GEMSTAR
The race is on for the lucrative world of the living rooms. The market is 600 million TV households worldwide.
DISTRIBUTION CHANNELS
Gemstar enters this market upon completion of its video recording defacto standard in 40 countries and with established relationships among broadcasters, printed media and the CE OEMs worldwide. The three largest exclusive licensees to date are Microsoft, Sony and Thomson. The latter two account for nearly 40% of the US TV market. By the end of this year the market will have Gemstar's Guide Plus+ Gold system built into TV models from RCA, Proscan, Sony, Zenith, Sharp, JVC, Magnavox, Hitachi and Mitsubishi. Early 200 will see models from Panasonic and Toshiba. Every Win98 has Gemstar Inside with activation by the built-in TV tuner card or by user upgrade. Every WebTV has a guide. WinCE for broadband
is licensed by Gemstar to have the guide ported into it and there are significant financial incentives for MS to do so. Other major JV's and partnerships have been announced in the next two largest markets, Germany and Japan.
COMPETITION
TV Guide, General Instrument and Scientific Atlanta are the major competitors. These companies are involved in current litigation with Gemstar over IPR and antitrust issues.
REVENUES
The average royalty fee for the guide is $10 plus a percentage of the recurring revenues. There is a threshold that must be met first before the platform begins to generate significant advertising revenues. H & Q recently said 2 million but I heard Henry use the term "several" and so believe that 3 million is a safer number to use with any forecasts. In any event, Thomson alone is in the 2nd year of its 5 year contract calling for the deployment of 10 million TV models and other devices with Gemstar Inside.
Once this threshold is met Guide Plus+ Gold should generate a CPM value of $10 as estimated by Henry during the most recent CC and by Lehman some time ago. That equates to 1 cent per view. This estimate is below current rates as most see that number coming down. The guide offers 3 advertisements per page but Henry's model calls for a 1 of 3 sell through so again we are back to 1 cent per page. The other math is within the posted H & Q report so I won't bother repeating it. The bottom line, after a 50% reduction of cost and partner percentage cut, is $135 per year per household in the US market.
GOING FORWARD
The term "toll booth" is used often. If Gemstar can continue to successfully defend its IPR and execute its distribution and neutral licensing strategy I believe its guide may indeed become a toll booth. Two million guides deployed will generate 168 million page views per day and over 60 billion per year.
Thats all I have, nothing new.
Regards
Stew |
