THE DAY AHEAD: Little-known gaming company NTN sees big Web future

NTN Communications Inc. (AMEX: NTN) could be the biggest interactive TV player you've never heard of. Because you probably don't hang out in a bar, then try to do a better job at predicting the next play on the big screen TV than some guy you don't know in a watering hole in Pepper Pike, Ohio.

NTN (news) primarily runs a network of trivia and sports games for players in restaurants, lounges and hotels. Its stock is trading under $1 a share, but that could change when it moves its games to the Web by the end of the year. Here's the ugly, concise history: NTN has had a revolving door in the executive suite, a general lack of direction, and a convertible debt issue that backfired.

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But analysts expect things can only get better for NTN shares, which are currently trading at 75 cents a share. "They can only surprise to the upside," said Roger Kumar, a hedge fund manager with SCM Investment Management. "The shareholder base is pretty cynical and pessimism is rampant." Expectations largely hinge on newly installed CEO Stanley B. Kinsey and the move to the Web. Kinsey has been on board since last October.

Why should NTN enjoy more success linked to a Web portal than to a beer tap?

NTN (filings) actually has strong content, with its fantasy sports and trivia games. NTN's content is so compelling that America Online is actually paying NTN for its games.

"The fact AOL pays them for content says a lot," said Abishek Gami, an analyst at William Blair. "I bet it catches fire. If it were a private company going public it would have a huge valuation."

However, the AOL deal is a handicap. What once was a deal based on a percentage of revenue has changed to a monthly flat fee, which limits revenue growth. NTN's revenue from online/Internet services fell 51 percent in the first quarter to $290,000, primarily because of the change. The company reported total sales of $5.68 million and a loss of $832,000 for the first quarter ending March 31. Sales in the quarter were down 8 percent from a year ago.

The AOL deal, scheduled to expire in December, is now being renegotiated. If it doesn't work out Kinsey said he's confident NTN can transition to the Web and derive marketing fees and selling advertising that is designed to reach registered users. The company also is adding chat and full-motion video, driven by Internet-enhanced technology, in its upgraded Digital Entertainment Network, launched in April. NTN's transition to the Web should be complete by the beginning of 2000.

The company currently has 400,000 registrations for NTN's Player Plus, frequent playing program. Officials said the 400,000 registrations are active players that have played on NTN's hospitality network in the last 90 days. NTN also has 100,000 registrations via the Web from folks who just stumbled on the corporate site.

Kinsey said NTN will leverage its network to drive traffic to the site and meld registrations from the bar kiosks with the Web sites. The company also recently bought a company that will enable it to run coin-operated Internet kiosks in hotels and bars.

Ultimately, NTN sees three Web revenue streams: Ads and sponsorships; ecommerce (play an NFL game, buy a jersey); and the World Trivia League, where NTN becomes a sanctioning trivia body and charges an annual fee. NTN will find distribution through portals and key secondary key sites such as iVillage.com and Sportsline.

Kinsey hopes to do a Wall Street roadshow later this summer to get the word out on NTN.

"No analysts cover us and we're a sleeper company," said Kinsey. "We have the most underdeveloped and underexposed assets."

Gami and other analysts couldn't slap speculative "buy" ratings on the stock because the company is too small. For example, Gami's firm caters to institutional investors that regularly invest more than NTN's market cap of $21 million. One trade and Gami's clients could own NTN.

Because analysts aren't going to pay attention until the company gets some momentum, Kinsey has to deliver results. But don't expect a token .com name change.

"We are only on AOL right now so we don't deserve a .com," said Kinsey. ''It's not appropriate until we emerge as an Internet player."