Cults, hot dogs, and billionaire bridge.

If you think that Mac users are fanatical, you should check out the TiVoted, worshippers of the TiVo personal video recorder (PVR), a fancy device that can record television shows, minus the commercials, to a disk drive for you to view at your leisure. The object of their affection, or at least the technology behind it, may drive video on demand (VOD) to an early grave. After all, if you can store and watch shows whenever you want, why would you want to order and pay for movies ­± la carte?

Beyond TiVo, the satellite service providers DirecTV and Echostar already offer PVR features in most of their satellite boxes. And insiders say AOL Time Warner plans to introduce a new cable box, made by Scientific-Atlanta, with built-in PVR features.

VOD has been on the ropes since Enron Broadband’s and Qwest Communications’ VOD efforts met their maker. Cable operators and film companies that were counting on VOD revenue to bolster their bottom lines in the coming years will have to do some new math. Of course, cable companies can probably get a piece of the action by offering their own PVRs, but they had better do it soon if they want to protect their customer base from the satellite folks, says Cynthia Brumfield, a principal at the research firm Broadband Intelligence. As for TiVo the company, it’s no slam dunk. A cultlike following doesn’t necessarily translate into a huge market share. Just ask Steve Jobs.

Howard Hits the Airwaves

Howard Jonas, a hot dog vendor turned entrepreneur and founder of telecom provider IDT in Newark, New Jersey, is one person who isn’t letting WorldCom’s troubles get him down. Indeed, his grandiose July 5 offer to buy Worldcom’s MCI, MFS, and Brooks Fiber units for $5 billion earned him headlines in the New York Times, Fortune, and the Wall Street Journal. No one even questioned his cockamamy proposal: pay WorldCom an initial $800 million in IDT stock, followed by three years of free cash flow from the operating businesses, to be paid in installments (NYSE: IDT). In case Mr. Jonas wasn’t aware, WorldCom needs money now–not over three years.

Some analysts are questioning the motive behind the bid. “Recent bids by IDT have more bark than bite,” writes Vik Grover, an analyst with the brokerage firm Kaufman Brothers. If you consider that WorldCom is unlikely to part with its core data-transport assets, the offer does seem a bit hollow, says Farooq Hussain, a partner with Network Conceptions, a telecom advisory service, and former MCI employee. Indeed, after setting aside its data assets, WorldCom is left with just some struggling voice operations of marginal value. Still, one thing is sure–a lot more people are aware of Mr. Jonas and IDT now than before he made the $5 billion bid.

The Games Billionaires Play
James Crowe, the CEO of Level 3 Communications, might be the luckiest guy in telecom. Two of the world’s richest men–Warren Buffet and Bill Gates–are watching out for him. Perhaps their mutual interest emerged during one of those online bridge games the two billionaires are reputed to play.

First, on July 8, the Oracle of Omaha invested $100 million in Mr. Crowe’s ailing telecommunications company. Only a fortnight later, the Baron of Redmond gave Level 3 a contract to provide the Internet infrastructure for Microsoft’s upcoming online game service, Xbox Live. In this time of telecom distress, you couldn’t ask for a more encouraging bailout.

Of course, Mr. Gates will surely need more than just Level 3 to get Xbox Live up and running. TechDealMaker, a San Franciso-based research service, says Microsoft should just go out and buy a telecommunications provider so it can connect subscribers to the Xbox Live service. Microsoft has budgeted about $2 billion over the next two years for its online games effort–it wouldn’t take much of that to buy a few DSL providers, like Covad Communications and There have also been rumors that Microsoft might bid on some of WorldCom’s assets . . . seriously.

Red Herring, September 19, 2002 Copyright © 1993-2004 Red Herring, Inc.