Merger mania hits net appliance market

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On the heels of Microsoft Corp.'s April 6 deal to buy WebTV Networks for $425 million, rival NetChannel on Monday announced a letter of intent to buy upstart ViewCall America.

The moves set up a race to dominate the fledgling Internet TV device and services market. NetChannel, which initially will focus on devices using Oracle Corp.'s Network Computer standard, has a global hardware deal with No. 1 U.S. TV maker Thomson Consumer Electronics. Thomson, marketer of the RCA and GE consumer electronics brands, plans to introduce its first TV Internet product June 17.

ViewCall is majority owned by Colorocs Information Technologies and has hardware agreements with Mitsubishi Consumer Electronics America, Hitachi Home Electronics (America), modem maker Boca Research and videogame marketer Sega of America. Sega's product went on sale in January; Mitsubishi's is expected in the third quarter.

NetChannel will remain based in South San Francisco, Calif., but will keep a production studio and labs in ViewCall's Norcross, Ga., headquarters. The company will use "NetChannel" as its primary brand.

NetChannel is in the midst of a search for its first ad agency. The company is expected to spend about $5 million on advertising this year. WebTV's agency is Rubin Postaer & Associates, Santa Monica, Calif.

WebTV, Palo Alto, Calif., (http://webtv.net) last fall introduced its Internet consumer service for TV running on set-top boxes from Sony Electronics and Philips Consumer Electronics.

Microsoft in September bought a small stake in WebTV. The software giant now will buy the company and port a version of the Windows CE operating system to the service.

An estimated 50,000 to 55,000 WebTV devices have been sold. Based on the purchase price, Microsoft is paying an astounding $7,700 for each of the subscribers, who pay $20 a month for the Web service.

But all parties are focused on growth in the Internet TV market.

"There are two gorillas in this marketplace. NetChannel is one of them," said ViewCall President-CEO Alan McKeon.

Mr. McKean cited as "some pretty accurate numbers" Forrester Research projections saying there will be somewhat fewer than 500,000 Web devices sold this year and more than 1 million next year.

Sony's and Philips' WebTV set-top boxes retail for more than $300. But any real potential may be in selling the services rather than the hardware: Philip J. Monego Sr., NetChannel co-founder and CEO, said the cost of building Web access into a TV or other device could fall "well below $50."

Both NetChannel and WebTV share some of the revenues from their services with makers of the hardware. Mr. Monego likens the relationship to what would happen if a maker of a VCR earned a nickel every time an owner rented a tape at Blockbuster Video.

Copyright April 1997, Crain Communications Inc.

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