NetChannel's TV-based Internet to sign off Closure leaves Microsoft as only provider of service

Telecommunications

May 02, 1998|By SAN FRANCISCO CHRONICLE

Beleaguered NetChannel Inc. is shutting down its television-based Internet service this weekend, ending a failed effort to compete against Microsoft Corp.

The move will leave Microsoft's WebTV subsidiary as the only provider of Internet access through set-top devices sold in retail stores.

Whether that will let Microsoft corner the market on bringing the Internet to television is unclear, however. The Redmond, Wash.-based software giant faces competition from cable companies and satellite services, which are starting to offer Internet access via TV.

Industry sources have speculated that San Francisco-based NetChannel could be acquired by America Online, which could use the company's expertise to make AOL available on TVs as well as personal computers.

NetChannel decided to throw in the towel after attracting just 10,000 subscribers since introducing its service in September. WebTV, which has been in business since the summer of 1996, has more than 300,000 subscribers.

"Our subscriber base is far below our projected critical mass to make it economically feasible to continue with this generation of the service," said Jim Gustke, vice president of marketing for NetChannel.

Gustke said the company will restructure and that some layoffs are likely. NetChannel fired 16 of 97 workers last month. Gustke declined to say how NetChannel will revamp its business.

Analysts said the company didn't have the financial resources to wait for the Internet-on-TV market to emerge.

"The demand for television-based Web access is not here yet," said Tim Bajarin of San Jose-based Creative Strategies. "Over time, we see it clearly being a big market, but unless you've got deep pockets and are willing to lose money for years, it's going to be a tough market to crack."

NetChannel competed directly with WebTV -- which enjoys the deep pockets of Microsoft. Both charged $19.95 a month for their services, which included Internet access, on-screen programming guides, and entertainment content from companies such as Warner Bros. and E! Online.

NetChannel's growth was hampered by slow sales of the set-top boxes required for the service. Consumers paid as much as $250 for the devices, which are made by RCA.

WebTV put pressure on NetChannel last fall by introducing a beefed-up version of its set-top box made by Sony, Philips and Mitsubishi. The new model was priced at under $200 with rebates, and the original model was slashed to under $100.

"The economics changed dramatically because of pricing pressures that came from Microsoft," said David Limp, who heads up marketing for Oracle's Network Computer Inc., maker of the RCA device's operating system.

The failure of NetChannel probably won't hurt NCI much. Its software also is used in set-top boxes from Scientific Atlanta and General Instruments, as well as in boxes that let Internet-service providers deliver via television.

But it is something of a setback for Oracle's flamboyant billionaire chief, Larry Ellison. More than two years ago, he championed the "network computer for the masses," and created NCI to deliver on that promise. The RCA box was the only NCI-based consumer box on the market.

In an e-mail message to subscribers, NetChannel said RCA would contact them with information about returning their set-top boxes.

Pub Date: 5/02/98

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