Liberty Livewire

, a unit of

Liberty Media

(LMG.A)

, and interactive television company

ACTV

(IATV)

announced an agreement Friday to jointly develop and promote Web television, a deal analysts said could establish the technological standard for interactive TV.

Under terms of the agreement, dubbed "HyperTV with Livewire," the companies will provide convergence services, including Web hosting, data mining and e-commerce, to Hollywood studios.

"The next generation of digital cable set-top

boxes will begin deploying over the next several years," said David Beddow, Liberty Media vice president, in a statement. "In the meantime, ACTV's HyperTV platform has the potential to create a major marketplace for interactive television services right now, prior to the 'one box, one screen' platform's broad availability."

What could heighten the deal's long-term significance is the fact that Liberty Media, a subsidiary of

AT&T

(T) - Get Report

and ACTV's single-largest shareholder, has acquired outright or controlling stakes in three of the largest post-production houses in Hollywood in the last 10 months through Liberty Livewire. These post-production houses provide sound and visual effects as well as editing to the studios that produce TV programs and movies.

By joining ACTV with Livewire, Englewood, Colo.-based Liberty is giving ACTV the opportunity to link its patented HyperTV technology, which facilitates interactive TV, with the biggest players in post-production. "We think it is going to give ACTV the ability to accelerate the rollout of HyperTV a lot more quickly than we expected," said Stacy Forbes, analyst with Denver-based

Janco Partners

.

And C.A. Recouso, an analyst at

Bear Stearns

, said in a note Friday, "Considering Liberty Livewire's post-production dominance, this agreement should result in wide-scale promotion of HyperTV technologies as the de facto standard for TV-Internet convergence programming."

Recouso upgraded his rating on ACTV to buy from attractive on Friday in part because the deal "increases the likelihood of ACTV becoming a technology licensing gateway for TV-Internet convergence programming." Bear Stearns has done some underwriting for ACTV.

Until now, much of HyperTV's revenue had come from one-time projects with networks and movie studios. This deal will give ACTV a much more constant source of revenue by giving the company ready access to the Hollywood clients of the post-production houses, Forbes said. Liberty Media's equity stakes in a panoply of cable networks will likely aid HyperTV as well, she said.

Forbes initiated coverage of ACTV with a buy rating in March. Her firm helped underwrite the company's secondary offering in February.

The deal also relieves New York-based ACTV of the cost of Web hosting and server provision and maintenance. As part of the agreement, AT&T will provide Web hosting and

Sun Microsystems

(SUNW) - Get Report

will provide the servers going forward. Forbes forecasts that the deal will increase ACTV's cash flow by 50% by 2005, to $103 million from $69 million, and add another 60 cents to its earnings per share by that same year.

Liberty Media's position as a large stakeholder in ACTV and as a recently minted big player in the post-production world allows the company to give several of its holdings a step up on their competition, said David Card, an analyst at Web research firm

Jupiter Communications

.

ACTV is not alone on the interactive TV stage.

Liberate Technologies

(LBRT) - Get Report

,

Wink Communications

(WINK)

and

Worldgate Communications

(WGAT)

are just three of the other big players.

ACTV shares declined 2 3/16, or 11%, to 18 1/2, in afternoon trading Friday amid a broad stock market selloff. Liberty Media fell as well, dropping 3 1/4, or 6%, to 48 5/8. (ACTV closed down 3 11/16, or 18%, at 17 while Liberty Media closed down 3 13/16, or 7%, at 48 1/16.)