Perlman to unveil home-networking set-top: former WebTV boss's new venture has major backers and a deal with EchoStar

Cable World, Jan 7, 2002 by Richard Cole

With satellite giant EchoStar Communications as a potential customer, WebTV founder Steve Perlman's new venture is poised for an assault on the set-top market with what he says is a home-networking system that will cost about as much as a set of low-end cable boxes.

Backed by heavyweights AOL Time Warner and Paul Allen's Vulcan Ventures, as well as by EchoStar, Perlman's start-up, Rearden Steel, was operating in stealth mode until it had a product and customers to announce. This week's Consumer Electronics Show in Las Vegas will be the company's coming-out party. There, Perlman will introduce its new name, Moxi Digital, and unveil its set-top-box technology.

Moxi has designed a prototype digital set-top to demonstrate its middleware to cable operators. The company will sell box design to an operator, license the technology and, if the operator wishes, supervise manufacture of the boxes.

The key to the Moxi set-top system is its home-networking technology, which allows a single box with high-end functions--including a cable modem, personal video recorder (PVR) and DVD player--to sell for less than $500 for a typical two-TV household.

That compares with boxes currently offered by cable operators--without PVRs or modems--for about $225 apiece.

Operators have been hesitant to deploy pricier, feature-filled boxes. "That's why we invented this two-TV distribution system--to get us to a price point that is the same as the cheapest box," Perlman says. "A $500 box is a very difficult thing to justify in terms of cable economics. But a $250 box? No problem. And now they're interested in all the features. Before then they were just looking at the price tag."

Based in Palo Alto, Calif., Moxi isn't the first company to jump into the home-networking space. But with Perlman's background, $67 million in A-round financing from high-profile backers and the deal with EchoStar, the company is being taken seriously.

"Without a cable or satellite company agreeing to deploy this, it would look like a pretty interesting technology, but you couldn't be sure it was going to succeed," says Josh Bernoff, Forrester Research's lead interactive TV analyst. "But certainly based on their investors and the EchoStar deal, it looks like it's going to get off the ground and into consumers' hands."

Perlman would not give details of EchoStar's plans, but says Moxi will be a central player, not a sideshow, especially if EchoStar's merger with satellite competitor DirecTV goes through.

"We will be providing middleware for a large number of their mainstream PVR boxes," he says. "In the case of DirecTV, they're going to be replacing all those boxes with new boxes--about 2 million boxes. For a middleware company, it's the biggest digital opportunity in the United States."

Perlman says Moxi is talking to cable operators as well, but would not say if or when he expects announcements with a major MSO.

At Charter Communications, which is controlled by Moxi investor Paul Allen, spokesman Andy Morgan confirmed the MSO has held initial talks with Moxi. "We haven't made any commitment though, and we're talking to other folks in the same area," Morgan said.

A spokesman for Time Warner Cable, owned by AOL Time Warner, another Moxi investor, declined to comment.

EchoStar won't comment on its deal with Moxi, but at least one analyst has questions about the satellite broadcaster's commitment to the startup.

"EchoStar still has its 501 set-top box with PVR capacity and no fee," says Jim Stroud, analyst for the Carmel Group. "They also have an investment of $1.5 billion from Vivendi, which means Canal Plus middleware. And they work with OpenTV. That's a lot of players before Moxi gets involved."

Plus, Stroud notes, the EchoStar-DirecTV merger may not go through, and even if approved, it would take at least a year.

For some time, people in the industry have been wondering what Perlman was up to at Rearden Steel, a startup whose name he whimsically pulled from Ayn Rand's Atlas Shrugged.

Although the company has nothing to do with steelmaking, its set-top, called the Moxi Media Center, has plenty of other applications. It offers a digital jukebox that can store thousands of compact discs and the capacity to network personal computers wirelessly. Moxi also expects to add telephony and digital video and photo capacity in early 2003 with software upgrades.

Key to Moxi's innovation is its Media Center Extension, or MCX, which in effect is a receiver that uses 802.11a wireless technology, although it can also be connected by coaxial cable or Ethernet. This relatively cheap device is installed with each additional TV set in other rooms and receives a signal from the central set-top, which actually runs all the functions. The central box can have either two or four tuners and can operate the same number of extra MCXs.

Moxi executives say that Macromedia's Flash technology, which is designed for low-bandwidth animation, is at the core of their approach. Macromedia is another of Moxi's backers, and Moxi in turn is Macromedia's largest single investment, says Moxi spokeswoman Gina Aumiller.