Interactive Network Struggles to Avoid Going Out of Business : Technology: Fledgling venture by the TV entertainment company has turned into a huge financial drain.
Interactive Network Inc., the interactive TV company that has ridden the high expectations of the information superhighway, has disclosed to federal regulators that it could go out of business unless it can raise money soon.
The San Jose-based company made the disclosure earlier this week in a filing with the Securities and Exchange Commission. IN said it was negotiating to obtain the funds to continue but that failure to do so would force it “to significantly curtail or cease operations.”
Shortly after making its filing with the SEC, the firm announced it had obtained a $500,000 bridge loan from two of its shareholders, cable TV giant Tele-Communications Inc. and NBC. Analysts, however, said that at the rate IN is burning cash, the money from the loan won’t last long.
It is the third such loan IN has received from its shareholders since April.
IN markets a hand-held device that allows subscribers to play along in “real time” with sports, game and entertainment shows. Since 1991, when the firm began testing its interactive system in Sacramento, it has introduced the service in San Francisco, Chicago and South Bend, Ind.
But the cost of testing and implementing IN’s system has been enormous. Since the company went public nearly four years ago, it has reported cumulative losses of $66.8 million. Over the same period, it has brought in revenue of only $2,081,000.
The shutdown of IN would be a setback for the nascent interactive TV industry, which to date has yet to find a success it can trumpet. It also illustrates the enormous risks involved for entrepreneurs seeking to crack a market that does not yet exist.
IN is headed by David Lockton, a former sports attorney who once represented O.J. Simpson. (Simpson appeared in infomercials for IN that were pulled after his arraignment on murder charges.) Lockton founded the company in 1988 and raised $15.4 million in a 1991 stock offering.
Lockton has also financed IN by making private placements with strategic investors, raising more than $66 million since its IPO. Last year he sold 15% of the company for $10 million to TCI and has also raised money by selling stakes to NBC, Gannett and A.C. Nielsen Co. TCI, the largest shareholder, now controls about 17% of its common stock.
Analysts have had a difficult time figuring out just how successful the test of IN’s interactive system has been. The company said that as of the end of 1993--the latest period for which it will disclose figures--it had signed up 5,100 subscribers in its test markets so far.
Although IN has insisted that the “take up” rate for its interactive system compares favorably to, for example, VCRs in the early days, analysts have been skeptical.
“They had a flawed strategy,” contended Taurun Chandra, an analyst with Laidlaw Securities. “IN went after the home market from its inception. The problem there is they had to develop the home market for interactive programming, and that’s an expensive proposition.”
In order to revive its marketing efforts, IN earlier this year brought in Peter Sealey as president and chief operating officer. Sealey, a former
marketing executive at Coca-Cola and Columbia Pictures, immediately set about changing the company’s marketing strategy.
Previously IN was charging about $200 for its remote-control interactive unit and another $15 a month in subscription fees. IN is now testing a marketing plan where customers rent, rather than pay for, the remote-control units.
Interactive Network at a Glance
Interactive Network sought to be a pioneer in interactive television, but its service has been a bust with consumers and the company has piled up enormous losses.
* Headquarters: San Jose
* Chief executive: David B. Lockton
* Employees: 141
* Major services: Designs, develops and markets a subscription-based interactive TV entertainment system.
* 1993 revenue: $1.1 million
* 1993 loss: $24.8 million
* Losses per share: $2.32
* Wednesday stock price: $4.625, down 37.5 cents on Nasdaq
Sources: Bloomberg Business News; DataTimes
Researched by ADAM S. BAUMAN / Los Angeles Times