Video-on-demand company

SeaChange International

(SEAC) - Get Report

fell short of analysts' expectations for the quarter ended July 31, but promised an upswing within the next five months.

The firm says it expects major cable operators -- including

Adelphia Communications






Cablevision Systems



AOL Time Warner


-- to step up spending on VOD by the end of SeaChange's fiscal year, which closes Jan. 31, 2001.

VOD technology lets operators offer home viewers the ability to select movies and other programming from a menu, watch them whenever they choose, and fast-forward or rewind the show as if it were being played back from a VCR in their home.

SeaChange, which also sells technology making it easier for broadcasters and cable operators to organize and air commercials and other programming, says it is seeing the bottom in the weak advertising market, the slowdown of which has diminished demand for its product and services. Despite the "uncertain" ad market, the company expects an advertising uptick in its fourth fiscal quarter ending Jan. 31, according to CEO Bill Styslinger.

For the second quarter ended July 31, however, the company Tuesday evening fell short of forecasts for both sales and profits. Revenue for the quarter amounted to $27 million, up 7% from the July 31 quarter last year but $1 million below analysts' estimates. The net loss for the quarter was $684,000, or 3 cents per share; that compares to last year's 2-cent gain and the Thomson Financial/First Call consensus of a 1-cent profit.

Ahead of the release of the quarterly financials, SeaChange's shares fell 91 cents Tuesday to close at $20.30. On Wednesday morning, the stock was up $1.24 cents to $21.54.

SeaChange's forecast illustrates the tension between the promise of new technology and the unpleasant realities of the sales process, against the background of the slowed economy. Cable operators are hopeful that new products such as VOD will lead to higher revenue growth and higher margins, but

SeaChange and rival

Concurrent Computer


have erred this year by overestimating demand for their products.

That being said, SeaChange's VOD business has indeed grown. For the first six months of the fiscal year, the company reported VOD revenues of $22.7 million, nearly four times higher than the corresponding figure one year earlier.

On the company's conference call with analysts, Styslinger spent some time marshalling anecdotal evidence indicating that cable operators are stepping up their investment in VOD. Separately on Tuesday evening, iN Demand, a pay-per-view network whose owners include Comcast and AOL Time Warner, said it had reached an agreement with a


(SNE) - Get Report

subsidiary that would expand iN Demand's VOD business.

For now, SeaChange is predicting that it expects third-quarter revenues of $25 million to $26 million, and an after-tax loss of 3 to 5 cents per share. The company expects fourth-quarter revenues -- boosted by VOD demand, and, to a lesser extent, an advertising uptick -- to grow 15% to 20% over 3Q figures. The company also expects to report a small profit for the year, aided by improving margins on its VOD computer servers.