NTN Stockholder's Meeting Report

On Friday, August 28^th, I attended the NTN stockholder's meeting at NTN's headquarters in Carlsbad California. In the meeting room, I met a couple of other small stockholders like me but it seemed like most of the people there were either NTN management and/or members of the NTN Board of Directors. There was one person representing KPMG Peat Marwick LLP, NTN's accountants.

There were chairs for approximately 60 people. I'd estimate that about 40 people may have been in the room; most of them involved in NTN in some way including a number of NTN employees, who were there to offer assistance and help to those in attendance.

The meeting started promptly at 10 AM with the first order of business being the election of two new members to the Board of Directors. The vote was a foregone conclusion with more than 23-million, of the roughly 26-million possible, votes already cast by proxy for the two nominees; Robert M. Bennett and Esther L. Rodriguez were elected to the NTN Board of Directors.

The business portion of the meeting was adjourned at 10:05 AM. Yes, it was only five-minutes long.

After the formal meeting, Gerald (Jerry) Sokol, Jr., presented an overview of the company as it is, was, and is expected to become. The numbers looked better than they have in a long time. Without mentioning anyone, some of the issues raised by critics were addressed in a very matter-of-fact way. Jerry made sure that we knew his stock options were at a cost of $2.81 per share; not the $1 that some critics have stated recently. With the stock selling at less than $1 now, Jerry wanted us to know that he has a sizeable financial interest resting on getting the value of NTN stock up much higher.

At the end of Jerry's presentation, he introduced V. Tyrone (Ty) Lam, the VP and General Manager of NTN Network. During Ty's presentation, the tour that followed, and a brief informal discussion afterward, I was impressed by his in-depth knowledge of the product itself, how that product is produced and managed, and NTN's plans for the future. It is just what you'd expect from an outstanding management team.

Unfortunately, I was so interested in the presentations that I didn't take good notes. However, some of the notes that I did get, supplemented by what some aging gray cells remember, follows:

1. A difficult decision was made recently to NOT develop new customers for the existing NTN system. The plan is to wait until the new equipment is ready because of the many problems with the 49 MHz playmakers. (Some of those problems are detailed here later.)
2. As NTN announced awhile back, they have signed two new media sales firms. The first is BIMS, Beverage Industry Marketing Services, which was signed up in April; the second is AMNet, Alternative Media Network, which began representing NTN very recently (announced August 17^th). Both firms will be selling advertising on and developing sponsorships for NTN programming. BIMS will represent NTN to the beverage industry while AMNet will be developing other (non-alcoholic beverage) advertising for both the America On-Line and hospitality site venues.
3. The beverage industry advertisers include: Black Velvet, Cuervo, Smirnoff, and Ingelnook. All are cash deals. No trade of services -- as was done in the past making the books look better than they should.
4. A non-alcoholic beverage advertiser has already been signed up. ABC TV network has bought time on NTN to advertise two new shows -- ABC Sports Night and Cupid -- on the NTN networks. This, too, is an all cash deal.
5. There is one deal that is not all cash but it offers NTN other benefits. The NFL asked NTN to develop a program (NFL Sunday Snap) for them. The result is a win-win situation for both the NFL and NTN. The NFL will get some advertising space on NTN while NTN will get the chance to advertise itself and sell advertising to others in certain situations. In addition, NTN will be able to develop that product for the NTN network.
6. Advertising revenue is ahead of 1997. At the present pace, 1998 advertising revenue will be more than $800k.
7. The customer's expectations, according to Ty, are:
   1. Low Price
   2. No Labor Required to Set-Up
   3. Customer Friendly and Intuitive
   4. Reliable
   5. Incremental Revenue
   6. Fit In with the Theme of the Location
8. New Business Model:
   1. Tiered Subscriber Pricing
   2. 1. Different prices for all trivia vs. trivia and QB1
      2. Additional charge for special games such as Emmy Telecast game
   3. Lower Cost Barrier to Entry
   4. 1. Tiered pricing allows much lower price for certain customers
   5. Reduce Seasonality
   6. 1. QB1 causes a lot of seasonal hookups in the fall and disconnects in February.
      2. Location can sign up for NTN and add QB1 during that season; no site visit necessary
   7. Customize Product
   8. 1. The customer can tailor the product to meet their customer's needs.
   9. Increased On-Site Promotion
   10. Profit/Loss by Product Line
   11. 1. The popular programs pay for themselves; the others don't -- based on signups.
9. World Trivia League:
   1. NTN is planning to create a World Trivia League; I didn't hear what advantage this has for the player but the cost would be about $30 per year.
10. Miscellaneous information:
    1. The sale of NTN merchandise has been generating enough money to more than cover the cost of prizes (its original purpose)
    2. The NTN network is capable of handling up to 30k sites
    3. Live broadcast of content will be possible with the new Windows 98 platform
    4. NTN is looking at the delivery of games via the Internet; discussions with ISPs have already begun. One issue under discussion is ISP downtime.
    5. High-resolution graphics are possible with the new system
    6. NTN is looking to develop some new technical alliances with companies such as IBM and/or GTE.
    7. Ty indicated that 85 sites are pending installation; in addition to the 2700 already signed up.
    8. In addition, NTN is in talks with three national chains to have NTN systems installed in all of their locations; at the present time, those chains are paying to try the system in a few locations.
11. The new 900 MHz Playmaker:
    1. Allows NTN to sell sponsorships that are shown directly on the playmaker's LCD panel.
    2. The gray engineering model is what is being tested in the field now; designer colors are possible in the final versions.
    3. The antenna for 900 MHz is small; a single antenna can cover up to 50,000 square feet according to Jerry. (If true, the National West Covina could get by with a single antenna.)
    4. The old 49 MHz models are down for repairs 55 to 65% of the time
    5. The old 49 MHz models are returned for repair twice-per-year on average.
    6. Battery life in both the new and old models is approximately 15 hours
    7. The new model boasts an LCD screen with 22 years MTBF; old model 100,000 hours MTBF
    8. The first phase of the roll-out for the new 900 MHz models is expected in October with about 50 systems being set up all over the U.S. by year end. (Spread among the NTN regions.)
    9. The second phase of the roll-out is expected to occur in February (after QB1) for most of the other hospitality sites.

After the presentations, we were offered a tour of the NTN studios and offices. The NTN facility is on the ground floor of an office building which is part of a bigger complex of office buildings known as "The Campus" about two blocks off El Camino Real in Carlsbad, CA. The number of square-feet is hard to estimate; there was one area that we were not shown (I think it is a warehouse/shop area) at one end of the building and we didn't walk through the opposite end of the building that appeared to be office space. All in all, I'd estimate that it is approximately 20-thousand square-feet. Within that area, they've got a number of offices, quite a few cubicles for the staff, and other rooms set aside for equipment.

One major room is the "Broadcast Center" that consists of about 12 bays (small computer rooms with two chairs each) which are used by the people setting up the games. It appeared that the different games are developed in separate bays. At the back end of the Broadcast Center is a wall of monitors with a couple of larger monitors in the center of the whole array. Each column of monitors seemed to be assigned to a different bay but why so many monitors were required wasn't clear; I'm sure that there is a reason, though ;-)

Outside the Broadcast Center, in the hallway leading to the room where the stockholder's meeting was held, are several bookcases with the books and reference materials used by the game content writers. I wrote down every title and will be studying them all for the next contest ;-)

Another important room houses the modems, the equipment feeding data to the lines connecting NTN with their uplink facility in Salt Lake City, and the computers that are actually delivering the games and handling the scoring functions.

During the tour, we were introduced to John Yeh (I believe that's the spelling) who is responsible for the design of the new playmaker. We were shown a playmaker with the cover removed providing a look at the insides. Of special interest is the 900 MHz antenna; it is now part of an upright (vertical) printed circuit (PC) board with the antenna nothing more than a solder trace on that small PC board. No other components are on the antenna board. Most of the circuitry for the playmaker is part of a larger PC board that lays flat in the center of the case. The battery is the heavy item in the playmaker; it is retained in its own area of the case; separate from the main PC board.

John mentioned that further improvement in the playmaker may be possible through large-scale integration. This would reduce the part count in the playmaker, improve the reliability, and reduce the battery drain. That step can only be taken once the final design is completed and tested out. The present version is an engineering prototype; not necessarily the final version.

The playmaker that we were shown is impervious to water (spilled drink), can be dropped from at least 6 feet without damage, and can be touched by a cigarette without burning. The hope is that this playmaker will be MUCH more reliable than the 49 MHz design. With better reliability, there will be greater customer satisfaction and reduced repair costs (including the shipping and handling involved). Those improvements will help the bottom line.

While visiting the Broadcast Center, we were given a sneak preview of two games that are under development -- whether we'll ever seen them in our favorite hospitality site or not is a whole different story!

The first one is "My Line" (or something similar) where a movie clip is shown on the screen with the dialogue printed below. After the clip has run, the player is asked about the dialogue shown; "Is it ACTUAL or BOGUS?" Press A for actual and B for bogus.

The second game is a non-scored game where all the single people in the location grab a playmaker, enter their first name, and answer the questions that come up. After all of the questions have been answered, the computer matches those people (one male paired with one female) who most closely matched. Each player will see who most closely matches them AND the ones with whom they were least closely matched (the worst match). It is meant to create some social interaction. Another round of that game is similar to MTV's Singled Out. Players advance closer and closer to the female (or male in some cases) depending on how well they matched her answers.

We were also shown a video-taped clip of the NTN produced game presently being shown on certain Continental flights. The games appeared similar to NTN's Countdown game with 15 questions and five choices. Answers are entered by a keypad at your seat location with scores tallied and credited to your seat number. Sony is a partner in this venture.

Although we didn't have a Question and Answer session, we were afforded an opportunity to talk with the individual members of the NTN management team after the tour. At noon, the whole session was over and we left the building.

Don Denton, August 30, 1998