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MS votes for InterVU with $30 million

And gets back $10 million almost immediately from the ahre hike...

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Microsoft is investing $30 million in InterVU, a San Diego-based developer of streaming audio and video, the idea being to incorporate the technology in the Windows Media platform. InterVU says its ambition is to bring 100 Kbps to 1 Mbps broadband into the mainstream, but the reality is that for most of the world, broadband is far into the future. The financial arrangements dictated by Microsoft are pretty stringent: the investment will be for a new class of preferred stock that can be converted to common stock at $90, which was said to be at a 27 per cent premium above the previous 20-day average closing price. But the share price drifted up significantly just before the deal was announced. It was clear that the shares would zoom upwards after announcement, and indeed they did, closing yesterday at $114.875. Microsoft also demanded a five-year warrant to purchase 60,000 common shares at $90, so its theoretical position is that it got back nearly $10 million yesterday as a result of the increase in share price. It was not disclosed whether InterVU would just happen to opt for Windows everywhere, although Gates hinted at the need for additional software in a speech to the Streaming Media West conference earlier in the month. Related deals include one with General Instrument to use Windows CE in set-top boxes for streaming video and audio; another with Thomson Multimedia to put Windows Media on RCA Lyra portable music players; and a third with Texas Instruments for processors to convert audio and video to digital. Microsoft now has approaching 50 partners for what it calls its Windows media broadband jumpstart. There's an interesting little fact probably related to the Microsoft deal: InterVU was granted "a key patent" (US 6,003,030) for the delivery of audio, video, text and graphics to end users from the electronically closest server on 14 December. Could Microsoft have conditioned the deal on the granting of this patent, because that was the prize? An earlier patent (US 5,956,716) granted in September is entitled "System and method of delivery of video data over a computer network". Microsoft is not the first megacorp to take an interest in InterVU: CNN plonked down $20 million for an equity stake last month, but for common stock. Part of the deal was that CNN gave InterVU some on-air and online advertising for three years, in return for which InterVU would sub-license CNN's domestic TV networks for its corporate clients' LANs. InterVU also provides fee-based Internet video. InterVU had 1999 revenue of $3 million and losses of $7 million, but cash and short-term investments of $115 million, which tells an interesting tale of the potential of the company. ®

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