Report: ZillionTV Lays Off One-Third of Its Staff

product-image41ZillionTV, the would-be set-top box/video service provider, has reportedly laid off one-third of the company. Brandon Wirtz, who says he’s a former employee of Zillion, broke the news on his blog last week, and in a statement emailed to Multichannel News, Zillion confirmed that it had “realigned its resources.”

Sunnyvale, Calif.-based Zillion’s plan to enter the set-top market was initially to sell its service through ISPs. It would charge consumers a one-time activation fee of $100 and offer content both through a free, ad-supported model and a pay-per view model.

But red flags went up over the company last month when Zillion announced that it was delaying its commercial launch until the second half of 2010 instead of this year. Additionally, the company concluded that its initial strategy of relying solely on telco partnerships wouldn’t give its advertising partners enough reach, so it said it was adding direct-to-consumer sales in regions where it didn’t have an ISP partner.

Zillion certainly had the right partners in place to make a go of the set-top space. It was backed by Hollywood studios like Disney (s DIS) and Warner Bros. (s TWX) as well as Visa. The company had raised $18.4 million as well as an undisclosed round earlier this year, and according to Multichannel News had 100 employees.

But we didn’t have high hopes for Zillion to begin with. The set-top space is crowded with big players including Microsoft (s MSFT), Amazon (s AMZN), and Netflix (s NFLX) — all names that people are familiar with and already trust. Plus, relying on ISPs meant potentially cutting into ISP TV offerings, a notion they probably weren’t thrilled about.

Zillion’s troubles make us think of Sezmi, another set-top player new in town and looking to score. Sezmi also delayed its initial launch. Last we heard, it’s supposed to hit the market this fall.