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CHARTER COMMUNICATIONS, INC. 2004 FORM 10-K
digital video recorder (‘‘DVR’’) units. The software for these
Digeo equity financings by the founders of Digeo. These DVR units is being supplied by Digeo Interactive, LLC under a
additional equity interests are also subject to a priority return of license agreement entered into in April 2004. Under the license
capital to Vulcan Ventures up to amounts contributed by Vulcan agreement Digeo Interactive granted to Charter Holdco the
Ventures on Charter Ventures’ behalf. DBroadband Holdings, right to use Digeo’s proprietary software for the number of
LLC is therefore not included in our consolidated financial DVR units that Charter deploys from a maximum of 10
statements. Pursuant to an amended version of this arrangement, headends through year-end 2004. This maximum number of
in 2003, Vulcan Ventures contributed a total of $29 million to headends was increased from 10 to 15 pursuant to a letter
Digeo, $7 million of which was contributed on Charter
agreement executed on June 11, 2004 and the date for entering
Ventures’ behalf, subject to Vulcan Ventures’ aforementioned
into license agreements for units deployed was extended to
priority return. Since the formation of DBroadband Holdings,
June 30, 2005. The number of headends was increased from 15
LLC, Vulcan Ventures has contributed approximately $56 mil-
lion on Charter Ventures’ behalf. to 20 pursuant to a letter agreement dated August 4, 2004, from
On March 2, 2001, a subsidiary of Charter, Charter 20 to 30 pursuant to a letter agreement dated September 28,
Communications Ventures, LLC (‘‘Charter Ventures’’) entered 2004 and from 30 to 50 headends by a letter agreement in
into a broadband carriage agreement with Digeo Interactive, February 2005. The license granted for each unit deployed
LLC (‘‘Digeo Interactive’’), a wholly owned subsidiary of Digeo, under the agreement is valid for five years. In addition, Charter
Inc. (‘‘Digeo’’), an entity controlled by Paul Allen. The carriage will pay certain other fees including a per-headend license fee
agreement provided that Digeo Interactive would provide to and maintenance fees. Maximum license and maintenance fees
Charter a ‘‘portal’’ product, which would function as the during the term of the agreement are expected to be approxi-
television-based Internet portal (the initial point of entry to the mately $7 million. The agreement provides that Charter is
Internet) for Charter’s customers who received Internet access entitled to receive contract terms, considered on the whole, and
from Charter. The agreement term was for 25 years and Charter license fees, considered apart from other contract terms, no less
agreed to use the Digeo portal exclusively for six years. Before favorable than those accorded to any other Digeo customer.
the portal product was delivered to Charter, Digeo terminated Charter paid approximately $474,400 in license and maintenance
development of the portal product. fees in 2004.
On September 27, 2001, Charter and Digeo Interactive In April 2004, we launched DVR service (using units
amended the broadband carriage agreement. According to the containing the Digeo software) in our Rochester, Minnesota
amendment, Digeo Interactive would provide to Charter the market using a broadband media center that is an integrated set-
content for enhanced ‘‘Wink’’ interactive television services, top terminal with a cable converter, DVR hard drive and
known as Charter Interactive Channels (‘‘i-channels’’). In order connectivity to other consumer electronics devices (such as
to provide the i-channels, Digeo Interactive sublicensed certain stereos, MP3 players, and digital cameras).
Wink technologies to Charter. Charter is entitled to share in the In May 2004, Charter Holdco entered into a binding term
revenues generated by the i-channels. Currently, our digital sheet with Digeo Interactive for the development, testing and
video customers who receive i-channels receive the service at no purchase of 70,000 Digeo PowerKey DVR units. The term sheet
additional charge. provided that the parties would proceed in good faith to
On September 28, 2002, Charter entered into a second negotiate, prior to year-end 2004, definitive agreements for the
amendment to its broadband carriage agreement with Digeo development, testing and purchase of the DVR units and that
Interactive. This amendment supersedes the amendment of the parties would enter into a license agreement for Digeo’s
September 27, 2001. It provides for the development by Digeo proprietary software on terms substantially similar to the terms
Interactive of future features to be included in the Basic i-TV of the license agreement described above. In November 2004,
service provided by Digeo and for Digeo’s development of an Charter Holdco and Digeo Interactive executed the license
interactive ‘‘toolkit’’ to enable Charter to develop interactive agreement and in December 2004, the parties executed the
local content. Furthermore, Charter may request that Digeo purchase agreement, each on terms substantially similar to the
Interactive manage local content for a fee. The amendment binding term sheet. Product development and testing are
provides for Charter to pay for development of the Basic i-TV continuing. Total purchase price and license and maintenance
service as well as license fees for customers who receive the fees during the term of the definitive agreements are expected to
service, and for Charter and Digeo to split certain revenues be approximately $41 million. The definitive agreements are
earned from the service. In 2004, we paid Digeo Interactive terminable at no penalty to Charter in certain circumstances.
approximately $3 million for customized development of the We believe that Vulcan Ventures, an entity controlled by
i-channels and the local content tool kit. We received no Mr. Allen, owns an approximate 51% equity interest in Digeo,
revenues under the broadband carriage agreement in 2003. This Inc., on a fully-converted basis. Mr. Allen is a director of Digeo,
amendment expired pursuant to its terms on December 31, and Mr. Vogel was a director of Digeo in 2004. During 2004,
2003. Digeo Interactive is continuing to provide the Basic i-TV Mr. Vogel held options to purchase 10,000 shares of Digeo
service on a month-to-month basis. common stock.
On June 30, 2003, Charter Holdco entered into an
agreement with Motorola, Inc. for the purchase of 100,000
88