Under a comprehensive license deal, Comcast Corp. will pay Gemstar-TV Guide International Inc. a $250 million fee as the companies partner to develop interactive program guides, and the MSO rolls out TV Guide on Demand and the TVG Network.
In exchange for that one-time, up-front payment, Comcast will enter a long-term, nonexclusive patent license and distribution agreement with Gemstar. The MSO will use Gemstar's intellectual property and technology — as well as the TV Guide brand and content — on its interactive program guides, officials said last week.
Comcast and Gemstar will also form a joint development group — 51% owned by Comcast and 49% owned by Gemstar — that will use the existing TV Guide Interactive IPG as a foundation to create what's hoped to be a cutting-edge guide for the MSO and other cable operators.
"They [Comcast] would like to create this IPG as the industry standard, and essentially create a unified platform," Gemstar CEO Jeff Shell said. "For us, it makes absolute sense.
"As opposed to being a vendor, now we're part of the unified platform that is much better, and we don't really give up any of our revenue streams. We lower our costs and we participate with the industry leader."
Overall, the expansive pact is meant to give Comcast flexibility and control, permitting it to deploy the interactive guide created by the joint development group or guides developed by third parties, while extending the reach of Gemstar's content and brand, according to company officials.
"They [Comcast] can use our technology without launching our guide," Shell said.
In this way, the agreement is similar to a license deal that Gemstar did with Time Warner Cable in October.
Essentially, Comcast will be paying a higher license fee, above the past 4½ cents per subscriber, for the freedom to use Gemstar's technology and intellectual property as it sees fit.
The $250 million really represents "just a lump-sum license fee for our patent license," Shell said.
Also, the revenue derived from any interactive-guide advertising would be split between Comcast and Gemstar.
Previously, Gemstar kept 85% of that ad revenue, according to Shell.
Under the new licensing agreement, Comcast will incorporate TV Guide branding into the majority of its IPGs. Gemstar will provide operational support for the jointly developed guide on Comcast's systems, and will continue to supply the MSO with TV Guide
Comcast will serve as the managing partner for the new development group, and has the right to launch all joint-development products across its digital subscriber base. Gemstar will retain the exclusive rights to distribute all joint-development products to other outlets.
"When an IPG gets developed, Comcast takes the product for free in exchange for its 51% funding, and we then take the product and we're allowed to license it to third parties and keep the revenue," Shell said.
The joint development team will also provide development and support for Gemstar's existing and future affiliate partners. Gemstar is 43% owned by News Corp.
While Comcast liked Gemstar's interactive guide, the MSO's officials said, "We're troubled by the fact that we think as the biggest cable operator, we need to have some control over our platform," according to Shell. Thus, both parties decided to partner on the guides.
As part of last week's arrangements, Comcast and Gemstar also entered into a carriage agreement that supercedes their former 20-year deal from back in 2001, covering TV Guide Channel, TV Guide On Demand (an on- demand product that uses TV Guide Channel content) and the TVG Network, a horse-racing channel.
TV Guide Channel is currently carried on most of Comcast Cable's systems. In addition, TV Guide will provide the operator's VOD-enabled subscribers with TV Guide On Demand.
Comcast will also increase TVG Network's currently limited carriage on its systems.
"This deal obviously ramps it up considerably," Shell said.
A Comcast spokeswoman stressed the MSO's desire to have wide latitude in how it uses Gemstar's guide and its technology. In a prepared statement, Comcast Cable president Steve Burke said: "The formation of this joint development group with Gemstar-TV Guide, the premier provider of IPG services, solidifies our role as a leader in bringing new products to market by giving us greater control of the platform customers use to enjoy cutting-edge services available now, such as video on demand and digital video recorders."
Under its new management, Gemstar has been smoothing over its formerly strained relationship with distributors, and has recently done deals not only with Time Warner and Comcast, but with Insight Communications Co. and Mediacom Communications Corp.