ACTV's New Patent Should Solidify Company's Near-Net Status

But whether Interactive Television's forecast comes true remains to be seen; the company has a history of failing to keep its promises.
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ACTV

(IATV)

will announce Monday that it has acquired a patent covering a way to link television and radio with Web sites.

ACTV says the

patent, which the company bought from Tom Wolzien,

Sanford Bernstein's

media analyst, will enable it to offer "the first comprehensive software solution for the convergence of video and audio with the Internet."

Whether ACTV's forecast comes true remains to be seen; the New York-based company has a history of failing to keep its promises. But given investors' insatiable appetite for anything resembling an Internet play, the news probably will do little to calm ACTV's hyperactive stock, which has risen thirteenfold since October.

The stock closed Friday at 20 3/4, rising more than 26% on the day after the company issued a "conference call advisory" for its Monday announcement. At that price, investors value ACTV, which had a mere $1.4 million in revenue and a loss of almost $21 million in 1998, at almost $700 million.

Still, ACTV does have some interesting technology, and it has won the support of

Liberty Media Group

(LMGA)

, the Denver-based holding company controlled by John Malone that has significant stakes in companies ranging from

Time Warner

(TWX)

to

iVillage

(IVIL)

. On April 13, Liberty said it would invest $9 million in ACTV, on top of a $5 million investment Liberty made in September. Liberty also has options to invest further in ACTV over the next five years.

ACTV has two major products,

Individualized Television

and

HyperTV

.

Individualized Television, which for now will be used mainly for televised sports, allows viewers to watch replays, see a different camera angle or see statistics and other game-related information. The service works by allowing viewers to switch seamlessly between four digital channels offering different video feeds from a single event. ACTV has signed a deal with

Fox Sports

, a division of

Fox

(FOX) - Get Report

, to offer the service as a premium channel called

Fox Sports Plus

on

TCI

cable systems. (TCI, the nation's largest cable operator, was bought by

AT&T

(T) - Get Report

last month.) ACTV Chairman William Samuels says the company will begin offering the channel to TCI's Dallas subscribers later this year.

If all of this sounds vaguely familiar, it should. ACTV has been promising to roll out Individualized Television for more than two years. In February 1997, the company proudly announced it had selected Texas "as one of the first regions to launch

its premium individualized sports network." At the time, Samuels said that picking Texas "as one of our first launch sites is a significant milestone for ACTV."

Apparently so significant that the company still savors it 26 months later. In an interview Friday, Samuels was still hyping the business Individualized Television would get in Dallas, promising it as only the first leg of a grand rollout on cable systems nationwide. The dates of this historic event: to be determined.

To be sure, the delay hasn't been all ACTV's fault. The company is to some extent captive to the whims of cable companies, which have been slow to put up the cash needed to build digital systems. Currently, only 2 million households nationwide have digital cable boxes, according to ACTV, compared to close to 70 million with regular cable. Now, with digital cable spreading, the company may actually be able to offer its long-promised product.

Then there's HyperTV, the company's second big growth engine. Again, the product, which synchronizes Web programming and Internet chat groups with television, sounds interesting. And ACTV says the Wolzien patent will strengthen HyperTV's competitive position by giving its users the chance to choose what Web sites they visit in addition to simply having sites "pushed" at them by the company's software.

Here, though, ACTV is competing with dozens of better-financed companies also hoping to speed the convergence of television and the Internet, from

Real Networks

(RNWK) - Get Report

to

Microsoft

(MSFT) - Get Report

.

And John Malone's support, although helpful, isn't a guarantee of success. Just ask

Interactive Network

, another company that expected to go far in the interactive TV business with TCI's backing. Interactive Network filed for bankruptcy last year, shortly after agreeing to take a $12.5 million payment from TCI, its onetime partner, to settle a lawsuit Interactive Network had filed against the cable giant.

With all those questions, investors in a more cautious market probably would wait to see whether ACTV's management could actually deliver on this year's promises before buying the stock. "If the stock should trade on earnings per share and revenue, we're not there," Samuels admits.

Yet Net stocks no longer trade on earnings, or even revenue. (What they do trade on isn't quite clear.) So despite more than a decade of trying to grow its business in markets that have stubbornly refused to cooperate, ACTV has found its stock soaring anyway.

As originally published, this story contained an error. Please see Corrections and Clarifications.