Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Gemstar Intl (GMST) -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (6359)	3/13/2004 12:10:30 PM
From: tinkershaw	Read Replies (2) \| Respond to of 6516

Mike, I agree with you. These agreements reflect a true change in strategy and an admission that the litigation route is not as certain as it once seemed, and that GMST's IP is not powerful enough to enforce its dictates down the throats of its reluctant partners the way that QCOM can. The agreements themselves are lucrative, and GMST is getting carrier fees on the IPG that is at the top of the scale I believe. However, this is also an admission of weakness that even Mr. Yuen conceded to near the end of his reign. GMST's initial intent was to extract $5-$10 per set top box, and then get carrier fees from the cable and satellite companies who would be forced to carry them or use no guide at all. And no guide at all is just not an option. Yuen conceded this point when he moved to the "recurring" revenue model. I believe GMST had no choice in this matter, as for example, Hughes stopped paying fees on its set-top boxes, and getting them to pay up would take years more in court and as it turned out was not at all as probable as once had been considered the case by the patent terror strategy (which btw/ I still love that strategy. Look at the returns RMBS and QCOM and GMST (once upon a time) produced with said strategy. I think it is awful "French" for those who prefer go along to get along strategy. Business is business, not personal, you do what you need to do to maximize shareholder value. Leave the rest to the French). In any event, when they could not extract these monies from the cable box, they moved to the recurring revenue model of carrier fees with the cable and satellite operators. This by-passed the stubborn manufacturers. But it does foreclose a lot of revenues GMST otherwise would have received had the IP threat been more palatable. Certainly this is a sign of weakness, where QCOM never had to so concede. But, weakness does not mean weak. GMST is still collecting near or at the top of the scale for carrier fees, and they have been able to gain a distribution foot-print, long-term, with guaranteed advertising splits, over the vast majority of digital sets. GMST's weakness in technology IP has lead it to change the technology centric focus of Yuen to a GMST is a media/network strategy of the present management. If GMST could not extract royalties like QCOM can, then GMST can still use its strengths to extract distribution fees and advertising fees using its still considerable, albeit not invincible muscle. QCOM would have just blasted through, stuck their tongue out and got it all, GMST had to adapt itself. As I look at the deals, and where cable and satellite need to go, GMST should be able to entangle itself as an indispensable technology partner for these firms, creating high switching costs, while at the same time establishing nearly 100% reach into the digital cable world, where GMST will be the top of the food chain in receiving T-commerce and advertising revenues as the platform so develops. Which is not a bad place to be. I look at TiVo in comparison. They will pioneer much of the future GMST revenue stream. TiVo's "Showcase" advertising product has already gained some popularity amongst top scale advertisers. There is no reason why Comcast cannot copy this product and distribute it to its much larger audience, with GMST as the advertising revenue sharer and primary (near monopolistic) technology enabler. The frustrating part is, is that clearly this sort of product is still in the chasm, and due to GMST's weakness in its technology-centric strategy, GMST had to regroup to plan B for its media-centric strategy, with technology as the barter tool to create the media network required to profit from plan B (which use to be just an assumed part of Plan A). But this creates another question for me, okay, GMST is now a media company, and advertising and t-Commerce in the future will largely determine its success over the coming decade. Will GMST's contracts enable it to share 50/50 revenues that are not directly on the Guides, such as PVR Showcase like ads, or interactive type ads that TiVo is starting to pioneer? Or will GMST's ad sharing % be limited to those ads that are strictly on the Guide and not translate into a share of "Showcase" or other interactive type ads that GMST technology will probably enable, but that will not be directly connected with the Guide? Questions like this are not ones that one need to ask regarding QCOM. Even the Chinese government will have to concede that eventually or face the inability to export their products to the U.S. and other WTO countries. It is why Korea, despite the press that is obsessed with calling QCOM a monopolist, continues to pay QCOM. Did GMST have enough bargaining power to ensure its future revenue share on ads that are not directly plastered on the Guide? Tinker