Struggling ICTV: Don't Count Us Out Yet

Rumors that ICTV Inc. is on its last financial legs and aggressively seeking a buyer have been blown out of proportion, despite the company's pressing need for more capital, company executives and investors insisted last week.

In some ways, it's remarkable that ICTV is still in business. After about 10 years in operation, its only cable affiliate remains the small St. Joseph Cablevision system in St. Joseph, Mo. The company is privately owned, so revenue data isn't publicly available, as is the case with rivals such as ACTV Inc. and Wink Communications Inc.

Cox Communications Inc., an early equity investor in ICTV, staged a trial of the company's analog product in Santa Barbara, Calif. in the early 1990s. A former Bresnan Communications Inc. system in Bay City, Mich. (now owned by Charter Communications Inc.) also gave ICTV's analog product a test drive in Santa Barbara in 1998.

When ICTV began marketing a digital product last year, the company pinned many of its hopes on Cox. In September, ICTV announced that the MSO had signed a letter of intent to trial the digital service in a "large Cox market," but that test never occurred.

ICTV chairman Bob Clasen said that Cox broke the agreement.

"Cox had certain obligations to us. We had a signed agreement," Clasen said.

But Cox senior vice president of strategy and development Dallas Clement said the MSO didn't break the deal because it was non-binding.

"They tried to get us to launch a service, and made a very attractive financial proposal to us to launch their service," said Clement. "We were intrigued by that and did agree via a non-binding letter of intent — and I underscore non-binding letter of intent — to see if we could get to a definitive agreement to do this.

"But we weighed that against our operational priorities, and all of the other executionable items that are on our list, and decided that it didn't make sense at this particular time to move forward with the trial proposal," added Clement, who sits on the ICTV board.

Clement said that Cox's decision to invest in ICTV competitor WorldGate Communications Inc. last year — and to join the TVGateway interactive-program guide consortium formed by WorldGate — also played a role in the decision, but wasn't the driving factor.

Clasen, who has been a forceful advocate of the potential of ICTV's thin-client approach, took a more sullen tone last week in discussing the company's failure to achieve any meaningful cable distribution after 10 years. Part of the company's problem, Clasen said, is that cable operators haven't figured out how to market ITV.

"If the cable industry had more product-marketing people figuring it out, we might be better off — or maybe if I had been able to make the pitch a little better," he said. "The cable guys do it when they're ready to do it."

Meanwhile, ICTV president Wes Hoffman insisted that the original Cox deal is not dead in the water, noting that the MSO is currently spending time and effort on VOD and has pushed off additional ITV trials until later this year.

"Cox is still very interested in this space," he said. "We know what they want once they have the resources and the field time to support [an ICTV] trial and deployment in the field."


While the digital ITV sector apparently hasn't moved along quickly enough to satisfy ICTV's coffers, the company had an opportunity to cash in its chips more than a year ago.

Clasen confirmed the company did talk with Microsoft Corp. before the software giant forked over about $75 million to acquire ICTV competitor Peach Networks Inc. in February 2000.

One source familiar with the situation said Microsoft offered to buy ICTV for about $50 million, a low-ball bid considering Peach's valuation back when the market was clicking on all cylinders.

Another industry source familiar with those talks said the figure Microsoft offered was much higher than that, but wouldn't provide a specific number. Regardless, "the valuation Microsoft offered was not attractive to the ICTV board," the source said.

Microsoft did not return a call seeking further comment.

Clasen declined to comment when asked if ICTV had rejected a $50 million buyout offer from Microsoft.

"It certainly wasn't based on our technology that they [Microsoft] decided not to buy us," Clasen said. "We have the superior technology, and almost as importantly, we have the intellectual property to support it.

"After those discussions with Microsoft, we went out and raised $80 million, and then the market crashed," Clasen added. "Maybe if I had taken their stock, it would be worth less today than we might be valued anyway."


ICTV's current cash scarcity — and what amounts to a product-deployment standstill — have resulted in company layoffs. Clasen said the company has 90 employees, down from a high of 125 last fall.

Most of those pink slips were handed to ICTV's non-engineering personnel, Hoffman said.

ICTV's rank-and-file employment isn't the only area that's experienced some jumbling. There have been changes in ICTV's executive suite as well.

For instance, Hoffman now is officially carrying two business cards: one for his role as president at ICTV and another as president and CEO of HighSpeed Surfing Inc., a start-up cable-modem and home-networking vendor based in Fremont, Calif.

Hoffman said he became involved with HSS starting late last year, advising the budding vendor on its effort to drum up a new round of financing.

Hoffman wouldn't say what date he officially became HSS' president and CEO, but added that the job has "evolved" over the last six months.

"It's a confusing circumstance, but it's certainly keeping me busy, and I believe I'm giving both companies the level of service they expect me to provide," Hoffman said.

Gary Lauder, managing partner of Lauder Partners — a Silicon Valley-based venture capital firm with a stake in ICTV — echoed that sentiment.

"As a board member of ICTV, I feel that we're getting good value from Wes," said Lauder. "He works about 14 hours a day, so part-time off of that isn't so bad."

Hoffman said the attention he gives to each company is "event-driven," and he'll continue to wear both hats for an undermined amount of time.

He wouldn't give a guess as to if and when he might cut the cord at ICTV. That could be because there is some business brewing between his two employers.

Hoffman said some business link-ups between HighSpeed Surfing and ICTV have been discussed.

"We're working on a description of how that might happen in the future, but we're not ready to discuss any details," he said.

Hoffman said ICTV could close a new round of funding "within a couple of weeks." He declined to disclose specific numbers, but said it would be the third-largest in ICTV's more than 10 years in business.

ICTV's largest financing round occurred in June 2000, when a large group of vendors and operators invested $87 million. Those investors included Lauder Partners, Cox Communications Inc., ACTV Inc., Liberty Digital Inc., Motorola Inc., OpenTV Corp., Shaw Communications and Gemstar-TV Guide International Inc. In terms of deployments, ICTV's financial backers have yet to get much of a return on their investments.

Clasen declined to discuss how much of that cash the company has used, but said ICTV does need to raise additional capital. When asked if the company had enough cash to continue operating for the next six months, Clasen responded, "We're viewing ourselves as an ongoing entity."


Hoffman said ICTV has a "substantial contract" with a top-eight MSO, with implementation scheduled for later this year. He said the operator has asked ICTV not to release that name until the launch draws closer.

In addition to a dearth of deployment, industry sources also have criticized ICTV for being snail-like in the development of its actual digital product.

Hoffman said ICTV's digital gear is ready to ship, and has a preliminary check from TV Guide for Motorola Broadband Communication Sector's thin-client DCT-2000 set-top.

"We have what we believe is a field-deployable product and … we're working with our customers on customizing it for the different versions of electronic mail and types of Web browsing sessions they want to offer their customers," Hoffman said.

Even if ICTV's digital plans don't pan out, the company also owns 21 U.S. patents that support its service. Clasen said one option the company could pursue would be to become a patent-portfolio company.

Last week, ICTV said it had secured an "Interactive Cable Television System With Frame Server" patent for technology designed to handle multiple subscriber sessions on a cable network.

Regardless of ICTV's future, Clasen believes the company has left its mark on the industry, pointing out that cable operators are pursuing the thin-client approach the company has advocated.

"Forget whether we survive or don't survive. Forget whether we get merged or bought or refinanced — we changed the industry," Clasen said.

"Before us, everybody was going to put PCs in set-top boxes," he said. "People aren't doing that now. There are 19 million set-top boxes out there. They're all thin. That's our sweet spot."