ONE TO WATCH? VIDEO-ON-DEMAND INTERTAINER INC.
Bloomberg News October 7, 1998
By Kathryn Harris
(Kathryn Harris is a columnist for Bloomberg News. The opinions
expressed are her own and don't represent the judgment of
Bloomberg LP or Bloomberg News.)
For nearly 30 years, Jonathan Taplin has been at the cutting edge:
a road manager for Bob Dylan in the early 70s; a film producer,
then investment banker in the 1980s. By 1995, he was a movie
producer again — and also a consultant to Microsoft Corp.
Taplin's encounter with the techies convinced him that there was
money to be made by old hands in Hollywood using new
technology. No one had yet delivered a palatable, interactive video
service for the personal computer screen.
In 1996, Taplin and two Hollywood friends started a pay-per-view
company called Intertainer Inc., preparing for the day when
high-speed, broadband systems make it possible to deliver
top-quality video programming to either the personal computer or
the television screen on demand.
The entrepreneurs hope to parlay their experience and contacts in
rock 'n roll, movies and high finance to build a service that
becomes as ubiquitous as Home Box Office or MTV. They've
devised a service that allows consumers to browse for movies,
music, books or fashion. If a movie is rented, the consumer can
stop and start the viewing for 24 hours, just as a rental video can
be controlled on a VCR.
Intertainer has won financial backing from Intel Corp., Comcast
Corp., U.S. West Inc., Sony Corp. and General Electric Co.'s NBC.
Equally important: the entrepreneurs have persuaded six of the
seven major motion picture companies to make programming
available. (Paramount is the only holdout; its parent Viacom Inc.
also owns the Blockbuster video stores, which presumably will
suffer if pay-per-view takes off.) Although any manufacturer or
studio could begin offering its own pay-per-view service, some
executives are impressed by the way Intertainer has developed its
programming from a variety of sources, and developed an
easy-to-use system for consumers.
"Everybody else is so invested in the technology; they're focused
on what people will accept, use and enjoy," says Brian Roberts,
chief executive of Comcast, which is testing Intertainer in dozens
of cable TV homes near Philadelphia.
Certainly others have tried to sell interactive television. Remember
Warner's QUBE, which offered yes-or-no choices in programming
to some cable TV households in Ohio in the late 1970s? QUBE
was so expensive that Warner kept the true cost secret even within
its executive ranks. But it was a marketing tool that Warner used to
distinguish its service from other cable operators bidding for
QUBE also whetted the interest of American Express Co., which
bought 50 percent of the Warner cable business in 1979. American
Express was eager to tap the potential of electronic commerce,
like banking and shopping, from the home.
But QUBE's special programming looked primitive compared with
slick network productions, and the system couldn't readily
differentiate members of the viewing household. In 1984, the
system was scaled back; American Express sold its stake back to
Warner in 1986.
Another decade would pass before interactive television was
marketed again. In late 1994, Time Warner Inc. launched its "Full
Service Network," in front of 450 journalists in Orlando, Florida.
That costly experiment collapsed under the weight of missed
deadlines and unfavorable comparisons to the Internet, where
electronic mail, chat-rooms and transactions with banks or other
commerce could be performed with greater ease.
A more recent effort: DIVA Systems Corp., formed in mid-1995,
has introduced video-on-demand to four cable TV systems in the
last year, but it won't disclose the number of users. The Menlo
Park, California-based company uses its own proprietary hardware
from end-to-end, which is costing a bundle. DIVA has raised $348
million in four rounds of financing. Revenues for the year ended
June 30 were $82,000, while total operating expenses amounted to
Getting to Market
Intertainer's challenge is to persuade both telephone companies
and cable TV operators to add its service, and ultimately, to
persuade American consumers that they really want
video-on-demand on their personal computers or television sets.
The company's founders certainly have experience catering to
America's appetite for entertainment and fashion. While they
concede that not everyone wants to watch a movie on a
personal-computer screen, they think that consumers will readily
eye-ball fashion videos or free music videos, which will lead to
electronic commerce transactions via Intertainer.
Richard Baskin, who serves as co-chief executive with Taplin, is a
music composer and movie producer ("Nashville") who has also
produced music videos and television specials for Barbra
Streisand, Elton John and Rod Stewart.
The third co-founder, Jeremiah Chechik, is a one-time fashion
photographer who moved successfully to commercials ("The Night
Belongs to Michelob") and feature films ("Benny and Joon"; "The
Avengers"). Chechik is not involved in the day-to-day operation but
is a member of the board.
Among other board members: music producer Quincy Jones and
Jeff Sagansky, president and chief executive of Paxson
Communications Corp. Sagansky was one of Intertainer's earliest
supporters, when he learned of the project in his former job as
co-president of Sony Pictures Entertainment.
"I heard a million different pitches," Sagansky says, of the days
when he also oversaw new business development for Sony Corp.
of America. "This was by far the best technological application."
Sony, of course, expects to be one of the manufacturers of set-top
boxes once the cable television industry adopts open standards for
such devices. Likewise, Intel is looking for ways to encourage
consumer use of its increasingly powerful microprocessors.
Service providers like Comcast and US West help with start-up
capital because they hope a new service like Intertainer will draw
more subscribers, or even distinguish their service from a
competitor in the same local market.
Intertainer has avoided use of proprietary equipment, unlike DIVA,
which is having a hard time persuading some cable operators to
adopt its own custom-made set-top box.
Cable operators and telephone companies will look closely at the
economics of Intertainer, however, since they must bear the cost
of supplying a server to send the programming along the
broadband to consumer homes.
US West will look at the efficiencies of the system when it begins
testing Intertainer next week in Boulder, Colo., over high-speed
"The greatest hurdle is getting the technology to support high
volumes of users economically," says Joe Zell, president of
!NTERPRISE Networking Services of US West Communications.
Zell, who is on the Intertainer board, says the service might be
introduced commercially in the second half of next year if field and
market trials are successful.
Intertainer's backers have only invested a total of $18 million to date
— spare change for this crowd. Intertainer's mettle will be tested
when it needs the next round of financing.
Baskin, the co-CEO, says the company will try to raise another $20
million in the next 90 days, which he says should be sufficient to
get the product to market.