, and that it expects to generate more revenue by shifting away from a focus on content.

"We've tried to very consciously move away from a focus on content, and move it more to a tools and services company," he said.