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

To: Bahama who wrote (1050)	4/5/1999 2:24:00 AM
From: Mike Buckley	Respond to of 54805

Bahama, Before I answer your questions to the best of my ability, I should tell you that my mentor on this subject is NY Stew in the Motley Fool AOL Gemstar folder. He also posts at the Yahoo folder though I don't know if he uses the same screen name. Feel free to e-mail him (NY Stew@aol.com) and tell him I referred you to him. Does the consumer actually choose the EPG product? A particular television or set-top box will have only one EPG built inside it. The consumer can choose to buy a TV out of preference for a particular EPG, but at this stage of the product adoption I don't think many consumers are going to do that. They aren't aware of the various EPG options available to them and don't have opinions about them. We are seeing product reviews intended for consumers, so that will change over time as the adoption life cycle endures. You are probably aware that in June 2000 the feds have mandated that set-top boxes will be commercially available in retail stores. I do believe that one of the biggest reasons a consumer will choose a particular set-top box at that point in time will be because of a demonstration of the EPG inside it. Aren't these (at least so far) embedded in the hardware (in ROM)? I'm not enough of a technofile to know. That is indeed possible, but I don't know why the software couldn't be uploaded into RAM. In any event, the database is manipulated by the consumer. So if it is in the ROM orginally, the consumer's manipulated data has to be stored in memory that never gets lost or on a storage device such as tape or a disk. Some of the advanced televisions and set-top boxes of the future will come with a removable disk such as an Iomega drive. If it is in fact to become a "pure" application, won't there be OS dependencies (and half a dozen or so potential OS's in set-top boxes)? Wont there also be a requirement for a hard drive (to load it to)[or maybe a CD ROM], which many set top boxes are trying to stay away from (mainly to keep "silent" but to minimize cost also)? There are a gazillion possibilities, especially in the longer-term future, which is why I lumped all of those questions together. The one thing I am certain of is that virtually all next generation set-top boxes, including the least expensive ones, will have an EPG. Apparently the market is demanding the product. What is it about GMSt's EPG that you feel is a competitive advantage (and is this advantage protected from a competitor essentially copying it? There's no question that the primary advantage is the value chain of the distribution channel -- the broad base of brand-name consumer electronics companies and broadcast companies that have adopted exclusive rights to the product. The list of those companies found in the 10k is a virtual who's who of the biz. To that extent, there is a tremendous barrier to entry and high cost of switching already present in a very strong value chain. I don't know enough about the technological differences between the various proprietary offerings, but there's gotta be a reason all those consumer-oriented companies have opted for Gemstar's products. Gemstar defends its proprietary technologies to the hilt and has never lost in court or with an arbitrator. A company called StarSight is now owned by Gemstar because Gemstar wanted StarSight's technologies. Before TV Guide was acquired by United Video and before StarSight was acquired by Gemstar, United Video already lost their suit with StarSight. The Gem currently has law suits filed with the two largest set-top box makers for infringement. TV Guide, the most viable competitor, and Gemstar have long-standing patent-infringement suits against each other. One the biggie set-top box makers even has an anti-trust suit against Gemstar. My point is that the Gem's exclusive deals are so tight that the set-top maker (can't remember which one)is complaining about anti-trust issues. TV Guide (under a former name) tried to end what many of us believe is an ill-fated court battle with the Gem. They unsuccessfully attempted a hostile take-over of Gemstar months ago at a price that is about half the price it is today. At that time the offer was about a 50% premium (if I remember correctly) to the market price. Last week the two parties entered into court-ordered settlement negotiations, which is one of the possible explanations of the stock's run-up in price. All this stuff about the law suits speaks volumes about the monopoly of a proprietary technology! ...it would seem a user could be familiar with navigating their GMST EPG at home, but when they go to a friends (who has a different remote with different keys), all bets are off. Good point. I never thought about that. Ask NY Stew. :) Unless the user is house sitting for the friend, my guess is that the friend will have to remain in control of the remote. That doesn't strike me as a major problem. Given any thought to how (seemingly) easy it would be for MSFT to turn Explorer into an EPG also (and users would already be familiar with the basic operation), or to embed it in WinCE? Microsoft has an exclusive arrangement with the GEM that any time the Gem's technologies in Windows 98 are accessed by the end-user, the Gem gets a royalty. I've always wondered how that works, so don't ask. :) Microsoft also has an exclusive arrangement with the Gem for their EPG in WebTV. I realize that such arrangements with Microsoft are provocative in the long term, but for the short term at least it's a definite plus. I know the DBS EPG's are all over the map in their "ease of use" and "meaningful functions" for the EPG's. What is DBS? Any comments would be appreciated since I am also trying to sort out whether there's a potential big product here. In case you're not aware, the boat that will come in on the rising tide of Gemstar's EPG is the advertising revenue which is expected to begin next year. The Gem's EPGs are so respected in the marketplace that Gemstar is successfully commanding a share in the advertising revenue for advertising placed on the EPG. In that sense, the EPG is more and more becoming the destination site of television and, farther into the future, the convergence of television and computers. My thinking is that mainstream investors simply aren't aware of the potential of EPGs because they aren't aware of their power as a portal or, better yet, as a destination site. I believe the market's unawareness of that presents tremendous long-term buying opportunities when Gemstar's price takes a dip. --Mike Buckley