Earlier some questions were raised about the lawsuits GMST is involved with and how Scientific Atlantic is proceeding with its set-top O/S.
Here is some info I thought might be worth sharing with the thread. A lot of it you probably know, but it might be of interest to some of the newcomers.
Big Money
Salomon Smith Barney predicts that the Interactive television industry will grow to more than $100 billion by 2008. How will this money made? Turning on your TV will launch a display panel for a variety of interactive services. To get to any of these services, consumers will have to pass through "portals" that are similar to those found on the World Wide Web today. These portals would take the viewer to a pre-set start screen, much like a hotel-room TV service does. This opening screen will allow you to interact and control your TV. Gemstar is one of several companies making all this possible with a category of products referred to as an 'interactive program guides (IPG's)'.
What exactly does Gemstar's interactive program guide do for the user?
Gemstar makes Guide Plus+, an interactive, electronic program guide (EPG). The guide allows viewers to sort through channels to find shows, click on portions of the TV screen for more program information and automatically set up the VCR to record shows.
Gemstar's Mr. Yuen explains: The idea is to put an television guide on your television so that the viewer can see what programs are playing now and in the future, allowing him to sort, allowing him to use his remote control and select a particular program and say, "Hey, I'd like to record this," or "I want to make sure I never miss this." All he has to do is to press one button on his remote control and it will be done. For example, in the "not-to-miss functionality", when the selected show airs, even if the TV is off, it will turn itself on, change to the correct channel, so that the viewer will not miss it."
Gemstar has licensing agreements with most of the major consumer electronics makers to include the product in new televisions. "This is not an Internet company but Gemstar's electronic guide could be like a portal on a television set."
The excitement for Gemstar is clearly in the advertising potential for the electronic guide.
A critical element of GMST's business strategy is enforcing it's intellectual property patents for the EPG. All the MSO's have decided that the EPG is an extremely important, integral part of the box, and therefore the EPG must be in every box. The game here is for Gemstar to make sure that the EPG incorporated in the boxes are either licensed from GMST or are supplied by GMST. However, the cable area is where GMST is meeting the biggest resistance.
Lawsuits
GMST is presently in litigation with a number of cable box manufacturers, cable operators and guide suppliers to clarify the intellectual property position. As mentioned earlier, an important part of GMST's business strategy is enforcing its intellectual property patents for the EPG. I think that most on this thread would agree that presently the worth of GMST stock is largely based on its intellectual property patents. They are the key to the future success of GMST.
In 1992 or 1993, a company called StarSight was formed by some of the heavyweight cable companies such as Viacom, Times Mirror, Providence Journal, and Cox. It was largely formed to compete against Gemstar. StarSight's strength was obviously based on their relationship with the cable operators. StarSight also entered into agreements with General Instruments Corp. (GIC) and Scientific Atlanta (SFA). GIC has since been acquired by Motorola. Both GIC and SFA agreed to exclusively deploy StarSight's EPG. For this exclusivity, the agreement waived any payments to StarSight by either GIC or SFA. However StarSight would retain the right to sell its EPG product to any of the cable operators. Because it didn't cost anything (apart from perhaps engineering costs) for either GIC or SFA to include the StarSight EPG in their set-top boxes, they gave the EPG away for free as part of their overall strategy to sell more set-top boxes.
Because GIC and SFA together control the vast majority of the market for set-top boxes, StarSight realized no profit from this EPG deployment. And SFA and GIC were deploying an EPG and paying nothing for it.
But remember who formed StarSight and who it was designed to compete against? It put Gemstar in an awfully bad position and the next thing you know Gemstar bought StarSight! We are talking deep pockets here and it is obviously very complicated. StarSight (now Gemstar) has to show that the original contract calling for no payments but exclusive deployment was breached. IR for both MOT and SFA have refused to discuss it with me. But from a different perspective, if Gemstar felt that this StarSight EPG infringed on any Gemstar patents, Gemstar would have to litigate against StarSight, not GIC or SFA. Interesting no?
The saga continues from both ends as well. Gemstar is also being sued for patent infringement by electronics-components maker Scientific-Atlanta (SFA). And Gemstar has sued SFA, GIC and Pioneer Electronic (PIO) as well for patent infringement. The main issue in all these cases revolves around the clarity of Gemstar's intellectual property position. As one analyst put it: "The main issue in all these cases is whether or not Gemstar's practices are monopolistic. Not only does everyone want a piece of advertising revenue but cable companies and electronics makers that would be purchasing Gemstar products are afraid of how little competition in this area would jack up the licensing fees Gemstar charges. ( Ref: smartmoney.com )
Gemstar versus Time-Warner
Another crucial lawsuit for Gemstar is against Time Warner (TWX), soon to be merged with AOL.
With the listings GMST acquired in the recent TV Guide deal, GMST is building a TV portal that lets viewers check what's on while they're glued to the set. The listings are transmitted to TV sets over the vertical blanking interval (VBI), the part of a TV signal that is sent between each video frame. It's this signal that allows broadcasters to transmit closed captioning and consumers with V-chips to block objectionable programs.
Time Warner claims that Gemstar is trying to piggyback on the ``must-carry'' rule that forces cable operators to carry broadcast stations free of charge. The rule, passed in 1992, gives broadcasters the option of transmitting their programming over cable networks for free or negotiating a contract under which cable operators would have to pay for the right to air the shows. This clause is at the center of the current conflict between Disney and Time Warner as well. Time Warner has stripped Gemstar's signal from Time Warner's cable operations in most major markets.
Gemstar's position:
``We're entitled to be carried over cable networks because the information we offer is inextricably related to the programming on the channel, just like closed captioning,'' says Stephen A. Weiswasser, executive vice president and general counsel at Gemstar. The ``must-carry'' rule forces cable operators to carry broadcast stations free of charge, so Gemstar is applying this rule to its EPG as well.
The cable operators position:
Time Warner sees the conflict with Gemstar as a big-picture issue because of the potential ramifications of a ruling in Gemstar's favor. If the FCC allows GMST to transmit its listings for free, it would open up for a whole world of interactive services that could use the cable infrastructure for free. Other possible services include games, news and even shopping.
``The heart of the issue is whether Gemstar's service is directly related to the programming transmitted under the must-carry rule. It's not,'' says Art Harding, a partner at Fleischmann & Walsh, the law firm that is representing Time Warner before the FCC. Harding says the listing would be directly related to the broadcast signal if it had focused exclusively on the channel's programming. But since Gemstar's advertising-supported listings span the whole cable universe, it's not part of the must-carry rule.
``This is our most basic commodity. It's unacceptable to us that a company should be able to freeload over our network with what's unquestionably a commercial service,'' says Michael Luftman, a spokesman for Time Warner. National Television Association and other cable operators support Time Warner's stance.
Time Warner has refused to budge, and says Gemstar will have to pay for the right to access its network, just like any commercial service provider, such as a cable channel.
The conflict between programming guide provider GMST and TWX will eventually end up at the government regulator's table.
I know that this post is sure to stimulate a little discussion, but I hope I have added a little!
Good luck,
Eric |
