NetChannel in trouble

A former employee of NetChannel, which supplies RCA Network Computer users with Internet access and TV-related services, indicated that the company had laid off most of its employees in its South San Francisco, Calif., offices on Tuesday morning.

"During a meeting, we were told, 'That's it,' " said the former employee, on condition of anonymity. The former employee had also indicated that NetChannel did not have the financial resources to meet its payroll and could file for Chapter 11 bankruptcy.

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America Online Inc. was in talks to buy the company, according to the former employee, but the discussions had fallen though. Left with no resources, NetChannel gave its 90 to 100 employees a choice of staying without pay or leaving.

AOL (AOL) could not be reached for comment, but has expressed interest in interactive TV in the past.

Differing views
At the end of the day, though, company officials stated unequivocally that the company would remain open and its service continue.

"There is no major layoff," said NetChannel CEO Philip Monego on Tuesday afternoon. "Tomorrow [the end of the pay period], everyone will get paid."

Monego also related a different version of the morning's meeting.

"There was an employee meeting today between London, Atlanta and (the main office)," he said. "I told them about the continued difficulties we are having and gave them the choice to stay the course. The majority decided to do so."

But whatever took place in that meeting, it is clear that NetChannel is struggling.

NetChannel 's biggest competitor in the fledgling market for interactive TV and Internet access is Microsoft Corp.'s (MSFT) WebTV Networks Inc., which claims some 300,000 subscribers. NetChannel has "far less than 40,000," said the former employee.

RCA claims that through January, it has sold some 50,000 of its Network Computers, built by Thomson Consumer Electronics and based on software developed by Network Computer Inc.

"It is a tough, tough market to be in since last April when WebTV was purchased by Microsoft," said Monego.

Reversal of fortune
Sources said a change of heart at AOL resulted in a marked change of circumstances for NetChannel in the wake of the controversial morning meeting.

AOL had ended its negotiations with NetChannel on the assumption that the Internet TV start-up had the finances to continue operations, the sources said.

But when NetChannel started losing employees Tuesday, AOL stepped in and guaranteed the payroll, said one worker who left NetChannel after the meeting.

Whether this means that AOL will acquire the Internet TV service is uncertain, but for the time being, NetChannel's deadline has been extended.

Monego did not confirm whether NetChannel had received additional financing, but did confirm that it was looking for partners.

"We have had consistent dialog for some time with companies that could have a vested interest in our service," he said.