Gemstar...notes from Lehman Bros. CC
Merlin, thanx for the info to hear the Conference Call. Below are some quick notes I made. Today is a big Gemstar Day.
For those Gemstar shareholders who have not yet listened to the CC, be forewarned: you will be salivating and drooling by the end.
Comments invited........Thanx again, Apollo
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Gemstar Conference Call with Lehman Bros.
12 July, 2000
Opening Remarks by Henry Yuen (CEO):
 Revenue from licensing; 3 main businesses: VCR plus; Electronic Programming Guides; Electronic books
 Revenue from Proprietary platforms…….EPGs; E-books
 VCR plus….reaches ~ 2 billion people; licensed to all brands of VCRs; in 60% of all VCRs shipped worldwide in 1999. Great cash cow; single digit growth per annum.
 EPG: places a TV Guide on your TV screen, with changes by remote control; will become “indispensable” as the number of channels increase; digital TV will move to 300 channels; satellite TV in the range of 400-500 channels. Found in DVDs, TVs, Set Top Boxes, VCRs, Tuner cards, Web TV (MSFT), AOL TV; launched in Asia, N. America & Europe. Gemstar has agreements with more than 700 broadcast stations, all the networks. Very strong IPRs; > 100 patents, > 180 pending patents. Major licensees: AOL, sony, phillips, Zenith, MSFT, etc.
 Gemstar went public in 1995; merged with TV Guide July 12, 2000
 Has zero debt; “the company never has any debt”.
Electronic Program Guides:
 The future is in the Platforms for recurring revenue. EPG is used extensively by users, ~ 4 X per hour, about 3 pages each time. Average viewing time is 7 hours per day for American family. Therefore, 4 X 3 X 7 = 84 page views per day for the Gemstar EPG/per TV.
 There are presently > 3 million Gemstar-enabled TVs X 84…= 250 million impressions per day; very similar to the best of the Internet.
 Gemstar has TV manufacturer agreements with Thompson Consumer (RCA, GE, Proscan…3 million TVs per year), and other manufacturers, including Hitachi, Sony, Zenith, Phillips, Magnavox, Sharp, and Panasonic (in 2001).
 Revenue from Page View Impressions…….from advertising,
 1 TV could lead to 30,000 page views per year (84/day X 365)!!!!!!
 3 pieces of advertising per page…..or 90,000 advertisements/TV….which would equal $135 per TV per year, over the course of an average of 7 year life span. Presently, Gemstar gets just $10/TV for licensing. Hence, advertising very impressive for revenue growth.
 Gemstar will introduce in 2001 a paging service in TVs, via the EPG. Will be a standard feature. Should enable by remote control, purchasing ability by the consumer.
Electronic Books
 Has 2 features: designed for reading, very easy to use; designed to protect the copyrighted material on it.
 Why is Gemstar in E-books? Reading is the 2nd most favorite past-time of Americans per day (est 1-1.5 hours/day) along with telephone conversations.
 Advantage of E-book: near-term, very good business on the savings (no trucking, no returns, no paper, no ink, etc.); longer-term…entry into the “mobile entertainment device, with e-commerce,etc, via retrieval of magazines, newspapers, etc.)
 About $90 billion in books, magazines, newspapers, PLUS, additional $60 billion in advertising……”we would like a share of that”.
 Gemstar will provide content for devices, books etc.
 Should launch, via Thompson Consumer Electronics, 250,000 - 500,000 E-books, in next year, then several million units per year thereafter. Gemstar will get 10-20% of all book revenues sold as an intermediate book distributor, 50% of all periodicals sold as a seller.
Questions & Answers
Q: What is the real number of EPG TVs? Is 5 million necessary for Critical Mass to be achieved?
A: I think this is conservative; probably more like 3.5 million units; probably 5.5 million units by end of 2000. Should have a “good ramp up” next year, with broader line sales by all manufacturers. (Does not include TV Guide Platforms/EPGs now out). 5 million is a “watershed” number. Having problems getting enough research data with Gemstar usage. Advertising should increase with 150 salesmen, up from 3 salespeople, thereby increasing advertising revenues. Gemstar is trying to get all manufacturers to dramatically increase the number of TV models with Gemstar-Inside.
Q: What about cable?
A: TV Guide has agreement with the ATT cable systems; Gemstar has agreements with AOL, which has merged with Time-Warner, therefore, Gemstar should have nearly 50% of the cable system distribution “sewed up” very soon.
Q: How willing are Guide Users to look at or use the advertising? Won’t viewers skip the advertising?
A: Have performed follow up Impression/Retention surveys with all advertisers…….retention is “extremely strong”; is several times more strong than usual TV advertising. Gemstar has planned that E-books not currently be “contaminated” with advertising; but will use ads for retrieved periodicals thru E-books. Gemstar will feature “catalogs”, ie Victoria Secrets, Sharper Image, in which people can obtain the catalog.
Q: Could you please clarify what the international market is really like?
A: EPG business very international. For TVs, Europe is a much larger market than USA. World market even larger.
With regards to E-books, this is even more attractive to World, in that this is more affordable option than EPGs, and can enter countries like Brazil or India. For example, if 1% of the Indian population buys 99% of all the books, it becomes easy to enter the market quickly. |
