UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission File Number 001-15473

OpenTV Corp.

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code:

(415) 962-5000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Class A ordinary shares, no par value

      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, and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes þ          No o

      The aggregate market value of the Class A ordinary shares of the Registrant held of record by non-affiliates of the Registrant as of June 30, 2004, computed by reference to the last sales price of such Class A ordinary shares on the Nasdaq National Market as of the close of trading on June 30, 2004, was approximately $188,457,915. For purposes of this calculation, the directors and executive officers of the Registrant as of June 30, 2004 and the holders of record of 10% or more of any class of the Registrant’s ordinary shares outstanding as of June 30, 2004 (excluding Cede & Co., nominee of the Depository Trust Company) are deemed to be affiliates of the Registrant. Treasury shares are also excluded. The determination of affiliate status for this calculation is not necessarily a conclusive determination for other purposes.

      As of February 28, 2005, the Registrant had outstanding (not including 76,237 Class A ordinary shares held in treasury):

92,313,405 Class A ordinary shares; and

30,631,746 Class B ordinary shares.

OPENTV CORP.

2004 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

OpenTV, the OpenTV logo and our product names are trademarks or registered trademarks of OpenTV Corp. or its subsidiaries in the United States and other countries. Other product names mentioned herein may be trademarks or registered trademarks of their respective owners.

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, 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, gross margin, expenses, earnings or losses from operations; any statements of the plans, strategies and objectives of management for future operations; 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 Annual Report on Form 10-K. 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” under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations 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.

PART I

Overview

      We are one of the world’s leading providers of software, applications and professional services for interactive and enhanced television. We have traditionally provided the core software and related technologies that permit cable, satellite and digital terrestrial operators, which we refer to as “network operators,” television programmers and advertisers to offer viewers interactive and enhanced television experiences. As of December 31, 2004, we had deployed our software solutions with 44 network operators and had more than 50 million digital set-top boxes embedded with our software and technologies worldwide. We also develop interactive applications for digital television that may be deployed with or without our middleware software.

      Our interactive software and applications allow our customers to differentiate their video service offerings and enhance viewer retention. We believe they will also help enable the use of television for gaming, commerce, information retrieval, entertainment services and similar purposes. Our international footprint, with the millions of set-top boxes in which our software is deployed, should also provide us, over time, with a strong foundation to develop revenue generating applications and other products that leverage off of that embedded software. In addition, as we witness the distribution of digital content across multiple platforms, we have begun to extend our products, technologies and applications beyond the cable, satellite and digital terrestrial network operators with whom we have been traditionally engaged. For example, we are developing technologies for Internet protocol television, or “IPTV,” for broadband network operators, including telecommunications and cable operators; we are also creating technology that enables our customers to distribute content and applications to consumers’ set-top boxes, home networks and other devices, including portable and wireless devices.

      Our basic technologies enable network operators to manage the creation and delivery of interactive and enhanced television services to their subscribers across multiple models of set-top boxes and within numerous network infrastructures. We provide our technologies, interactive content and applications and professional services in more than 95 countries. Major set-top box manufacturers incorporate our software directly into over 100 different set-top box models, which allows our solutions to be easily activated by network operators upon deployment. Our “core” technology platform, which we refer to as “middleware,” permits network operators to maintain a consistent user experience for their subscribers irrespective of the set-top box or boxes that may be deployed within a subscriber’s home and the source of the video signal transmitted to that subscriber’s home, whether transmitted by cable, satellite or terrestrial means, or, even, most recently, over

IPTV. Our middleware also allows our customers, including programmers and advertisers, to develop applications once, without the need to rewrite those applications for different hardware environments, and offers network operators many other efficiencies in managing their business. We continue to evolve our middleware to enhance the features that we offer. We are developing enhancements to our personal video recorder, or “PVR,” solutions that retain interactive content for future playback simultaneously with the recorded broadcast. We are also developing PVR enhancements that will enable recording of high definition television and distribution of protected content to other devices in the home network. In addition, we offer applications that allow network operators to manage the trafficking and billing of their commercials; provide targeted and addressable advertising solutions and research technologies, which detail how viewers engage and interact with programs and advertisements; and enable viewers to engage in commerce transactions, retrieve information such as weather reports and sports updates, and other interactive services. We also provide interactive gaming services, such as play-for-prizes and fixed odds gaming.

      As part of our business, we also offer professional engineering and consulting services to help implement and coordinate the launch, integration and customization of the technologies and products that we provide. We can manage entire interactive television projects, with complete end-to-end digital programming solutions, or simply provide assistance with discrete integration projects or development activities. We believe that our extensive experience in the interactive television sector makes these services especially attractive to our customers as they seek to leverage our institutional knowledge and practical perspective.

      In 2004, we organized our engineering and marketing groups into two principal operating units: our “middleware and integrated technologies” group, with responsibility for our middleware and the technologies that are customarily integrated as “extensions” of that middleware, and our “applications” group, with responsibility for our applications and related technologies and products. We operate our BettingCorp UK Ltd. subsidiary, and its related companies, on a stand-alone basis. BettingCorp provides back-end server technology to support participation television, allowing viewers to participate in real time with quiz shows, lotteries and similar programs, and also provides casino type wagering applications. It has developed and markets our “Ultimate One” platform, which provides the underlying technology that allows for multiplatform applications and permits us to offer these applications through television, wireless devices and the Internet. Also, in 2004, to address our customers’ needs more effectively, we created regional operating groups that are responsible for customers within their geographic areas: North American Satellite; North American Cable; Europe, Middle East and Africa; and Asia Pacific.

      We have invested significant resources in developing our software solutions and believe that our patent portfolio protects many of the key elements necessary to support digital interactive and enhanced television and certain other methods of distribution. We believe that we have established an industry leading technology position, and, as of December 31, 2004, had 91 patents issued in the United States, 361 patents issued outside of the United States and 730 patent applications pending throughout the world.

      Liberty Media Corporation beneficially owns an approximately 32.2% economic interest in our company, which because of its ownership of approximately 99.6% of our super-voting Class B ordinary shares, provides it with an approximate 78.9% voting interest in our company, in each case based on the number of our ordinary shares outstanding as of December 31, 2004. As a result of that voting power, Liberty Media has the ability to elect all of the members of our board of directors and, subject to applicable law and stockholder agreements, the right to approve or disapprove all matters presented to a vote of our stockholders. Liberty Media initially acquired its controlling interest in our company in August 2002 in a transaction with our former controlling shareholder, MIH Limited. Liberty Media is a holding company, which, through its ownership of interests in subsidiaries and other companies, is primarily engaged in the electronic retailing, media, communications and entertainment industries. In addition, companies in which Liberty Media owns interests are engaged in, among other things, (i) interactive commerce via the Internet, television and telephone, (ii) domestic cable and satellite broadband distribution services and (iii) telephony and other technology ventures. From time to time, we have entered into commercial relationships with Liberty Media affiliates and expect to continue to do so in the future if advantageous opportunities become available.

      We are incorporated in the British Virgin Islands.

Our Operating Businesses

      In 2004, we began to manage our principal business through two operating units, middleware and integrated technologies and applications. We also manage BettingCorp, and its related businesses and technologies, on a standalone basis.

      Our middleware and integrated technologies provide a common platform for network operators, set-top box and other manufacturers of consumer electronics devices, programmers, content producers, advertisers and interactive application developers to create, deliver and manage interactive and enhanced television applications and content for various digital television environments and network architectures. Our software enables interactive content and applications to run on cable, satellite and digital terrestrial networks, and, with the development of our IPTV solution, the networks of telecommunications and other broadband companies that use Internet protocol for distribution purposes. It also allows interactive content and applications to run on various set-top boxes and through other products manufactured by a multitude of vendors.

      We have historically derived nearly all of our revenues from the licensing of our middleware and integrated technologies. Over time, our middleware has been extended to support various integrated extensions, including on-screen email, short messaging services, or SMS, and chat services, interactive weather applications that permit viewers to obtain local weather information, as well as news, sports and enhanced programming. We have also developed mosaic applications as extensions of our middleware that provide multiple camera angles and audio feeds delivered through a single television screen. Our mosaics have been used by operators to present events such as EchoStar Communications Corp.’s multi-screen showcase for the 2004 Summer Olympics, which allowed EchoStar to provide viewers with a single screen that simultaneously displayed Olympic events airing on various NBC networks, such as NBC, CNBC and MSNBC. Our integrated technologies offer operators and programmers many other services that transform the conventional television into a more compelling source of information and entertainment. We generally realize revenues through one-time royalty payments and ongoing license fees. We also may seek, in the future, to derive more of our revenues from those product offerings through subscriber-based fee or revenue sharing arrangements.

      As of December 31, 2004, we had deployed our software solutions and technologies to 44 network operators throughout the world, and had more than 50 million digital set-top boxes embedded with our software and technologies.

      In addition to the software and technologies that we integrate on set-top boxes, we also offer technologies that are deployed at the network operator’s head end. We provide enterprise solutions that more effectively integrate the software in a set-top box with the operator’s, programmer’s and advertiser’s back-end systems. Additionally, we have development tools that permit users to create, test and deliver interactive content and applications.

      Our middleware and integrated technologies consist of the following solutions:

      OpenTV Embedded Set-top Box Solutions. Our primary software offering has historically been installed mainly in set-top boxes and serves as the gateway for delivering and managing interactive and enhanced television to viewers.

      OpenTV Embedded Set-top Box Solutions consist of OpenTV Core and OpenTV Device Mosaic, as described below:

      OpenTV Core. This is our principal set-top box middleware product, which includes the software and related components that provide network operators with a full-featured interactive and enhanced television

delivery and development environment for both basic and advanced set-top boxes. OpenTV Core can manage a wide range of interactive television applications, including virtual channels, enhanced broadcasts, electronic commerce applications, games and on-demand news and information services.

      The following features and functions are supported by OpenTV Core:

      OpenTV Device Mosaic. OpenTV Device Mosaic is a customizable, stand-alone Internet browser designed specifically for information appliances other than personal computers. OpenTV Device Mosaic supports HTML, Broadcast Markup Language, or BML, and JavaScript based applications and is optimized and designed for advanced products and applications. We have developed an integrated browser with

Matsushita Electric Company, one of Japan’s largest consumer electronics companies, which has been incorporated into certain Panasonic branded digital television sets shipped within Japan since September 2003.

      OpenTV Enterprise Solutions. OpenTV Enterprise Solutions consist of OpenTV Account, OpenTV Advertise, OpenTV Automate, OpenTV Gateway, OpenTV H20, OpenTV Notify, OpenTV Publisher, and OpenTV Streamer. These software components are installed at a network operator’s broadcast facility, cable headend or backoffice to enable the creation, management and delivery of interactive and enhanced television services, secure commerce and communication applications and advertising to OpenTV powered set-top boxes.

      OpenTV Account. OpenTV Account enables electronic commerce features within interactive television applications and gives network operators the opportunity to develop commerce-related interactive television revenue streams. Key features of OpenTV Account include single sign-on management, electronic-receipt management, electronic-wallet and address book management and security features.

      OpenTV Advertise. OpenTV Advertise enables network operators to control the process of integrating and managing advertisements within content and applications running on OpenTV Core. Key features of OpenTV Advertise include the ability to schedule and insert advertisements, and to generate reports on the status of advertising campaign delivery and performance.

      OpenTV Automate. We are developing OpenTV Automate, which will provide content management, scheduling and synchronization for interactive television applications including enhanced television, interactive advertising and broadcast virtual channels.

      OpenTV Gateway. OpenTV Gateway manages communications traffic originating from basic digital set-top boxes to standard email and commerce servers.

      OpenTV H2O. OpenTV H2O enables the real-time transformation of Web-based HTML and Java-Script content into interactive applications that can run on basic digital set-top boxes.

      OpenTV Notify. OpenTV Notify enables network operators to send broadcast notifications to individual or multiple set-top boxes allowing network operators to deliver convenient messaging, such as email, instant messaging, order confirmation and news alerts, to their subscribers.

      OpenTV Publisher. OpenTV Publisher works in conjunction with OpenTV Streamer to enable content developers and network operators to use the popular Web-based Extensible Markup Language, or XML, content format to build and deliver interactive content to set-top boxes enabled with OpenTV Core.

      OpenTV Streamer. OpenTV Streamer, the foundation of our headend solutions, enables network operators to integrate applications and data with audio and video signals for reception on set-top boxes enabled with OpenTV Core. OpenTV Streamer relies on hardware architecture that is capable of interfacing with any standard digital broadcast system.

      OpenTV Development Tools and Support for Third Party Application Developers. We encourage content developers to design and create applications on OpenTV enabled networks by offering a series of applications development tools and support tool sets enabling them to develop and market applications directly to network operators. The tools can be used alone or in combination with other third-party tools to meet virtually any interactive television development need, such as creating virtual channels, building interactive advertisements, enhancing existing programs with interactive features and testing interactive television content through a simulated broadcast environment. In addition, we offer participation in our OpenTV Partner Program to the licensees of our development tools. Through participation, members gain access to various resources including opportunities to participate in beta programs for early release of products as well as opportunities for exposure on our website and at various trade conferences.

Applications Business

      We develop and provide interactive applications that permit targeted and addressable advertising, traffic and billing solutions for the delivery of advertisements by network operators, purchase and sales transactions

through a viewer’s remote control, requests for information from advertisers or programmers in real-time as the viewer sees the advertisement or television program and audience and media research capabilities to determine viewing preferences. We have also developed and operated branded interactive television channels that are distributed by network operators utilizing OpenTV Core or interactive television middleware platforms provided by third parties. We generally realize revenues through license and other fees and revenue sharing arrangements.

      We believe that the worldwide deployment of set-top boxes embedded with our software solutions provides us with a strong foundation to develop applications and other products that leverage off of that platform. Double C Technologies, LLC, a joint venture formed by two North American cable network operators, Cox Communications, Inc. and Comcast Corporation, recently announced its proposed acquisition of substantially all of the assets of Liberate Technologies’ North American business, including Liberate’s middleware platform which has historically competed directly with OpenTV Core. While that transaction, if it closes, may materially diminish our opportunity to license middleware to Cox and Comcast, we believe that the transaction may also evidence a continuing emphasis by network operators to direct more focus and efforts on the potential value that interactivity and enhanced television can offer their subscribers. We believe that the continued evolution of the interactive market by large network operators such as Cox, Comcast, UnitedGlobalCom and EchoStar, the ongoing efforts of British Sky Broadcasting, or BSkyB, FOXTEL and other News Corporation affiliates, and various programmers, should enhance the overall market for interactive and enhanced television solutions over time, and, possibly, lead to additional opportunities for us to develop interactive applications.

      Our applications business consists of the following solutions:

      OpenTV Enhanced Content. We provide interactive applications for programmers and network operators that deliver compelling interactive content. In November 2004, for example, we extended a multi-year agreement with iN DEMAND to produce 72 NASCAR races through NASCAR In Car on iN DEMAND. NASCAR In Car is a multi-channel television package that uses a mix of digital compression technology, real-time telemetry data and superior graphics to give subscribers seven in-car camera channels, and live team audio, data and driver statistics. iN DEMAND distributes this programming on a pay-per-view basis through certain digital cable systems in the United States.

      OpenTV Advertising Solutions. We provide software solutions to enable the sales, integration, delivery and management of advertising for digital television systems.

      OpenTV Advertising Solutions are being developed to provide our customers with an integrated solution to address challenges being experienced by the advertising market. Those changes include the migration of television viewers to the Internet, 300 channels of disparate content and time-shifting of viewing activity due to the introduction of PVRs. Our products are intended to offer advertisers the ability to target advertisements with more specificity to viewers based on a variety of demographic and other information and the ability to sell, manage, bill and deliver multiple advertisements across an operator’s network. They are also intended to offer customers an ability to assess the effectiveness of those types of advertisements and related matters. The market for these types of solutions remains undeveloped, and there are many issues that will need to be resolved over time, including issues of privacy, before these solutions become extensively deployed.

OpenTV Advertising Solutions currently consist of OpenTV AdVision and OpenTV SpotOn, which are described below:

      PlayJam. PlayJam is one of the world’s first multi-platform interactive television entertainment and games channels. We offer a library of more than 800 different single- or multi-player games that can run on PlayJam. These include quizzes, arcade-style games, puzzles, adult-theme games, and competition and editorial games. A wide selection of these games can be customized and used as unique branding vehicles.

      Launched in early 2001 on the BSkyB’s network in the United Kingdom, PlayJam currently is available to over 20 million subscribers through distribution on BSkyB, cable operators NTL Group Ltd. and Telewest Broadband in the United Kingdom, satellite operators Television Par Satellite (TPS) and Canal Satellite in France, Multichoice Africa in Africa, and satellite operator EchoStar Communications in the United States. PlayJam runs on the OpenTV platform as well as those provided by other middleware providers.

      In the United Kingdom and France, PlayJam charges a fee, via a premium rate telephone call using the telephone or the remote control, for membership registration, game score registration for the chance to win prizes, and for access to pay-per-play content. We have also sold advertising and sponsorship space from time to time on PlayJam games. In the United States, PlayJam is offered as a subscription-based service on EchoStar, for which we receive a revenue share.

BettingCorp Business

      We acquired BettingCorp in 2003. BettingCorp manages a branded interactive television gaming channel under the name “PlayMonteCarlo” and also offers play-for-prizes and casino games. BettingCorp also has a technology platform called “Ultimate One” which allows licensees to deliver games seamlessly across television, the Internet and wireless devices through a proprietary back-end system.

      Play-for-prizes and Casino Games Applications. Subject to local laws and regulations and based on the licenses BettingCorp holds, we are able to offer fixed-odds and casino gaming services. PlayMonteCarlo is one of the world’s first interactive television play-for-prizes and gaming channels.

      Ultimate One Platform. With our Ultimate One technology platform, we can enable network operators, programmers, wireless carriers and others to offer various games and products across multiple media platforms, including television, Internet and wireless networks, using a single, integrated back-end management system. Ultimate One also provides an integrated back-end management system that enables operators to monitor usage of the games, tailor promotions on an individual basis and evaluate usage and other metrics in real-time. This platform, for example, allows a subscriber to initiate an account through a cable operator, play games through that cable operator’s network, and then sign-off and reinitiate that same game, in the same state, on a mobile telephone with single account sign-on. We believe that this technology will help to extend our interactive and participation offerings beyond the television environment, and will enable us to offer customers a seamless interactive platform for their subscribers. We expect, in 2005, to begin marketing this product to network operators and other potential customers, including programmers, independent of the play-for-prizes and casino games business that BettingCorp also conducts. By doing this, we would expect to provide the underlying technology and services that would permit other companies to leverage their brand and marketing experience and offer interactive applications across multiple platforms.

Professional Services and Support

      To complement our various businesses, we provide a comprehensive suite of professional engineering and consulting services on a worldwide basis to network operators, set-top box manufacturers and content and application developers in support of our product offerings. The services that we provide include interactive television business consulting, middleware porting and integration, application customization and localization, launch management and technology training services. These services allow us to manage various interactive television projects, from discrete integration or development assignments to complete end-to-end digital programming solutions for network operators. Our services include 24/7 maintenance and support for our products after they have been installed and commercially deployed by our network operators and set-top box manufacturers, including the provision of product updates. Services are generally provided on a paid engagement basis and are either executed on a time and materials or fixed price contract basis, except that maintenance and support is generally subject to an annual fee.

Customer and Industry Relationships

      We have established significant relationships with many of the leading network operators, set-top box manufacturers, chip set manufacturers, programming networks and advertisers around the world. Our customer and industry relationships include the following:

      Sky Italia accounted for approximately 18% of our revenues during 2004 in the form of royalties, services and support and license fees. BSkyB directly and indirectly accounted for approximately 17% of our revenues during 2004 in the form of set-top box royalties, services and support, licenses and PlayJam fees. EchoStar accounted for approximately 15% of our revenues during 2004 in the form of royalties, services and support, revenue share and license fees.

Sales and Marketing

      We promote and sell the majority of our products and services through our direct sales organization to corporate enterprises, including network operators, programmers, advertisers and set-top box manufacturers. In 2004, we reorganized our business in an effort to address our customers’ needs more effectively. We have established regional operating groups that are responsible for customers within their geographic areas: North American Satellite; North American Cable; Europe, Middle East and Africa; and Asia Pacific.

Competition

      The markets in which we compete are intensely competitive and rapidly changing. Current and potential competitors in one or more aspects of our business include digital television technology companies and

companies developing interactive television content and applications. The principal competitive factors in our industry include product functionality, speed of product integration, breadth of network and platform coverage, scalability, price, possession of adequate intellectual property rights and sales and marketing efforts. The following is a competitive analysis of our business segments.

      Our competitors offering interactive television-enabling technology include NDS Group, Microsoft Corporation, Liberate Technologies, Osmosys, ACCESS Co., Ltd. and Scientific-Atlanta, Inc. NDS Group historically provided conditional access and limited interactive application technologies to its customers. In 2003, NDS extended its interactive services offerings with its acquisition of MediaHighway from Thomson Multimedia and has begun to offer solutions that are more directly competitive with many of those that we offer. NDS Group is controlled by The News Corporation. The News Corporation maintains a controlling stake in Hughes Electronics, the parent of DirecTV, one of the two largest satellite operators in the United States. The News Corporation also controls BSkyB, the largest satellite operator in the United Kingdom, and Sky Italia, the largest satellite operator in Italy, and two of our most significant customers, and other satellite operators throughout the world. While we continue to work with, and provide technology and services to many affiliates of The News Corporation, including BSkyB, FOXTEL and Sky Italia, The News Corporation’s control of NDS Group, and the extension by NDS Group of its product offering, may significantly increase competitive pressures and affect the willingness of other News Corporation affiliates to work with us or to obtain products or services from us. We cannot, therefore, be certain of the long-term implications related to The News Corporation’s control of NDS Group or the effects that such control may have upon our relationships and opportunities to work with the many satellite operators throughout the world that are controlled by The News Corporation. For several years, Microsoft Corporation has been working to create interactive television solutions. Microsoft has several deployments of its interactive television solution and we expect that Microsoft may become a strong competitor in the market for interactive television solutions.

      Liberate Technologies manufactures and licenses its software to network operators and set-top box manufacturers and has announced relationships with several United States and United Kingdom cable operators. On January 10, 2005, Liberate announced it had reached an agreement to sell substantially all of the assets of its North American business to Double C Technologies, LLC, a joint venture between Comcast and Cox. The closing of this acquisition is subject to customary conditions, including regulatory approval. Assuming that Double C Technologies acquires Liberate’s North American assets, it is unclear whether Double C will only develop that technology for the benefit of Comcast and Cox or whether it will attempt to sell that technology and related products to other cable operators in competition with OpenTV.

      Scientific-Atlanta, Inc., in the form of PowerTV, develops and markets operating system and middleware software products for the advanced digital interactive cable television markets. Scientific-Atlanta is also a major manufacturer of set-top boxes, and many of our customers or potential customers may seek to deploy set-top boxes manufactured by Scientific-Atlanta. We have in the past competed with Scientific-Atlanta and expect to continue to do so in the future.

      In the IPTV market, we expect to face competition from other middleware providers and providers of end-to-end IPTV solutions for cable, satellite and telecommunications operators. Providers offering end-to-end IPTV solutions include Microsoft, which recently announced its new IPTV platform Microsoft TV IPTV Edition for cable and telecommunications operators, and Alcatel which provides both IPTV middleware and broadband networking hardware. Microsoft announced licensing arrangements in late 2004 with SBC Communications and Verizon Communications for its IPTV solution, and also recently announced a partnership with Alcatel to develop and market jointly an IPTV solution. Other competitive IPTV offerings that deliver middleware solutions and/or IPTV solutions through partnerships include those from Myrio, and Orca Interactive.

      In the PVR field, our primary competition comes from other middleware vendors including Microsoft, NDS Group, Guideworks LLC, a joint venture of Comcast and Gemstar-TV Guide International, Osmosys, Digeo and Ucentric, which was recently acquired by Motorola, who include PVR functionality either with

their electronic program guide, or EPG, or as an additional feature. Other PVR technology providers targeting the integrated PVR space include set-top box manufacturers Pioneer, Pace, Motorola and Scientific-Atlanta, and dedicated PVR solution providers including TiVo and ReplayTV.

      In the markets for enhanced television technology and services, addressable and interactive advertising technology, and advertising traffic and billing solutions, our primary competition comes from companies such as Visible World Corporation, NDS Group, Encoda Systems and CAMS Systems. Addressable and interactive technology is in its initial stages, and we expect additional competitors to appear as the market continues to develop. Visible World provides a suite of services enabling a media outlet to develop and deliver content and advertising that can be geographically and demographically customized as well as dynamically updated based on business parameters, market trends and demands.

      Our interactive applications face competition from numerous parties. Companies that compete with our efforts to develop and launch applications on our middleware platform include dedicated applications providers such as Gemstar-TV Guide International, NDS Group, Visiware, Goldpocket and MetaTV, independent third parties that develop and provide applications for our middleware platform, and other middleware providers such as Microsoft. We also face competition from media companies that have publicly announced interactive television initiatives, such as The Discovery Channel, ESPN, Time Warner Cable and CNN. In addition, certain network operators such as BSkyB in the United Kingdom have entered into agreements, joint ventures, and other relationships with technology and entertainment companies. We expect competition in the interactive content and applications area to intensify as the general market for interactive television services further develops, particularly in the case of independent third parties that have the ability to develop applications for our middleware platform at relatively modest expense through the use of our applications development tools.

      While interactive television betting and gaming may provide a future source of potential growth, we also expect to face intense competition in jurisdictions in which we are permitted to deploy those product offerings. Companies with which we expect to compete include BSkyB and Fancy a Flutter. Because this aspect of interactive television remains nascent, we cannot be certain as to how competition will develop or the precise nature of the competitors that we may expect to encounter. Because of the significant regulatory issues affecting this sector and the benefits derived from operating under that regulatory framework over a long period, we may also face competition in the future from more traditional casino companies with long histories in the betting and gaming sector.

Regulations

      The telecommunications, media, broadcast and cable television industries are subject to extensive regulation by governmental agencies around the world. 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.

      Ongoing efforts to establish industry-wide standards for interactive television software include a commitment by cable network operators in the United States to deploy a uniform platform for interactive television based on a jointly developed specification known as the Open Cable Applications Platform and an initiative by European television industry participants to create a similar platform called Multimedia Home Platform, or MHP. 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.

      If, and to the extent that, we continue to develop applications for the gaming and betting market, we also expect to become subject to additional regulatory oversight. The laws and regulations in this market are quickly evolving and changing. To adequately address the legal and regulatory issues inherent in that market, we will need to dedicate significant resources to those matters and maintain effective controls to monitor changes in applicable laws and the effects on our business.

Intellectual Property and Research and Development

      As of December 31, 2004, we had 91 patents issued in the United States, 361 patents issued outside of the United States, and 730 patent applications pending throughout the world. We believe that our patent portfolio protects many of the key elements necessary to support digital interactive television. Our research and development expenses, excluding in-process research and development charges related to acquisitions, and amortization of share-based compensation, for the years ended December 31, 2004, 2003 and 2002 were $29.8 million, $23.0 million and $33.9 million, respectively.

Employees

      As of December 31, 2004, we had 374 full-time employees, with 215 in the Middleware and Integrated Technologies business, 64 in the Applications business, 41 in the BettingCorp business, and 54 employed in corporate and administrative functions.

Available Information

      Our Internet website is located at http://www.opentv.com, but the information contained on our website is not deemed to be incorporated herein. We make available free of charge on the investor relations page of our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC.

      The public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet site is located at http://www.sec.gov.

      Our corporate headquarters and principal executive offices are presently located at 275 Sacramento Street, San Francisco, California, 94111, where we occupy 60,458 square feet of space under a seven year lease that expires on January 31, 2010. In addition to the corporate headquarters, we have leased regional office space elsewhere in the United States, Europe, Asia and Australia.

      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.

      On April 30, 2004, Liberate Technologies filed a voluntary petition for reorganization 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. On January 10, 2005, Liberate announced the signing of a definitive agreement to sell substantially all of the assets of its North American business to a joint venture between Comcast and Cox. That agreement is subject to Liberate shareholder approval, Hart-Scott-Rodino antitrust approval and other customary closing conditions. On February 11, 2005, the United States District Court for the Northern District of California issued an order staying the patent litigation until further notice.

      Although we are still evaluating the impact of Liberate’s sale of its North American business on our lawsuit, we continue to believe that our lawsuit is meritorious and intend to continue vigorously pursuing prosecution of our claims. 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. On February 15, 2005, the Court preliminarily approved the settlement contingent on specified modifications. There is no guarantee that the settlement will become effective, as it is subject to a number of conditions 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 has 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 and preliminarily approved by 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. While reserving all of our rights in respect of this matter, we have conditionally reimbursed Charter for certain reasonable legal expenses that it 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. On December 16, 2004, Broadcast Innovations filed its appeal brief of the district court judge’s summary judgment order with the Federal Circuit. Based on the information available to us, we have established a reserve for costs and fees that 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.

      No matters were submitted to a vote of our security holders during the fourth quarter of 2004.

PART II

Market Information

      Our Class A ordinary shares began trading on the Nasdaq National Market and on the Official Segment of the stock market of Euronext Amsterdam N.V., or Euronext Amsterdam, under the symbol “OPTV” on November 23, 1999. On December 31, 2003, we consolidated the public trading of our Class A ordinary shares on the Nasdaq National Market by discontinuing the listing of our Class A ordinary shares on Euronext Amsterdam. Our Class B ordinary shares are not publicly traded.

      The following table lists the high and low sales prices for our Class A ordinary shares on both the Nasdaq National Market and the Euronext Amsterdam for the periods indicated. We obtained our Euronext Amsterdam quotes, which are reported in United States dollars, from Bloomberg L.P.

Holders

      As of February 28, 2005, there were approximately 960 holders of record of our Class A ordinary shares and three holders of record of our Class B ordinary shares. Banks, brokers and other institutions hold many of our Class A ordinary shares on behalf of our stockholders.

Dividends

      We have never paid any cash dividends on our ordinary shares. We anticipate that any earnings in the foreseeable future will be retained to finance our business, and we have no current intention to pay cash dividends on our ordinary shares. The payment of dividends is within the discretion of our board of directors and will be dependent upon, among other factors, our results of operations, financial condition, capital requirements, legal requirements and any restrictions imposed by financing arrangements.

Certain Aspects of British Virgin Islands Law

      There are no governmental laws, decrees or regulations in the British Virgin Islands that restrict the export or import of capital, including, but not limited to, foreign exchange controls, or that affect the remittance of dividends or other payments to holders of our ordinary shares who are not residents of the British Virgin Islands. In particular, the British Virgin Islands does not impose a withholding tax on dividends paid by companies such as us that are incorporated under the International Business Companies Act of the British Virgin Islands.

      Under the International Business Companies Act of the British Virgin Islands, a holder of our ordinary shares who is not a resident of the British Virgin Islands is exempt from British Virgin Islands income tax on dividends paid on our ordinary shares and no holders of our ordinary shares are liable to the British Virgin Islands for income tax on gains realized during any taxable year on sale or disposal of our ordinary shares. There are no capital gains, gift or inheritance taxes levied by the British Virgin Islands on the holders of our ordinary shares. In addition, our ordinary shares are not subject to transfer taxes, stamp duties or other similar charges as a matter of British Virgin Islands law.

      There is no income tax treaty or convention currently in effect between the United States and the British Virgin Islands. If we were to be classified as a passive foreign investment company under applicable United States tax regulations, for the prior, current, or subsequent taxable years, stockholders who are U.S. taxpayers could be subject to adverse tax consequences.

Securities Authorized for Issuance Under Equity Compensation Plans

      The following table presents information about our equity compensation plans as of December 31, 2004:

Equity Compensation Plan Information

2000 Exchange Plan

      Exchange rights granted under the Exchange Plan enable the holder to exchange, generally on a one for one basis, shares of the common stock of our majority-owned subsidiary OpenTV, Inc. (including shares of OpenTV, Inc. common stock that may be acquired pursuant to the exercise of options outstanding under OpenTV, Inc.’s Amended and Restated 1998 Stock Purchase/ Stock Issuance Plan, or the 1998 Plan) for our Class A ordinary shares. Although 800,868 Class A ordinary shares were reserved for future issuance under the Exchange Plan as of December 31, 2004, only 755,428 shares of OpenTV, Inc. common stock (62,000 of which were underlying options to purchase shares of OpenTV, Inc. common stock previously granted under the 1998 Plan at a weighted-average exercise price of $4.64) were actually eligible for exchange under the Exchange Plan as of that date. We no longer grant options under the 1998 Plan.

2001 Nonstatutory Stock Option Plan

      Our board of directors adopted the 2001 Nonstatutory Stock Option Plan, or the 2001 Plan, in October 2001. The 2001 Plan did not require the approval of our stockholders, and no stockholder approval was obtained or sought. The material features of the 2001 Plan are summarized below.

      Share Reserve. We have reserved an aggregate of 500,000 Class A ordinary shares for issuance upon the exercise of options granted under the 2001 Plan. As of December 31, 2004, no Class A ordinary shares had been issued upon the exercise of options granted under the 2001 Plan. Options to purchase 61,889 Class A ordinary shares were outstanding under the 2001 Plan as of December 31, 2004. If options awarded under the 2001 Plan are forfeited or cancelled, expire or otherwise terminate without being exercised, then those options will again become available for grant under the 2001 Plan.

      Administration. The compensation committee of our board of directors administers the 2001 Plan. The compensation committee has complete discretion to make all decisions relating to the administration, interpretation and operation of the 2001 Plan.

      Eligibility. The following groups of individuals are eligible to participate in the 2001 Plan:

      Structure of Plan. The 2001 Plan permits the grant of options to purchase Class A ordinary shares to eligible participants. Options to purchase our Class A ordinary shares that may be granted under the 2001 Plan are non-statutory options and do not qualify for the favorable tax treatment afforded incentive options under Section 422 of the Code. The exercise price and other terms of non-statutory options granted under the 2001 Plan will be determined by the compensation committee. The compensation committee may provide that non-statutory options will be transferable.

      Corporate Transaction. Options granted under the 2001 Plan will automatically vest in full upon the occurrence of certain change of control events, if such options are not assumed or exchanged for equivalent rights by the successor entity in accordance with the terms of the 2001 Plan. In the event of a corporate transaction that does not result in the automatic vesting of options and other awards, the board of directors or the compensation committee has discretion to accelerate vesting of such options and other awards.

      Amendment and Termination. The board of directors may amend the 2001 Plan at any time. If our board of directors amends the 2001 Plan, stockholder approval will be sought if required by applicable law. The 2001 Plan will terminate upon the earliest of (i) ten years after its adoption by our board, or (ii) such earlier date as determined by our board of directors.

Recent Sales of Unregistered Securities

      Except as previously reported in our quarterly report on Form 10-Q for the three months ended March 31, 2004, we did not sell any securities during the year ended December 31, 2004 that were not registered under the Securities Act of 1933, as amended.

      The selected consolidated financial data set forth below should be read in conjunction with Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements and notes thereto included elsewhere in this report. The historical results are not necessarily indicative of results to be expected for any future period.

      The following discussion and analysis provides information concerning our financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements and the notes thereto. Segment information appearing below in this discussion and analysis, and in Note 15 of the Notes to Consolidated Financial Statements are presented in accordance with SFAS 131, “Disclosures about Segments of an Enterprise and Related Information.”

Overview

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

      We generally 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 have traditionally received one-time royalty fees from manufacturers or network operators upon notification of shipment or activation of our software in set-top boxes and other products. We receive professional services fees from consulting, engineering and training engagements and fees for the maintenance and support of our products. We receive fees or revenue shares, or both, for our PlayJam games channel, our PlayMonteCarlo channel, which is managed by BettingCorp, and advertising and other interactive services.

      Our financial results are largely dependent upon the continued development of the digital television market and the related capital expenditures being made and which we expect will be made in the future by network operators to implement those enhanced technologies. With the distribution of digital content evolving across multiple platforms, we have begun to extend our products, technologies and applications beyond the cable, satellite and terrestrial network operators with whom we have been traditionally engaged, and anticipate offerings that would be marketed to other industry participants, including telecommunications companies.

      There has been a worldwide trend of consolidation in the cable and satellite industries. We believe this trend is likely to continue due to economic and competitive concerns. It also appears that it has begun to include other companies involved with the interactive television industry. For example, last year The News Corporation acquired a controlling stake in Hughes Electronics, the parent of DirecTV, one of the two largest satellite operators in the United States. The News Corporation also controls BSkyB, the largest satellite operator in the United Kingdom, and Sky Italia, the largest satellite operator in Italy, two of our most significant customers, and other satellite operators throughout the world. It also controls one of our competitors, NDS Group. In January 2005, Liberate Technologies, a direct competitor of ours in the middleware business, announced that it had reached agreement to sell substantially all of the assets of its North American business to Double C Technologies, LLC, a joint venture formed by Comcast and Cox. These types of consolidation, and similar trends in the industry, may affect our long-term relationships with existing customers and may also affect our ability to obtain business in the future. While the short and long-term effects of this trend remain uncertain, they may require us to modify our business to adapt to those changing relationships with industry participants and to address competitive concerns that may arise as companies consolidate.

Critical Accounting Policies and Estimates

      Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which 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 regard 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. For a detailed discussion on the application of these and other accounting policies, see “Note 2. Summary of Significant Accounting Policies” to our Consolidated Financial Statements.

      We recognize revenue in accordance with current generally accepted accounting principles, or GAAP, that have been prescribed for the software industry, the principal policies of which are reflected in American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, “Software Revenue Recognition” and Securities and Exchange Commission Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition.” 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. The application of SOP 97-2 requires judgment, including whether a software arrangement includes multiple elements, and if so, whether vendor-specific objective evidence (VSOE) of fair value exists. 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 products and services and the appropriate pricing for those products and services. Our assumptions and judgments regarding future products and 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. 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.

      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 ongoing prudent and feasible tax planning strategies in assessing the amount of our valuation allowance. Currently, we maintain 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 should be realizable.

      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.

      Our long-lived assets include goodwill and other intangible assets, which 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 long-lived 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.

      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.

Recent Accounting Pronouncements

      In December 2004, the Financial Accounting Board (“FASB”) recently enacted Statement of Financial Accounting Standards 123 (Revised 2004) (“SFAS 123R”), “Share-Based Payment,” which replaces Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.” SFAS 123R requires the measurement of all employer share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in our consolidated statements of income. The accounting provisions of SFAS 123R are effective for reporting periods beginning after June 15, 2005. We are required to adopt SFAS 123R in the third quarter of 2005. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. See Note 2 in our Notes to Consolidated Financial Statements for the pro forma net loss and net loss per share amounts, for 2002 through 2004, as if we had used a fair-value-based method similar to the methods required under SFAS 123R to measure compensation expense for employee stock incentive awards. Although we have not yet determined whether the adoption of SFAS 123R will be result in amounts that are similar to the current pro forma disclosures under SFAS 123, we are evaluating the requirements under SFAS 123R and expect the adoption to have a significant impact on our consolidated statements of income.

Management’s Assessment of Internal Control Over Financial Reporting and Disclosure Controls

      In connection with the preparation of our year-end financial statements, we have prepared a report, as required by the Sarbanes-Oxley Act of 2002, which evaluates our internal control over financial reporting as of December 31, 2004. That complete report, as well as our conclusions regarding the effectiveness of our disclosure control and our remediation efforts, is included under Item 9A of this Annual Report on Form 10-K, which investors should read in its entirety.

      We are required to establish and maintain adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Those controls are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. And

while those controls may be expected to provide reasonable assurances regarding the reliability of our financial reporting, we do not expect that such controls will prevent all error and fraud. We monitor our controls and maintain those controls as dynamic systems that change (including improvements and corrections) as conditions warrant.

      We also maintain a system of disclosure controls that have been designed with the objective of ensuring that information required to be disclosed in the reports we file under the Securities Exchange Act, including this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

      As we assessed our internal control over financial reporting, we have sought to identify various deficiencies or weaknesses that we may have and to correct those deficiencies or weaknesses as promptly as practicable. We are required to disclose any material weaknesses that we have identified. The Public Company Accounting Oversight Board, which was established under the Sarbanes-Oxley Act, defines a “material weakness” as a significant deficiency, or combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by employees in the normal course of their assigned functions.

      On those bases, our management identified material weaknesses in our internal control over financial reporting as of December 31, 2004.

      Certain duties within our financial group, which has the responsibility for preparing our financial statements, were not properly segregated. In the fourth quarter of 2004, we determined that our controller had the ability to direct other personnel within the finance group to initiate and enter manual journal entries in the company’s books and records without authorization or review by other members of the financial organization. After identifying this weakness, we introduced new procedures in the first quarter of 2005 requiring that our Chief Financial Officer review any and all non-recurring journal entries with a value of $100,000 or more and also required that our Chief Financial Officer review all journal entries that are directed by our controller, including those below $100,000. We believe that the remediating and compensating controls that we initiated in the first quarter of 2005 have effectively remediated this weakness.

      In addition to that weakness, we determined that certain controls associated with our financial review and close process were not effective. As we began our closing process in the fourth quarter and the work for our year-end audit, we determined that we had inadequate supporting documentation for an accrual in our financial statements, which resulted in an error that was identified and subsequently corrected. We also concluded that our review of certain detailed schedules prepared in connection with our financial reporting process, which we use to support our financial statements and related note disclosures, was not effective. That weakness led to errors in the statement of cash flows, lease commitments and tax notes of our financial statements that were identified and subsequently corrected. And we also concluded, as a result of this evaluation, that we did not have sufficient internal personnel and technical expertise to properly apply accounting principles to certain non-routine matters; in particular, we applied certain provisions of Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangibles (SFAS No. 142) in an incorrect manner when conducting our annual analysis for potential impairment of goodwill, which led to an error that was identified and subsequently corrected.

      At the start of this year, we began implementing additional procedures to ensure that all necessary and relevant supporting documentation for accrual balances is properly collected and analyzed and to also ensure a more thorough review of our close process. We are also evaluating our personnel, developing a plan to enhance the current staff’s capabilities and assessing whether additional resources with appropriate accounting knowledge and experience are required to further remediate these issues.

      We corrected all errors described above prior to the issuance of the 2004 audited financial statements that are included in this Annual Report on Form 10-K. Based on those evaluations and findings, however, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was not effective as of December 31, 2004.

      Although we have received an unqualified audit report from our independent registered public accounting firm, KPMG LLP, on our 2004 consolidated financial statements, our Chief Executive Officer and Chief Financial Officer have concluded that, as a result of those material weaknesses, our disclosure controls, as of December 31, 2004, were not effective.

Years Ended December 31, 2004, 2003 and 2002

      Revenues for the year ended December 31, 2004 were $77.2 million, an increase of $13.0 million, or 20.2%, from $64.2 million in 2003. Revenues for the year ended December 31, 2003 were $64.2 million, an increase of $4.5 million, or 7.5%, from $59.7 million in 2002. Royalties accounted for 59% of revenues in 2004, 39% in 2003 and 34% in 2002. Revenues by line item were as follows (in millions):

      Royalties. We generally derive royalties from the sale of set-top boxes and other products that incorporate our software to manufacturers and network operators around the world typically, as one-time payments for each license. We 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 year ended December 31, 2004 were $45.6 million, an increase of $20.4 million, or 81%, from $25.2 million in 2003. Growth was experienced in all regions in 2004. Europe, Middle East and Africa had an increase of $13.8 million, or 119%, from 2003, of which shipments to Sky Italia accounted for an increase of $11.9 million. Americas had an increase of $3.4 million, or 32%, from 2003 due to strong shipments by EchoStar. Asia Pacific had an increase of $3.2 million, or 108%, from 2003, which was almost entirely due to shipments of our integrated browser in certain digital TV sets distributed within Japan. In certain instances, we provide volume discounts to customers based on the number of copies of our software that they deploy. As a result of those types of arrangements, although we may experience continued growth in middleware deployments, the average price for each copy licensed to certain customers may decline over time, which could limit the growth of our royalty payments in the future. If current deployment trends continue in a manner consistent with those of 2004, we would expect the average pricing for our middleware, over the course of 2005, to decline for certain customers.

      Royalties for the year ended December 31, 2003 were $25.2 million, an increase of $5.1 million, or 25%, from $20.1 million in 2002. Growth was experienced in all regions in 2003. Europe, Middle East and Africa had an increase of $1.3 million due to strong shipments by BSkyB, which was partially offset by lower shipments by other customers. Americas had an increase of $2.7 million due to strong shipments by EchoStar, which was partially offset by lower shipments from other customers. Asia Pacific had an increase of $1.1 million.

      Five of our customers sell set-top boxes to BSkyB, which accounted for $7.2 million, or 16%, of our royalties in 2004, $6.4 million, or 25%, of our royalties in 2003 and $4.4 million, or 22%, of our royalties in 2002. In 2004, Sky Italia accounted for $12.6 million, or 28%, of our royalties.

      The royalty payments we receive from EchoStar are amortized over the seven-year term of our EchoStar agreements because EchoStar has a right to receive a limited number of unspecified future applications developed by OpenTV when they are made available. Until we are able to recognize royalty revenue from EchoStar, amounts that we invoice to EchoStar are recorded as deferred revenue on our balance sheet. As such, the royalties recognized in revenue from EchoStar were $10.7 million, or 23%, of our royalties, in 2004, $7.1 million, or 28%, in 2003 and $3.3 million, or 16%, in 2002.

      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 year ended December 31, 2004, revenues in this category were $14.9 million, a decline of $7.7 million, or 34%, from $22.6 million in 2003. For the year ended December 31, 2003, revenues in this category were $22.6 million, a decline of $1.2 million, or 5%, from $23.8 million in 2002. The decreases were attributable to decreased consulting work for customers, including Motorola Inc., for which certain minimum commitments expired in the first quarter of 2004), and the non-renewal of maintenance and support by some customers. Motorola accounted for $1.7 million in services, support and other revenue in 2004, $6.4 million in 2003 and $6.8 million in 2002.

      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 year ended December 31, 2004, fees and revenue shares were $13.4 million, an increase of $0.4 million, or 3%, from $13.0 million in 2003. Our betting and gaming fees from customers of our wholly-owned subsidiary, BettingCorp, accounted for an increase of $1.7 million due to the inclusion of its results for the full year in 2004 compared with five months in 2003. Our PlayJam games channel fees decreased by $0.7 million in 2004 due to competitive pressures, which offset favorable currency exchange rates. Advertising and programming fees from our Wink product offering accounted for a decline of $1.1 million in 2004. Over the past several years, we have experienced a decline in revenue from our Wink product offering. Revenue shares for various other product offerings accounted for an increase of $0.5 million.

      For the year ended December 31, 2003, fees and revenue shares were $13.0 million, an increase of $1.7 million, or 15%, from $11.3 million in 2002. Our PlayJam channel fees accounted for $0.4 million of the increase due to favorable currency exchange rates. Advertising and programming fees from our Wink product offering accounted for $0.8 million of the $1.7 million increase in 2003 due to the inclusion of its results for a full year in 2003 compared with four months in 2002. Our betting and gaming fees from the customers of BettingCorp accounted for $0.3 million in 2003. Revenue shares accounted for an increase of $0.2 million.

      Individuals who play games on the PlayJam games channel make payments to their telecommunications provider, which provides a “return path” to enable the games to be interactive. We receive revenues from the payment intermediary. During 2004, we changed our payment intermediary from Digital Interactive Television Group, or DITG, to BSkyB. In 2004, the fees paid by BSkyB to us for these services were $5.1 million and the fees paid by DITG to us were $2.8 million. The fees paid by DITG to us were $7.4 million in 2003 and $6.6 million in 2002.

      On December 22, 2003, our carriage agreement with DirecTV expired and we discontinued our Wink product offering on DirecTV. The fees we derived from Wink-enabled set-top boxes deployed in DirecTV’s network, such as fees from advertising, programming and licensing relationships, were approximately $0.9 million in 2003.

      License Fees. We derive license fees from the licensing of enterprise products such as OpenTV Streamer, OpenTV Software Developers Kit, and various other software.

      We began to experience a significant decline in these license fees in 2002 after a slowdown in interactive television spending; license fees from these products have continued to remain low. License fees for these products for the year ended December 31, 2004 were $3.3 million, a decrease of $0.1 million, or 3%, from $3.4 million in 2003, which represented a decrease of $1.1 million, or 24%, from $4.5 million in license fees for 2002.

      Other. Beginning in 2004, we entered into multiple-element arrangements with several customers that provided for the delivery of specified future products. To date, we have not recognized revenues under these arrangements and all of the $3.9 million invoiced amounts have been included in deferred revenue on our consolidated balance sheet. For the year ended December 31, 2004, we collected $2.5 million from customers under these arrangements. We will continue to assess our revenue recognition for these arrangements as we deliver the undelivered products and services. However, we will recognize all revenues from such arrangements either over the remaining contractual maintenance and support period or the period during which maintenance and support is expected to be provided when delivery of all specified products has occurred, the only remaining undelivered element is maintenance and support, and fair value for the remaining maintenance and support does not exist.

Operating Expenses

      Our total operating expenses were $101.8 million for the year ended December 31, 2004, $117.7 million for the year ended December 31, 2003 and $718.3 million for the year ended December 31, 2002. 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, and amortization of developed technology and patents.

      Cost of revenues for the year ended December 31, 2004 were $39.2 million, a decrease of $11.2 million, or 22%, from $50.4 million in 2003. As a percentage of revenues, cost of revenues were 51% in 2004 compared with 79% in 2003. In 2004, there was a significant decrease in operations costs and partner payments, including a transfer of some personnel to research and development functions, for our Wink products, which accounted for a decrease of $8.0 million. The amortization of developed technology and patents accounted for a decrease of $5.1 million due to the expiration of the amortization period for certain items. BettingCorp accounted for an increase of $2.7 million as a result of its inclusion for the full year. We also recorded a provision of $3.5 million for remaining future commitment under the terms of a Sun Java license that we had signed in 1998, the final payments under which are due in February 2007. All other items accounted for a decrease of $4.3 million.

      Cost of revenues for the year ended December 31, 2003 were $50.4 million, a decrease of $5.8 million, or 10%, from $56.2 million in 2002. As a percentage of revenues, cost of revenues were 79% in 2003 compared with 94% in 2002. The primary reason for the decrease in 2003 was the restructuring actions taken in 2002 and

early 2003. There was also a decrease of $4.0 million relating to a charge for a long-term contract termination that occurred in 2002. In 2003, there was a credit of $1.2 million relating to a contract amendment with BSkyB for bandwidth. The amortization of developed technology and patents accounted for a decrease of $4.3 million due to the expiration of the amortization period for certain items. In addition, there was a decrease of $1.2 million in amortization of share-based compensation for certain options that were cancelled or became fully-vested during 2003. These reductions more than offset the increase of $10.2 million for expenses incurred from the operations of Wink, ACTV and BettingCorp, which were acquired in 2002 and 2003.

      NASCAR Amendment. During 2004, we renegotiated an existing contract that our subsidiary ACTV had with iN DEMAND relating to the production of interactive programming for the 2004 NASCAR season. As a result of this renegotiation, the estimated loss for that contract was reduced by $4.6 million.

      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 application products.

      Research and development expenses for the year ended December 31, 2004 were $29.8 million, an increase of $6.7 million, or 29%, from $23.1 million in 2003. As a percentage of revenues, research and development expenses were 39% in 2004 compared with 36% in 2003. The increases were attributable to increased staff costs and $1.2 million attributable to the inclusion of BettingCorp for a full year.

      Research and development expenses for the year ended December 31, 2003 were $23.1 million, a decrease of $12.1 million, or 34%, from $35.2 million in 2002. As a percentage of revenues, research and development expenses were 36% in 2003 compared with 59% in 2002. The primary reason for the decrease was the restructuring actions taken in 2002 and early 2003. This decrease more than offset the increase of $3.7 million from the acquisitions of ACTV and BettingCorp.

      We believe that research and development spending is critical to remain 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 year ended December 31, 2004 were $15.1 million, an increase of $1.3 million, or 9%, from $13.8 million in 2003. As a percentage of revenues, sales and marketing expenses were 20% in 2004 compared with 21% in 2003. As a result of the expiration of our Wink agreement with DirecTV in December 2003, we reversed, in 2003, a $3.8 million accrual that we had made for development funds which we were not required to incur, resulting in a credit of that amount. Excluding this credit, sales and marketing expenses for 2004 decreased by $2.5 million from 2003. In 2004, we reduced marketing and trade show expenditures for our Wink products, which were offset by an increase of $0.8 million attributable to the inclusion of BettingCorp for the full year.

      Sales and marketing expenses for the year ended December 31, 2003 were $13.8 million, a decrease of $19.1 million, or 58%, from $32.9 million in 2002. As a percentage of revenues, sales and marketing expenses were 21% in 2003 compared with 55% in 2002. As part of the restructuring actions taken in 2002 and early 2003, discretionary marketing spending was reduced. In addition as a result of the cancellation of the agreement referred to above with DirecTV in December 2003, we reversed a $3.8 million accrual that we had made for development funds which we were not required to incur.

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

      General and administrative expenses for the year ended December 31, 2004 were $17.9 million, an increase of $0.5 million, or 3%, from $17.4 million in 2003. As a percentage of revenues, general and

administrative expenses were 23% in 2004 compared with 27% in 2003. In 2004, there was an increase of $1.8 million for litigation expenses, resulting principally from patent litigation. This increase was partially offset by expense reductions of $1.3 million, of which $0.7 million was a reversal of accruals relating to acquisitions from prior years and $0.3 million was a reduction of the provision for doubtful accounts.

      General and administrative expenses for the year ended December 31, 2003 were $17.4 million, a decrease of $3.7 million, or 18%, from $21.1 million in 2002. As a percentage of revenues, general and administrative expenses were 27% in 2003 compared with 35% in 2002. The primary reason for the decrease was the restructuring actions taken in 2002 and early 2003. In addition, there was a decrease of $1.6 million in the provision for doubtful accounts, a decrease of $1.1 million in amortization of share-based compensation for certain options which were cancelled or became fully-vested during 2003, and a decrease of $0.8 million in retention payments for certain key management personnel. These decreases more than offset the increase in general and administrative expenses of $0.9 million from the acquisitions of ACTV and BettingCorp.

      Restructuring Costs. During the last three years we undertook several initiatives to reduce operating expenses around the world. As a result of these actions, headcount was reduced by 22 employees in 2004, 79 employees in 2003 and approximately 260 employees in 2002. Provision was also made for excess office space and the write-down of leasehold improvements and other property and equipment that was abandoned. These initiatives resulted in total restructuring costs of $0.9 million in 2004, $6.6 million in 2003 and $29.4 million in 2002. The provision in 2004 included reversals of excess accruals of $1.5 million and the provision in 2003 included reversals of excess accruals of $1.1 million relating to prior year provisions.

      Intangible assets are amortized on a straight-line basis over the estimated useful life of 2 to 13 years. Amortization of developed technologies was $2.6 million for the year ended December 31, 2004, $5.1 million for the year ended December 31, 2003, and $5.2 million for the year ended December 31, 2002. Amortization of patents was $2.1 million for the year ended December 31, 2004, $4.7 million for the year ended December 31, 2003, and $8.9 million for the year ended December 31, 2002. These amounts have been included in the consolidated statements of operations as cost of revenues. Amortization of other intangible assets was $3.5 million for the year ended December 31, 2004, $4.9 million for the year ended December 31, 2003, and $4.2 million for the year ended December 31, 2002. The decrease of $1.4 million for 2004 compared with 2003 was due primarily to the expiration of the amortization period for certain intangibles.

      In the fourth quarter of 2003, we determined that an impairment of $1.5 million had occurred in the value of patents related to our acquisition of Cablesoft due to the absence of any current or future expected cash flow associated with the Cablesoft technologies. In the third quarter of 2002, we determined that an impairment of $24.8 million had occurred in the value of the patents related to our OpenStar joint venture with EchoStar due to the absence of any current or future expected cash flow generated by the joint venture.

      In accordance with the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, we re-evaluated the amount recorded as goodwill as of January 1, 2002 and determined that a transitional impairment of $129.9 million had occurred. This amount has been shown as a cumulative effect of an accounting change in the consolidated statements of operations. In the third quarter of 2002, due to reductions by network operators in their capital spending and rollout of interactive television-related products and similar reductions by other customers, we revised our cash flow projections for the remainder of calendar year 2002 and future years. Based on these cash flow projections and other factors, including the decline in the market price of our Class A ordinary shares, we determined that the remaining goodwill was impaired, and, accordingly, wrote off the balance of $514.5 million in 2002.

Interest Income

      Due to a decrease in our investment portfolio, interest income for the year ended December 31, 2004 was $0.9 million compared with $1.6 million for the year ended December 31, 2003. For the year ended December 31, 2003, there was a decline in interest rates in the United States coupled with a decrease in our investment portfolio from the sale of investment securities both to support our operations and to finance our

acquisitions of ACTV and BettingCorp, and this accounted for the decline in interest income to $1.6 million for the year ended December 31, 2003 from $5.2 million for the year ended December 31, 2002.

Other Income and Expense Items

      During the year ended December 31, 2004, other income was $0.5 million which reflected income of $0.6 million from the settlement of certain litigation, offset by certain other expense items. During the year ended December 31, 2003, other expense was $1.1 million, which included $0.9 million for the settlement of a dispute we assumed in connection with our acquisition of Wink.

      Historically, we made various equity investments in, and loans to, certain privately-held companies. Most of these companies subsequently experienced severe cash flow problems, and we found it necessary to write down the value of our private equity investments. For the year ended December 31, 2002, we wrote down the balance of $10.9 million of such private equity investments and our share of losses of a private equity investee was $7.3 million.

Minority Interest

      In November 2000, we established Spyglass Integration, Inc., a co-owned venture with Motorola. We recorded minority interest income, with respect to this venture, of $0.5 million for the year ended December 31, 2004, $0.2 million for the year ended December 31, 2003, and $0.5 million for the year ended December 31, 2002.

Income Taxes

      We have significant United States federal tax loss carryforwards of $340 million, although our ability to make use of those tax loss carryforwards may be limited under applicable tax regulations. However, we are subject to income taxes in certain state and foreign jurisdictions and we have foreign taxes withheld from certain royalty payments. Our income tax benefit was $0.8 million for the year ended December 31, 2004, which included credits of $1.9 million primarily due to tax refunds in the United Kingdom, a favorable settlement of a tax audit in France, and the reversal of a federal and state tax liability previously recorded by an acquired company following the expiration of the statute of limitations, offset by a provision of $1.1 million for foreign and state taxes. Income tax expense was $1.3 million for the year ended December 31, 2003 and $1.5 million for the year ended December 31, 2002.

Business Segment Results

      In 2004, we redefined our internal financial reporting to better align our financial analysis with our current businesses. Our management assesses our results and financial performance, and prepares our internal budgeting reports, on the basis of three segments: the middleware and integrated technologies business; the applications business; and the BettingCorp business. We have prepared this segment analysis in accordance with Statement of Financial Accounting Standards No. 131, “Disclosure about Segments of an Enterprise and Related Information.”

      Our middleware and integrated technologies business has responsibility for our middleware and the technologies that are customarily integrated as “extensions” of that middleware. Our applications business has responsibility for our applications and related technologies and products. Our BettingCorp business has responsibility for fixed-odds and other wagering gaming applications and the development, operation and marketing of our “Ultimate One” platform.

      Our management reviews and assesses the “contribution margin” of each of these segments, which is not a financial measure in accordance with generally accepted accounting principles, or GAAP. We define “contribution margin,” for these purposes, as adjusted EBITDA before unusual items and unallocated corporate overhead, which includes certain functions, such as executive management, accounting, administration, legal, tax, treasury and information technology infrastructure, that support but are not specifically attributable to our operating segments expense. “EBITDA” is an acronym for earnings before interest, taxes, depreciation and amortization.

Adjusted EBITDA before unusual items is a non-GAAP financial measure which excludes interest, taxes, depreciation and amortization, amortization of intangible assets, share-based compensation, impairment of goodwill, impairment of intangibles, other income, minority interest, restructuring provisions, and unusual items such as contract amendments that mitigated potential loss positions. Adjusted EBITDA before unusual items does not take into account substantial costs of doing business, such as income tax and interest. Management believes that segment contribution margin is a helpful measure in evaluating operational performance for our company. While we may consider “contribution margin” and Adjusted EBITDA before unusual items to be important measures of comparative operating performance, these measures should be considered in addition to, but not as a substitute for, loss from operations, net loss, cash flow used in operating activities and other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States that are otherwise presented in our financial statements. In addition, our calculations of “contribution margin” and Adjusted EBITDA before unusual items may be different from the calculations used by other companies and, therefore, comparability may be affected.

      Because these segments reflect the manner in which management reviews our business, they necessarily involve judgments that management believes are reasonable in light of the circumstances under which they are made. These judgments may change over time or may be modified to reflect new facts or circumstances. Segments may also be changed or modified to reflect technologies and applications that are newly created, or that change over time, or other business conditions that evolve, each of which may result in reassessing specific segments and the elements included within each of those segments.

      Revenues by segment were as follows (in millions):

      Revenues from the middleware and integrated technologies business for the year ended December 31, 2004 were $63.1 million, an increase of $13.5 million, or 27%, from $49.6 million in 2003. For the year ended December 31, 2003, revenues from the middleware and integrated technologies business were $49.6 million, an increase of $1.3 million, or 3%, from $48.3 million in 2002. The two major components of revenues for this segment are royalties and services and support. Royalties from set-top boxes and other products that incorporate our software accounted for 72% of segment revenues in 2004, an increase from 51% in 2003 and 42% in 2002. The increase in 2004 was primarily attributable to significant shipments to Sky Italia and other customers as described under “Royalties” above. Services, support and other consists primarily of professional services consulting engagements for set-top box manufacturers, network operators and system integrators and maintenance, support and training. This category accounted for 23% of segment revenues in 2004, a decrease from 44% in 2003 and 49% in 2002. The decrease was due to fewer professional services projects, especially from Motorola in 2004.

      Revenues from the applications business for the year ended December 31, 2004 were $12.1 million, a decrease of $2.2 million, or 15%, from $14.3 million in 2003. For the year ended December 31, 2003 revenues from the applications business were $14.3 million, an increase of $2.9 million, or 25%, from $11.4 million in 2002. For 2004, PlayJam games channel fees accounted for almost 90% of the applications segment revenues. Our PlayJam games channel fees decreased by $0.7 million from 2003 to 2004 due to competitive pressures, which offset favorable currency exchange rates. In addition, there were decreases in revenue related to the customers acquired with the 2002 acquisition of Wink.

      We acquired BettingCorp in August 2003. Revenues for the BettingCorp business for the year ended December 31, 2004 were $2.0 million.

      Contribution margin by segment, as reconciled to net loss on a GAAP basis, was as follows (in millions):

      Contribution margin for the middleware and integrated technologies business increased in 2004 due to increased revenue. Contribution loss for the applications business improved significantly from 2003 to 2004

due mostly to reduced operating expenses. Contribution loss for the BettingCorp business increased from 2003 to 2004 as a result of BettingCorp’s inclusion in our financial results for the full year in 2004.

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 December 31, 2004, we had cash and cash equivalents of $35.7 million, which was a decrease of $12.0 million from the prior year. Cash and cash equivalents as of December 31, 2003 and 2002 were $47.7 million and $38.6 million, respectively. Taking into account short-term and long-term marketable debt securities of $27.3 million, our cash, cash equivalents and marketable debt securities were $63.0 million as of December 31, 2004 compared to $73.5 million as of December 31, 2003 and $87.7 million as of December 31, 2002. Our cash balances as of December 31, 2004, were positively affected by our receipt of $4.1 million in cash from the sale by the former owners of BettingCorp of OpenTV shares they had received in the acquisition of BettingCorp at a price above that which the company had guaranteed and the release from escrow of $6.9 million that had previously secured our obligations under that price guarantee we had provided BettingCorp. Our primary source of cash is receipts from revenue. One customer accounted for 36% of net accounts receivable as of December 31, 2004; we collected the full amount of that receivable in the first quarter of 2005. The primary uses of cash are payroll, general operating expenses and cost of revenues.

      Cash used in operating activities was $16.2 million for the year ended December 31, 2004, compared with $42.5 million for the year ended December 31, 2003 and $43.9 million for 2003. Cash uses were primarily for our continuing operating losses, including restructuring payments.

      For the year ended December 31, 2004, net cash provided from investing activities was $0.3 million. In the fourth quarter of 2004, we received $4.1 million from the BettingCorp liquidity guarantee described above. In 2004, $2.1 million was used for capital expenditures. Cash provided from investing activities was $48.2 million for the year ended December 31, 2003, primarily due to the sale of marketable debt securities. In 2003, uses of cash included $10.1 million for acquisitions and $2.9 million for capital expenditures. Cash provided from investing activities was $5.3 million for the year ended December 31, 2002, primarily due to the sale of marketable debt securities to finance the acquisition of Wink. In 2002, uses of cash included $81.5 million for acquisitions, net of cash acquired, and $7.7 million for capital expenditures.

      For the year ended December 31, 2004, cash provided from financing activities was $3.5 million due to proceeds from the exercise of stock options. For the year ended December 31, 2003, cash provided from financing activities was $3.3 million due to proceeds from the exercise of stock options and a capital contribution to fund management retention payments from our former controlling stockholder, MIH Limited. For the year ended December 31, 2002, cash provided from financing activities was $7.4 million due to proceeds from the issuance of ordinary shares and a capital contribution from MIH Limited.

      We use professional investment management firms 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.

      Information as of December 31, 2004 concerning the amount and timing of required payments under our contractual obligations is summarized below (in millions):

      In the ordinary course of business, we enter into various arrangements with vendors and other business partners for bandwidth, marketing, and other services. Minimum commitments under these arrangements as of December 31, 2004 were $3.6 million and $1.1 million for the years ending December 31, 2005 and 2006, respectively. In addition, we also have arrangements with certain parties that provide for revenue-sharing payments.

      As of December 31, 2004, we had two standby letters of credit aggregating approximately $2.0 million that were issued to landlords at two of our leased properties.

      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’ 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. During 2004, we evaluated our commitment and decided to record a provision of $3.5 million to reflect our estimate of the remaining future commitment we have under the terms of this license.

      In the normal course of our business, we provide indemnification to customers, subject to limitations, 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. 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. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is not material.

Factors That May Affect Future Results

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

      We have incurred significant net losses since our inception. Our net losses for the years ended December 31, 2004, 2003 and 2002 were approximately $22.0 million, $54.1 million and $802.6 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.

      We have on a historic basis derived a significant percentage of our total revenues from royalties associated with the deployment of our middleware and fees charged for services rendered in support of our middleware deployments. 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 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 middleware may also be limited due to a number of reasons, including:

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

      In certain instances, we provide volume discounts to customers based on the number of copies of our software that they deploy. As a result, although we may experience continued growth in middleware deployments, the average price for each copy licensed to certain customers may decline over time, which could slow the growth of our royalty payments in the future. If current deployment trends continue in a manner consistent with those of 2004, we would expect the average pricing for our middleware, over the course of 2005, to decline for certain customers, which could limit the overall growth rate of our royalty revenues.

      We expect over the next several years to develop extensive interactive applications, including addressable and targeted advertising and programming synchronous applications. The market for interactive 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 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 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 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.

      In January 2005, Double C Technologies, a joint venture formed by Cox Communications and Comcast Corporation, announced that it had signed a definitive agreement to acquire substantially all of the assets of Liberate’s North American business. Our middleware competes directly with the middleware software included within those assets being transferred by Liberate. To date, while we have licensed certain of our technologies to Comcast, and expect to pursue additional applications opportunities with both Cox and Comcast, we have not licensed to either of these companies our middleware solutions. Assuming that this transaction closes, we would not expect Cox or Comcast, in light of the assets that they are acquiring from Liberate, to license middleware or related solutions from us. If that assumption is correct, our opportunity to license our middleware in the United States to cable operators will be materially diminished and our future revenue growth may, accordingly, be adversely affected. In addition, it is unclear whether Double C Technologies will only develop that technology for the benefit of Comcast and Cox or whether it will attempt to sell that technology and related products to other cable operators in competition with OpenTV.

      The News Corporation currently controls NDS Group and Gemstar-TV Guide International, Inc., each of which competes with us in certain respects. The News Corporation also controls, directly or indirectly, or exerts significant influence over, a number of our customers, including BSkyB, Sky Italia and FOXTEL. For the year ended December 31, 2004, BSkyB, Sky Italia and FOXTEL, accounted, in the aggregate, for 38% of our revenues. While we believe that our relationships with each of these customers is good, and we have multi-year contracts with each, the long-term implications of The News Corporation owning technology companies that directly compete with us in certain respects is difficult to assess. We may be at a disadvantage in selling certain of our products, technologies or services to The News Corporation affiliates over the long-term when in direct competition with other companies in which The News Corporation maintains a significant ownership interest.

      Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to do a comprehensive evaluation of their internal control over financial reporting and their disclosure controls. To comply with this new statute, our management assessed our internal control over financial reporting and our disclosure controls. We identified certain weaknesses in our internal control over financial reporting as of December 31, 2004 that we have discussed in a separate report included as part of our Annual Report. Those weaknesses related to a lack of segregation of certain duties within our financial group and certain inadequacies in the controls associated with our financial review and closing process. Based on those findings, we concluded that our internal control over financial reporting was not effective as of December 31, 2004. We also concluded that, as a result of those

material weaknesses, our disclosure controls, as of December 31, 2004, were not effective. We began to implement additional controls and procedures in the first quarter of 2005 with the intention of remedying those weaknesses.

      These efforts have required significant managerial effort, and we have incurred substantial costs in undertaking those efforts. If our efforts to remedy the weaknesses we identified are not successful, the reliability of our financial statements could be impaired, which could adversely affect our stock price and could also affect our company in other adverse ways. In addition, the ongoing costs associated with implementing such additional controls and procedures, and otherwise complying with the requirements of Sarbanes-Oxley, are not immaterial, and while we would expect those costs to decline over the next several years they do impose greater financial burdens on medium sized companies such as ours than were originally anticipated.

      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 December 31, 2004, we had $63.0 million of cash, cash equivalents and marketable debt securities. We used approximately $16.2 million in cash for operating activities during the year ended December 31, 2004 and $42.5 million during the 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.

      We have historically generated a substantial portion of our revenue from royalty and licensing fees related to the licensing of our 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 limited. While we currently generate a percentage of our revenues from revenue sharing arrangements with network operators, programmers and advertisers, and from subscriber-based arrangements, we cannot be certain that those revenue models will be accepted by our customers over the long-term, or that our customers will allow us to participate in their revenue streams on those bases. If our efforts to identify other sources of revenue in addition to the licensing of our middleware are unsuccessful, then our future results of operations will be adversely affected.

      We face competition from a number of companies, including many that have significantly greater financial, technical and marketing resources and better recognized brand names 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, as we noted above, Double C Technologies, a joint venture between Cox and Comcast, is expected to acquire the North American assets of Liberate Technologies, which includes its middleware business. In addition to our PlayJam and PlayMonteCarlo applications, BSkyB 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.

      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, in addition to the acquisition of Liberate Technologies discussed above, Comcast and Gemstar-TV Guide International Inc., a media and technology company, formed a joint venture last year 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.

      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.

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

      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.

      Our future success depends largely upon the continued service of our senior executive officers and other key management and technical personnel. If certain of our senior executives were to leave the company, we may be placed at a competitive disadvantage. In addition, we may also need to increase our technical, consulting and support staff to support new customers and the expanding needs of our existing customers. We have, in the past, experienced difficulty in recruiting qualified personnel. If we are not successful in those efforts, our business may be adversely affected.

      We review our operations on an ongoing basis with a view towards improving our business performance. Beginning in 2002, we undertook efforts to consolidate our operations, close and relocate various offices around the world and divest non-strategic assets. We also effected certain organizational changes in late 2004 to establish business units based on our middleware and applications businesses. 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.

      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 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.

      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.

      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.

      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 our 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.

      Ongoing efforts to establish industry-wide standards for interactive television software include a commitment by cable network operators in the United States to deploy a uniform platform for interactive television based on a jointly developed specification known as the OpenCable Applications Platform and an initiative by European television industry participants to create a similar 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.

      We have not, to date, determined to become a member of CableLabs, the research and development consortium managing the OpenCable initiative, and certain other standards setting organizations. While we continually assess our position with respect to any relevant standards setting organizations, and have joined several of them, our failure to participate in certain organizations may affect the willingness of their respective members to conduct business with us. If that were the case, our ability to continue to grow our business might be adversely affected.

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

      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.

      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.

      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:

      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.

      In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123R which requires the measurement of all employer share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in our consolidated statements of income. The accounting provisions of this standard are effective for reporting periods beginning after June 15, 2005. The adoption of those provisions, which have been previously disclosed on a pro forma basis in our financial footnotes, is likely to have a significant effect on our consolidated statement of loss.

      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 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 others 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.

      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.

      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:

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

      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.

      Liberty Media Corporation beneficially owns our Class A and Class B ordinary shares representing approximately 32.2% of the economic interest and 78.9% of the voting power of our ordinary shares outstanding as of December 31, 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.

      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.

      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.

      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 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 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 December 31, 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.

      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 December 31, 2004 using a model that assumes immediate sustained parallel changes in interest rates across the range of maturities (in thousands):

      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, 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.

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 2004. There were no foreign exchange forward contracts or other procedures implemented to hedge foreign currency exposures outstanding as of December 31, 2004. We expect over time, however, that a more significant number of our European customers will seek to pay us in Euros, which may affect our risk profile and require us to make use of appropriate hedging strategies. While we anticipate a certain portion of our revenues in 2005 will be paid to us in Euros, we do not believe that such payments will require a material change in our existing hedging policies.

      The Consolidated Financial Statements and Supplementary Data required by this Item are set forth at the pages indicated in Item 15(a).

      Not Applicable.

      Management of the company is responsible for establishing and maintaining adequate internal control over financial reporting (“Internal Control”) as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Management understands that a material weakness is a significant deficiency (within the meaning of Public Company Accounting Oversight Board Auditing Standard No. 2), or combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. This report sets forth the findings of the company’s management with respect to the company’s Internal Controls, but does not discuss the remediation efforts undertaken in connection therewith. A discussion of those remediation efforts undertaken follows this report.

      Management assessed the effectiveness of the company’s Internal Controls as of December 31, 2004 using the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission

(COSO) in Internal Control-Integrated Framework and identified the following material weaknesses as of December 31, 2004:

      The company’s controller had the ability to direct other personnel within the finance group to initiate and enter manual journal entries in the company’s books and records without authorization or review by other members of the financial organization. As a result of this lack of segregation of duties, there existed, as of December 31, 2004, a more than remote likelihood that material misstatements of the annual or interim financial statements would not be prevented or detected.

      Based on our assessment under the criteria discussed above, management has concluded that, as of December 31, 2004, the company’s Internal Control over financial reporting was not effective as a result of the aforementioned material weaknesses.

      KPMG LLP, the company’s independent registered public accounting firm, has issued an attestation report on management’s evaluation of the company’s Internal Control, which appears on page II-34.

1)                        Remediation of Material Weakness Related to Improper Segregation of Certain Duties within the Financial Group

      After a weakness was identified involving the segregation of duties, management introduced new procedures in the first quarter of 2005 that are to be performed monthly and were applied beginning with the November 2004 and December 2004 journal entries. These new procedures require the company’s Chief Financial Officer to review any and all non-recurring manual journal entries with a value of $100,000 or more and also to review all journal entries that are directed by the Controller. The company’s Chief Financial Officer was also charged with responsibility for undertaking a reasonable review of all other non-recurring journal entries, including those below $100,000, to ensure that all such entries are fully and properly authorized and reviewed.

      Management believes that the remediating and compensating controls that it initiated in the first quarter of 2005 have effectively remediated the identified weakness.

      Management is implementing additional procedures to ensure that all necessary and relevant supporting documentation for accrual balances and any adjustments thereto is collected and analyzed. The additional

procedures also provide for a more thorough review by management in the financial reporting and close process.

      Management has concluded that additional internal accounting resources are necessary to ensure that the company maintains an appropriate level of internal technical expertise and that its Internal Controls are effectively maintained and applied. Management is currently evaluating its personnel, developing a plan to enhance the current staff’s capabilities in this area and assessing whether additional resources with appropriate accounting knowledge and experience are required.

      Management continues to evaluate and to implement remediation efforts with respect to the foregoing weakness.

      Management effected all audit adjustments identified by the company’s independent registered public accounting firm, or otherwise identified, through the processes described above prior to the issuance of the company’s 2004 audited financial statements.

      We maintain disclosure controls and procedures (“Disclosure Controls”), as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in our Exchange Act reports, including the company’s Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

      In designing and evaluating the Disclosure Controls, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

      As required by Rule 13a-15(b) and 15d-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. As described in our report on Internal Control over Financial Reporting set forth above, we have identified certain material weaknesses as of December 31, 2004. Although we have received an unqualified audit report from our independent registered public accounting firm KPMG LLP on our 2004 consolidated financial statements, the company’s Chief Executive Officer and Chief Financial Officer have concluded that, as a result of those material weaknesses, the company’s Disclosure Controls, as of December 31, 2004, were not effective.

     Changes in Internal Control Over Financial Reporting

      We began to initiate certain changes to our internal control over financial reporting in the first quarter of 2005 to address the material weaknesses described in our report. We continue to implement those changes, and introduce additional controls, to remediate the material weaknesses that we identified as of December 31, 2004. We had not implemented any changes in our internal control over financial reporting as of December 31, 2004.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

OpenTV Corp.:

We have audited management’s assessment, included in the accompanying “Management’s Report on Internal Control over Financial Reporting as of December 31, 2004” (Item 9A.a), that OpenTV Corp. did not maintain effective internal control over financial reporting as of December 31, 2004, because certain duties within the company’s financial group were not properly segregated and certain controls associated with the financial reporting and close process were not effective, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). OpenTV Corp.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment as of December 31, 2004:

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of OpenTV Corp. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss and cash flows for each of the years in the three-year period ended December 31, 2004, and the related financial statement schedule. The aforementioned material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated financial statements, and this report does not affect our report dated March 15, 2005 which expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule.

In our opinion, management’s assessment that OpenTV Corp. did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, OpenTV Corp. has not maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We do not express an opinion or any other form of assurance on management’s statements referring to corrective actions taken after December 31, 2004 (as described in Item 9A.b and 9A.c), relative to the aforementioned material weaknesses in internal control over financial reporting.

/s/ KPMG LLP

San Francisco, California
March 15, 2005

      None.

PART III

      The following table sets forth certain information with respect to our current directors and executive officers including their ages as of December 31, 2004 and any directorships held in public companies. Unless otherwise indicated, each director or executive officer may be contacted at our principal executive office at 275 Sacramento Street, San Francisco, California, 94111.

Audit Committee

      Messrs. Wargo, Bryan and Machovina are the members of our audit committee. Mr. Wargo is the chairman of the audit committee. Each of the members of the audit committee meets the independence requirements of the Nasdaq Marketplace Rules and applicable Securities and Exchange Commission Rules and Regulations as such standards exist on the date of this Annual Report on Form 10-K and are financially literate as determined by our board of directors in light of applicable regulatory standards. Our board of directors has determined that Mr. Wargo is a “financial expert” as defined by applicable Securities and Exchange Commission Rules.

      The audit committee assists our board in its oversight responsibilities relating to our financial accounting, reporting and controls. The audit committee monitors and evaluates periodic reviews of the adequacy of our accounting and financial reporting processes and internal control over financial reporting that are conducted by our financial and senior management and our independent auditors, is directly responsible for the appointment, compensation and oversight of the work of our independent auditors, reviews and evaluates the qualifications, independence and performance of our independent auditors, monitors our compliance with legal and regulatory requirements, monitors the performance of our internal audit function and facilitates communication among our independent auditors, our financial and senior management and our board of directors.

Section 16(a) Beneficial Ownership Reporting Compliance

      In accordance with Section 16(a) of the Securities Exchange Act of 1934 and the regulations of the Securities and Exchange Commission, our directors, executive officers and holders of more than 10% of our ordinary shares are required to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the Nasdaq National Market and to furnish us with copies of all of the reports they file.

      Based solely on our review of the copies of the forms furnished to us and written representations from the reporting persons, we are unaware of any failures during 2004 to file Forms 3, 4 or 5 and any failures to file such forms in a timely basis, except for a Form 4 for the sale of 4,625 shares of our Class A ordinary shares by Wesley O. Hoffman that was filed late on November 30, 2004 and a Form 5 for the acquisition of 20,277 shares of our Class A ordinary shares by Mark H. Allen that was filed late on January 12, 2005.

Code of Ethics

      We have adopted a code of conduct that applies to all of our employees, directors and officers. Our code of conduct constitutes our “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act and the “code of conduct” under the Nasdaq Marketplace Rules. Our code of conduct is available on our website at www.opentv.com, and, if applicable, we will post any amendment to or waivers from the code of conduct at that location. In addition, we will provide a copy of our code of conduct, free of charge, to any stockholder who calls or submits a request in writing to Investor Relations, OpenTV Corp., 275 Sacramento Street, San Francisco, California 94111, telephone number (415) 962-5000.

      The following table sets forth all compensation awarded to, earned by or paid for services rendered to us in all capacities during 2004, 2003, and 2002 by each person serving as our Chief Executive Officer during 2004 and our four other most highly compensated executive officers who were serving as executive officers at December 31, 2004. This information includes the dollar value of base salaries, commissions and bonus awards, the number of our Class A ordinary shares subject to stock options granted and certain other compensation, whether paid or deferred. We have not granted stock appreciation rights and have not provided any long-term compensation benefits other than stock options. Several of our executive officers joined us in

2004 and in 2003 and information with respect to those individuals is provided for the partial year or years in which they were employed.

Summary Compensation Table

Certain management services were provided to us in 2004 by officers of Liberty Broadband Interactive Television. Liberty Broadband charged us a monthly management fee that was based on the estimated amount of time the individuals spent on our business each month. In February 2004, our management relationship with Liberty Broadband was terminated. For more information about the arrangement, see “Item 13. Certain Relationships and Related Transactions — Management Fee and Expense Reimbursement Arrangements with Liberty Broadband.”

Option Grants in 2004

      The following table sets forth information regarding stock option grants to each of the above-named officers during 2004. During 2004, we granted to our employees options to purchase 2,813,050 of our Class A ordinary shares. The exercise price of all stock options was equal to the fair market value of our Class A ordinary shares on the date of grant. The stock options generally vest over five years in equal installments upon the second, third, fourth and fifth anniversary of the date of grant. All stock options have a term of 10 years, subject to earlier termination upon termination of employment.

      The potential realizable value table illustrates the hypothetical gains that would exist for the options at the end of the 10-year term of the option based on assumed annualized rates of compound stock price appreciation of 5% and 10% from the dates the options were granted to the end of the term. The 5% and 10% assumed rates of annual compound stock price appreciation are mandated by the Securities and Exchange Commission rules and do not represent our estimate or projection of future Class A ordinary share prices. Actual gains, if any, on option exercises will depend on the future performance of our Class A ordinary shares and overall market conditions. The potential realizable values shown in this table may never be achieved.

Option Exercises in 2004 and Year-End Option Values

      The following table sets forth information concerning stock option exercises during 2004 by each of the above-named officers, including the aggregate amount of gains on the date of exercise. The value realized for option exercises is the aggregate fair market value of our Class A ordinary shares on the date of exercise less the exercise price. In addition, the table includes the number of shares covered by both exercisable and unexercisable stock options held on December 31, 2004 by each of those officers. Also reported are values for “in-the-money” stock options that represent the positive spread between the respective exercise prices of outstanding stock options and the fair market value of our Class A ordinary shares as of December 31, 2004. The values for unexercised in-the-money options have not been, and may never be, realized. The fair market value is determined by the closing price of our Class A ordinary shares on December 31, 2004, as reported on the Nasdaq National Market, which was $3.84 per share.