NetChannel Abandons TV/Internet Service

Surprise, Microsoft's WebTV is now the only player in the TV/Internet game. On Wednesday, April 29, NetChannel Inc. threw in the towel, announcing that it was getting out of the business of bringing the Internet into homes via set-top converter boxes. The $20-per-month service never gained a large enough following to become profitable.

"Our subscription base is far below our projected critical mass to make it economically feasible to continue," said NetChannel's VP of Marketing Jim Gustke. The South San Francisco-based company had succeeded in attracting only 10,000 subscribers since its inception in September 1997. In early April, NetChannel reduced its staff from 97 to 81. The slow market for interactive TV drained the company's resources, analysts say.

By contrast, WebTV claims more than 300,000 subscribers, which is still a tiny fraction of the more than 97 million TV-equipped households in America. Its set-top box, made by Sony/Philips and Mitsubishi, is priced at $200 with rebates. The monthly fee is also $20, which is almost standard for Internet providers. WebTV was a money-losing high-tech startup until last year, when Microsoft bought out its three principals in a $425 million deal.

Microsoft might have total control of this niche market at the moment, but satellite services and cable companies are beginning to venture into the field. Whether the service will gain popularity or disappear as a transitional technological experiment is anyone's guess. Some observers, like Tim Bajarin of Silicon Valley's Creative Strategies, admit that the demand "is not here yet." But that could change. "We see it clearly being a big market," says Bajarin. "But unless you've got deep pockets and are willing to lose money for years, it's going to be a tough market to crack."