Despite mounting competition from rival interactive programming guides, Gemstar-TV Guide International Inc. has managed to attract a large percentage of MSOs to its own IPG product, and continues to push hard to get those operators to sign long-term agreements.
Gemstar executives forecast as many as 20 million subscribers will receive its programming guide platforms by next year, from the current 8.5 million subscribers, and furnished analysts with more details about the MSO agreements already in place.
Company officials said cash flow would rise by about 25 percent in 2001, based on existing agreements.
In a Nov. 16 conference call with analysts, Gemstar chairman Henry Yuen said IPG sales are expected to increase significantly in the fourth quarter. For 2001, he said, IPG revenue should increase between 400 percent and 450 percent, with the unit reaching operations break-even by the fourth quarter of that year.
"We're poised for a pleasant surprise," Yuen said.
Company-wide, Yuen said cash flow should increase 15 percent this year, despite a revenue decline of 1 to 3 percent. In 2001, revenue should stabilize, with cash flow growing at a 25-percent clip.
Defending Gemstar's business model, Yuen said that with little capital expenditure, Gemstar has been able to reach the same television audience that larger companies have spent billions of dollars to attain. And Gemstar gets a recurring revenue stream from program guides.
"I challenge anybody to come up with a more compelling business model," he said.
Gemstar co-president and co-COO Peter Boylan said the company currently has 800,000 interactive programming guide subscribers with Comcast Corp. (about 65 percent of Comcast's total IPGs); 400,000 in Charter Communications Inc. systems (50 percent); 450,000 to 500,000 with Cox Communications Inc. (55 percent); and 300,000 with Adelphia Communications Corp. (60 percent).
Boylan was quick to point out that those four MSOs also were part of the TV Gateway consortium, a group of MSOs and WorldGate Communications Inc. that are developing a rival IPG.
Although Gemstar has yet to sign long-term licensing pacts with those operators, Boylan said that Gemstar is in negotiations with all of them.
"The list of issues has narrowed substantially," he said.
Boylan also said Gemstar's existing licensing agreement with America Online Inc. would likely transfer to Time Warner Inc. once their planned merger is completed. He added that Gemstar currently has license agreements with about 250,000 Time Warner Cable customers, or about 18 percent of Time Warner's digital-cable penetration.
One large MSO that has avoided a contract with Gemstar is Cablevision Systems Corp., which plans a digital rollout using Sony Corp. set-top boxes next year. Boylan said.
Cablevision recently suggested it would roll out digital without an IPG, a move he said direct-broadcast satellite providers would "have a field day with."
Boylan also touted Gemstar's patent portfolio, which consists of 110 issued IPG patents and 265 patents pending. Internationally, Gemstar has 87 issued IPG patents internationally and 265 patents pending.
Some rivals have claimed their services do not infringe on Gemstar patents because their guides are server-based-also called "thin client" or "client server"-rather than thick-client, or set-top-based like Gemstar's. Boylan dismissed those claims.
"We have critical patents covering advertising, interactive linking, t-commerce [television commerce], picture-on-guide, parental-control preferences, translucency, pay-per-view, VOD [video-on-demand], NVOD [near video-on-demand], ordering and promotion," he said. "They have been issued and are completely agnostic to this nonsense of thin client, thick client, client server-it doesn't matter."
Gemstar initiated the conference call-its second in a week-to ease concerns about its fiscal second-quarter earnings and provide additional guidance about future results. Its shares lost 18 percent of their value on Nov. 14 after the company released quarterly results but declined to reveal the period's net loss.
That loss turned out to be about $115.8 million, or 30 cents per share, against a profit of $16.4 million (8 cents) in the same period last year.
Although investors appeared to be calmed by the second call-Gemstar shares ticked up 11 percent on Nov. 17, to $54 each-the stock fell again on Nov. 21, to $44.69, off 12 percent.
The latter sell-off was spurred by reports Gemstar was in merger talks with Barnes & Noble Inc.