Cable, Satellite, and telephone equipment company NextLevel Systems Inc has won a $4.5bn contract with nine US cable operators to provide 15 million digital interactive set-top boxes in a three year contract. In return the cable operators are buying a 16% share in NextLevel, at $15 per share, for a total value of around $354m. NextLevel is also getting control of Tele-Communications Inc’s Headend in the Sky digital TV distribution group, and will deal with the authorization and management of the pay-TV content for 10% of NextLevel’s shares at a value of around $222m. The set-top contract is important for NextLevel as it is going to bolster its status and give it a certain amount of power to decide what hardware and software runs in the interactive set-top boxes. However, NextLevel is going to have to stick by the ideal laid down by cable industry bigwig John Malone, both chief executive of cable giant Tele-Communications Inc and chairman of cable industry standards body Cable Television Labs Inc, who has specified that the cable industry should not use only one source of processors or software, thereby preventing Microsoft Corp and Intel Corp from dominating the set-top industry (CI No 3,312). The plan is for NextLevel to sell a family of set-top boxes to the cable companies which can have various processors or operating systems plugged in, including Intel processors and Windows CE, which will all be on sale in mid-1998 and all conform to Cablelabs OpenCable interoperability specifications (CI No 3,285).
Financial difficulties
NextLevel won the contract as it had experience of building equipment for the cable industry and has already shipped 600,000 DCT-1000 interactive set-tops, which are PowerPC based devices running a choice of Microware Systems Inc’s OS-9, NCI Inc’s Navio, or Windows CE operating system. Ironically, NextLevel has won an enormous order at a time when it has been recovering from severe financial difficulties, having spun off from its parent General Instrument Corp in July, in a three way split (CI No 3,213). Soon after, it lost its chief executive, chief financial officer, fired 20% of the staff in its satellite division, and announced a profit warning. The warning has been recently revised, with positive earnings per share predicted to be between $0.05 and $0.07, higher than previously expected (CI 3,270). The company is now finishing its restructuring with one last move, the spin-off of its loss making telecommunications equipment business NextLevel Communications, as it doesn’t have the resources to invest enough into the business to make it profitable.
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