UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2004

or

For the transition period from            to

Commission file number: 001-15473

OPENTV CORP.

275 Sacramento Street
San Francisco, California 94111
(415) 962-5000
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [  ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [x] No [  ]

     As of September 30, 2004, the Registrant had outstanding (not including 76,327 Class A ordinary shares held in treasury):

91,213,541 Class A ordinary shares, no par value; and
30,631,746 Class B ordinary shares, no par value

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OPENTV CORP.

* The consolidated balance sheet at December 31, 2003 has been derived from the Company’s audited consolidated financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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OPENTV CORP.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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OPENTV CORP.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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OPENTV CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments that in the opinion of management are necessary for a fair presentation of the results of operations, financial position and cash flows as of, and for, the periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The results of operations for such period are not necessarily indicative of the results that may be expected for the year ending December 31, 2004, or for any future period. These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003.

     The accompanying condensed consolidated financial statements include the accounts of OpenTV Corp., sometimes referred to herein as OpenTV, together with its wholly-owned and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Certain amounts in the 2003 financial statements have been reclassified to conform to the 2004 presentation.

     Preparation of the accompanying condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Note 2. Summary of Significant Accounting Policies

Share-Based Compensation

     We account for share-based employee compensation arrangements in accordance with the provisions of APB No. 25, “Accounting for Stock Issued to Employees,” and comply with the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” which was effective for the year ended December 31, 2003. Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of our shares and the exercise price of the option or purchase right. Had compensation cost for options plans been determined based on the fair value at the grant dates for the awards under a method prescribed by SFAS 123, “Accounting for Stock-Based Compensation,” our net loss would have been increased to the pro-forma amounts indicated below (amounts in millions, except per share amounts):

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     These pro-forma amounts may not be representative of the effects on reported net loss for future years as options vest over several years and additional awards are generally made each year.

     We calculated the fair value of each option grant on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

     The weighted average fair value of options granted during the three months ended September 30, 2004 and 2003 was $1.98 and $2.11, respectively. The weighted average fair value of options granted during the nine months ended September 30, 2004 and 2003 was $2.45 and $1.75, respectively.

Recent Accounting Pronouncements

     In June 2004, the Financial Accounting Standards Board (“FASB”) issued Emerging Issues Task Force Issue No. 02-14, “Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock.” EITF 02-14 addresses whether the equity method of accounting applies when an investor does not have an investment in voting common stock of an investee but exercises significant influence through other means. EITF 02-14 states that an investor should only apply the equity method of accounting when it has investments in either common stock or in-substance common stock of a corporation, provided that the investor has the ability to exercise significant influence over the operating and financial policies of the investee. The accounting provisions of EITF 02-14 are effective for reporting periods beginning after September 15, 2004. We do not expect the adoption of EITF 02-14 to have a material impact on our consolidated financial position, results of operations or cash flows.

     In March 2004, the FASB issued EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” which provides new guidance for assessing impairment losses on investments. Additionally, EITF 03-1 includes new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB delayed the accounting provisions of EITF 03-1; however the disclosure requirements remain effective for annual periods ending after June 15, 2004. We will evaluate the impact of EITF 03-1 once final guidance is issued.

     In March 2004, the FASB issued an exposure draft on the Proposed Statement of Financial Accounting Standards, “Share-Based Payment - an amendment of FASB Statements No. 123 and 95”. The proposed statement addresses the accounting for share-based payment transactions with employees and other third-parties. The proposed standard would eliminate the ability to account for share-based compensation transactions using Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees”, and generally would require that such transactions be accounted for using a fair-value-based method. If the final standard is approved as currently drafted in the exposure draft, it would have a material impact on the amount of earnings we report beginning in the third quarter of fiscal 2005.

     In December 2003, the FASB issued Interpretation No. 46R, or FIN 46R, a revision to FIN 46. FIN 46R clarifies some of the provisions of FIN 46 and exempts certain entities from its requirements. FIN 46R is effective for the first reporting period ending after March 15, 2004. We do not have any ownership in any variable interest entities as of September 30, 2004. We will apply the consolidation requirements of FIN 46R in future periods if we should acquire any interest in any variable interest entity.

     In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 104, “Revenue Recognition,” which supercedes Staff Accounting Bulleting No. 101, “Revenue Recognition in Financial Statements.” The primary purpose of SAB 104 is to rescind accounting guidance contained in SAB 101 related to

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multiple element revenue arrangements, which was superseded as a result of the issuance of EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. The adoption of SAB 104 did not have a material impact on our consolidated financial position, results of operations, or cash flows.

Note 3. Net Loss Per Share

     Basic and diluted net loss per share were computed using the weighted average number of ordinary shares outstanding during the periods presented. The following items as of September 30, 2004 and 2003 were not included in the computation of diluted net loss per share because the effect would be anti-dilutive:

     Had such items been included in the calculation of diluted net loss per share, shares used in the calculation would have been increased by approximately 9.8 million and 12.2 million for the three months ended September 30, 2004 and 2003, respectively, and 9.7 million and 9.8 million for the nine months ended September 30, 2004 and 2003, respectively.

Note 4. Goodwill

     Minority shareholders of OpenTV, Inc., which is a subsidiary of ours, have the ability, under certain arrangements, to exchange their shares of OpenTV, Inc. for our shares, generally on a one-for-one basis. As the shares are exchanged, they are accounted for at fair value. This accounting effectively provides that at each exchange date, the exchange is accounted for as a purchase of a minority interest in OpenTV, Inc., valued at the number of our Class A ordinary shares issued to effect the exchange multiplied by the market price of a Class A ordinary share on that date. As a result of applying purchase accounting to the exchanges, we recorded $0.1 million in additional goodwill during the nine months ended September 30, 2004.

Note 5. Intangible Assets, Net

     The components of intangible assets, excluding goodwill, were as follows (in millions):

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     The intangible assets are being amortized on a straight-line basis over their estimated useful lives. Amortization of intangible assets (including amounts reported in cost of revenues) was $1.6 million and $4.0 million for the three months ended September 30, 2004 and 2003, respectively, and $6.9 million and $11.5 million for the nine months ended September 30, 2004 and 2003, respectively. The future annual amortization expense is expected to be as follows (in millions):

Note 6. NASCAR Amendment

     During the nine months ended September 30, 2004, we renegotiated an existing contract that our subsidiary, ACTV, had with iNDEMAND relating to the production of interactive programming for the 2004 NASCAR season. As a result of this renegotiation, we reduced the estimated loss for that contract by $4.6 million from the amount which had been accrued by ACTV in 2003 prior to its acquisition by OpenTV. This item has been shown as a separate line item in our consolidated statement of operations.

Note 7. Restructuring Costs

     We monitor our organizational structure and associated operating expenses periodically. Depending upon events and circumstances, actions may be taken to restructure the business, including terminating employees, abandoning excess lease space and incurring other exit costs. Restructuring costs are recorded in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized at fair value when the liability is incurred. Any resulting restructuring accrual includes numerous estimates made by management, which are developed based on management’s knowledge of the activity being affected and the cost to exit existing commitments. These estimates could differ from actual results. We monitor the initial estimates periodically and record an adjustment for any significant changes in estimates.

     During the three months ended September 30, 2004, we reversed over-accruals relating to leases from prior restructuring provisions in 2002 by $0.6 million.

     The following sets forth the payments made during the nine months ended September 30, 2004, relating to various restructuring activities (in millions):

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     The outstanding accrual for excess facilities relates to operating lease obligations that continue through 2006.

Note 8. Employee Bonus

     During the three months ended March 31, 2004, we issued 558,640 of our Class A ordinary shares to employees in the United States and the United Kingdom pursuant to our 2003 bonus plan and also made certain cash equivalent bonus payments to employees in other foreign jurisdictions. The final bonus amount actually paid to all employees was less than the bonus accrual provided in fiscal 2003, and so a credit of $0.5 million was recorded in operating expenses in the three months ended March 31, 2004. The compensation committee of our Board of Directors approved a similar bonus plan for 2004, which is based on corporate and individual performance objectives and is being accrued throughout the year.

Note 9. Comprehensive Loss

     The components of comprehensive loss, net of tax, were as follows (in millions):

Note 10. Commitments and Contingencies

Operating Leases

     We lease our facilities from third parties under operating lease agreements or sublease agreements in the United States, Europe and Asia Pacific. These leases expire between December 2004 and March 2016. Total rent expense was $1.4 million and $1.2 million for the three months ended September 30, 2004 and 2003, respectively, and $4.1 million and $4.6 million for the nine months ended September 30, 2004 and 2003, respectively. There was no sublease income.

     Future minimum payments under non-cancelable operating leases as of September 30, 2004 were as follows (in millions):

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Other Commitments

     In the ordinary course of business we enter into various arrangements with vendors and other business partners for bandwidth, marketing, and other services. Future minimum commitments under these arrangements as of September 30, 2004 were $1.2 million for the remaining three months of 2004 and $3.8 million and $0.1 million for the years ending December 31, 2005 and 2006, respectively.

     As of September 30, 2004, we had two standby letters of credit aggregating approximately $2.0 million that were issued to landlords at two of our leased properties and we had $10.0 million of marketable debt securities pledged with a bank for foreign exchange facilities.

     In March 1998, we entered into a licensing and distribution agreement with Sun Microsystems, Inc. under which Sun Microsystems granted us a non-exclusive, non-transferable license to develop and distribute products based upon Sun Microsystems’s Java technology. Subsequent amendments extended our license through December 2006. As amended, the agreement requires us to make a payment of $4.0 million to Sun Microsystems in February 2007, less any amounts previously paid for support and royalty fees, which have been nominal to date.

Contingencies

     OpenTV, Inc. v. Liberate Technologies, Inc. On February 7, 2002, OpenTV, Inc., our subsidiary, filed a lawsuit against Liberate Technologies, Inc. alleging patent infringement in connection with two patents held by OpenTV, Inc. relating to interactive technology. The lawsuit is pending in the United States District Court for the Northern District of California. On March 21, 2002, Liberate Technologies filed a counterclaim against OpenTV, Inc. for alleged infringement of four patents allegedly owned by Liberate Technologies. Liberate Technologies has since dismissed its claims of infringement on two of those patents. In January 2003, the District Court granted two of OpenTV, Inc.’s motions for summary judgment pursuant to which the court dismissed Liberate Technologies’ claim of infringement on one of the remaining patents and dismissed a defense asserted by Liberate Technologies to OpenTV, Inc.’s infringement claims, resulting in only one patent of Liberate Technologies remaining in the counterclaim. The District Court issued a claims construction ruling for the two OpenTV patents and one Liberate patent remaining in the suit on December 2, 2003. The trial date was set for February 7, 2005.

     On May 3, 2004, Liberate Technologies filed a voluntary bankruptcy petition under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The case was subsequently removed to the United States Bankruptcy Court for the Northern District of California. As a result of that filing, our litigation with Liberate Technologies was stayed and the trial schedule was vacated. On September 8, 2004, the Bankruptcy Court issued a ruling dismissing Liberate Technologies’ bankruptcy case. Liberate Technologies has appealed this ruling. We believe that our lawsuit against Liberate Technologies is meritorious, and with the dismissal of the bankruptcy case, we intend to continue vigorously pursuing prosecution of our claims against Liberate Technologies. In addition, we believe that we have meritorious defenses to the counterclaims brought against OpenTV, Inc. and will defend ourselves vigorously. No provision has been made in our consolidated financial statements for this matter. We are unable to predict the likelihood of a favorable outcome or estimate our potential liability, if any, in respect of any potential counterclaims if litigated to conclusion.

     Initial Public Offering Securities Litigation. In July 2001, the first of a series of putative securities class actions,

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Brody v. OpenTV Corp., et al., was filed in United States District Court for the Southern District of New York against certain investment banks which acted as underwriters for our initial public offering, us and various of our officers and directors. These lawsuits were consolidated and are captioned In re OpenTV Corp. Initial Public Offering Securities Litigation. The complaints allege undisclosed and improper practices concerning the allocation of our initial public offering shares, in violation of the federal securities laws, and seek unspecified damages on behalf of persons who purchased OpenTV Class A ordinary shares during the period from November 23, 1999 through December 6, 2000. The Court has appointed a lead plaintiff for the consolidated cases. On April 19, 2002, the plaintiffs filed an amended complaint. Other actions have been filed making similar allegations regarding the initial public offerings of more than 300 other companies, including Wink Communications as discussed in greater detail below. All of these lawsuits have been coordinated for pretrial purposes as In re Initial Public Offering Securities Litigation. Defendants in these cases filed an omnibus motion to dismiss on common pleading issues. Oral argument on the omnibus motion to dismiss was held on November 1, 2002. All claims against our officers and directors have been dismissed without prejudice in this litigation pursuant to the parties’ stipulation approved by the Court on October 9, 2002. On February 19, 2003, the Court denied in part and granted in part the omnibus motion to dismiss filed on behalf of defendants, including us. The Court’s Order dismissed all claims against us except for a claim brought under Section 11 of the Securities Act of 1933. The Court has given plaintiffs an opportunity to amend their claims in order to state a claim. Plaintiffs have not yet filed an amended complaint. Plaintiffs and the issuer defendants, including us, have agreed to a settlement, in which plaintiffs will dismiss and release their claims in exchange for a guaranteed recovery to be paid by the insurance carriers of the issuer defendants and an assignment of certain claims. A stipulation of settlement for the claims against the issuer-defendants, including us, has been submitted to the Court. There is no guarantee that the settlement will become effective, as it is subject to a number of conditions, including approval of the Court, which cannot be assured. If the settlement does not occur, and the litigation against us continues, we believe that we have meritorious defenses to the claims asserted against us and will defend ourselves vigorously. No provision has been made in our consolidated financial statements for this matter. We are unable to predict the likelihood of an unfavorable outcome or estimate our potential liability, if any.

     In November 2001, a putative securities class action was filed in United States District Court for the Southern District of New York against Wink Communications and two of its officers and directors and certain investment banks which acted as underwriters for Wink Communications’ initial public offering. We acquired Wink Communications in October 2002. The lawsuit is now captioned In re Wink Communications, Inc. Initial Public Offering Securities Litigation. The operative amended complaint alleges undisclosed and improper practices concerning the allocation of Wink Communications’ initial public offering shares in violation of the federal securities laws, and seeks unspecified damages on behalf of persons who purchased Wink Communications’ common stock during the period from August 19, 1999 through December 6, 2000. This action is among the over 300 lawsuits that have been consolidated for pretrial purposes as In re Initial Public Offering Securities Litigation. On February 19, 2003, the Court ruled on the motions to dismiss filed by all defendants in the consolidated cases. The Court denied the motions to dismiss the claims under the Securities Act of 1933, granted the motion to dismiss the claims under Section 10(b) of the Securities Exchange Act of 1934 against Wink Communications and one individual defendant, and denied that motion against the other individual defendant. As described above, a stipulation of settlement for the claims against the issuer defendants has been submitted to the Court. There is no guarantee that the settlement will become effective, as it is subject to a number of conditions, including approval of the Court, which cannot be assured. If the settlement does not occur, and the litigation against Wink Communications continues, we believe that Wink Communications has meritorious defenses to the claims brought against it and that Wink Communications will defend itself vigorously. No provision has been made in our consolidated financial statements for this matter. We are unable to predict the likelihood of an unfavorable outcome or estimate our potential liability, if any.

     Litigation Relating to the Acquisition of ACTV, Inc. On November 18, 2002, a purported class action complaint was filed in the Court of Chancery of the State of Delaware in and for the County of New Castle against ACTV, Inc., its directors and us. The complaint generally alleges that the directors of ACTV breached their fiduciary duties to the ACTV shareholders in approving the ACTV merger agreement pursuant to which we acquired ACTV on July 1, 2003, and that, in approving the ACTV merger agreement, ACTV’s directors failed to take steps to maximize the value of ACTV to its shareholders. The complaint further alleges that we aided and abetted the purported breaches of fiduciary duties committed by ACTV’s directors on the theory that the merger could not occur without our participation. No proceedings on the merits have occurred with respect to this action, and the case is dormant. We believe that the allegations are without merit and intend to defend against the complaint vigorously. No

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provision has been made in our consolidated financial statements for this matter. We are unable to predict the likelihood of an unfavorable outcome or estimate our potential liability, if any.

     Broadcast Innovation Matter. On November 30, 2001, a suit was filed in the United States District Court for the District of Colorado by Broadcast Innovation, L.L.C., or BI, alleging that DIRECTV, Inc., EchoStar Communications Corporation, Hughes Electronics Corporation, Thomson Multimedia, Inc., Dotcast, Inc. and Pegasus Satellite Television, Inc. are infringing certain claims of United States patent no. 6,076,094, assigned to or licensed by BI. DIRECTV and certain other defendants settled with BI on July 17, 2003. We are unaware of the specific terms of that settlement. Though we are not currently a defendant in the suit, BI may allege that certain of our products, possibly in combination with the products provided by some of the defendants, infringe BI’s patent. The agreement between OpenTV, Inc. and EchoStar includes indemnification obligations that may be triggered by the litigation. If liability is found against EchoStar in this matter, and if such a decision implicates our technology or products, EchoStar has notified OpenTV, Inc. of its expectation of indemnification, in which case our business performance, financial position, results of operations or cash flows may be adversely affected. Likewise, if OpenTV, Inc. were to be named as a defendant and it is determined that the products of OpenTV, Inc. infringe any of the asserted claims, and/or it is determined that OpenTV, Inc. is obligated to defend EchoStar in this matter, our business performance, financial position, results of operations or cash flows may be adversely affected. On November 7, 2003, Broadcast Innovation filed suit against Charter Communications, Inc. and Comcast Corporation in United States District Court for the District of Colorado, alleging that Charter and Comcast also infringe the ‘094 patent. The agreements between Wink Communications and Charter Communications include indemnification obligations of Wink Communications that may be triggered by the litigation. We have reimbursed Charter for legal expenses that it has incurred in connection with this litigation. On August 4, 2004, the District Court found the ‘094 patent invalid. On August 5, 2004, BI filed a motion for reconsideration in the case. On September 17, 2004, the District Court entered its summary judgment order based on the invalidity of the patent in suit without specifically commenting on BI’s motion. In the order, the Court awarded costs to the defendants. On September 27, 2004, BI appealed the District Court’s summary judgment order to the United States Court of Appeals for the Federal Circuit. On October 4, 2004, Charter filed a motion for its attorneys’ fees in addition to the costs already awarded by the Court. Based on the information available to us, we have established a reserve for costs that we expect may be incurred in connection with this matter; that reserve is an estimate only and actual costs may be materially different.

     Personalized Media Communications, LLC. On December 4, 2000, a suit was filed in the United States District Court for the District of Delaware by Pegasus Development Corporation and Personalized Media Communications, LLC alleging that DIRECTV, Inc., Hughes Electronics Corp., Thomson Consumer Electronics and Philips Electronics North America, Inc. are willfully infringing certain claims of seven U.S. patents assigned or licensed to Personalized Media Communications. Based on publicly available information, we believe that the case has been stayed in the District Court pending re-examination by the United States Patent and Trademark Office. Though Wink Communications is not a defendant in the suit, Personalized Media Communications may allege that certain products of Wink Communications, possibly in combination with products provided by the defendants, infringe Personalized Media Communication’s patents. The agreements between Wink Communications and each of the defendants include indemnification obligations that may be triggered by this litigation. If it is determined that Wink Communications is obligated to defend any defendant in this matter, and/or that the products of Wink Communications infringe any of the asserted claims, our business performance, financial position, results of operations or cash flows may be adversely affected. No provision has been made in our consolidated financial statements for this matter. We are unable to estimate our potential liability, if any.

     Other Matters. In the normal course of our business, we provide indemnification to customers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations, although our liabilities in those arrangements are customarily limited in various respects, including monetarily. During the three months ended September 30, 2004, we agreed to reimburse Charter Communications for legal expenses which it had incurred in connection with certain patent litigation. We intend to seek recovery of these legal fees in connection with the invalidation of the patent-in-suit.

     As permitted under the laws of the British Virgin Islands, we have agreed to indemnify our officers and directors for certain events or occurrences while the officer or director is, or was serving, at our request in such

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capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is not material.

     From time to time in the ordinary course of our business, we are also party to other legal proceedings or receive correspondence regarding potential or threatened legal proceedings. While we currently believe that the ultimate outcome of these other proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in our results of operations, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations of the period in which the ruling occurs. The estimate of the potential impact on our financial position or overall results of operations for any of the legal proceedings described above could change in the future.

Note 11. Related Party Transactions

     On August 27, 2002, Liberty Media Corporation and one of its subsidiaries (collectively, “Liberty Media”) completed a transaction in which Liberty Media acquired a controlling ownership stake in us. As of September 30, 2004, Liberty Media’s total ownership represented approximately 32.3% of the economic interest and approximately 79.0% of the voting power of our ordinary shares on an undiluted basis.

     Commencing in August 2002, a subsidiary of Liberty Media provided certain management services for us; this relationship was terminated in February 2004. We reimbursed them for the services based on the estimated percentage of time that various individuals dedicated to the performance of services for us. In addition, we also reimburse them for an allocated portion of their travel and administrative costs and certain specific costs related to OpenTV. We expect in the future that such costs will be primarily related to reimbursement of lease payments for an office facility used by our employees. Total management and other charges from Liberty Media were $0.1 million and $0.7 million for the three months ended September 30, 2004 and 2003, respectively, and $0.7 million and $1.7 million for the nine months ended September 30, 2004 and 2003, respectively.

     Since January 2004, we have participated in the Liberty Media medical insurance program for employees in the United States at a cost of $0.5 million for the three months ended September 30, 2004 and $1.3 million for the nine months ended September 30, 2004. We believe that this participation provides us with better economic terms than we would otherwise be able to achieve independent of Liberty Media.

     The services and support revenue from Liberty Media entities was nominal during the three and nine months ended September 30, 2004. We recorded a nominal amount in services and support revenue from Liberty Media entities for the three months ended September 30, 2003 and $1.0 million for the nine months ended September 30, 2003.

     On March 23, 2004, in consideration for the issuance by Liberty Media to James Chiddix of options to purchase 50,000 shares of Liberty Media Series A common stock as an inducement to Mr. Chiddix agreeing to serve as Chairman of our Board of Directors, we issued to Liberty Media an aggregate of 76,982 of our Class A ordinary shares. The number of our Class A ordinary shares issued to Liberty Media was determined by multiplying the Black-Scholes value per option to purchase a share of Liberty Media Series A common stock ($4.603495) by 50,000, and dividing the resulting number by the closing sale price of our Class A ordinary share on the Nasdaq National Market on March 23, 2004 ($2.99). We accounted for the issuance of our shares to Liberty Media as a dividend equal to the fair value of the shares of $0.2 million during the three months ended March 31, 2004.

     In June 2000, we entered into an employment agreement with James Ackerman, our then current Chief Executive Officer and a member of our Board of Directors, pursuant to which we agreed, among other things, (a) to provide an interest-free loan of approximately $2.4 million to be forgiven in annual installments over a period of four years and (b) to issue Class A ordinary shares having an aggregate fair market value of approximately $0.6 million in annual installments over the same four-year period. The final 25% of the loan was forgiven in January 2004 and 43,662 Class A ordinary shares were issued. The amounts forgiven annually were reported as compensation expense. The annual grants of Class A ordinary shares were also reported as compensation expense. In May 2004, we and Mr. Ackerman agreed not to renew his employment agreement and Mr. Ackerman stepped

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down as Chief Executive Officer. As part of that change, Mr. Ackerman agreed to serve as a special advisor to our Chairman for a transitional period during 2004.

Note 12. Segment Information

     SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires enterprises to report information about operating segments and it establishes standards for related disclosures about products, geographic areas and major customers. The method for determining what information to report is based upon the “management” approach. Our Chief Executive Officer reviews revenues by both geography and customer, and we do not have separately reportable operating segments.

     Our revenues by geographic area based on the location of customers were as follows (in millions):

     Americas include United States revenue of $2.5 million and $6.1 million for the three months ended September 30, 2004 and 2003, respectively, and $12.2 million and $15.0 million for the nine months ended September 30, 2004 and 2003, respectively.

     Five major customers accounted for the following percentages of revenues:

     In addition, British Sky Broadcasting, or BSkyB, directly and indirectly accounted for 28% and 10% of total revenues for the three months ended September 30, 2004 and 2003, respectively, and 17% and 11% of total revenues for the nine months ended September 30, 2004 and 2003, respectively, taking into account the royalties which are paid by four manufacturers who sell set-top boxes to BSkyB.

     One customer accounted for 19% of net accounts receivable as of September 30, 2004.

     Additional summarized information by geographic area was as follows (in millions):

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of OpenTV Corp. and its consolidated subsidiaries to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, expenses, earnings or losses from operations; any statements of the plans, strategies and objectives of management for future operation; any statements concerning developments, performance or market conditions relating to products or services; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. All these forward-looking statements are based on information available to us at this time, and we assume no obligation to update any of these statements. Actual results could differ materially from those projected in these forward-looking statements as a result of many factors, including those identified in the section titled “Factors That May Affect Future Results” and elsewhere. We urge you to review and consider the various disclosures made by us in this report, and those detailed from time to time in our filings with the Securities and Exchange Commission, that attempt to advise you of the risks and factors that may affect our future results.

     The following discussion should be read together with the Unaudited Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements, the notes thereto and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003, as filed with the Securities and Exchange Commission.

Overview

     We are one of the world’s leading providers of software and solutions for interactive and enhanced television.

     We derive our revenues from the licensing of our core software and related technologies, the licensing and distribution of our content and applications and the delivery of professional services. We typically receive one-time royalty fees from manufacturers of set-top boxes or cable, satellite and terrestrial network operators once a set-top box, which incorporates our software, has been shipped to, or activated by, the network operator. We also receive professional services fees from consulting, engineering and training engagements, fees for the maintenance and support of our products and fees from revenue sharing arrangements related to the use of our interactive content and applications. In addition, we also receive ongoing licensing fees for various software products that we sell.

     As of September 30, 2004, Liberty Media Corporation’s total ownership represented approximately 32.3% of the economic interest and 79.0% of the voting interest of our ordinary shares on an undiluted basis.

Critical Accounting Policies and Estimates

     Our financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In preparing these consolidated financial statements, we made our best estimates and judgments, which are normally based on knowledge and experience with regards to past and current events and assumptions about future events, giving due consideration to materiality. Actual results could differ materially from these estimates under different assumptions or conditions.

     We believe the following critical accounting estimates have the greatest potential impact on our consolidated financial statements: revenue recognition; valuation allowances, specifically the allowance for doubtful accounts and deferred tax assets; valuation of investments in privately-held companies; impairment of goodwill and intangible assets; and restructuring costs. All of these accounting policies, estimates and assumptions, as well as the resulting impact to our financial statements, have been discussed with our audit committee.

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Revenue Recognition

     We recognize revenue in accordance with current generally accepted accounting principles that have been prescribed for the software industry. Revenue recognition requirements in the software industry are very complex and are subject to change. Our revenue recognition policy is one of our critical accounting policies because revenue is a key component of our results of operations and is based on complex rules that require us to make judgments and estimates. In applying our revenue recognition policy we must determine what portions of our revenue are recognized currently and which portions must be deferred. In order to determine current and deferred revenue, we make judgments and estimates with regard to future deliverable services and the appropriate pricing for those services. Our assumptions and judgments regarding future services could differ from actual events.

     Professional services revenues from software development contracts, customization services and implementation support are recognized generally on the percentage of completion method. For fixed bid contracts under the percentage of completion method, the extent of progress towards completion is measured based on actual costs incurred to total estimated costs subject to milestones and deliverables as stated in the contracts. The actual results could differ from the percentage estimates by the time a project is completed.

     The recognition of revenues is partly based on our assessment of the probability of collection of the resulting accounts receivable balance. As a result, the timing or amount of revenue recognition may have been different if different assessments of the probability of collection of accounts receivable had been made at the time the transactions were recorded in revenue.

Valuation Allowances

     We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

     We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider our potential future taxable income and feasible tax planning strategies in assessing the amount of our valuation allowance. Currently we have a full valuation allowance on deferred tax assets in excess of deferred tax liabilities. Adjustments may be required in the future if we determine that an amount of deferred tax assets can be realized.

Valuation of Investments in Privately-Held Companies

     We invest in equity and debt instruments of privately-held companies for business and strategic objectives, and typically we do not attempt to reduce or eliminate the inherent market risks of these investments. We perform periodic reviews of these investments for impairment. Our investments in privately-held companies are considered impaired when a review of the investee’s operations and other indicators of impairment indicate that there has been a decline in the fair value that is other than temporary and that the carrying value of the investment is not likely to be recoverable. Such indicators include, but are not limited to, limited capital resources, need for additional financing, and prospects for liquidity of the related securities. Impaired investments in privately-held companies are written down to estimated fair value, which is the amount we believe is recoverable from the investment.

Impairment of Goodwill and Other Intangible Assets

     Our goodwill and other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and in the case of goodwill, annually. In assessing the recoverability of our goodwill and other intangible assets, we consider changes in economic conditions and make assumptions regarding estimated future cash flows and other factors. The biggest assumption impacting estimated future cash flows is revenue growth. Estimates of future cash flows are highly subjective judgments that can be significantly impacted by changes in global and local business and economic conditions, operating costs, competition and demographic trends. If our estimates or underlying assumptions change in the future, we may be required to record additional impairment charges.

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Restructuring Costs

     We monitor our organization structure and associated operating expenses periodically. Depending upon events and circumstances, actions may be taken to restructure the business, including terminating employees, abandoning excess lease space and incurring other exit costs. Any resulting restructuring costs include numerous estimates made by us based on our knowledge of the activity being affected and the cost to exit existing commitments. These estimates could differ from actual results. We monitor the initial estimates periodically and record an adjustment for any significant changes in estimates.

Three Months and Nine Months Ended September 30, 2004 and 2003

Revenues

     Revenues for the three months ended September 30, 2004 were $16.6 million, a decrease of 3%, or $0.5 million, from $17.1 million in 2003. Revenues for the nine months ended September 30, 2004 were $53.1 million, an increase of 10%, or $4.9 million, from $48.2 million for the same period in 2003. Revenues by line item were as follows (in millions):

     Royalties. We derive royalties from the sale of set-top boxes and other products that incorporate our software. These royalty payments are typically paid to us either by the set-top box manufacturers or the network operators around the world that use or deploy that software. Royalty revenues are dependent on continued deployment of set-top boxes by existing customers, upgrades to newer versions of our software by existing customers and new customers launching our technologies in their systems. Should set-top box deployments and software upgrades by existing customers slow or the acquisition of new customers not occur, our royalty revenues would be negatively impacted in future years. As there are a limited number of network operators capable of deploying interactive television on a large-scale basis, we expect that our ability to achieve incremental royalty revenues could diminish in future years.

     We typically recognize royalties upon notification of unit shipments or activation of our software by manufacturers or network operators. Royalty reports are generally received one quarter in arrears. For non-refundable prepaid royalties, we recognize revenues upon delivery of the software.

     Royalties for the three months ended September 30, 2004 were $9.3 million, an increase of 37%, or $2.5 million, from $6.8 million in 2003. Sky Italia, the largest pay-per-view operator in Italy, with which we signed a network license agreement in the prior quarter, accounted for an increase of $1.8 million and royalties from manufacturers that sell set-top boxes to BSkyB accounted for an increase of $0.9 million. Royalties from our integrated browser, which is incorporated in certain digital TV sets distributed within Japan, accounted for an increase of $0.9 million. Revenues from a significant customer were $0.8 million less in the three months ended September 30, 2004 compared to the same period in the prior year. That decline resulted from a timing difference caused by a late royalty report If the report had been received prior to September 30, 2004, royalties for the third quarter of 2004 would have been $1.6 million higher. We will recognize that revenue in the fourth quarter of 2004. In addition, other manufacturers accounted for a decrease in royalties of $0.3 million.

     Royalties for the nine months ended September 30, 2004 were $28.9 million, an increase of 55%, or $10.2 million, from $18.7 million in 2003. Sky Italia accounted for $6.8 million of that increase. Royalties from our integrated digital TV browser accounted for an increase of $1.9 million. The manufacturers that sell set-top boxes to

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BSkyB accounted for an increase of $0.1 million, after taking into account a credit of approximately $1.3 million for the nine months ended September 30, 2004 for the over-reporting by one of these manufacturers of shipments relating to 2002 and 2003. EchoStar accounted for an increase of $0.9 million and other manufacturers accounted for an increase of $0.5 million. Royalty revenue from EchoStar is deferred and amortized over the seven-year term of our EchoStar agreements because EchoStar has a right to receive unspecified future applications when they are made available. Until we are able to recognize that royalty revenue, amounts that we receive from EchoStar are recorded as deferred revenue in our consolidated balance sheet.

     Sky Italia accounted for $7.5 million, or 26%, of royalties for the nine months ended September 30, 2004; EchoStar accounted for $5.9 million, or 20%, and four of our customers who sell set-top boxes to BSkyB accounted for $5.1 million, or 18%.

     Services, Support and Other. Services, support and other revenue consist primarily of professional services consulting engagements for set-top box manufacturers, network operators and system integrators and maintenance, support and training for set-top box manufacturers and network operators. For the three months ended September 30, 2004, revenues in this category were $3.0 million, a decline of 55%, or $3.7 million, from $6.7 million in 2003. Service revenues from one of our customers declined by $1.0 million from the same period in the prior year as a result of the expiration of certain minimum commitments we had for providing professional services. The remaining decrease was attributable to decreased consulting work for several customers and the termination of maintenance and support payments by some customers.

     For the nine months ended September 30, 2004, revenues in this category were $12.0 million, a decline of 31%, or $5.3 million, from $17.3 million in 2003. Service revenues from one of our customers declined by $3.0 million from the same period in the prior year as a result of the expiration of certain minimum commitments we had for providing professional services. There was also decreased work for other customers and lower maintenance and support payments. The remaining decrease was attributable to decreased consulting work for several customers and the termination of maintenance and support payments by some customers.

     We currently expect our revenues in this category to continue to decline unless we are successful in obtaining additional professional services engagements.

     Fees and Revenue Shares. Fees and revenue shares consist of PlayJam games channel fees, interactive advertising fees, net betting and gaming revenues, and revenue shares received for advertising and other interactive services. For the three months ended September 30, 2004, revenues in this category were $3.3 million, an increase of 10%, or $0.3 million, from $3.0 million in 2003. Net betting and gaming revenues, resulting from the acquisition of BettingCorp in the third quarter of 2003, accounted for an increase of $0.4 million, while other items decreased by $0.1 million.

     For the nine months ended September 30, 2004, revenues in this category were $9.9 million, an increase of 6%, or $0.6 million, from $9.3 million in 2003. Net betting and gaming revenues derived from BettingCorp accounted for an increase of $1.2 million, while advertising decreased by $0.5 million.

     License Fees. We derive license fees from the licensing of products such as OpenTV Streamer, OpenTV Software Developers Kit and various applications. For the three months ended September 30, 2004, revenues in this category were $1.0 million, an increase of 67%, or $0.4 million, from $0.6 million for the same period in 2003. For the nine months ended September 30, 2004, revenues in this category were $2.3 million, a decrease of 21%, or $0.6 million, from $2.9 million for the same period in 2003. License fees are generally one-time purchases by our customers and can vary significantly from quarter to quarter.

Operating Expenses

     Our total operating expenses for the three months ended September 30, 2004 were $22.7 million, a decrease of 22%, or $6.3 million, from $29.0 million for the same period in 2003. Our total operating expenses for the nine months ended September 30, 2004 were $71.1 million, a decrease of 20%, or $17.7 million, from $88.8 million for the same period in 2003. ACTV and BettingCorp, which we acquired in July and August 2003, respectively,

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collectively accounted for $2.9 million and $9.6 million of operating expenses for the three months and nine months ended September 30, 2004.

     Operating expenses by line item were as follows (in millions):

     Cost of revenues. Cost of revenues consist primarily of compensation-related expenses and related overhead costs associated with professional services engagements, network infrastructure and bandwidth costs of our interactive games and betting channels, amortization of developed and purchased technology, and amortization of patents.

     Cost of revenues for the three months ended September 30, 2004 were $8.1 million, a decrease of 40%, or $5.4 million, from $13.5 million for the same period in 2003. ACTV and BettingCorp collectively accounted for a decrease of $0.8 million and Wink Communications accounted for a decrease of $2.0 million. The amortization period for certain patents and developed technology expired during the period, accounting for a decrease in amortization of patents and developed technology of $2.3 million. Other costs accounted for the remaining decrease of $0.3 million.

     Cost of revenues for the nine months ended September 30, 2004 were $27.4 million, a decrease of 25%, or $9.2 million, from $36.6 million for the same period in 2003. ACTV and BettingCorp collectively accounted for an increase of $1.9 million. That increase was offset by a decrease of $5.4 million in costs related to Wink Communications and a decrease of $5.2 million related to patents and developed technology which had been fully amortized. Cost of revenues for the nine months ended September 30, 2003 included a credit of $1.2 million in respect of a contract settlement with BSkyB for bandwidth. Other costs accounted for a decrease of $1.7 million.

     NASCAR Amendment. During the nine months ended September 30, 2004, we renegotiated an existing contract that our subsidiary, ACTV, had with iNDEMAND relating to the production of interactive programming for the 2004 NASCAR season. As a result of this renegotiation, we reduced the estimated loss for that contract by $4.6 million from the amount which had been accrued by ACTV in 2003 prior to its acquisition by us. This item has been shown as a separate line item in our condensed consolidated statement of operations.

     Research and Development. Research and development expenses consist primarily of compensation-related expenses and related overhead costs incurred for both new product development and enhancements to our range of software and applications products.

     Research and development expenses for the three months ended September 30, 2004 were $7.3 million, an increase of 28%, or $1.6 million, from $5.7 million for the same period in 2003. ACTV and BettingCorp collectively accounted for a decrease of $0.5 million. The remaining increase of $2.1 million was attributable to a reallocation of staff from operations to research and development and also to certain salary increases.

     Research and development expenses for the nine months ended September 30, 2004 were $21.2 million, an increase of 39%, or $6.0 million, from $15.2 million for the same period in 2003. ACTV and BettingCorp

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collectively accounted for an increase of $2.2 million. The remaining increase of $3.8 million was attributable to a reallocation of staff from operations to research and development and also to salary increases.

     We believe that research and development spending is critical to remaining competitive in the marketplace. We will continue to focus on the timely development of new and enhanced interactive television products for our customers, and we plan to continue investing at levels that are adequate to develop our technologies and product offerings.

     Sales and Marketing. Sales and marketing expenses consist primarily of advertising and other marketing-related expenses, compensation-related expenses and related overhead costs, and travel costs.

     Sales and marketing expenses for the three months ended September 30, 2004 were $3.5 million, a decrease of 19%, or $0.8 million, from $4.3 million for the same period in 2003. There was a decrease of $1.4 million in market development funds primarily as a result of the expiration of an agreement with DirecTV in December 2003. ACTV and BettingCorp collectively accounted for an increase of $0.1 million and trade shows and other marketing programs accounted for an increase of $0.5 million.

     Sales and marketing expenses for the nine months ended September 30, 2004 were $11.2 million, a decrease of 16%, or $2.2 million, from $13.4 million for the same period in 2003. There was a decrease of $3.1 million in market development funds primarily as a result of the expiration of an agreement with DirecTV. ACTV and BettingCorp collectively accounted for an increase of $0.7 million and there were increases in other marketing programs of $0.2 million.

     General and Administrative. General and administrative expenses consist primarily of compensation-related expenses and related overhead costs, litigation, provision for doubtful accounts and fees for professional services.

     General and administrative expenses for the three months ended September 30, 2004 were $3.7 million, a decrease of 12%, or $0.5 million, from $4.2 million in 2003. The provision for doubtful accounts accounted for a decrease of $0.2 million and other expenses accounted for a decrease of $0.3 million.

     General and administrative expenses for the nine months ended September 30, 2004 were $13.9 million, an increase of 9%, or $1.1 million, from $12.8 million for the same period in 2003. Litigation costs accounted for an increase of $2.6 million. There was a reduction in the provision for doubtful accounts of $0.7 million and other expenses accounted for a decrease of $0.8 million.

     Restructuring Costs. For the three months ended September 30, 2004, we reversed over-accruals relating to leases from prior restructuring provisions in 2002 by $0.6 million. For the three months ended September 30, 2004, we reversed over-accruals from prior restructuring provisions by $1.5 million and had a provision of $0.4 million for a workforce reduction of 5 people in our PlayJam operations in France, resulting in a net credit for restructuring of $1.1 million.

     For the nine months ended September 30, 2003, total restructuring costs were $7.1 million. We reduced our workforce in France by approximately 70 people, abandoned an office lease and wrote-down fixed assets.

     Amortization of Intangible Assets. For the three months ended September 30, 2004, amortization of intangible assets was $0.7 million, a decrease of 42 % or $0.5 million, from $1.2 for the same period in 2003. For the nine months ended September 30, 2004, amortization of intangible assets was $3.1 million, a decrease of 16% or $0.6 million, from $3.7 million for the same period in 2003. The decreases were due to the expiration of the amortization period for certain intangibles.

Interest Income, Other Income, Other Expense and Minority Interest

     As a result of continued low interest rates in the United States, coupled with a decrease in our investment portfolio, interest income for the three months ended September 30, 2004 was $0.2 million compared with $0.4 million for the same period in 2003. Interest income for the nine months ended September 30, 2004 was $0.6 million compared with $1.3 million for the same period in 2003.

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     For the three months ended September 30, 2004, other income was $0.6 million due to the settlement of certain litigation. For the nine months ended September 30, 2004, other income was $0.5 million compared with other expense of $1.1 million for the same period in 2003. In the prior year there was a settlement of a dispute we assumed in connection with our acquisition of Wink, which resulted in other expense of $0.9 million.

Income Taxes

     We had United States federal tax loss carryforwards of approximately $300 million as of December 31, 2003. However, we are subject to income taxes in certain state and foreign jurisdictions and we have foreign taxes withheld from certain royalty payments. For the three months ended September 30, 2004, we recorded an income tax benefit of $0.5 million primarily due to a tax refund in the United Kingdom and the reversal of a previously recorded tax liability following the expiration of the statute of limitations. This compares with a tax provision of $0.3 million for the three months ended September 30, 2003. For the nine months ended September 30, 2004, we recorded an income tax benefit of $1.1 million primarily due to tax refunds in the United Kingdom, a favorable settlement of a tax audit in France, and the reversal of a previously recorded tax liability following the expiration of the statute of limitations. This compares with a tax provision of $0.9 million for the nine months ended September 30, 2003.

Liquidity and Capital Resources

     We expect to be able to fund our capital requirements for at least the next twelve months by using existing cash balances and short-term and long-term marketable debt securities, if our assumptions about our revenues, expenses and cash commitments are generally accurate. Because we cannot be certain that our assumptions about our business or the interactive television market in general will prove to be accurate, our capital requirements may differ from our current expectations.

     As of September 30, 2004, we had cash and cash equivalents of $41.3 million, which was a decrease of $6.4 million from the balance at December 31, 2003. Taking into account short-term and long-term marketable debt securities of $10.6 million, our cash, cash equivalents and marketable debt securities were $51.9 million as of September 30, 2004, compared with $73.5 million as of December 31, 2003. Our primary source of cash is receipts from revenues. The primary uses of cash are payroll, general operating expenses and cost of revenues.

     Due to our continuing operating losses and increases in accounts receivable, cash used in operating activities was $22.9 million for the nine months ended September 30, 2004, a reduction of $10.7 million from the $33.6 million of cash we used in operating activities for the nine months ended September 30, 2003.

     Cash provided from investing activities was $13.6 million for the nine months ended September 30, 2004, primarily due to the net sale of marketable debt securities. For the nine months ended September 30, 2003, the cash provided from investing activities was $38.9 million. Capital expenditures were $1.5 million for the nine months ended September 30, 2004 compared with $2.2 million for the nine months ended September 30, 2003.

     Cash provided from financing activities was $3.0 million for the nine months ended September 30, 2004, compared with $0.8 million for nine months ended September 30, 2003. The amount for 2004 represented proceeds from issuance of ordinary shares from exercise of stock options. The amount for 2003 primarily represented a capital contribution.

     We use a professional investment management firm to manage most of our invested cash. The portfolio consists of highly liquid, high-quality investment grade securities of the United States government and agencies, corporate notes and bonds and certificates of deposit that predominantly have maturities of less than three years. All investments are made according to our investment policy, which has been approved by our Board of Directors.

    Commitments and Contractual Obligations

     Information as of September 30, 2004 concerning the amount and timing of required payments under our contractual obligations is summarized below (in millions):

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     In the ordinary course of business, we enter into various arrangements with vendors and other business partners for bandwidth, marketing, and other services. Future minimum commitments under these arrangements as of September 30, 2004 were $1.2 million for the remaining three months of 2004 and $3.8 million and $0.1 million for the years ending December 31, 2005 and 2006, respectively.

     As of September 30, 2004, we had two standby letters of credit aggregating approximately $2.0 million that were issued to landlords at two of our leased properties and we had $10.0 million of marketable debt securities pledged with a bank for foreign exchange facilities.

     In March 1998, we entered into a licensing and distribution agreement with Sun Microsystems, Inc. under which Sun Microsystems granted us a non-exclusive, non-transferable license to develop and distribute products based upon Sun Microsystems’s Java technology. Subsequent amendments extended our license through December 2006. As amended, the agreement requires us to make a payment of $4.0 million to Sun Microsystems in February 2007, less any amounts previously paid for support and royalty fees, which have been nominal to date.

Indemnification

     In the normal course of our business, we provide indemnification to customers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations, although our liabilities in those arrangements are customarily limited in various respects, including monetarily. During the three months ended September 30, 2004, we agreed to reimburse Charter Communications for legal expenses which it had incurred in connection with certain patent litigation. We intend to seek recovery of these legal fees in connection with the invalidation of the patent-in-suit. For further details see Note 10 to the condensed consolidated financial statements.

     As permitted under the laws of the British Virgin Islands, we have agreed to indemnify our officers and directors for certain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid.

Factors That May Affect Future Results

     In addition to the other information contained in this quarterly report on Form 10-Q, you should consider carefully the following factors in evaluating OpenTV and our business.

We have a history of net losses, and we may continue to experience net losses in the future.

     We have incurred significant net losses since our inception. Our net losses for the years ended December 31, 2001, 2002 and 2003 were approximately $1,304.3 million, $802.6 million and $54.1 million, respectively. We expect to continue to incur significant sales and marketing, product development and administrative expenses and expect to continue to suffer net losses in the near term. We will need to generate significant revenue to achieve and maintain profitability. We cannot be certain that we will achieve, sustain or increase profitability in the future. Any failure to significantly increase revenue as we implement our product and distribution strategies would adversely affect our business, financial condition and operating results.

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We have historically derived a significant percentage of our revenues from licensing our core middleware product to network operators. Our opportunities for future revenue growth with that product are limited by the actual number of worldwide network operators and by technology decisions they make from time to time.

     We have on a historic basis derived a significant percentage of our total revenues from royalties associated with the deployment of our core middleware and fees charged for services rendered in support of our middleware deployments. Only a limited number of network operators worldwide currently deploy interactive products and services in a meaningful way. While we continue to seek deployments within the United States, we have a significant number of customers outside of the United States that have deployed our core middleware. In most cases, the number of network operators in any particular country is relatively small, and to the extent that we have already achieved deployments in those countries, the opportunities for future growth of our middleware business may be limited.

     Our capacity to generate future revenues associated with our core middleware may also be limited due to a number of reasons, including:

     • network operators that have selected our core middleware may switch to another middleware platform for the provision of interactive services, reduce their pace of set-top box deployment or stop deploying set-top boxes enabled with our core middleware, decrease or stop their use of our support services, or choose not to upgrade or add additional features to the version of our core middleware running on their networks;

     • network operators that have not selected our core middleware may choose another middleware platform for the provision of interactive services; or

     • a meaningful opportunity to deploy our core middleware in the markets that have not yet adopted interactive television on a large scale may never develop or may develop at a very slow pace.

     Any of these eventualities would have an adverse effect on our results of operations.

We expect a more significant portion of our revenue growth in the future to be derived from interactive content and applications that we develop and market. If we are not successful in developing and marketing that interactive content and those applications, our future revenue growth may be limited.

     We expect over the next several years to develop extensive interactive content and applications, including gaming channels, addressable and targeted advertising and programming synchronous applications. The market for interactive content and applications is still nascent and evolving. Historically, we have derived only a relatively small percentage of our total revenue from these offerings. We cannot be certain that the demand for or the market acceptance of interactive content and applications will develop as we anticipate, and even if they do, we cannot be certain that we will be able to market that content and those applications effectively and successfully respond to changes in consumer preferences. In addition, our ability to market those products will be affected to a large degree by network operators. If network operators determine that our interactive content and applications do not meet their business or operational expectations, they may choose not to offer our applications to their customers. To the extent that network operators fail to renew or enter into new or expanded contracts with us for provision of interactive content (such as our enhanced interactive television service) and applications (such as the PlayJam channel), we will be unable to maintain or increase the level of distribution of our interactive content and applications and the associated revenue from those offerings. Moreover, due to global economic conditions, network operators may slow down their deployment of new content and applications offerings, and such actions would negatively impact our revenue. Accordingly, our ability to generate substantial revenues from our interactive content and applications offerings is uncertain.

We may seek to generate a significantly greater percentage of our revenue growth in the future from revenue sharing and subscription based arrangements. If we are unsuccessful in developing those revenue models, then our future revenue growth may be limited and our results of operations will be adversely affected.

     We have historically generated a substantial portion of our revenue from royalty and licensing fees related to the licensing of our core middleware products and from fees for professional services that we provide. We believe that our capacity to generate future revenues in this manner may be limited, and if we are unsuccessful in evolving our revenue model, our opportunities for future revenue growth, particularly outside of the United States, may be

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limited. We expect, over time, that we may need to seek an increasing percentage of our revenues from revenue sharing arrangements with network operators, programmers and advertisers. In those instances, we would typically receive a percentage of the payments that a network operator, programmer or advertiser may receive from transactions that make use of our interactive content or applications. We also expect, over time, that we may need to seek an increasing percentage of our revenues from subscription-based fee arrangements. In those instances, we would typically receive a fixed payment, over a period of time, based on the number of subscribers or viewers that use or access our technologies, content or applications. There can no guarantee that we will be successful in entering into future revenue sharing or subscription-based arrangements with network operators, programmers or advertisers or that we will be able to generate a substantial amount of revenue from these sources. If our efforts are unsuccessful, then our future results of operations will be adversely affected.

We have acquired several businesses since October 2002. We continue to implement initiatives designed to enhance the integration of those businesses and to seek further consolidation of our worldwide operations. Our failure to effectively integrate those acquired businesses, or to streamline our operations, may adversely affect our business, financial condition and results of operations.

     We acquired Wink Communications, Inc., a provider of interactive and enhanced television services, in October 2002. We acquired ACTV, Inc., a provider of addressable advertising and related products and services, in July 2003. In addition, in August 2003, we acquired substantially all of the assets of BettingCorp Limited, a provider of gaming and gambling technologies and services. We face many risks and challenges associated with integrating these acquisitions, including:

     • difficulties related to the integration of operations and personnel of acquired companies into our existing business, especially outside the United States as with BettingCorp;

     • diversion of management’s attention from our business;

     • incorporation of acquired products and business technology into our existing product lines; and

     • adoption and maintenance of uniform standards, controls, procedures and policies.

     While we believe that we have made progress in integrating those businesses, and their personnel and technologies, with ours, we have not completed those efforts. If we are not successful in integrating those businesses with ours, we may not realize the full benefits of the assets that we acquired. Moreover, if we do not successfully complete such integration and consolidation in a timely manner, the increased demands on management’s time, and the increased costs associated with that process may also have an adverse effect on our business, financial condition and results of operations.

We continue to evaluate our business opportunities and to implement structural and other changes that affect the conduct of our worldwide business operations. As we continue to align our resources appropriately with our evolving business, we may face unintended consequences or suffer adverse effects on our operations or personnel.

     In addition to the integration and consolidation efforts that we have undertaken in response to our various acquisitions, we continue our efforts to streamline our worldwide operations and reduce our operating expenses. In this regard, we continue to undertake efforts to consolidate our operations, close and relocate various offices around the world, divest non-strategic assets and reduce our headcount. These initiatives may yield unanticipated consequences, such as attrition beyond our planned reduction in workforce and loss of employee morale and diminished performance. Reductions in personnel, both anticipated and unanticipated, could materially and adversely impact our sales and marketing efforts, research and development efforts, and our professional services and general and administrative functions.

     In conjunction with these initiatives, we have engaged and are continuing to engage in a review of our operations with a view towards improving our business performance. There is a risk that, as new business strategies and administrative processes are developed and implemented, the changes we adopt will be unduly disruptive or less effective than our old strategies and processes. This may adversely affect our business, results of operations and future prospects.

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We may be unable in the future to raise additional capital required to support our operating activities.

     We expect to be able to fund our capital requirements for at least the next twelve months by using existing cash balances and short-term and long-term marketable debt securities, if our assumptions about our revenues, expenses and cash commitments are generally accurate. Nevertheless, we have incurred to date and we expect that we will continue to incur in the future significant expenses, many of which result from non-cancelable operating commitments. As of September 30, 2004, we had $51.9 million of cash, cash equivalents and marketable debt securities. We used approximately $22.9 million in cash for operating activities during the nine months ended September 30, 2004 and $42.5 million during the fiscal year ended December 31, 2003. We may need to raise additional capital in the future if our revenue growth does not meet our expectations or we are unable to reduce substantially the amount of cash used in our operating activities. While we continue to monitor our operating expenses and seek to bring them in line with our revenues, there can be no assurance that we will be successful in doing so.

     To the extent we are required to raise additional capital, we may not be able to do so at all or we may be able to do so only on unacceptable terms. If we cannot raise additional capital on acceptable terms, we may not be able to develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, any of which could have an adverse effect on our business, results of operations or future prospects.

The market for our products and services is subject to significant competition, which could adversely affect our business.

     We face competition from a number of companies, including many that have significantly greater financial, technical and marketing resources and a better recognized brand name than we do. Current and potential competitors in one or more aspects of our business include interactive technology companies, companies developing interactive television content and entertainment, and, in the professional services area, third party system integrators and internal information technology staffs at our network operator customers. Some of our customers or their affiliates offer products or services that compete with our products and services. For example, in addition to our PlayJam and PlayMonteCarlo applications, British Sky Broadcasting also offers its own competitive gaming and gambling applications through its broadcast network. If any of these competitors achieves significant market penetration or other significant success within the markets upon which we rely as a significant source of revenue, or in new markets that we may enter in the future, our ability to maintain market share and sustain our revenues may be materially and adversely affected.

The trend of consolidation among industry participants may adversely impact our business, results of operations and future prospects.

     There has been a worldwide trend of consolidation in the cable and direct broadcast satellite industries. We believe this trend is likely to continue due to economic and competitive concerns. This trend appears to be expanding to include other companies involved with the interactive television industry. For example, Comcast Corp., a cable network operator, and Gemstar-TV Guide International Inc., a media and technology company, recently formed a joint venture called Guideworks to develop an interactive programming guide for the cable television industry. While the full impact of this trend is uncertain at the present time, we will need to adapt to changing relationships with industry participants and address competitive concerns that may arise as companies consolidate. If we are unable to successfully manage these changing relationships and address these competitive concerns, our business and results of operations may be adversely affected.

Unanticipated fluctuations in our quarterly operating results could affect our stock price.

     We believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful indicators of our future operating results and should not be relied on as an indication of future performance. If our quarterly operating results fail to meet the expectations of analysts, the market price of our publicly-traded securities could be negatively affected. Our quarterly operating results have varied substantially in the past and they may vary substantially in the future depending upon a number of factors described below, including many that are beyond our control.

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     Our operating results may vary from quarter to quarter as a result of a number of factors, including:

     • Changes in the rate of capital spending and the rollout of interactive television-related products and services by network operators;

     • The number, size and scope of network operators deploying OpenTV-enabled interactive services and the associated rollout to subscribers;

     • Increased competition in general and any changes in our pricing policies that may result from increased competitive pressures;

     • Potential downturns in our customers’ businesses or in the domestic or international markets for our products and services;

     • The ability to generate applications-related revenue from existing and potential customers;

     • Changes in technology, whether or not developed by us;

     • Our ability to develop and introduce on a timely basis new or enhanced versions of our products that can compete favorably in the marketplace; and

     • The timing of revenue recognition associated with major licensing and services agreements.

     Because a high percentage of our expenses, particularly compensation, is fixed in advance of any particular quarter, any of the factors listed above could cause significant variations in our earnings on a quarter-to-quarter basis. You should not rely on the results of prior periods as an indication of our future performance. Any decline in revenues or a greater than expected loss for any quarter could cause the market price of our publicly-traded securities to decline.

A significant portion of our senior management team is new. If they are unable to work together effectively, we may not be able to execute our business plan.

     Our business is highly dependent on the ability of our senior management team to work together effectively to execute our business plan. Our management team has changed significantly over the past year. In March 2004, James Chiddix was appointed Chairman of our board of directors and assumed the additional role of Chief Executive Officer in May 2004. In addition, several of our other senior executives in important operational and administrative roles joined us since the last half of 2003. These individuals and our existing management team have not previously worked together. If they are unable to effectively integrate themselves into our business or work together as a management team, we may not be able to manage our business effectively.

We depend upon key technical, consulting and support personnel to operate our business, and we may be unable to attract or retain such personnel.

     Our business requires highly trained technical, consulting and support personnel to assist customers with launch and deployment of our products. In the future, we may need to increase our technical, consulting and support staff to support new customers and the expanding needs of our existing customers. Notwithstanding the current economic climate, hiring consulting and support personnel has remained very competitive in our industry due to the limited number of people available with the necessary technical skills and understanding of the interactive television market, and we have experienced difficulty in recruiting qualified personnel in the past. Even if we invest significant resources in attempting to attract, train and retain these qualified personnel, we may not be successful in our efforts, which may have a negative effect on our business and results of operations.

Interactive television remains an emerging business and it may not attract widespread market acceptance or demand.

     Our success will depend upon, among other things, the broad acceptance of interactive television by industry participants, including operators of broadcast and pay television networks, network operators and manufacturers of televisions and set-top boxes, as well as by television viewers and advertisers. Because the market for interactive television remains an emerging market, the potential size of the market opportunity and the timing of its

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development are uncertain. The growth and future success of our business will depend in part upon our ability to penetrate new markets and convince network operators, television viewers and advertisers to adopt and maintain their use of our products and services.

Because much of our success and value lie in our ownership and use of our intellectual property, our failure to protect our intellectual property and develop new proprietary technology may negatively affect us.

     Our ability to effectively conduct our business will be dependent in part upon the maintenance and protection of our intellectual property. We rely on patent, trademark, trade secret and copyright law, as well as confidentiality procedures and licensing arrangements, to establish and protect our rights in and to our technology. We have typically entered into confidentiality or license agreements with our employees, consultants, customers, strategic partners and vendors, in an effort to control access to, and distribution of, our software, related documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our software and other proprietary information without authorization.

     Policing unauthorized use of our software and proprietary information will be difficult. The steps we take may not prevent misappropriation of our intellectual property and the agreements we enter into may not be enforceable in some instances. In addition, effective patent, copyright, trademark and trade secret protection may be unavailable or limited in certain foreign countries or, alternatively, such protection may be difficult to enforce. Litigation may be necessary in the future to enforce or protect our intellectual property rights or to determine the validity and scope of our intellectual property rights and the proprietary rights of others. Any such litigation could cause us to incur substantial costs and diversion of resources, which in turn could adversely affect our business.

Intellectual property infringement claims may be asserted against us, which could have the effect of disrupting our business.

     We may be the subject of claims by third parties alleging that we infringe their intellectual property. The defense of any such claims could cause us to incur significant costs and could result in the diversion of resources with respect to the defense of any claims brought, which could adversely affect our financial condition and operating results. As a result of such infringement claims, a court could issue an injunction preventing us from distributing certain products, which could adversely affect our business. If any claims or actions are asserted against us, we may seek to obtain a license under a third party’s intellectual property rights in order to avoid any litigation. However, a license under such circumstances may not be available on commercially reasonable terms, if at all.

We grant certain indemnification rights to our customers when we license our software technologies. We may, therefore, become subject to third party infringement claims through those commercial arrangements. In addition, the damages to which we are subject may be increased by the use of our technologies in our customers’ products.

     Many of our and our subsidiaries’ agreements with customers contain an indemnification obligation, which could be triggered in the event that a customer is named in an infringement suit involving their products or involving the customer’s products or services that incorporate or use their products. If it is determined that our products infringe any of the asserted claims in such a suit, we may be prevented from distributing certain of our products and we may incur significant indemnification liabilities, which may adversely affect our business, financial condition and operating results.

     In addition, while damages claims in respect of an alleged infringement may, in many cases, be based upon a presumed royalty rate that the patent holder would have otherwise been entitled to, it is possible that our liability may increase as a result of the incorporation of our technology with our customer’s products. In some cases, potential damages against us could be based on the profits derived from a product that infringes through the use of our software even though we receive a relatively moderate economic benefit from the licensing arrangement.

The adoption of incompatible standards by our industry and rapid technological advances could render our products and services obsolete or non-competitive.

     The migration of television from analog to digital transmission, the convergence of television, the Internet, communications and other media, and other emerging trends, such as the deployment of high definition television and multicasting, are creating a dynamic and unpredictable environment in which to operate. Our ability to

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anticipate trends and adapt to new technologies and evolving standards is critical to our success.

     Recent attempts to establish industry-wide standards for interactive television software include an initiative by cable network operators in the United States to create a uniform platform for interactive television called Open Cable and an initiative by European television industry participants to create a platform called Multimedia Home Platform. The establishment of these standards or other similar standards could adversely affect the pricing of our products and services, significantly reduce the value of our intellectual property and the competitive advantage our proprietary technology provides, cause us to incur substantial expenditures to adapt our products or services to respond to these developments, or otherwise hurt our business, particularly if our products require significant redevelopment in order to conform to the newly established standards.

     The deployment of new digital television applications, such as high-definition television and multicasting multiple television programs through a single channel, may compete directly with our products and services for broadcast distribution capacity. To the extent that such capacity cannot accommodate all of the applications that a cable or direct broadcast satellite system operator wants to distribute, then there is a risk that other applications will be deployed to the exclusion of our content and applications. If this occurs, our results of operations could be adversely affected.

     Any delay or failure on our part to respond quickly, cost-effectively and sufficiently to these developments could render our products and services obsolete or non-competitive and have an adverse effect on our business, financial condition and operating results.

     In addition, we must stay abreast of cutting-edge technological developments and evolving service offerings to remain competitive and increase the utility of our services, and we must be able to incorporate new technologies into our products in order to address the increasingly complex and varied needs of our customer base. There can be no assurance that we will be able to do so successfully, and any failure to do so may adversely affect us.

Government regulations may adversely affect our business.

     The telecommunications, media, broadcast and cable television industries are subject to extensive regulation by governmental agencies. These governmental agencies continue to oversee and adopt legislation and regulation over these industries, particularly in the areas of user privacy, consumer protection, the online distribution of content and the characteristics and quality of online products and services, which may affect our business, the development of our products, the decisions by market participants to adopt our products and services or the acceptance of interactive television by the marketplace in general. In particular, governmental laws or regulations restricting or burdening the exchange of personally identifiable information could delay the implementation of interactive services or create liability for us or any other manufacturer of software that facilitates information exchange. These governmental agencies may also seek to regulate interactive television directly. Future developments relating to any of these regulatory matters may adversely affect our business.

Changes to current accounting policies or in how such policies are interpreted or applied to our business could have a significant effect on our reported financial results or the way in which we conduct our business and could make it difficult for investors to assess properly our financial condition or operating results.

     We prepare our financial statements in conformity with accounting principles generally accepted in the United States, which are subject to interpretation by the American Institute of Certified Public Accountants, the Public Company Accounting Oversight Board, the Securities and Exchange Commission and various other bodies formed to interpret and create appropriate accounting policies. A change in these policies or in how such policies are interpreted or applied to our business could have a significant effect on our reported results and may even retroactively affect previously reported transactions. Our accounting policies that recently have been or may in the future be affected by changes in the accounting rules are as follows:

•		Software revenue recognition;
•		Accounting for stock-based compensation; and
•		Accounting for goodwill and other intangible assets.

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     As a software company, our revenue recognition policy, in particular, is a key component of our results of operations and is based on complex rules that require us to make judgments and estimates. In applying our revenue recognition policy, we must determine what portions of our revenue are recognized currently and which portions must be deferred. As a result, we may receive cash from a customer but not be able to recognize the revenue associated with that cash for some period of time under applicable accounting rules. This results in our recording the cash as “deferred revenue” on our balance sheet. Because different contracts may require different accounting treatment, it may be difficult for investors to properly assess our financial condition or operating results unless they carefully review all of our financial information, including our statement of operations, our balance sheet and our statement of cash flows.

We are engaged in a comprehensive effort to comply with various aspects of Section 404 of the Sarbanes-Oxley Act of 2002 concerning internal control over financial reporting. In the event we are unable to satisfy completely the regulatory requirements of such act, or if, upon implementation, our internal control over financial reporting is not effective, the reliability of our financial statements could be implicated and, ultimately, our financial results and our stock price could suffer.

     Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to do a comprehensive evaluation of their internal control over financial reporting. To comply with this new statute, our management must assess and issue a report concerning our internal control over financial reporting, and our independent registered public accountant must issue an opinion on management’s assessment of those matters, including potentially identifying weaknesses. The rules governing the standards that must be met for management to assess the internal control over financial reporting are new and complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. We have prepared an internal plan of action for compliance, which includes a timeline and schedule for completing our evaluation. Our efforts to comply with the rules and regulations have required, and will continue to require, the commitment of significant financial and managerial resources. As we evaluate our controls and procedures, and introduce new or revised ones, the testing of those controls and procedures or remediation efforts, if any, that may be required may take significant time and require significant managerial effort which could extend beyond December 31, 2004. Financial reports issued for fiscal years ending after November 15, 2004 will be the first reports issued under this new oversight regime. We do not have extensive insight, or any historical experience, as to the precise nature and content of these reports or the nature and content of the opinions on managements' assessments that accountants may deliver. As a result, we cannot be certain of the possible effects the issuance of these reports or opinions, or the ongoing implementation of Section 404 may have on public companies, including our own, or financial markets in general.

     While we anticipate being able to fully implement the requirements relating to internal control over financial reporting and all other aspects of Section 404 in a timely fashion, we cannot be certain, because of the absence of precedent, as to the timing of the completion of our evaluation, testing and remediation actions or the impact of those matters on our operations. We continue to evaluate our internal control over financial reporting with the assistance of the independent consultants we have engaged to help us establish and document appropriate procedures. In connection with this process, we have discovered certain aspects of our internal control over financial reporting that we intend to address and modify, although we do not believe that any of these matters, to date, indicate a material weakness based on information available to us as of the date of this report. As we complete our assessment of our internal control over financial reporting for the year 2004, some or all of these, or other matters, may rise to the level of a significant deficiency or a material weakness. In addition, as we complete our assessment of our internal control over financial reporting, internal control deficiencies may be identified through our assessment process. Our evaluation of our internal control over financial reporting remains ongoing, and, accordingly, we, including our Chief Executive Officer and Chief Financial Officer, who are responsible for certifying our financial statements, may make additional conclusions and take additional actions, from time to time, as we may deem necessary or desirable.

     If we fail to timely complete our evaluation under the Sarbanes-Oxley Act, or if we cannot favorably assess the effectiveness of our internal control over financial reporting or we or our independent registered public accountant identify material weaknesses in those controls, investor confidence and share value may be adversely affected.

Through the use of our technology, we have the ability to collect personal and confidential information from set-top boxes. If we fail to protect this information from security breaches or misuse this information, then our operations could be disrupted and we could be subject to litigation and liability under privacy laws.

     Through the technology that we license for use in set-top boxes, we have the ability, when requested by our customers, to collect and store personal information from users of our applications. Subject to applicable laws, and the agreement of our customers and consumers, we may also seek to use such information to help develop addressable and targeted advertising businesses. Storage and use of such information is subject to laws and regulations and may also subject us to privacy claims relating to its use and dissemination. In addition, a third party might be able to breach our security measures and gain unauthorized access to our servers where such information is

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stored and misappropriate such information or cause interruptions to our business operations. We may be required to expend significant capital and other resources to monitor the laws applicable to privacy matters, to protect against security breaches or to deal with the consequences of any breach. A breach of privacy rights by us, network operators or other third parties could expose us to liability. Any compromise of security or misuse of private information could materially and adversely affect our business, reputation, operating results and financial condition and expose us to costly litigation and regulatory action. Concerns over the security of personal information transmitted through our applications and the potential misuse of such information might also inhibit market acceptance of our applications, and if this occurs, our business and operating results will be adversely affected.

There are many regulations and restrictions that affect gaming and gambling activities throughout the world. As we develop and seek to market gaming and gambling applications, we must assess the legality of these types of activities in different jurisdictions. Our inability to legally launch these applications, the uncertain regulatory landscape for these applications and the significant costs associated with ongoing evaluations regarding the state of gaming and gambling laws around the world may adversely affect our business.

     We develop and market gaming and gambling applications for interactive television based on technologies and know-how that we acquired through BettingCorp. In many jurisdictions throughout the world, the laws regulating gaming and gambling, particularly through media such as interactive television and the Internet, are highly uncertain and subject to frequent change. The penalties in many jurisdictions include both civil and criminal penalties. While we continually assess the laws and regulations regarding gaming and gambling ventures, and engage special outside legal counsel to assist in that process, we cannot be certain that our interpretation of, or the advice that we receive from outside professionals with respect to, those laws will necessarily be the only possible interpretation. The costs associated with that evaluative process are not, and will not be, insignificant. In the event, that we are incorrect in our interpretation of certain laws or regulations, we may be subject to penalties. Moreover, we may be required to make significant changes to our business, if those laws or regulations change in ways that we do not anticipate or expect. The uncertainty inherent in these matters, the changing nature of these laws and regulations, and the significant costs associated with our ongoing evaluation of those laws and regulations, may adversely affect our business over time. If we do not believe that we can legally and effectively launch gaming and gambling applications, our future growth may be impaired.

Our multinational operations expose us to special risks that could increase our expenses, adversely affect our operating results and require increased time and attention of management.

     We derive a substantial portion of our revenue from customers located outside of the United States and have significant operations in a number of countries around the world. Our international operations are subject to special risks, including:

     • differing legal and regulatory requirements and changes in those requirements;

     • potential loss of proprietary information due to piracy, misappropriation or weaker laws regarding intellectual property protection;

     • export and import restrictions, tariffs and other trade barriers;

     • currency fluctuations and devaluations;

     • difficulties in staffing and managing offices as a result of, among other things, distance, language and cultural differences;

     • longer payment cycles and problems in collecting accounts receivable;

     • political and economic instability; and

     • potentially adverse tax consequences.

     Any of these factors could have an adverse effect on our business, financial condition and operating results.

Our software products may contain errors, which could cause us to lose revenue and incur unexpected expenses.

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     Software development is an inherently complex and subjective process, which frequently results in products that contain errors, as well as defective features and functions. Moreover, our technology is integrated into the products and services of our network operator customers. Accordingly, a defect, error or performance problem with our technology could cause the systems of our network operator customers to fail for a period of time or to be impaired in certain respects. Any such failure could subject us to damage claims and claims for indemnification by our customers and result in severe customer relations problems and harm to our reputation. While our agreements with customers typically contain provisions designed to limit or exclude our exposure to potential liability claims in those circumstances, those provisions may not be effective, in all respects, under the laws of some jurisdictions. As a result, we could be required to pay substantial amounts of damages in settlement or upon the determination of any of these types of claims.

The interests of our majority owner may differ from yours and may result in OpenTV acting in a manner inconsistent with your general interests.

     Liberty Media Corporation beneficially owns our Class A and Class B ordinary shares representing approximately 32.3% of the economic interest and 79.0% of the voting power of our ordinary shares outstanding as of September 30, 2004. As a result of its ownership of our ordinary shares, Liberty Media has sufficient voting power, without the vote of any other stockholder, to determine the outcome of any action presented to a vote of our stockholders, including amendments of our memorandum of association and articles of association for any purpose (which could include increasing or reducing our authorized capital or authorizing the issuance of additional shares). The interests of Liberty Media may diverge from your interests, and Liberty Media may be in a position, subject to general fiduciary obligations, to cause or require us to act in a way that is inconsistent with the general interests of the holders of our Class A ordinary shares.

Because we are controlled by Liberty Media, we are exempt from certain listing requirements of the Nasdaq National Market relating to corporate governance matters.

     Over the past several years, the National Association of Securities Dealers has adopted certain listing requirements for the Nasdaq National Market System designed to enhance corporate governance standards of the companies who are listed thereon. As a result of Liberty Media’s beneficial ownership of our Class A and Class B ordinary shares, we are not subject to some of these requirements, including the requirement that a majority of our board of directors be “independent” under the guidelines established by the National Association of Securities Dealers and certain requirements regarding the determination of our Chief Executive Officer’s compensation and our director nominees. While we do not believe that our exemption from those requirements affects the manner and method by which we manage and operate the company, investors should be aware that we are not subject to those provisions and may have no obligation to comply with those requirements in the future unless our ownership profile changes.

Because we are a British Virgin Islands company, you may not be able to enforce judgments against us that are obtained in United States courts.

     We are incorporated under the laws of the British Virgin Islands. As a result, it may be difficult for investors to effect service of process upon us within the United States or to enforce against us judgments obtained in the United States courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States.

     We have been advised by our British Virgin Islands counsel, Harney Westwood Riegels, that judgments of United States courts predicated upon the civil liability provisions of the federal securities laws of the United States may be difficult to enforce in British Virgin Islands courts and that there is doubt as to whether British Virgin Islands courts will enter judgments in original actions brought in British Virgin Islands courts predicated solely upon the civil liability provisions of the federal securities laws of the United States.

Because we are a British Virgin Islands company, your rights as a stockholder may be less clearly established as compared to the rights of stockholders of companies incorporated in other jurisdictions.

     Our corporate affairs are governed by our memorandum of association and articles of association and by the International Business Companies Act of the British Virgin Islands. Principles of law relating to such matters as the validity of corporate procedures, the fiduciary duties of management and the rights of our stockholders may differ

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from those that would apply if we were incorporated in the United States or another jurisdiction. The rights of stockholders under British Virgin Islands law are not as clearly established as are the rights of stockholders in many other jurisdictions. Thus, our stockholders may have more difficulty protecting their interests in the face of actions by our board of directors or our controlling stockholder than they would have as stockholders of a corporation incorporated in another jurisdiction.

Certain provisions contained in our charter documents could deter a change of control of us.

     Certain provisions of our memorandum of association and articles of association may discourage attempts by other companies to acquire or merge with us, which could reduce the market value of our Class A ordinary shares. The comparatively low voting rights of our Class A ordinary shares as compared to our Class B ordinary shares, approximately 99.6% of which are beneficially owned by Liberty Media as of September 30, 2004, as well as other provisions of our memorandum of association and articles of association, may delay, deter or prevent other persons from attempting to acquire control of us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to financial market risks. This exposure relates to our holdings of fixed income investment securities, investments in privately held companies and assets and liabilities denominated in foreign currencies.

Fixed income investment risk

     We own a fixed income investment portfolio with various holdings, types and maturities. These investments are generally classified as available-for-sale. Available-for-sale securities are recorded on the balance sheet at fair value with unrealized gains or losses, net of tax, included as a separate component of the balance sheet line item titled “accumulated other comprehensive income (loss).”

     Most of these investments consist of a diversified portfolio of highly liquid United States dollar-denominated debt securities classified by maturity as cash equivalents, short-term investments or long-term investments. These debt securities are not leveraged and are held for purposes other than trading. Our investment policy limits the maximum maturity of securities in this portfolio to three years and weighted-average maturity to 15 months. Although we expect that market value fluctuations of our investments in short-term debt obligations will not be significant, a sharp rise in interest rates could have a material adverse effect on the value of securities with longer maturities in the portfolio. Alternatively, a sharp decline in interest rates could have a material positive effect on the value of securities with longer maturities in the portfolio. We do not currently hedge interest rate exposures.

     Our investment policy limits investment concentration in any one issuer (other than with respect to United States treasury and agency securities) and also restricts this part of our portfolio to investment grade obligations based on the assessments of rating agencies. There have been instances in the past where the assessments of rating agencies have failed to anticipate significant defaults by issuers. It is possible that we could lose most or all of the value in an individual debt obligation as a result of a default. A loss through a default may have a material impact on our earnings even though our policy limits investments in the obligations of a single issuer to no more than five percent of the value of our portfolio.

     The following table presents the hypothetical changes in fair values in our portfolio of investment securities with original maturities greater than 90 days as of September 30, 2004 using a model that assumes immediate sustained parallel changes in interest rates across the range of maturities (in thousands):

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     The modeling technique used in the above table estimates fair values based on changes in interest rates assuming static maturities. The fair value of individual securities in our investment portfolio is likely to be affected by other factors including changes in ratings, call provisions, market perception of the financial strength of the issuers of such securities and the relative attractiveness of other investments. Accordingly, the fair value of our individual securities could also vary significantly in the future from the amounts indicated above.

Private Investment Risk

     We have historically invested in equity securities and debt obligations of certain privately-held companies that are in the start-up or development stages. These investments are inherently risky as the market for the technologies, products and services these companies have under development may never materialize, and we could incur the loss of a portion or all of our investments in these privately-held companies. As part of the ACTV acquisition, we acquired a private equity investment with a value of $4 million. The total of our private equity investments as of September 30, 2004 consisted of this single investment that continued to be valued at $4 million.

Foreign currency exchange rate risk

     We transact business in various foreign countries. We incur a substantial majority of our expenses, and earn most of our revenues, in United States dollars. A majority of our worldwide customers are invoiced and make payments in United States dollars. A minority of our worldwide customers are invoiced by our non-United States business units under contracts that require payments to be remitted in local currency.

     We have a foreign currency exchange exposure management policy. The policy permits the use of foreign currency forward exchange contracts and foreign currency option contracts and the use of other hedging procedures in connection with hedging foreign currency exposures. The policy requires that the use of derivatives and other procedures qualify for hedge treatment under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities.” We regularly assess foreign currency exchange rate risk that results from our global operations. We did not use foreign currency forward exchange contracts or options in hedging foreign currency exposures during the quarter ending September 30, 2004. There were no foreign exchange forward contracts or other procedures implemented to hedge foreign currency exposures outstanding as of September 30, 2004.

ITEM 4. CONTROLS AND PROCEDURES

     In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2004 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

     We regularly review and implement improvements to our systems of internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the three months ended September 30, 2004 that materially affected, or was reasonably likely to materially affect, our internal control over financial reporting. We continue to evaluate our internal control over financial reporting with the assistance of the independent consultants we have engaged to help us establish and document appropriate procedures. In connection with this process, we have discovered certain

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aspects of our internal control over financial reporting that we intend to address and modify, although we do not believe that any of these, to date, indicates a material weakness based on information available to us as of the date of this report. As we complete our assessment of our internal control over financial reporting for the year 2004, some or all of these, or other matters, may rise to the level of a significant deficiency or a material weakness. In addition, as we complete our assessment of our internal control over financial reporting, internal control deficiencies may be identified through our assessment process. As we evaluate our controls and procedures, and introduce new or revised ones, the testing of those controls and procedures or remediation efforts, if any, that may be required may take significant time and require significant managerial effort which could extend beyond December 31, 2004. We provide updates to our Audit Committee with respect to each of these matters. Our evaluation of our internal control over financial reporting remains ongoing, and, accordingly, we, including our Chief Executive Officer and Chief Financial Officer, who are responsible for certifying our financial statements, may make additional conclusions and take additional actions, from time to time, as we may deem necessary or desirable.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     OpenTV, Inc. v. Liberate Technologies, Inc. On February 7, 2002, OpenTV, Inc., our subsidiary, filed a lawsuit against Liberate Technologies, Inc. alleging patent infringement in connection with two patents held by OpenTV, Inc. relating to interactive technology. The lawsuit is pending in the United States District Court for the Northern District of California. On March 21, 2002, Liberate Technologies filed a counterclaim against OpenTV, Inc. for alleged infringement of four patents allegedly owned by Liberate Technologies. Liberate Technologies has since dismissed its claims of infringement on two of those patents. In January 2003, the District Court granted two of OpenTV, Inc.’s motions for summary judgment pursuant to which the court dismissed Liberate Technologies’ claim of infringement on one of the remaining patents and dismissed a defense asserted by Liberate Technologies to OpenTV, Inc.’s infringement claims, resulting in only one patent of Liberate Technologies remaining in the counterclaim. The District Court issued a claims construction ruling for the two OpenTV patents and one Liberate patent remaining in the suit on December 2, 2003. The trial date was set for February 7, 2005.

     On May 3, 2004, Liberate Technologies filed a voluntary bankruptcy petition under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The case was subsequently removed to the United States Bankruptcy Court for the Northern District of California. As a result of that filing, our litigation with Liberate Technologies was stayed and the trial schedule was vacated. On September 8, 2004, the Bankruptcy Court issued a ruling dismissing Liberate Technologies’ bankruptcy case. Liberate Technologies has appealed this ruling. We believe that our lawsuit against Liberate Technologies is meritorious, and with the dismissal of the bankruptcy case, we intend to continue vigorously pursuing prosecution of our claims against Liberate Technologies. In addition, we believe that we have meritorious defenses to the counterclaims brought against OpenTV, Inc. and will defend ourselves vigorously. No provision has been made in our consolidated financial statements for this matter. We are unable to predict the likelihood of a favorable outcome or estimate our potential liability, if any, in respect of any potential counterclaims if litigated to conclusion.

     Initial Public Offering Securities Litigation. In July 2001, the first of a series of putative securities class actions, Brody v. OpenTV Corp., et al., was filed in United States District Court for the Southern District of New York against certain investment banks which acted as underwriters for our initial public offering, us and various of our officers and directors. These lawsuits were consolidated and are captioned In re OpenTV Corp. Initial Public Offering Securities Litigation. The complaints allege undisclosed and improper practices concerning the allocation of our initial public offering shares, in violation of the federal securities laws, and seek unspecified damages on behalf of persons who purchased OpenTV Class A ordinary shares during the period from November 23, 1999 through December 6, 2000. The Court has appointed a lead plaintiff for the consolidated cases. On April 19, 2002, the plaintiffs filed an amended complaint. Other actions have been filed making similar allegations regarding the initial public offerings of more than 300 other companies, including Wink Communications as discussed in greater detail below. All of these lawsuits have been coordinated for pretrial purposes as In re Initial Public Offering Securities Litigation. Defendants in these cases filed an omnibus motion to dismiss on common pleading issues. Oral argument on the omnibus motion to dismiss was held on November 1, 2002. All claims against our officers and directors have been dismissed without prejudice in this litigation pursuant to the parties’ stipulation approved by the Court on October 9, 2002. On February 19, 2003, the Court denied in part and granted in part the omnibus motion to dismiss filed on behalf of defendants, including us. The Court’s Order dismissed all claims against us except for a claim brought under Section 11 of the Securities Act of 1933. The Court has given plaintiffs an opportunity to amend their claims in order to state a claim. Plaintiffs have not yet filed an amended complaint. Plaintiffs and the issuer defendants, including us, have agreed to a settlement, in which plaintiffs will dismiss and release their claims in exchange for a guaranteed recovery to be paid by the insurance carriers of the issuer defendants and an assignment of certain claims. A stipulation of settlement for the claims against the issuer-defendants, including us, has been submitted to the Court. There is no guarantee that the settlement will become effective, as it is subject to a number of conditions, including approval of the Court, which cannot be assured. If the settlement does not occur, and the litigation against us continues, we believe that we have meritorious defenses to the claims asserted against us and will defend ourselves vigorously. No provision has been made in our consolidated financial statements for this matter. We are unable to predict the likelihood of an unfavorable outcome or estimate our potential liability, if any.

     In November 2001, a putative securities class action was filed in United States District Court for the Southern

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District of New York against Wink Communications and two of its officers and directors and certain investment banks which acted as underwriters for Wink Communications’ initial public offering. We acquired Wink Communications in October 2002. The lawsuit is now captioned In re Wink Communications, Inc. Initial Public Offering Securities Litigation. The operative amended complaint alleges undisclosed and improper practices concerning the allocation of Wink Communications’ initial public offering shares in violation of the federal securities laws, and seeks unspecified damages on behalf of persons who purchased Wink Communications’ common stock during the period from August 19, 1999 through December 6, 2000. This action is among the over 300 lawsuits that have been consolidated for pretrial purposes as In re Initial Public Offering Securities Litigation. On February 19, 2003, the Court ruled on the motions to dismiss filed by all defendants in the consolidated cases. The Court denied the motions to dismiss the claims under the Securities Act of 1933, granted the motion to dismiss the claims under Section 10(b) of the Securities Exchange Act of 1934 against Wink Communications and one individual defendant, and denied that motion against the other individual defendant. As described above, a stipulation of settlement for the claims against the issuer defendants has been submitted to the Court. There is no guarantee that the settlement will become effective, as it is subject to a number of conditions, including approval of the Court, which cannot be assured. If the settlement does not occur, and the litigation against Wink Communications continues, we believe that Wink Communications has meritorious defenses to the claims brought against it and that Wink Communications will defend itself vigorously. No provision has been made in our consolidated financial statements for this matter. We are unable to predict the likelihood of an unfavorable outcome or estimate our potential liability, if any.

     Litigation Relating to the Acquisition of ACTV, Inc. On November 18, 2002, a purported class action complaint was filed in the Court of Chancery of the State of Delaware in and for the County of New Castle against ACTV, Inc., its directors and us. The complaint generally alleges that the directors of ACTV breached their fiduciary duties to the ACTV shareholders in approving the ACTV merger agreement pursuant to which we acquired ACTV on July 1, 2003, and that, in approving the ACTV merger agreement, ACTV’s directors failed to take steps to maximize the value of ACTV to its shareholders. The complaint further alleges that we aided and abetted the purported breaches of fiduciary duties committed by ACTV’s directors on the theory that the merger could not occur without our participation. No proceedings on the merits have occurred with respect to this action, and the case is dormant. We believe that the allegations are without merit and intend to defend against the complaint vigorously. No provision has been made in our consolidated financial statements for this matter. We are unable to predict the likelihood of an unfavorable outcome or estimate our potential liability, if any.

     Broadcast Innovation Matter. On November 30, 2001, a suit was filed in the United States District Court for the District of Colorado by Broadcast Innovation, L.L.C., or BI, alleging that DIRECTV, Inc., EchoStar Communications Corporation, Hughes Electronics Corporation, Thomson Multimedia, Inc., Dotcast, Inc. and Pegasus Satellite Television, Inc. are infringing certain claims of United States patent no. 6,076,094, assigned to or licensed by BI. DIRECTV and certain other defendants settled with BI on July 17, 2003. We are unaware of the specific terms of that settlement. Though we are not currently a defendant in the suit, BI may allege that certain of our products, possibly in combination with the products provided by some of the defendants, infringe BI’s patent. The agreement between OpenTV, Inc. and EchoStar includes indemnification obligations that may be triggered by the litigation. If liability is found against EchoStar in this matter, and if such a decision implicates our technology or products, EchoStar has notified OpenTV, Inc. of its expectation of indemnification, in which case our business performance, financial position, results of operations or cash flows may be adversely affected. Likewise, if OpenTV, Inc. were to be named as a defendant and it is determined that the products of OpenTV, Inc. infringe any of the asserted claims, and/or it is determined that OpenTV, Inc. is obligated to defend EchoStar in this matter, our business performance, financial position, results of operations or cash flows may be adversely affected. On November 7, 2003, Broadcast Innovation filed suit against Charter Communications, Inc. and Comcast Corporation in United States District Court for the District of Colorado, alleging that Charter and Comcast also infringe the ‘094 patent. The agreements between Wink Communications and Charter Communications include indemnification obligations of Wink Communications that may be triggered by the litigation.. We have reimbursed Charter for legal expenses that it has incurred in connection with this litigation. On August 4, 2004, the District Court found the ‘094 patent invalid. On August 5, 2004, BI filed a motion for reconsideration in the case. On September 17, 2004, the District Court entered its summary judgment order based on the invalidity of the patent in suit without specifically commenting on BI’s motion. In the order, the Court awarded costs to the defendants. On September 27, 2004, BI appealed the District Court’s summary judgment order to the United States Court of Appeals for the Federal Circuit. On October 4, 2004, Charter filed a motion for its attorneys’ fees in addition to the costs already awarded by the

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Court. Based on the information available to us, we have established a reserve for costs that we anticipate may be incurred in connection with this matter; that reserve is an estimate only and actual costs may be materially different.

     Personalized Media Communications, LLC. On December 4, 2000, a suit was filed in the United States District Court for the District of Delaware by Pegasus Development Corporation and Personalized Media Communications, LLC alleging that DIRECTV, Inc., Hughes Electronics Corp., Thomson Consumer Electronics and Philips Electronics North America, Inc. are willfully infringing certain claims of seven U.S. patents assigned or licensed to Personalized Media Communications. Based on publicly available information, we believe that the case has been stayed in the District Court pending re-examination by the United States Patent and Trademark Office. Though Wink Communications is not a defendant in the suit, Personalized Media Communications may allege that certain products of Wink Communications, possibly in combination with products provided by the defendants, infringe Personalized Media Communication’s patents. The agreements between Wink Communications and each of the defendants include indemnification obligations that may be triggered by this litigation. If it is determined that Wink Communications is obligated to defend any defendant in this matter, and/or that the products of Wink Communications infringe any of the asserted claims, our business performance, financial position, results of operations or cash flows may be adversely affected. No provision has been made in our consolidated financial statements for this matter. We are unable to estimate our potential liability, if any.

     Other Matters. From time to time in the ordinary course of our business, we are also party to other legal proceedings or receive correspondence regarding potential or threatened legal proceedings. While we currently believe that the ultimate outcome of these other proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in our results of operations, legal proceedings are subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations of the period in which the ruling occurs.

     The estimate of the potential impact on our financial position or overall results of operations for any of the legal proceedings described in this section could change in the future.

ITEM 6. EXHIBITS

(a) Exhibits:

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SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	OpenTV Corp.
Date: November 9, 2004	By:	/s/ Richard Hornstein
		Richard Hornstein
		Senior Vice President and Chief Financial Officer

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EXHIBIT INDEX

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