June 17, 1999
RECOMMENDATION: BUY

ACTV, Inc. (NASDAQ: IATV)

ACTV and General Instruments Announce Groundbreaking Solution for Delivering Addressable, Targeted Advertising — And for Solving Digital Local Ad Insertion Problem; Recommend BUY on Current Share Price Weakness

Exchange Symbol.....................IATV (NASDAQ)
Price of Common Stock (06/16/99)............$11.56
30-Day Average Trading Volume..........1,551,000
Shares Outstanding.........................37.6M
52-Week High/Low......................$25.25/$1.50

Address....................1270 Avenue of the Americas
...................................New York, NY  10020
Telephone.................................212-217-1600
Chairman & CEO......................William C. Samuels
CFO...............................Christopher C. Cline
Website...................................www.ACTV.com

Comment on Recent Announcements

At this week’s National Cable Television Association (NCTA) convention in Chicago, ACTV and General Instrument Corporation ("GI") announced that they will be introducing a comprehensive, end-to-end solution for delivering addressable, targeted advertising via digital cable, satellite and broadcast television. This announcement was featured on the front page of Extra Extra Daily last Monday, and perceived as the groundbreaking news event at the convention. While the details of the joint venture have not been finalized, we believe that this announcement is significant from two perspectives: the opening of a very large new market of addressable, targeted advertising, and the ability for ACTV’s technology to solve the technological hurdle of allowing local ad insertion into digital cable signals. We believe ACTV’s "Individualized Advertising" program has the potential to be even larger than its Individualized Television sports programming product, as it cuts across all programming genres. We reiterate our BUY rating, and recommend investors buy on current weakness in the share price.

"Individualized Advertising"

ACTV’s proprietary "Individualized Advertising" software and programming capabilities, together will GI’s digital interactive system and set-top boxes, will enable one of the most promising aspects of digital television — the ability to deliver highly targeted advertising, providing improved results and accountability for every advertising dollar, while enhancing the viewer experience by eliminating non-relevant advertising clutter. The joint solution also offers the ability to do e-commerce ("in the moment" impulse purchasing) and interactive advertising such as electronic couponing. As commented upon by leading ad-agency executives at the convention, this type of targeted audience delivery system is precisely what advertisers and marketers are looking for to enhance advertising efficiency and impact. The benefits to the industry include:

Benefits to the Advertiser:

• Highly targeted ad delivery and reach accountability (ability to validate effectiveness of message)
• Interactive ads enhance retention and recall
• Ability to collect viewer data, response data and to generate sales leads
• Lower overall cost per targeted thousand (CPM)

Benefits to the Cable Operators:

• Incremental revenue opportunity with same inventory of availability ad space
• Additional revenue per interactive spot
• Revenue potential from sales lead generation
• Digital ad insertion on the regional and local basis (see below)

Benefits to the Programming Companies:

• Enhanced viewer statistics: who’s watching what and when
• Ability to quantify effectiveness to advertisers on their network
• Increase penetration of traditionally broadcast-only advertisers

Again, we believe this announcement is very significant in that it opens up a potentially large new market for ACTV, both at the parent level and within the new ACTV/GI joint venture. Cable television advertising is roughly a $10 billion business, with over 80 networks offering advertising to viewers, and Individualized Advertising will uniquely position ACTV to participate in the large local advertising portion of this market as well.

How will the ACTV/GI joint venture make money with Individualized Advertising? While the structure of the joint venture with GI is not finalized, ACTV intends to generate at least three distinct revenue streams from the Individualized Advertising program. Firstly, ACTV will sell a site license to its Individualized Advertising software and programming tools (and continuing license and maintenance fees) for every set-top box. Secondly, ACTV will have to specially encode ads, charging a flat processing fee, to have the run on the combined GI/ACTV solution. And lastly, ACTV could sub-license its software for other broadcast systems.

Local Advertising Insertion into Digital TV Stream — ACTV/GI Solves A Significant Technological Problem

One outstanding problem with the rollout of fully digital cable TV systems is the present inability for the local cable system to insert local ads into digital programs. Given that local advertising represents approximately 23% of the total $9 billion cable advertising market, this represents a significant (i.e. $2 billion) problem.

ACTV’s and GI’s targeted advertising technology, and specifically ACTV’s patented technology enabling seamless switching, enables digital-into-digital local ad insertion.

Risk Considerations

This section of the document is provided to remind potential investors to undertake a prudent level of due diligence prior to making an investment in the securities of ACTV, Inc. For a complete description of risks and uncertainties to ACTV’s business, see the "Risk Factors" section in ACTV’s SEC filings, which can be accessed directly from the SEC Edgar filings at www.SEC.gov on the Internet. Other potential risks include:

• Market risk: Investors should consider technical risks common to many small-cap or micro-cap stock investments, including liquidity levels, small float, risk of dilution, dependence upon key personnel, dependence upon single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
• Business risk: ACTV has limited experience in emerging business of interactive television programming and internet educational software and support. Many of its products and services are in the early stage of commercialization. There can be no assurance that ACTV’s business or the markets in which it competes will materialize or achieve the desired levels of revenues or profitability as expected.
• Competitive risk: The entertainment and software industries are extremely competitive, and many perceive the barriers to entry to be low. Added competition could lead to price competition and lower margins.

For Additional Information

Please visit our website at www.SmallCapsOnline.com for copies of our earlier research reports on ACTV, Inc.

Contact SmallCaps Online LLC — 212-554-4158

Sources for Additional Information

The following are website addresses offering related information, and links to other sources of information.

www.ACTV.com ACTV’s corporate website

www.SmallCapsOnline.com SmallCaps Online’s site for company information and research

www.FCC.gov Federal Communications Commission homepage (information on digital TV)

www.NAB.org National Association of Broadcasters homepage

www.TCI.com Tele-Communications, Inc.’s homepage

www.skyconnect.com Skyconnect’s homepage

www.GI.com General Instrument Corporation’s homepage

www.Scientific-Atlanta.com Scientific-Atlanta’s homepage

www.pbs.org/insidepbs/dtv Public Broadcasting System digital television information

www.SEC.gov U.S. Securities and Exchange Commission, with links to EDGAR filings

The information in this report has been obtained from sources which we believe to be reliable, but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by SmallCaps Online LLC for the purchase or sale of any securities. SmallCaps Online LLC or its affiliates has performed investment banking, consulting or other services for or may solicit investment banking, consulting or other business from, any company mentioned in this report. SmallCaps Online LLC or persons associated with SmallCaps Online LLC may at anytime be long or short any of the securities referred to herein and may make purchases or sales thereof while this report is in circulation or posted on the SmallCaps Online LLC website at www.SmallCapsOnline.com. This material, or any portion thereof, may not be reproduced without prior permission from SmallCaps Online LLC. SmallCaps Online LLC is not responsible for the contents of this document which is intended for electronic transmission and could be thus subjected to tampering or alteration. Copyright © 1999 by SmallCaps Online LLC. All rights reserved.