Last week's agreement between United Video Satellite
Group Inc. and Gemstar International Group Ltd. to merge their interactive guides should
give a needed boost to the guide business, which, in turn, helps cable operators to sell
more product.
The companies created a joint venture, Interactive Prevue
Guide Inc. (IPG), which will be 51 percent-owned by UVSG. UVSG continues to own and market
Prevue Channel and Sneak Prevue, while Gemstar retains full control of its VCR Plus+
guides, which are aimed at consumer-electronics manufacturers.
The new venture starts off with a 10-year affiliation deal
with Tele-Communications Inc., which controls UVSG, for distribution in digital boxes.
That deal extends to TCI's Headend in the Sky affiliates.
Critically, UVSG and Gemstar agreed to drop their lawsuits
against one another. Those lawsuits, which go back to 1993, scared some operators away
from either UVSG's Prevue Interactive or Gemstar's StarSight guide. Gemstar
bought StarSight Telecast Inc. this past May, largely because of its own litigation
battles with StarSight.
Time Warner Cable, for one, uses the manufacturers'
'native' guides in advanced-analog converters because it was afraid of being
sued over its guide selection, said the MSO's vice president for public affairs,
Michael Luftman.
'Now, that threat goes away, and we're very
anxious to talk to the joint venture about coming to an agreement whereby we could use
their guide,' Luftman added.
Guides are expected to be a crucial feature as digital
boxes with greatly expanded channel capacity become widespread. Analysts said that was a
key reason why TCI chairman and CEO John Malone recently swung a deal to raise TCI's
stake in UVSG from 40 percent to 73 percent by buying out all of former UVSG chairman
Lawrence Flinn's holdings.
Even in advanced-analog boxes, guides are popular with
consumers, and they help to drive buy-rates for programming tiers and pay-per-view
offerings. In Time Warner's system in Memphis, Tenn., advanced-analog boxes equipped
with native guides have helped to generate 30 percent more operating cash flow per
subscriber than before the boxes were introduced, Luftman said.
UVSG president and chief operating officer Peter C. Boylan
III said last week that the companies will have engineering teams evaluate how to
cherry-pick the best features from each guide. It's likely that the new guide will
include StarSight's patented one-button VCR function and Prevue's video-clip
capabilities. Boylan said the new-look guide should be ready in 60 to 90 days, to go with
a new rate card.
Most current StarSight affiliates should save under the new
pricing structure, which will be 'competitive' with what Prevue Interactive
affiliates pay now, Boylan said.
Investors and analysts liked the deal.
'It'll firm up the [guide] pricing, facilitate
the rollout and do a lot of good things for both companies,' Media Group Research
analyst Mark Riely said.
Analyst Kian Ghazi at Lehman Bros. said the agreement
'makes it clear that Gemstar's product is the de facto standard in the
industry.'
Neither he nor Riely thought that the deal would have
problems clearing antitrust reviews.
Gemstar's share price shot up $2, or 6 percent, to
$32.94 on the news last Wednesday, while UVSG was flat at $33 that day after seeing a
$1.88 (6 percent) bump the previous Friday.
Gemstar has been rising steadily since its Jan. 13
announcement of a guide cross-licensing deal with Microsoft Corp. Before that deal,
Gemstar's stock price was $24.
Boylan said the talks with Gemstar began shortly after it
acquired StarSight. He and UVSG chairman Gary Howard flew to Pasadena, Calif., to meet
with Gemstar CEO Henry Yuen and explore ways of settling the lawsuits. Yuen was receptive,
so negotiations began in August and finally ended last week.
We met once a week every week and, over the last two to
three months, literally every day,' Boylan said.
Boylan said he figures that Microsoft's guide -- which
will be part of the upcoming Windows CE set-top operating system and in its WebTV Plus
set-top boxes -- will be IPG's chief competitor. Native guides 'won't be a
business, in my opinion,' he said, because the features will be inferior to IPG, and
those guides won't enjoy the intellectual-property protection that IPG promises.
Gemstar wins either way, because Microsoft has to pay a
royalty for each box that carries the Microsoft guide with Gemstar's technology,
Ghazi said.
