By SARA FISHER
Staff Reporter
When 500 television channels stop being hyperbole and become reality, how does a television station make itself stand out?
That is the question underlying the recent skirmish between Pasadena-based Gemstar International Group Ltd. and United Video Satellite Group Inc.
The companies’ latest products on-screen, interactive programming guides have riveted major media and tech companies alike.
“These types of interactive guides are becoming increasingly important and we’re going to see more deals emerge around them,” said Chris Dixon, an analyst for PaineWebber. “United Video and Gemstar are the two central figures in the evolving market, and both will continue to look for ways to extend their brand.”
Ending several months of hostile correspondence, United Video withdrew its bid to acquire Gemstar last Wednesday, a week after Gemstar adopted “poison pill” defenses in response to the $2.8 billion cash offer. Gemstar still has a lawsuit pending against United Video for 10 alleged patent infringements.
Gemstar executives would not comment on advice of their attorneys, and United Video executives did not return phone calls.
In a statement, however, Gemstar president and chief executive officer Henry C. Yuen said the company would now “focus on executing our business plan and serving the best interests of the company and all of its shareholders.”
Gemstar, best known for creating the VCR Plus+ technology that allows TV viewers to easily program their VCRs by punching in special codes, has forged a strategic relationship with NBC and strengthened its relationship with Microsoft Corp. over the last several weeks.
Tulsa, Okla.-based United Video bought TV Guide and related properties from Rupert Murdoch’s News Corp. last month, in exchange for which News Corp. took over a 40 percent equity stake in United Video.
United Video produces on-screen cable listings and previews of pay-per-view movies, and is controlled by cable television giant Tele-Communications Inc.
What has the media and tech giants so excited is not so much the current businesses of Gemstar and United Video, but where those companies are headed into interactive, on-screen TV listings.
With the proliferation of channels, especially for those with satellite dishes, channel surfing is becoming impractical as are printed television guides.
Instead, industry experts believe television viewers will turn to the on-screen listings. With the press of a remote control button, and without interrupting the show they’re watching, couch potatoes will be able to call up program listings scanning what’s playing by time, channel or even genre.
“What we’ll see is a sea change in how people watch television, with people navigating rather than surfing,” said Murray Arenson, an analyst for investment firm Hoak, Breedlove and Wesneski. “Quite simply, everyone is going to use these guides.”
NBC executives agree that on-screen guides are the wave of the future. On July 17, they signed an agreement with Gemstar that gives the network a 5 percent stake in a Gemstar subsidiary that develops advertising and content for the interactive program guides. In return, NBC and its cable networks MSNBC and CNBC will receive “featured placement” in the guides.
“We’ve been looking at program guide space for quite some time and Gemstar is a leader in the industry,” said Peg Murphy, director of business development at NBC. “I know I can’t get through 400 channels. DirecTV (which has 185 channels and its own on-screen guide) is an example of how valuable this kind of guide is. It empowers viewers to navigate through all the channels effectively.”
Likewise, News Corp.’s stake in United Video makes sense, analysts said, because it gives the company an outlet to promote its programming.
Also fueling the on-screen guides’ popularity is their potential to generate ad revenues. With television sets in 98 percent of U.S. households, the size of the potential audience is enormous.
“We believe these guides will be a very powerful revenue model,” Murphy said. “They will get seen by a lot of viewers.”
While Arenson cautioned that the advertising stream is still hypothetical, he said its potential, at minimum, could be enough to fully pay for the expense of creating the guides.
“Think of the number of people watching television and checking the programming guides a couple times an hour,” he said. “This number blows away any page-view numbers currently seen in the Internet when it comes to similar advertising.”
The advertising potential also is seen by Microsoft, which already uses Gemstar technology in its WebTV set-top boxes. Earlier this month, Microsoft expanded its agreement with Gemstar to pursue interactive program guide opportunities, including cooperation on advertising.
There has been speculation that the Gemstar/United Video tango has been spurred by the rivalry between respective supporters NBC President Don Ohlmeyer and Rupert Murdoch. According to Murphy, however, the NBC deal with Gemstar already was in development when United Video announced its purchase of TV Guide.
“No way has the Gemstar and United Video issue been about Murdoch and Ohlmeyer,” said PaineWebber’s Dixon. “This is just about a lot of activity in a popular market.”
