Where we disagree is that Gemtar's tornado should be measured by advertising revenue. Advertising revenue is an income stream that is not attributable to Gemstar's Gorilla-like characcteristics; instead, it is attributable to the Godzilla role Gemstar plays. Indeed, the most exciting aspect of Gemstar for me is that the company's Gorilla-like characteristics make the Godzilla-like characteristics possible, a unique opportunity found in few companies.
Where we agree is that Gemstar has no chance of not becoming the Gorilla of their space. However, because I can't confirm that the company has already achieved that lofty status, it's my thinking that weighting of the stock in our portfolios should reflect that we don't know when the tornado that adds a degree of safety to our investment will begin.
Okay, here is my argument. I will split up GMST's expected ad revenues. First their are ad revenues like those from MSFT and AOL contracts. GMST will gain any such ad revenues not because they have created any critical mass (like EBay or AOL) but because of the strenght of their IP. IP enabled GMST to force these terms on MSFT and AOL. The eventual ad revenues will come from whatever Godzillaness MSFT and AOL can create for themselves, but not due to any Godzillaness on the part of GMST.
In fact without GMST's IP I don't think the EPG/IPG would lend itself well to the Godzilla model (at this time see cont below). A critical mass of users is not critical for other users to want to use the product. It is critical to attract advertisers, but is not critical on the user side. With EBay, the proto-typical Godzilla, my use of EBay auctions critically depends on other people's uses of EBay auctions. But one functional EPG/IPG is the same as another to me as a consumer.
Thus what I contend is that the underlying pin of GMST's advertising revenues will be its IP. Its IP is what enables its guides to create sufficient mass to garner larger advertising revenues.
But unlike a Godzilla, another persons use of a GMST EPG/IPG in no way effects the value of the EPG/IPG to the user of the software. There is no networking effect to the user. Since I'm now at Duke's MBA school and am learning such things (it was forced down our throat that the consumer in marketing terms to Ted Turner and TBS was not advertisers or cable companies but the end viewers) the same can be said for the guides. The viewer is the customer - not the advertiser. In order to have Godzilla power, the Godzilla networking effect has to attract the customer to the product. The guides simply do not provide this networking effect which compels viewers of the guide to flock to Gemstar guides in particular. TiVo guides are just as good (assuming all things equal and no litigation, blah, blah, blah).
It is only due to the strength of GMST's IP that it can force the guides en masse on the market, thereby creating a critical mass. But the critical mass is not what attracts the viewer to the Gemstar guide itself.
Therefore the basis of GMST's power is IP. The reason a critical mass of viewers sufficient to support large ad $s exists is because of IP as the viewer gains little networking value using GMST's guides (vis-a-via a EBay/AOl type scenario)
It is only by fortunate happenstance the case that one bi-product of this IP power is the creation of sufficient mass to enable large advertising revenues. And something which seems like a Godzilla power. But in effect the Godzilla power is a paper tiger with no power to hold viewers to the Gemstar guide. Once the IP and subsequent long-term agreements fade, viewers will turn to whatever guides the OEMs provide for them (assuming similar quality). There just is no Godzilla networking hold specific to GMST's EPG/PG's at this time.
(cont) |
