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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (6586)	9/19/1999 5:59:00 PM
From: Mike Buckley	Read Replies (2) \| Respond to of 54805

Having reviewed the 38-page Gemstar report (Thanks again to Stew!) for the first time I'll attempt to analyze electronic program guide adoption in gorilla-game terms. Because it's the interactive guides that will ultimately be the source of the advertising and commerce revenue that is so exciting, I'm going to ignore data about the Gem's passive electronic guides, VCR Plus+ and Index Plus+. The success of those three products, in my mind, is not critical to the success of an investment in Gemstar. Though I'm not going to include the Index Plus+ in my analysis, I'll delve into it briefly because, oddly, the report does not explain the product. Using Index Plus+, you can store in the VCR's memory a title of each recorded session on a specific cassette. You can do that for all your cassettes, making it easy to find the exact cassette and approximate location on the tape of your favorite recorded Super Bowl or Archie Bunker episodes. Back to interactive program guides. At the time of the report (late June, 1999), 500,000 advertising-capable units had been shipped. Gemstar expects another 1.5 million to ship this year. Let's assume the 500,000 units was as of the end of 1998. That means 1999 will ship three times as many units as already shipped. That's tornado-like growth though it is off a relatively small base. Here's where I make a comparison with Qualcomm. In 1998 and the earliest months of 1999, there were many informed Qualcomm investors (not me) who steadfastly maintained that the huge growth in demand for CDMA-based products would coerce Ericsson and others to eventually capitulate and join, rather than compete, with Qualcomm. They didn't know when. But they were certain it would eventually happen. That is how some of us feel about Gemstar. And the timing is very similar. Some of us feel that, eventually, the cable operators and set-top box manufacturers will have to join all the broadcasters and satellite-based distributors to get their fare share (pun intended!) of the industry's advertising and commerce revenue that is soon about to come to reality in a bigger and bigger way. We think settlement or a litigated outcome of just one important pending law suit in Gemstar's favor will be tantamount to the Ericsson settlement with Qualcomm. Interestingly, when I read of the Ericsson settlement I took a week or two to fully delve into Qualcomm's business. It was then that I determined that their tornado had acutally begun about a year earlier. Very similarly, it's possible that 20/20 hindsight sometime in the future will tell us that the 1.5 million shipments of ad-capable televisions, satellite boxes, VCRs, and set-top boxes signalled the start of the tornado for interactive program guides. Wouldn't it be fascinating to some day learn of a major settlement converting Gemstar's opponent(s) into a partnership as happened with Qualcomm? If that happens, don't be surprised to hear me say, "Yep, makes sense to me. The start of the tornado already occurred so they had no choice but to capitulate." (There will also be a resounding "Hallelujiah! :) Thanks for putting up with my insufferable need to express anything and everything in gorilla terms. This stuff is really becoming more and more like a bible for me. --Mike Buckley P.S. Stew, in my mind the report isn't clear that Gemstar gets the $10 per set-top box from Sony even if Sony's customer chooses to use a competing guide. It's not clear that it does or doesn't get the $10 in that situation, at least not to me. I'd like documented clarification on that before I come to any definitive conclusion.