Video software

OpenTV, TWC Freeze Middleware Deal

You can all but put a fork in OpenTV Corp. (Nasdaq: OPTV)’s hopes to establish its first significant middleware presence in the U.S. cable market.

OpenTV execs confirmed Thursday afternoon that a middleware program targeted to Time Warner Cable Inc. (NYSE: TWC)’s limited Motorola Inc. (NYSE: MOT)-based set-top footprint has been placed on an “indefinite hold.” (See OpenTV Posts Q4 and Time Warner Cable Delays OpenTV Rollout .)

Under a deal announced in July 2006, Time Warner Cable agreed to use OpenTV’s Core 2.0 middleware to ensure that its in-house interactive program guide and navigation system ported properly to older, thin-client Motorola boxes. The vast majority of Time Warner Cable’s systems are based on the Scientific Atlanta /Cisco Systems Inc. (Nasdaq: CSCO) digital platform.

News that the deal is all but finished does not come as a huge surprise. When the deal was announced, Houston was Time Warner Cable’s largest Motorola market. OpenTV’s opportunity all but evaporated there when, under a system swap, Comcast Corp. (Nasdaq: CMCSA, CMCSK) took over the property last June. That left Los Angeles as Time Warner’s largest Motorola pocket, coming by way of the MSO’s acquisition of some former Adelphia Communications systems. (See Adelphia Acquisition Completes.)

After an evaluation, Time Warner Cable and the set-top software specialist agreed that the middleware deal was not economically sustainable. OpenTV expensed $2.2 million related to the Time Warner Cable middleware project in the fourth quarter.

“Given the delays in the schedule for commercial deployment, our projections of the number of legacy set-top boxes in the field at launch has decreased significantly, which has adversely impacted our revenue projections,” OpenTV acting CEO Ben Bennett said during the company’s fourth quarter earnings call with reporters and analysts. “Likewise, the drain on OpenTV and Time Warner resources has been higher than either party anticipated.”

He added that OpenTV and the MSO decided jointly to “put this program on indefinite hold. While we’re disappointed [that] the original goal and economics for this deployment may not be realized, this is absolutely the right decision for the company.”

With that decision made, OpenTV did not include Time Warner Cable-related revenues in its 2008 outlook. Although OpenTV hasn’t enjoyed much success gaining traction for its middleware with U.S. cable operators, its software is in more than 100 million set-tops worldwide. (See OpenTV Touts Milestone.)

Despite the loss of a middleware relationship, Bennett emphasized that OpenTV’s relationship with the MSO “remains strong,” citing possible support for advanced advertising apps and Time Warner Cable’s rollout of tru2way, the new name for the OpenCable Platform. (See Cable's 'tru2way' Play .)

OpenTV already makes some money off of tru2way. It, along with Comcast, LG Electronics Inc. (London: LGLD; Korea: 6657.KS) , Panasonic Corp. (NYSE: PC), Royal Philips Electronics N.V. (NYSE: PHG; Amsterdam: PHI) , Samsung Corp. , and Time Warner Cable, are among the paid licensees for tru2way under a patent pool administered by Via Licensing Corp.. Although the financial breakdown among the patent holders has not been disclosed, set-top and TV makers pay $1.50 per device for the license, and service providers pony up $0.30 per subscriber per year, or $1.50 for a five-year license.

On the ad front, OpenTV is partly banking on EclipsePlus, a campaign management platform slated for commercial release by the middle of 2008. (See OpenTV Betas Ad Management.)

OpenTV, Bennett said, is “actively engaged” with Comcast and Time Warner Cable on advertising plans. He didn’t go into much specific detail, but those activities are possibly linked to “Canoe,” the code-name for a major cross-MSO advanced advertising initiative. (See Cable's 'Canoe' RFI Paddles Toward Deadline and Up the River Without a Paddle .)

Financial update
OpenTV said fourth quarter revenues rose 52 percent, to $38.2 million, soundly beating analyst estimates of $29.7 million. OpenTV attributed the revenue jump in part to $10.5 million of deferred revenue from UPC Broadband . That helped the company generate a profit of $11 million, or 8 cents a share, versus a net loss of $3.4 million, or 2 cents a share in the year ago quarter.

For the full year, revenues were $110.0 million, up 16 percent, coupled with a net loss of $5.2 million, or 4 cents per share, trimmed from a net loss of $10.8 million, or 8 cents per share in the previous year.

B. Riley & Co. Inc. maintained its “Buy” rating on OpenTV in a research note issued Thursday. OpenTV shares were up 39 cents (38.94 percent), to $1.39 each, in early trading Friday.

— Jeff Baumgartner, Site Editor, Cable Digital News

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