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Interactive TV race heats up with Liberate deal

Liberate Technologies agrees to acquire MoreCom, a provider of software for interactive video services, in a $561 million stock transaction.

Liberate Technologies said today it would acquire closely held MoreCom, a provider of software for interactive video services, in a $561 million stock transaction that it hopes will shore up its product offerings in Europe and other markets.

Liberate's purchase of Horsham, Pa.-based MoreCom comes less than a day after a key competitor, OpenTV, bought Web browsing pioneer Spyglass for $2.5 billion in an all-stock deal. The deals show a three-way horse race developing among Liberate, OpenTV and Microsoft to provide interactive services via the television, analysts say.

"Right now, Liberate, OpenTV and Microsoft are locked into a dead heat" in attempts to carve up the market for interactive TV technology (ITV), said Cynthia Brumfield, principal of consulting firm Broadband Intelligence.

"Our core strategy is to be dominant on every set-top developed and on every broadband network," said Liberate CEO Mitchell Kertzman. "Whereas we have dominated the cable industry, we've had less success (with satellite operators)." MoreCom's technology will help Liberate compete more effectively in the satellite and digital television markets.

The market they are chasing hasn't really materialized yet, but predictions abound about how large a pot of gold lies at the end of the rainbow. Jupiter Communications projects ITV will reach 30 million U.S. households and generate $10 billion in revenue by 2004. Of primary interest to AOL, Microsoft and numerous other companies are developing technologies that offer consumers the ability to purchase goods and services using a remote control.

"Every technology that can be gained is a competitive advantage," Brumfield said, remarking that attempts to seal the MoreCom deal were probably stepped up in light of the OpenTV merger.

Also of note, according to Kertzman, is the relationship Liberate gains with Deutsche Telekom through MoreCom. The deal has the potential to open up a market of 40 million to 50 million people in an area that to date has been hard to crack, he said.

The Liberate deal is only the latest in a string of recent deals among the trio of competitors.

Microsoft found itself needing to partner with the United Kingdom's NDS to bolster its products for the European market. The software giant also bought Peach Networks, whose software lets Peach set-top boxes run Windows-based programs.

Liberate earlier this month completed an acquisition made in January that will enable the company to offer ITV service to less expensive--and more prevalent--cable set-top boxes.

"Given the pace of market share growth and the speed of Internet markets, consolidation (in the ITV arena) is an outgrowth of that trend," Kertzman said.

The all-stock transaction is anticipated to close in the second calendar quarter of 2000, according to Liberate.