After more than four years of research, including 15 months of commercial trials, Times Mirror Co. said Thursday that it will close down its Gateway videotex service next Friday and lay off most of the 120 employees.
The termination also will affect about 3,000 subscribers, mostly personal computer users in Los Angeles and Orange counties, and about 45 advertisers. Gateway's demise also means the end of in-home banking services for subscribers with accounts at Security Pacific National Bank.
Times Mirror, which publishes the Los Angeles Times, said low consumer use of the once trend-setting idea left doubt about the future marketability and profitability of videotex. "The reaction among consumers, while gratifying, was not sufficient to warrant full-scale development of Gateway as an ongoing business," said James H. Holly, president of Times Mirror Videotex Services.
The termination did not surprise industry analysts. They believe that videotex, a computer service providing in-home news, advertising, banking and shopping services, is an idea whose time has not arrived--and may never arrive.
Times Mirror executives would not disclose the company's investment in the videotex subsidiary, but securities analysts said the company committed more than $15 million to the experiment. Times Mirror, the analysts said, will not show much in the way of losses because the company has been writing off the cost all along.
"Basically, it (Gateway) was always considered to be a market test, and the results didn't seem to indicate that it would be a profitable business," Holly said.
Gateway started with "dedicated" terminals, like pay-television decoder boxes, which consumers could connect to their television sets and telephones to gain access to the service. But Gateway soon marketed its services only to customers with personal computers, who did not need the special terminals. Those customers, Holly said, are mainly hobbyists, and they presented several problems. While it is easy to sign them up for little or no fees, it was much more difficult to get them to use the videotex services, which Gateway sold at $3 an hour. Other similar services cost up to $12 an hour.
Division's Fate Uncertain
Also, he said, the market was limited. While there are some 12 million personal computers in homes nationwide, only about 1 million owners have the modems needed for telephone hookups and only 6% of them, at best, were located in the Times Mirror market.
The fate of the division remains uncertain, Holly said. "I can't say what will happen. There are other things we have an interest in that are related."
Folding Gateway removes one of the last home computer systems for general information and interactive service, such as home banking.
A few, including one joint venture by CBS Inc., Sears, Roebuck and IBM, are still in their infancy. Other videotex ventures, such as Keycomp Publishers in Chicago, quit some time ago, as did experiments by Time Inc.
Another general-interest videotex, Viewtron, owned by Knight-Ridder Newspapers, has narrowed its focus and "repositioned" itself to serve personal computer users, said Frank Hawkins, a Knight-Ridder vice president.
"Given the world belief that all information would soon come through television and the computer, we had to find out if there was a market there before anyone else found out," Holly said.
What Gateway found was that, as Hawkins said about Viewtron, "Videotex is certainly no threat to the newspaper business."
Indeed, analysts wondered if videotex was a threat to any information delivery system.
"You've got 5,200 catalogues coming in the mail every day and everybody's got an 800 (toll free) number, so why should consumers learn how to use videotex?" said Edward J. Atorino, a securities analyst with Smith Barney, Harris Upham in New York.
"Videotex is providing a service which has too many alternatives that are cheaper and easier," Atorino said. "It requires the consumer to perform, to go through too much effort, to get the services. With all the automated teller machines around, do you really want to sit at home and watch television to do your banking?"
If the costs go down--if advertisers can foot most of the bill--general interest videotex may someday find a niche among the nation's consumers much the way Dow Jones has found a niche for those interested in financial news and stock market quotations.
A slightly more optimistic Bruce Thorp, an analyst with John Morton & Co. in Washington, said videotex "seems to be a technology that's ahead of its time in terms of a product that is marketable to the average consumer."
Even Viewtron, he said, shows no evidence of "turning the corner" to profitability.