NetChannel shutters Net-via-TV

Struggling NetChannel will shut down its money-losing Internet-via-TV service this Sunday, as it looks to restructure its operations.

The company is expected to inform its 10,000 subscribers and content providers within days that it will shutter the service less than a year after its launch, said Jim Gustke, a company spokesman.

"There were a couple of factors that played into this decision. One was the

CNET Radio on what NetChannel could have learned from WebTV

service did not reach the projected critical mass that we had anticipated, and so it does not make it economically feasible to go forward with this generation of service," Gustke added. "Second was a resource issue. We needed to focus our resources on something that better delivers the enhanced television experience that we've always talked about."

NetChannel is a competitor with Microsoft's WebTV unit, which has 300,000 subscribers in the United States.

Without the access service, NetChannel will lose the revenues it received from its 10,000 subscribers and advertisers, as well as revenue-sharing benefits it received from its content providers through e-commerce transactions.

"All three revenue sources will be affected by shutting down the service," Gustke said. "But we have our investor group, which has been our main source of funding since the company started."

Gustke declined to comment on whether the investor group will again step forward as the company shuts down its core business.

He noted, however, that a Chapter 11 reorganization under U.S. bankruptcy laws is "not in our plans."

"We are revising our business strategy," he said. "This does not mean the company is going out of business."

James Harper, spokesman for Thomson Consumer Electronics, said customers who purchased its RCA set-top boxes--which use the NetChannel service--can return them to the retailer for a refund. Harper said that the boxes sold for between $199 and $249 and that Thomson will reimburse retailers for returned merchandise, as well as for all unsold set-top boxes. The cost of the return program is not yet known, Harper said.

NetChannel, headquartered in San Francisco with an engineering and production plant in Atlanta, has yet to determine the depth of the layoffs and where they will be leveled as a result of this latest restructuring, which was first reported in the Wall Street Journal.

The company earlier this month laid off 16 employees, or roughly 20 percent of its workforce, and sold its NetChannel Europe subsidiary to cable and telecommunications company NTL. Gustke said the company plans to keep its engineering and production plant in Atlanta operating.

Earlier this month, prior to the restructuring, NetChannel got a bailout from its investors, after negotiations to sell the company to America Online stalled, sources said. One source said AOL now is considering alternatives to the acquisition--some of which are in-house--that could meet its need to deliver the Internet via TV. Nonetheless, talks have taken place between the companies up until very recently, another source said.

Even though it has shut down its access service, NetChannel could easily fire up its service again because it still retains the data that is stored on the servers, a source said.

For example, NetChannel may offer solutions to cable companies with digital set-top boxes, or to satellite companies looking to modify their existing boxes.

"Potential partners may be companies that have an interest in the Internet TV space and who find NetChannel has plenty of technology and experience in programming," a source said.