Buying OpenTV gives Liberty an in-house supplier of set-top box APIs for its cable affiliates, but this doesn’t look like the main focus of the deal. If it is to make money, OpenTV needs to broaden its range and sell more expensive services to its middleware clients. With Liberty’s help, it will at last have the resources to make this transition.
Liberty Media has bought control of iTV middleware firm OpenTV.
Cable TV giant Liberty Media has paid $185 million to increase its stake in middleware giant OpenTV to 87% of the voting rights and 43% of the total share capital. It’s a significant shift in the interactive TV industry.
Liberty controls major US cable channels and Europe’s largest cable company, UPC. It also has an 18% stake in News Corp and a 25% stake in Telewest, not to mention significant holdings in iTV software. OpenTV is also the largest supplier of middleware for iTV set-top boxes, with an installed base of 24 million. Even so, the deal looks a little strange at first.
OpenTV is often seen as best suited to the satellite platform, as most of its major clients are satellite operators such as BSkyB – but Liberty’s distribution networks are predominantly cable-based. This problem is mostly an illusion: OpenTV has successfully rolled out cable solutions, and should have little trouble supplying Liberty’s companies. In any case, this doesn’t look like the major reason for the deal.
Many cable companies in which Liberty has a stake, including Telewest and UPC, have already agreed to use middleware from rival Liberate, and switching now could be prohibitively expensive. Liberty also tends to give its subsidiaries significant operating freedom.
Liberty’s resources could be more important. When royalties are just $5 a box, covering R&D costs is a struggle. To make money, middleware providers need to up-sell into more profitable areas, such as creating application suites for developers to use with their operating and API systems.
This transition would be hard for OpenTV to make alone, but Liberty’s existing software development resources, its content breadth, and its money should all make life much easier. Liberty’s acquisition is best viewed as an investment in a global market leader and filling the gaping interactive TV gap in the Liberty portfolio.
Related research: Datamonitor, 2001: iTV revenue streams and business models