The Day Ahead: Liberate licks chops as Microsoft TV stumbles

With news about Microsoft's interactive TV woes becoming almost a daily occurrence, competitors such as Liberate Technologies are ready to snag the customers the software giant leaves behind.

In short order, Microsoft's interactive TV plans have become inactive. Microsoft has invested billions into cable companies in an effort to buy market share for its software, which was expected to power set-top boxes.

And the cable companies would have taken the bucks-for-market-share swap, if Microsoft could only deliver. Microsoft has delays with a high-profile pact with AT&T, which is now looking for alternate suppliers.

AT&T agreed to let Microsoft supply the software for 7.5m of its 10m planned interactive-TV set-top boxes last year. Microsoft (see its platform details) also couldn't meet the planned October rollout of another client, United Pan-Europe Communications NV, Europe's largest cable operator.

Microsoft's much publicised glitches have many analysts and investors betting that rival interactive TV software makers Liberate and OpenTV will pick up the slack -- if and when interactive TV becomes a reality.

We spoke to David Limp, Liberate's senior vice president of corporate development, on Tuesday. Here's what he had to say:

On the Microsoft "oops road tour": Limp said Microsoft's problems could become a catalyst for Liberate's business, especially if the software giant falls behind with development. However, Limp said there are a few larger issues boosting business.

For starters, Liberate is benefiting from a "resurgence of interest" in interactive television. The rollout of broadband services may finally make interactive TV a reality. In addition, broadband companies have to start monetizing their massive infrastructure investments. "Broadband companies with or without Microsoft are being told by their stockholders that the time is now to monetize services," said Limp. "They have been making promises for a couple of years. Now it's time to produce results."

But Limp was sure to throw in a big caveat. "Nothing is done until it's done with these big companies," said Limp. Translation: You can have a lot of potential customers at your doorstep, but you need to convert the interest to real deals. He wouldn't comment on chatter about more deals with some of Microsoft's current customers.

On the competition: Liberate sees a lot of OpenTV as it competes for accounts overseas. In the US, OpenTV is less of a factor. Europe is ahead of the US in interactive TV just like it is in wireless services. OpenTV has 15 million to 20 million homes wired abroad. "The US is lagging by 12 to 18 months," said Limp.

As for Microsoft, Liberate's main US rival, Limp sings a familiar refrain: Don't count Microsoft out. "They may have trouble with version 1.0, but I can see their 3.0 version being a big threat," said Limp. "Microsoft wouldn't be putting this much money and spin behind interactive TV if the market wasn't huge."

On the payoff: Interactive TV has been talked about forever, but hasn't developed yet. Limp said interactive TV should start seeing significant deployments in 2001. Aside from the deals with the likes of Cablevision, Liberate should benefit from the launch of AOLTV, which should start shipping in time for the holiday shopping season.

Limp also said Liberate remains agnostic about broadband delivery systems. Currently, there's a race between satellite and cable providers to offer interactive TV, but Liberate can play both sides. Last week, the company announced a satellite deal with BellSouth and followed it up with a Cablevision of Boston pact Tuesday.

Liberate doesn't give profit projections, but Limp said revenue should begin to surge as deployments roll out. Analysts are Liberate to break even in late 2002 or early 2003.

The company, which will report earnings later this month, lost $11.4 million on sales of $9.1m for its fourth quarter ending May 31. For the first quarter ending August 31, the company is expected to lose 21 cents a share, according to First Call Corp.

On Tuesday, there was a lot of hubbub about Microsoft's Whistler desktop OS potentially replacing Windows CE on set-top boxes. This news raised a host of questions about even more interactive TV delays.

However, the hubbub may be misplaced. ZDNet News' Mary Jo Foley reports that Microsoft isn't replacing CE with Whistler set-top boxes. Instead, Microsoft will show off a pre-beta version of Whistler Consumer that will feature some interactive TV capabilities.

You see where this is going. Microsoft eventually sees PCs becoming entertainment hubs, which will supplement set-top boxes.

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