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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Uncle Frank who wrote (6730)9/21/1999 12:10:00 AM
From: Mike Buckley  Read Replies (2) of 54805
 
Frank,

Has anyone looked at sales of stb's licensing gmst to measure the tornado?

Some interesting information can be garnered from Stephens's report. We can deduce that the number of digital cable households will grow about 6 million each year in the U. S. Similarly, the satellite distributors will add 2-3 million subscribers each year.

However, there are 51-62 million total hardware units shipped annually in the U. S. that could include all of Gemstar's technologies. THe set-top boxes and satellite boxes add up to only 7-10 million, about 15% of the total hardware units.

But the real issue is the number of hardware units that will support Gemstar's products which generate advertising and e-commerce revenue streams. Imagine if Qualcomm could leverage CDMA enhamcements to the point of commanding a share of the advertising and e-commerce revenue generated when sending that data over CDMA-based networks. That's what Gemstar does. They license the use of their guides and also share in the advertising and e-commerce revenue which the guides enable.

My point is that though we can count the number of hardware units that contain Gemstar products (if that level of detail becomes available), the really important issue is that a typical hardware unit will last seven years. Imagine what the advertising and e-commerce revenue will be like in the 7th year of the hardware compared to the first.

As much as I like to focus on hardware-based or guide-based tornado, I wonder if we shouldn't simply watch the advertising and e-commerce revenue which has already begun in a small way thanks to NBC. After all, Moore would tell us to focus on the revenue.

By the way, if you haven't read the report, Stephens expects Gemstar's net margins to grow from 46% this year to 59% in 2004. I know you like those numbers. :)

--Mike Buckley
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