January 6, 2002 9:00 PM PST

Rearden Steel unveils multimedia system

After two years of secrecy, start-up Rearden Steel will jump into the home entertainment market Monday by announcing its first products and a name change at the Consumer Electronics Show in Las Vegas.

The Palo Alto, Calif.-based company will announce that its new name is Moxi Digital and its first products will be the Moxi Media Center (MC) and Moxi Media Extension (MCx). As previously reported, the company designs software and hardware for cable and satellite set-top boxes that lets them effectively function as digital entertainment centers. With an MC, consumers will eventually be able to send e-mail, download video, play games and perform other PC-like tasks on the TV.

Satellite television company EchoStar, an early investor in Moxi Digital, is working to add Moxi's software to EchoStar's advanced satellite television receivers.

Moxi debuts in what is shaping up to be the latest gold rush for technology companies. Microsoft, Intel, Apple Computer and the major PC companies, among others, are coming out with technology that will bridge the gap between the TV, a fixture in the home, and computer technologies. As in the original gold rush, many of these attempts will fail. Component costs, customer indifference and other factors have doused the enthusiasm behind past interactive TV and earlier PC-TV experiments. Still, hope springs eternal.

"I don't think we've seen a product yet for pent-up demand," Jon Peddie, CEO of Tiburon, Calif.-based Jon Peddie Research. "The problem is, to put all the stuff in that people want, there is a challenge with the bill of materials...For a home entertainment center, you have to do video and audio."

Microsoft's eHome division is expected to make an announcement that the software giant is aiming to make PCs running the Windows XP operating system the


Josh Bernoff of Forrester Research describes the Moxi Media Center.

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entertainment center of the home. It is also expected to show off Mira, a handheld computing device that will allow consumers to perform the same sort of tasks that Moxi will enable.

While the company will certainly tout its technology, Moxi's ultimate advantage may come its accommodating spirit. The company works with carriers to ensure that Moxi services can be integrated easily and relatively inexpensively.

"One of the lessons I learned at WebTV was that if you go to operators and say, 'Here's the design, I hope you like it,' you're not going to make it with broadband operators, because each has his own idea about what they want," said Moxi CEO Steve Perlman in an interview with CNET News.com. "So this company (and its products) from the ground up is designed to be extremely flexible. We're processor, networking and graphics system independent."

Perlman co-founded WebTV in 1995 and later sold it to Microsoft in 1997 for an estimated $500 million.

The approach, said analysts, is part of the company's appeal.

"The high cost of set-top boxes is one of the main reasons why cable companies have been slow to adopt any type of interactive solution," Yankee Group analyst Aditya Kishore said.

The Moxi MC is a set-top box design using the company's middleware, which runs between a modified version of the Linux operating system and interactive services, such as a digital video recorder, digital music jukebox, enhanced DVD playback as well as online capabilities including instant messaging, e-mail, Web browsing and chat. It serves as the focal point for digital content in the home and can wirelessly, or through wires, communicate with other consumer electronics devices, such as televisions, throughout the home using the Moxi MCx, which serves as a sort of a terminal for the set-top boxes using Moxi MC software. The set-top boxes based on Moxi MC software can be designed to include a modem, hard drive and Firewire ports.

In future versions of Moxi Digital's software, the set-top boxes will be able to communicate with other devices so consumers will be able to watch television programming on handhelds or download video from camcorders to be displayed on the television.

Moxi Digital will not manufacture the boxes, but will work with customers, such as cable and satellite companies, to incorporate its technology into a customers existing infrastructure. Moxi will also assist in designing set-tops. The company aims to generate revenue through software licensing.

Perlman acknowledged that Moxi is playing in the interactive television market in the sense that it is going after the same customers, cable and satellite companies, as Liberate Technologies and Microsoft TV. Moxi, however, said it will transcend competitors through a barrage of services.

"Interactive television, as it's been conceived in the Microsoft TV and Liberate (Technologies) camps, is dead on arrival. Annotating a broadcast with a couple of overlays is just not anybody's idea of value added entertainment. We're about making all of your media available on demand and throughout the house," Perlman said.

Meanwhile, the company will couple home user demand with cost cutting at the back end. Cable companies pay for the set-top boxes that allow digital programming to be viewed on a subscriber's television, in return they receive monthly fees. But if a home has more than one television and needs more than one set-top box, the cable company has to pay for two boxes and they generally receive revenue from only one subscription.

"The real value of Moxi's solution (to cable companies) is that it allows multiple television sets to have digital programming without the need for more than one set-top box and that drastically cuts down on costs, especially for cable companies," Kishore said.

Cable companies are also faced with the loss of digital cable subscribers to either satellite companies or those switching back to the less expensive analog cable service--this is referred to in the industry as churn. Current churn rates for cable companies are in the 10 percent to 15 percent range, according to industry estimates. New services could help reduce the churn rate.

The downside though is that, even though the average U.S. household has 2.3 televisions, only 20.4 percent of the digital cable subscribers have more than one set-top box, according to Yankee Group data.

"And Moxi won't be getting all of those subscribers," Kishore said.

Moxi Digital's response is that the company is not only going after homes with more than one digital cable set-top box, but also homes with one box, and that its software enables more features than cable boxes currently in the market.

However, Moxi also has powerful friends. EchoStar, America Online, Vulcan Ventures, Cisco Systems, The Washington Post, Macromedia, Mayfield and The Barksdale Group contributed to Moxi's $67 million first round of funding.

The EchoStar deal is a significant boost, even if the DirecTV acquisition were to go south, but Moxi's future, according to Kishore, will depend on more distribution agreements. EchoStar has about 6 million satellite subscribers in the United States and is awaiting approval for the acquisition of DirecTV, which has about 10 million subscribers in the United States.

Also Monday, Moxi Digital is expected to announce that it is using Macromedia's Flash Player 5 and RealNetworks' RealOne streaming network player. Moxi has been working with the NDS Group to create a secure platform allowing consumers to pay for services through its television.

Moxi Digital employs 117 people and has 57 patents pending.

"Moxi's plans are very ambitious and there will be plenty of pressure from companies of all sectors watching to see if they can pull this off," Kishore said.

 

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