Gemstar-TV Guide International Inc. co-president Peter Boylan said last week that the closer America Online Inc. and Time Warner Inc. get to completing their deal, the closer his company gets to a license-fee windfall.
Time Warner Cable has been on the outs with Gemstar because it has deployed competing interactive program guide products from set-top makers Scientific-Atlanta Inc. and Pioneer New Media Technologies to more than 1.3 million subscribers, instead of using Gemstar's industry-leading IPG.
But Boylan said a broad IPG licensing deal AOL struck with Gemstar in May 1999-seven months before the landmark AOL-Time Warner merger announcement-would allow Gemstar to collect retroactive fees dating back to the time Time Warner Cable launched the Scientific-Atlanta "Sara" and Pioneer "Passport" IPGs.
Gemstar-TV Guide, which recently obtained a $200- million patent infringement settlement from Motorola Inc., has similar suits pending against Pioneer and S-A, claiming their set-top "native" guides infringe on Gemstar patents.
"AOL does not want to be in a bad position of being a licensee of ours in default because they have bought a company that has an infringing IPG," Boylan said. "Not only have we lost license fees that we believe we're entitled to, but we've also lost the advertising revenue."
Boylan wouldn't disclose how much Gemstar-TV Guide believes it has lost since Time Warner began to deploy what he called "infringing" IPGs. CIBC World Markets analyst John Corcoran estimated the figure could approach $100 million, but expressed some doubt Gemstar-TV Guide would be able to extract that much from AOL-Time Warner.
Boylan said his company, Time Warner and AOL are involved in active negotiations. Time Warner Cable spokesman Mike Luftman and America Online spokeswoman Wendy Goldberg declined to comment.
Boylan said the licensing deal Gemstar-TV Guide struck with AOL last year mandates that the online provider pay Gemstar-TV Guide a monthly fee of 50 cents per subscriber to license IPG technology for any platform, which would include Time Warner Cable systems.
While Time Warner has deployed Gemstar's TV Guide Channel-a passive, scrolling guide-on analog systems, none of the set-tops in Time Warner's 1.3 million digital-subscriber households use the TV Guide IPG, Luftman said. Time Warner also has advanced-analog customers that use guides.
Digital-cable customers use the Sara IPG from S-A or the Passport IPG from Pioneer, he said.
Boylan claims the terms of Gemstar-TV Guide's deal with AOL would require Time Warner cable systems to strip out the Pioneer and Scientific-Atlanta guides and replace them with TV Guide Interactive.
Although this could be accomplished via software downloads to the digital set-tops, the task would still be arduous and costly for Time Warner, Corcoran noted.
S-A had no comment.
But Gemstar-TV Guide wants more than IPG deployments on Time Warner systems going forward. Gemstar believes it is entitled to retroactive license-fee payments from Time Warner systems that have deployed Pioneer and S-A guides, Boylan said.
"If they [America Online and Time Warner] complete the merger without an agreement with us regarding Time Warner's prior infringement, they would assume that liability-back in some cases to 1992, when they deployed an advanced-analog guide with an [infringing] IPG," Boylan said.
Gemstar-TV Guide and Time Warner have butted heads on another front in recent months.
In March, Gemstar filed a Federal Communications Commission complaint after Time Warner stripped Gemstar-TV Guide's electronic-program guide from the vertical blanking interval embedded in broadcast-TV signals. It relies on that VBI signal to transmit the EPG to cable subscribers.
In June, Time Warner told Gemstar-TV Guide it would stop stripping out the EPG "in a gesture of goodwill" until the FCC finished evaluating the complaint.
Noting Gemstar-TV Guide's successful run at protecting its IPG intellectual property, Corcoran said he believes the company has leverage in talks with America Online and Time Warner. He also said he expects Gemstar to reach a deal through which Time Warner would license the Gemstar IPG and eventually dump the Pioneer and S-A products for TV Guide Interactive.
"I think Time Warner will back away from the contentious position that they've struck with Gemstar and start doing business with Gemstar," Corcoran said.
But Corcoran said he doubts Gemstar-TV Guide will begin negotiations by demanding Time Warner Cable fork over millions in retroactive fees dating back to 1992.
According to Corcoran, a likely opening salvo for Gemstar-TV Guide in the negotiations would be: "I want all the new subscribers, then swap out the old stuff and then we can talk about past sins."