Still bullish GMST, but...no bowl of cherries..
A bit more from the Business Week article:
To hear his critics tell it, Henry C. Yuen may be the most feared guy in
television. Slight and bespectacled, the 49-year-old former mathematician
heads Gemstar International Group (GMST), a tiny company in Pasadena,
Calif., with barely 200 people on its payroll. But what Gemstar has is a
portfolio of more than 90 patents covering most of the ways that clickable
information and shopping opportunities can be presented on a TV screen.
Over the next five years, TVs will morph into interactive terminals for
entertainment and e-commerce that viewers will negotiate using souped-up
remote-control devices. As broadcasters, cable operators, and satellite
companies begin deploying a Web-like panoply of hyperlinks, hot buttons, and
ad banners, they'll run smack into Henry Yuen and his patents. ''The TV
industry is soon going to find out that it has a problem with one company
having so much dominance,'' predicts Seth H. Ostrow, a New York patent
attorney familiar with Gemstar.
TSUNAMI. Some companies already see Gemstar as a threat. For two
years, Scientific Atlanta Inc. has been spearheading an antitrust assault on
Gemstar. In recent weeks, it has been joined by Time Warner Cable Inc.,
which has taken the unusual step of stripping Gemstar's programming listing
information from the signals it delivers over the cable. And in Washington, the
Justice Dept.'s Antitrust Div. is reviewing Gemstar's planned $9.2 billion
merger with TV Guide Inc. Justice's action was prompted by a warning from a
Senate subcommittee that the pairing ''may decrease competition'' as TV sets
converge with the Internet. A ruling is expected in June.
Why all the fuss? As the broadband tsunami sweeps over television, viewers
will start clicking their way through electronic program guides that not only list
upcoming shows but also allow folks to order movies, make purchases, and
record TV programs. Some of these amenities are available now on digital
satellite systems such as DirecTV Inc.--a Gemstar licensee. But by 2005, as
many as 80 million U.S. homes will be outfitted with some electronic program
guides, generating $23 billion in advertising revenue and $13 billion in
commerce, according to Josh Bernoff, a TV analyst for Internet consultant
Forrester Research Inc. ''Gemstar will get a cut from just about every dollar,''
he says.
That's quite a leap for Gemstar. Last year, the company generated most of its
$166.4 million in revenue from royalties on the VCR Plus+ technology it
licenses to TV-set makers. This technology helps people record shows based
on numbers listed in the newspaper. But Gemstar offers much more than that.
Want to put TV shows or advertising on the same screen as the program
listings? Talk to Yuen. How about sorting TV shows by subject, or
personalizing a program guide for each viewer, or letting viewers record
movies and TV shows with a single push of an electronic button? Gemstar has
already licensed those features to most major consumer-product
manufacturers, including Sony (SNE), Zenith, and Sharp, along with satellite
companies such as DirecTV and most cable operators. Microsoft Corp.
(MSFT), for one, paid Gemstar $45 million in license fees for the program
guide used in WebTV. What's more, it forks over to Gemstar an estimated
30% of the revenues generated by the guide.
As powerful as that makes Gemstar appear, it's nothing compared with the
clout Gemstar will soon acquire if its merger with TV Guide is approved. The
deal would combine Gemstar with its last remaining major competitor. Indeed,
right up to the signing of their agreement last October, the two companies were
locked in legal battles over the issue of whether TV Guide's own interactive
program guide infringed upon Gemstar's patents. The merger grew out of
settlement talks between the two.
Along with TV Guide's strong brand name, the merger would give Gemstar
access to the 34 million readers who currently receive TV Guide magazine and
the 50 million homes who see the TV Guide program listing scroll across their
screen. Allowing the two companies to merge ''will diminish Gemstar's
incentive to license its technology to other competitors,'' the Senate antitrust
subcommittee wrote to the Justice Dept. in March, urging it to scrutinize the
deal carefully.
Time Warner, meanwhile, has taken matters into its own hands. In April, it
ordered its cable systems in California, Maine, and North Carolina to strip out
the program listing data that Gemstar transmits, unseen, in a portion of the
signal that is broadcast by several TV stations in each area. A Time Warner
spokesman says the company pulled the signal because it couldn't reach an
agreement with Gemstar on its license renewal. Instead, Time Warner says it
will create its own program guide with set-top-box-maker Scientific-Atlanta.
Gemstar wheeled around and hauled Time Warner before the Federal
Communications Commission. It demands to be put back on their systems
under FCC ''must carry'' rules, which require cable operators to carry
''program-related'' signals--such as closed-captioning--along with the channel.
OMNIVOROUS. While the two sides argue over whether program listings
are ''program-related,'' Time Warner's set-top box supplier, Scientific-Atlanta,
is pressing its federal antitrust battle against Gemstar. In fact, Scientific-Atlanta
has filed two lawsuits seeking to void Gemstar's merger with TV Guide. The
company declines to discuss the case. But in court documents, its lawyers
argued that ''Gemstar has embarked on a calculated plan to monopolize the
U.S. market for the licensing of interactive electronic program guide
technology.'' Scientific-Atlanta charges that Gemstar has systematically bought
up or merged with companies that hold competing patents, including not only
TV Guide but Video Guide Inc. in 1996 and Starsight Telecast Inc. in 1997.
The suit alleges that Gemstar used its market power to force Scientific-Atlanta
to pay for licenses Scientific doesn't need in order to get those it does need.
Gemstar denies the claims and has filed its own suit charging that its patents
have been violated by the program guides embedded in the Scientific-Atlanta
set-top boxes.
In fact, suing to protect its patents has become a fine art at Gemstar. ''We are a
patent company, and patents are our lifeblood,'' says Gemstar Executive
Vice-President Stephen A. Weisswasser. ''You have to protect your assets.''
And protect they do. In recent years, Yuen, trained as a lawyer, has filed
breach-of-contract and patent-violation suits against a half-dozen companies,
including General Instrument, Pioneer Electronic Group, and
Tele-Communications.
The question is, how much more powerful will Gemstar become if it merges
with TV Guide and wins its current legal tussle with Scientific-Atlanta? The
merger will unite Yuen with media heavyweights John C. Malone and Rupert
Murdoch, whose corporations control TV Guide and will each own 21.5% of
the new company. More important, the merger will give Gemstar access to the
more than 14 million AT&T cable homes allied with Malone's Liberty Media
Corp. as well as content from Murdoch's News Corp. empire.
FORMIDABLE. And Yuen seems to have big plans of his own. Gemstar
already has agreements with Sony to be the only electronic program guide on
its TV sets. Yuen aims to sell media space on its guides under a joint
advertising company it created with Thomson Multimedia SA and NBC. More
recently, Gemstar purchased a small wireless paging company, giving it the
ability to bypass cable and satellite operators, if necessary, to serve up
program listings and ads and to receive orders from consumers. ''I don't know
if that's a big business for us, but it's one we might be forced to use if Time
Warner makes us,'' says Weisswasser. |
