OpenTV Optimistic About U.S. Prospects

OpenTV [OPTV] CEO James Ackerman believes News Corp’s [NWS] entrance into the United States could usher in a new era of interactive television.

Ackerman told Satellite News, “I think DirecTV is going to bring a form of interactive television that has not been introduced previously, so, I think that is going to drive a lot of the agenda for digital television growth in the United States. I think a lot of operators are looking at how quickly they can migrate their analog subscriber base over to digital. It will be very competitive.”

With DirecTV likely to bring more depth to the U.S. interactive television market, Ackerman said the effort could spur both EchoStar [DISH] and cable operators in the United States to do likewise. He added, “We think that is going to push other operators like EchoStar, which has the largest interactive TV platform in the world. The U.S. cable industry really has not introduced interactive television today. There are some 79-80 million U.S. cable households. There are over 100 million U.S. TV households. It is approximately five times the size of the U.K. in terms of TV households. It is a huge untapped opportunity. We think interactive TV is going to start coming to the U.S. market in a meaningful and demonstrable way over the course of the next 18-24 months.”

Growth Opportunities

In terms of OpenTV’s growth opportunities in Asia and Europe, Ackerman said, “I think in Asia, operators like Foxtel are really going to set the model for how to use interactive television and how to grow their subscriber base and unlock new revenue streams. In other developed parts of Asia, such as Japan and Hong Kong, I think you might see other operators follow suit. In Europe, I think you are going to see the growth of digital in Europe primarily led by the example of BSkyB (BSY.L). Some of the operators in France have successfully used a broad choice of digital TV to the consumer and the differentiation of interactive television to encourage take up of these new services.”

Right Technologies

OpenTV is looking to build its business strongly in 2004. The company has made a series of acquisitions to boost its market position. It has evolved from a pure middleware provider into a more complete interactive service provider. It has acquired such companies as Wink Communications, an interactive advertising and enhanced TV company; ACTV, a group of companies focused in the areas of addressable advertising; and BettingCorp, a company with gaming, gambling and related resources and proprietary technologies. All these acquisitions have been done in the last 18 months, and the company is unlikely to look at others in the short term.

“I wouldn’t say we are looking actively at other acquisitions because we feel we are missing something. I think we are pretty content. We have got the right collection of technologies, applications, content and services. What I would say is that we would not rule out a potential acquisition at some point down the road,” Ackerman said.

The focus is changing from building the company up with new technologies to a thrust toward growing revenues. In its latest full-year results, OpenTV announced revenues in 2003 had increased more than 7 percent compared with 2002. In terms of overall losses, it sliced into this figure. For the quarter ended Dec. 31, 2003, OpenTV’s net loss had decreased 70 percent to $12.9 million, compared with the same stage at the end of 2002. The company is fully focused on reaching the cashflow breakeven point and being profitable, although Ackerman did not put a date on when that may happen.

Revenues could grow significantly in 2004. Ackerman commented, “The focus now is really on building up the revenues. We are optimistic that we are going to be able to do that. Officially, as a company, we do not provide forward-looking guidance, and we focus on just executing our strategy and then providing the evidence that we are executing on that strategy in our quarterly results. We are optimistic that, year-on-year, we are going to bring expenses down further and that we are going to increase revenues as well.”

Market Conditions

The company is operating in a tough marketplace. News Corp-owned NDS [NDS], which recently acquired Canal+ Technologies’ middleware business MediaHighway, will be a formidable competitor and not just because of its links to News Corp. Its core business is Conditional Access (CA), and it has the potential to offer combined CA, middleware and interactive solutions.

The other interesting dynamic here is that OpenTV works with a number of News Corp affiliate companies, including BSkyB in the UK and Foxtel in Australia. So, does NDS’ entrance into the middleware arena spell bad news for OpenTV here? Ackerman said, “I don’t know in the long term. We have a good working relationship with BSkyB. We continue to do lots of things for them, and we have services such as PlayJam on Sky. It is going well there. There is Foxtel in Australia – an example where NDS and OpenTV are working together. You look in the United States, and DirecTV is planning on going down the end-to-end NDS path.

He continued, “Long-term, could it impact the relationship between OpenTV and News Corp affiliates? Absolutely, it could. Do we feel as though we have to prove ourselves daily to persuade our existing and maybe new News Corp platforms down the road that we are best choice working with NDS as a CA provider and possibly NDS providing other elements? Absolutely.”

–Mark Holmes

E-mail: Maureen Zeljak, OpenTV, e-mail: [email protected]