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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: JRH who wrote (384)	2/23/1999 11:01:00 PM
From: Mike Buckley	Respond to of 54805

Justin, My Gemstar (GMST) is worth considering for your emerging Internet portfolio, but only if you believe in the convergence of television and computers. A brief summary: Gemstar's claim to fame is that they are the owners of the proprietary VCR+ codes that allow one-step programming of your VCR using the VCR+ codes that are published all over the world. As successful as Gemstar has been with that in the past, it's their future that excites me. Gemstar has proprietary techologies for interactive electronic programming guides that are licensed to the major consumer electronics companies for inclusion in televisions, licensed to major broadcast media companies, and licensed to Microsoft for inclusion in Windows 98 and WebTV. They have a joint venture with Thomson (owner of the RCA and ProScan brands of television) and NBC that is kept so private for competitive reasons that half the contract flied with the SEC that documents the agreement is not publicly available. One caveat is that they have lawsuits pending with the two largest set-top box makers and their biggest competitor (United Video) for using technologies that in their opinion violate patents. However, Gemstar has never lost in court. Gemstar recently rejected a hostile take-over attempt by United Video at a price that is now far below the current price of Gemstar's stock. The electronic programming guides are subscriber-based and free to the user, depending on the product and the situation. The guides are valuable real estate with room for advertising. Depending upon how the deals are structured, Gemstar gets a share of the advertising revenue, a share of product sales, and the licensing royalty paid by the consumer electronics companies that put the guides in their televisions and set-top boxes. Right now set-top boxes are available only (or at least primarily) from the cable companies that provide the boxes. Beginning June of next year the set-top boxes will be in retail stores everywhere as mandated by the federal government. The next generation of set-top boxes are expected to be as inexpensive as possible to appeal to the mass market, yet the ONE thing that all next-generation boxes are expected to contain is a ... drum roll ... electronic program guide. Whether or not you believe that this company is an Internet play (I don't think it's one now but it can become one) what's really important is that it is a potential gorilla that could have its coffers improved thanks to the Internet. After all, most Internet plays will be Kings at best. --Mike Buckley