Gemstar, Op in VBI Feud


Washington -- Fearing loss of control over its cable
system, Time Warner Cable had decided to block a broadcaster-provided on-screen program
guide. That triggered a dispute with Gemstar International Group Inc. that's now in the
hands of the Federal Communications Commission.

Gemstar filed the complaint March 16, accusing Time Warner
of stripping out its electronic-program guide (EPG) on nine systems in eight states and
threatening to step up the pace. Gemstar called Time Warner's action "deliberate and

Gemstar demanded the FCC force Time Warner to restore the
service, citing FCC rules requiring cable operators to carry and pass through a TV
station's signal without material degradation.

Gemstar's complaint is the first one the FCC has been asked
to referee, although the agency has discussed regulatory protections of Gemstar's service
in past rulemakings.

In a broader sense, the FCC has been thrust in the middle
of one of the most contentious areas between cable and broadcasting, as both industries
struggle for elbow room as they make the transition to digital.

As cable systems add dozens of new channels and expand
pay-per-view and premium selections, companies believe that consumers need a road map to
find their way to programming. Cable's most sophisticated EPGs are embedded in digital
set-tops that consumers must buy or lease to access the new services.

Control over the on-screen guide market could give the
winner a leg up in steering consumers toward TV networks -- and, potentially, Internet
home pages and electronic-commerce sites -- that are affiliated with the guide's owners.

Gemstar's service is provided for free and is carried on a
TV signal's vertical blanking interval (VBI), which is also used to transmit closed
captioning to hearing-impaired viewers and V-chip coded information. Consumers use remotes
to access Gemstar's service. The company has deals with RCA, Sony and others to include
microchip technology in receivers and VCRs.

Time Warner claims that it is legally entitled to strip out
Gemstar, asserting that Gemstar's EPG is limited to providing information relevant to the
single channel on which it is carried.

In its filing, Gemstar said its service provides rating,
cast and year-of-release information for all programs on a cable system -- not only on
what's currently available, but also what's available several days in the future.

To provide such a robust offering, Gemstar needs Time
Warner's permission, the MSO said.

"In terms of must-carry, we're not permitted to
interfere with the VBI of a broadcast station where that VBI is used to communicate
information about that particular channel," said Time Warner spokesman Michael
Luftman. "We think we have a very clear case here and they just don't have a leg to
stand on."

Legally, Gemstar said the fact that it uses a few VBI
streams to convey system-wide programming information did not empower Time Warner to block
its service. Gemstar said use of the VBI had to "program-related," but not
necessarily channel-specific.

Gemstar said it is possible to deliver its service over
each VBI in a market, but said such a method would inefficient. Gemstar did not appear to
address Time Warner's point that no matter how many broadcaster VBIs it used, the EPG
company could not provide an authorized service that conveys programming information about
cable networks.

Bruce Leichtman, vice president of the Internet market
strategies group at the Yankee Group, said he viewed the Gemstar-Time Warner dispute as a
negotiating tactic. He said cable operators have feuded with broadcasters for years over
control of the VBI.

"This is about leverage. This is about negotiation.
Time Warner's trying to take some power, saying, 'Wait a minute. We own the VBI. You don't
own it,' " Leichtman said.

In a Feb. 4 letter to various TV set retailers, Time Warner
warned it would begin stripping out Gemstar's service if talks between the companies that
started in May 1998 failed to result in agreement. According to Gemstar, Time Warner has
taken action in Charlotte, N.C.; Austin and San Antonio, Texas; Portland, Maine; and
several other cities.

Gemstar told the FCC that Time Warner is driven by
anti-competitive motives. The company said its service is free and prevents a basic-cable
subscriber from having to pay to upgrade to Time Warner digital and lease a set-top box to
obtain a state-of-the-art EPG.

Luftman acknowledged that Time Warner's EPG came with a
digital box, but said Time Warner-provided EPGs are owned by the set-top suppliers --
Pioneer Electronics Inc. and Scientific-Atlanta Inc.