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A CABLE SUBSCRIPTION SERVICE FOR SOFTWARE?

Hard on the heels of Oracle's new subscription model for enterprise applications (Soft*letter, 9/30/98), a small venture-funded startup is about to test a similar concept for mass-market consumer titles.

"Our model is something like HBO," says Arepa founder Ric Fulop.

"For a flat monthly fee--possibly around six dollars--subscribers will get unlimited access to a huge, huge library of content."

Specifically, what Arepa subscribers will get is high-bandwidth streaming media, not an actual download of the software itself.

Fulop's company has figured out how to push rich multimedia over a cable connection fast enough so that performance is "equal or better" to execution from the user's own CD-ROM drive. "The network becomes the storage device," he says. And cable network connections are growing at an explosive rate, he notes. "At the beginning of this year, the cable industry had 40,000 Internet subscribers. Now the number is up to 500,000 and growing."

But plumbing isn't the interesting part of Arepa's business. In fact, Arepa is essentially a syndication company, which will buy content from software publishers and deliver it to local and regional cable companies as a premium subscription service. Fulop already has relationships in place with the three biggest cable companies--@Home, MediaOne, and PathFinder--and he's now working out content deals with most of the largest consumer software publishers.

So far, the service is on track for a public launch in February or March, he says.

By that time, Fulop expects to have a library of about a hundred consumer titles, "mostly older products that aren't available in stores." Initially, Arepa plans a simple three-way split of subscription revenues--a third to the cable company, a third to Arepa as the syndicator, and a third to participating publishers based on the number of titles they contribute. Out of a hypothetical

$6 monthly subscription payment, says Fulop, a publisher will earn 2 per subscriber for each title--or $24,000 a year for every 100,000 subscribers that Arepa's cable partners manage to sign up.

But it's likely that Arepa will quickly fine tune its revenue-sharing model to match the ratings system that television syndicators use. Since Arepa can track the actual number of minutes that subscribers spend with each title, Fulop says it will probably make sense to pro-rate each publisher's revenue share according to actual usage. And in turn, competition for higher usage ratings should encourage publishers to supply higher-quality titles, and to swap out titles that consumers don't want.

Arepa is also struggling with a classic branding question: Should the company build a single branded "channel" like HBO or Fox, or else fade into the background and help publishers create many different branded channels--a Learning Company educational channel, for instance, or an Electronic Arts sports game channel. "Right now, our technology gives us a monopoly," Fulop says. "Next, we have to figure out what to do with that position."

Ric Fulop, president, Arepa, One Memorial Dr., Cambridge, Mass.

02142; 617/621-1212. E-mail: ric@arepa.com.

MICROSOFT executive vice president Steve Ballmer on his company's $180 billion valuation: "It's beyond my imagination spectrum. This is a fine company and a fine business and we're doing a fine job.

But we're maybe not worth $180 billion yet." (Quoted in The Wall Street Journal, 7/24/97)

NETWORK ASSOCIATES chief executive Bill Larson on wild gyrations in software stock prices: "If you miss a quarter on Wall Street, it's like [missing] the drop zone at 3 Gs." (Quoted in Forbes, 8/24/98)

THOMAS H. LEE CO. managing director Renny Smith on his expectation that venture investors will start demanding more ownership for their money: "It doesn't mean that companies will have to turn their lights out. But private equity will be more expensive." (Quoted in The Wall Street Journal, 9/2/98)

AUTHOR Peter Drucker on the declining riskiness of technology startups: "What's different about Silicon Valley lately is that the survival rate of companies has been better than usual. Instead of six out of ten companies failing, only four out of ten have been failing." (Quoted in Fortune, 9/28/98)

HUMMER WINBLAD partner Anne Winblad on her optimistic view of software as an investment opportunity: "The software industry is big-dog land today. We will see all kinds of dynamic forces. New companies. Mergers. Alliances. New industries. Fasten your seat belts: It's a more than exciting time." (Quoted in Money, 10/98)

MICROSOFT chief financial officer Greg Maffei on his company's latest record-breaking profits: "The overall health of the PC business is good. The current results from Microsoft do not suggest an economic meltdown." (Quoted in The Wall Street Journal, 10/21/98)

PLATINUM TECHNOLOGIES chief executive Andrew Filipowski on his group of angel investors: "We're in full denial of being venture capitalists. The term can be offensive to entrepreneurs." (Quoted in Forbes, 1 1/2/98)

WALNUT VENTURES organizer Ralph Wagner on his group's role: "Angel investing is an extension of what you did when you were working. But someone else does the heavy lifting." (Quoted in Forbes, 1 1/2/98)

VENTURE ECONOMICS research chief Jesse Reyes on the venture community's indifference toward small startups: "The idea of VCs rolling up their shirt-sleeves and starting companies out of a garage is really a myth." (Quoted in Fortune, 10/26/98)

JUSTICE DEPARTMENT antitrust prosecutors on the "particular failure of recollection" among Microsoft senior managers: "Executives who are stated to be the author of documents claim not to remember writing them; executives who are the stated recipients of documents claim not to remember receiving them; and both authors and recipients claim not to know what the documents mean." (Quoted in The Wall Street Journal, 9/2/98)

MICROSOFT attorney John Warden on Netscape co-founder Marc

Andreessen's testimony that Microsoft proposed an anti-competitive division of the marketplace: "The only fair conclusion that can be reached is that Marc Andreessen invented or imagined a proposal to divide markets... in order to assist the Justice Department in the prosecution of this lawsuit." (Quoted in The Industry Standard, 1 1/2/98)
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Publication:Soft-Letter
Geographic Code:1USA
Date:Oct 31, 1998
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