Rearden Steel Technologies has scored one of the largest first rounds of funding to date, setting the stage for WebTV founder Steve Perlman's next stab at the home entertainment market.
Rearden Steel, founded in January 2000, has raised $67m in Series A financing from a group of investors led by AOL, and including EchoStar Communications, Cisco, Mayfield Funds, Vulcan Ventures, the Barksdale Group, Macromedia Ventures and The Washington Post Company. Other strategic investors, as yet unnamed, also participated in the round, according to Perlman, who was formerly principal scientist at Apple, and worked at Microsoft following its 1997 acquisition of WebTV for $425m.
Rearden Steel (named after a character in Ayn Rand's 'Atlas Shrugged') is not disclosing product details, but indications are that the company is working on a type of home entertainment gateway for digital media, combining software and hardware it has developed. Since content delivery is becoming increasingly digital, there's clearly a need for a residential hub that can handle and record a variety of formats - such as MP3 for music, MPEG for video - and act as a distribution point to devices within the home.
The market's potential has not gone unnoticed. Perlman's first attempt a combining TV and the Internet with WebTV met with mixed success, particularly after Microsoft acquired the company, but its technology does form the basis for UltimateTV, Microsoft's latest foray into the digital entertainment arena. Meanwhile, TiVo has developed a loyal following, but has not penetrated the mass market sufficiently to staunch the flow of red ink that could jeopardize its survival.
Microsoft's UltimateTV service, which combines satellite-based DirecTV programming with digital video recording for two channels simultaneously, interactive TV features, and Internet access, is in the process of rolling out on the DirecTV satellite service. It will clearly be a formidable competitor to any new contender in the space. According to reports, the Rearden Steel box will be able to record on several different channels imultaneously, compared to TiVo's ability to record only a single channel.
The funding round is significant, given the generally more sober trend in VC financing, particularly for first-round funding, and suggests there is plenty of confidence in Rearden Steel's formula for digital home entertainment delivery. Perlman would not comment directly on valuation, but told the451 that management still retains majority control of the company, "and should continue to do so through our Series B and IPO."
While product details are thin, Perlman concedes that the "architecture" of the companies participating in the funding round is deliberate, mixing strategic and purely financial investors, and gives Rearden Steel some flexibility in launching the product. Cisco will probably act as a hardware OEM for the box, AOL will provide the content, and access to distribution networks will come through Time Warner's cable network (the second-largest in the US), EchoStar's satellite network and the Washington Post's CableOne network in the Washington DC metro area. Vulcan Ventures, Microsoft cofounder Paul Allen's venture capital fund, also has large stakes in cable provider Charter Communications and RCN. Macromedia brings expertise in interactive media programming, Perlman noted.
Rearden won't say when the first product will be released. Perlman called speculation that the first product will be released by the middle of next year "unfounded." At WebTV, he discovered that deployment was held up because the company did not establish relationships ahead of time with OEMs such as Sony and Philips Electronics.
One thing that does seem likely is that Linux will figure prominently in the platform's architecture. Although Perlman would not confirm it, he told the451 that it's difficult to match the ability for Linux to scale, and that because it is open source, it offers developers more flexibility over Windows, where developers do not have access to the application programming interfaces.
"Just in terms of development, Linux offers us speed and flexibility because of the open source developer community," he said. "We still have a lot more development ahead of us," Perlman added.
WebTV has been maligned because the software will not accept plug-ins, such as streaming media and Java-based applications, presumably because of Microsoft's insistence on using Windows-based applications.