VCR Plus+ Maker Gemstar Acquires NuvoMedia and SoftBook Press
Wade Roush
Posted 12:00 AM PST
In the electronic book business, there are two kinds of companies: Those with actual products, and those without. Today, Gemstar International Group stunned the industry with the announcement that it has acquired both of the companies in the first group.
In deals that closed approximately one week ago, Gemstar added NuvoMedia Inc., the maker of the Rocket eBook and owner of eBookNet.com, and SoftBook Press, maker of the SoftBook Reader, to its armada of holdings in the electronics and communications industries. Gemstar put itself on the map in the early 1990s by developing and licensing the widely-used VCR Plus+ system for programming video recorders. The company is in the process of acquiring TV Guide, the world's largest-circulation magazine, for a reported $9.2 billion.
Gemstar bought the two eBook companies in stock swaps. The magnitude of the deals was not divulged, but Gemstar stated in a press release that the transaction amounted to less than 3% of its shares. Gemstar [NASDAQ: GMST], with a market capitalization of almost $17 billion, was recently named a member of the NASDAQ 100. The company's stock finished the trading day at 84 3/8, up 9.85%.
The acquisitions have come as a surprise to owners, authors, publishers, and developers of electronic book products. Many may interpret the move as a signal of Gemstar's ambitions to extend its strength in the areas of VCR programming and electronic programming guides to the emerging business of electronic publishing.
This is not an unreasonable forecast. Gemstar is a darling of investors, who have driven its stock price up by a factor of four in the last 12 months. Wall Street admires Gemstar chairman and CEO Henry C. Yuen's aggressive record of moving into new areas of entertainment-related electronics and quickly creating or buying key patents.
"We believe that Gemstar, NuvoMedia and SoftBook collectively will be in a good position to provide the best technology, broadest distribution and the most-consumer-friendly devices to consumers for enhancing their reading experience and, hence, the enjoyment of their leisure time," said Yuen.
Gemstar had no comment on whether its new subsidiaries will keep their names or remain in their current lodgings in Mountain View and Menlo Park. It is also unknown whether NuvoMedia and SoftBook will integrate their technologies or coordinate efforts to procure more electronic content for the Rocket eBook and the SoftBook Reader.
Celebration and Concern
For NuvoMedia and SoftBook Press, the attractions of the Gemstar buyout offers are easy to understand. The acquisitions represent a profitable end to several years as pre-IPO Silicon Valley startups with impressive amounts of venture-capital backing, but even more impressive cash burn rates. By placing the enormous resources of Gemstar behind the two companies with the most experience in the eBook marketplace, the acquisition will help the founders of NuvoMedia and SoftBook get closer to their original goal, namely widespread consumer acceptance of electronic books.
But for the thousands of consumers who have already bought SoftBook Readers or Rocket eBooks, the acquisitions may create volumes of questions. Will the devices continue to be sold and supported, or will Gemstar turn its interests elsewhere? Does Gemstar genuinely care whether electronic books develop into an affordable, easy-to-use technology that enhances the lives of millions, or could the company come to be perceived as the Microsoft of the eBook market (assuming that Microsoft does not become the Microsoft of eBook market)?
Electronic publishers and authors writing for electronic publication may have their own set of concerns. Much of the eBook world's vitality comes from small ePublishers, authors writing for electronic-only publication, and other enthusiasts from outside the world of traditional publishing. Even before the acquisitions, this community felt somewhat neglected by NuvoMedia and SoftBook, which have worked mainly with trade publishers such as Random House and Simon & Schuster to develop new content for eBook devices. A company like Gemstar, with its eyes even more firmly on the mass market, might lose sight of ePublishers altogether, some may worry.
After a Slow Start, eBooks Catch the Big Boys' Attention
The Gemstar acquisition, which promises to be one of the year's biggest stories for the eBook industry, is without question the most important development in the short histories of NuvoMedia and SoftBook Press.
NuvoMedia has about 50 employees and is based in Mountain View, Calif. The company was created in 1997 by Martin Eberhard, an engineer who previously co-founded Network Computing Devices, and Marc Tarpenning, a manager and programmer specializing in software for consumer products. The two envisioned a mass-market reading device that would be portable and easy to use and would have a screen resolution and brightness surpassing those of previous electronic book prototypes. They also believed the product should use the Internet as a distribution medium and should include sophisticated encryption techhnology, which would help to allay publishers' fears about piracy of digital content.
The startup won venture-capital backing from several media giants interested in the infant field of electronic books, including Barnes & Noble and Bertelsmann AG. The company announced its Rocket eBook reading device in June, 1998, and released the product the following October at a suggested retail price of $499. The 20-oz. device is the size of a large paperback and features a 3 in. x 5 in., high-resolution black-and-white LCD screen with an exceptionally bright backlight. Its batteries last 20 to 40 hours between rechargings, and its 4 megabytes of internal memory are enough to hold about 10 average-length novels.
In 1998 and 1999 NuvoMedia signed up more than a dozen major trade publishing houses as publishers of specially-encrypted "RocketEditions," and Barnes & Noble and Powells bookstore of Portland, Oregon, agreed to sell RocketEditions through their Web sites. In a bid to make the Rocket eBook more appealing to consumers, the company lowered the price for the device to $349, then to $269, and finally to $199. It also introduced the "Rocket eBook Pro," with 16 megabytes of internal memory, for $269. Among tech-savvy "early adopters" the device has won an enthusiastic following, but mainstream consumers did not begin buying the device in significant numbers until NuvoMedia launched a major advertising campaign during the Christmas 1999 retailing season.
Like NuvoMedia, SoftBook Press has formed content partnerships with about a dozen major trade publishers. However, the primary focus of the company, which has about 80 employees and is headquartered in Menlo Park, Calif., has been on business users -- especially corporations with large "mission-critical" information flows. Founded in 1996 by Jim Sachs and Tom Pomeroy, the company announced its SoftBook Reader in June 1998 and released the device the following October. The Reader weighs 2.9 lbs. and is the size of a legal pad, with a 5.75 in. x 7.75 in. grayscale LCD screen and 8 megabytes of memory, enough for about 100,000 pages of text. SoftBook prices the Reader at $599.95, or $299.95 if the buyer agrees to spend $19.95 per month for 24 months on publications from the company's online SoftBookstore.
SoftBook says its publishing system is intended to replace three-ring binders, technical manuals, database printouts, and other cumbersome business documents. To this end, the company's products also include a publishing toolkit for preparing encrypted electronic content and a server-based application for distributing this content to multiple reading devices. The Arizona Republic newspaper in Pheonix, Ariz., for example, has used the system to supply its newspaper delivery staff with subscriber address information updated daily. At the same time, SoftBook appealed to business travelers and other upscale readers by being the first to offer subscriptions to the full text of popular magazines such as Time, Fortune, and Money.
What the Deal Could Mean for the Future of the eBook Industry
The Gemstar acquisition comes at a time in the development of NuvoMedia and SoftBook when many similar high-tech companies would be weighing whether or not to go public. Despite the astonishing success of some Internet stocks in recent public offerings, however, the IPO process is fraught with peril, and doesn't always raise the capital a young company needs. An offer like Gemstar's often brings the prospect of stability as well as an "exit strategy" allowing the original investors to cash in their stock.
With Gemstar's resources behind them, both NuvoMedia and SoftBook Press will presumably be able to undertake product development and marketing initiatives that they could never have afforded before the deal. "The combination of SoftBook Press with Gemstar and NuvoMedia will catapult the eBook category from a novelty to a necessity and help realize the vision that we outlined at the inception of the first eBook -- to make it a ubiquitous reading device," said SoftBook's James Sachs.
Gemstar did not say whether the two subsidiaries' marketing strategies will remain in place, with SoftBook continuing to pitch the Reader for high-end business applications and NuvoMedia continuing to target mainstream readers. But advertising bankrolled by Gemstar promises to bring the two products to the attention of millions of consumers and business users who presently know little or nothing about electronic books. Gemstar said in its press release today that it plans a "massive consumer-awareness campaign later this year for the introduction of NuvoMedia's and SoftBook Press' new products, and for establishing electronic reading devices as a staple consumer product." Toward this end, Gemstar's other media properties, especially TV Guide, could give NuvoMedia and SoftBook direct information channels to hundreds of millions worldwide.
The emergence of Gemstar as a major player in the eBook industry also provides a timely counterweight to Microsoft, which has been promoting its forthcoming Microsoft Reader software with increasing intensity over the past several months. Microsoft says Reader will be standard software on a line of "PocketPC" PDAs set to be released later this year. And just two weeks ago, Microsoft announced an agreement with Barnes & Noble to offer thousands of titles formatted for Microsoft Reader through the Barnes & Noble Web site. Although Gemstar has a strategic partnership with Microsoft to provide its electronic programming guide technology for Microsoft's WebTV set-top boxes, it has shown no fear of going up against the software giant in the past.
Gemstar's war record resembles Microsoft's in the sense that both companies have captured markets by establishing broad intellectual property rights, then licensing those technologies to other companies who manafacture the actual product. The lion's share of the company's revenues come from licensing fees paid by consumer electronics manufacturers who use VCR Plus+ technology -- meaning virtually 100% of the industry. (Gemstar also collects fees from more than 300 major newspapers and magazines worldwide who list the special codes used by consumers to automatically set machines with VCR Plus+ to record specific programs.)
It seems probable that Gemstar will attempt something similar in the emerging market for eBook reading devices, by licensing the chip configurations, encryption solutions, and other technologies found in the Rocket eBook and the SoftBook reader to equipment manufacturers. At the same time, Gemstar will doubtless work with publishers to broaden the flow of electronic content. Referring to a January 4 article in Newsweek, Yuen said "We intend to work hard to bring forward the time frame predicted by [reporter] Steve Levy...that within 20 years, 90 percent of reading materials will be distributed on electronic media."
Now that the continued existence of NuvoMedia and SoftBook Press is assured, the chances have probably increased that average consumers will be persuaded to add electronic book reading devices to the panoply of electronic appliances already in their homes. It remains to be seen, however, whether the news is entirely welcome to ePublishers, authors of electronic books, and current owners of current eBook devices. These groups, which make up a large part of NuvoMedia's and SoftBook's present constituencies, may feel that the products they own will soon become obsolete, or that the work, enthusiasm, and expertise of the medium's pioneers will be trampled underfoot as eBooks go mainstream. eBookNet will continue to report on these questions as the story of the Gemstar acquisition develops.
eBookNet.com is owned by NuvoMedia, a wholly owned subsidiary of Gemstar International Group. However, the news, ideas, and opinions expressed here are those of eBookNet's writers and editors, and do not necessarily represent the views of NuvoMedia or Gemstar.
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