Gemstar Was This Close to DirecTV Deal

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Hughes Electronics Corp. came so close to selling DirecTV Inc. to News Corp. that DirecTV executives had already been using the volume of subscribers in News Corp.'s Sky Global division to negotiate a deal with at least one vendor, sources said last week.

"We had been negotiating with DirecTV, and literally had a deal ready to announce had the transaction gone the other way," said Gemstar-TV Guide International Inc. co-president Peter Boylan. "But with the last-minute decision to go with EchoStar [Communications Corp.], we pulled those terms off the table."

Had Hughes picked Sky Global instead of EchoStar, Gemstar might've nailed the biggest license deal yet for its interactive program guide.

With that deal — to give DirecTV a "use license" to offer TV Guide interactive to its 10 million subscribers — now gone, Gemstar is forced to wait on EchoStar, which it is suing for patent infringement.

While companies that make DirecTV hardware, such as Sony Corp. and Thomson Consumer Electronics, have licenses to make and sell DBS set-tops that contain Gemstar's interactive program guide technology, DirecTV has operated for years without a "use license."

GLOBAL MISFIRE

Boylan said DirecTV officials were negotiating a deal with Gemstar that not only would have licensed Gemstar's IPG to DirecTV, but all of Sky Global's worldwide satellite systems. Sky Global also would have picked up an equity stake in Gemstar as part of the deal, he added.

"They [DirecTV] were negotiating with their combined presence or size to obtain better terms," Boylan said.

DirecTV officials declined to comment, but one source confirmed that the DBS provider was in talks with Gemstar before agreeing to merge with EchoStar.

Gemstar has patent-infringement suits pending against EchoStar, Scientific-Atlanta Inc. and Pioneer Corp. in federal court in Atlanta. A suit Gemstar filed against Pioneer, S-A and EchoStar at the International Trade Commission is scheduled to go to trial on Dec. 3.

With the arduous process of seeking regulatory approval of the DirecTV merger looming, Boylan said EchoStar CEO Charlie Ergen has more reasons than ever to agree to license Gemstar's IPG.

"He [Ergen] now has more than twice the subscriber base, potentially, if he gets his merger closed than he did previously," Boylan said. "Ten million of that base has already licensed our technology on a make-and-sell basis.

"If we prevail in the ITC case, surely a decision regarding those matters would have a significant consequence on his business and his ability to obtain financing."

EchoStar spokesman Marc Lumpkin repeated that EchoStar believes Gemstar's patent-infringement suits are without merit.

"We'll continue to fight their claims," he added.

Boylan also said that Gemstar recently held positive talks about licensing its IPG to Time Warner Cable and Cablevision Systems Corp.

A deal to license TV Guide Interactive to Time Warner would be a huge coup for Gemstar. The MSO has 2.85 million subscribers that currently use S-A's Sara or Pioneer's Passport IPGs.

Gemstar maintains that an IPG-licensing deal it signed with America Online Inc. in 1999 — before it merged with Time Warner Inc. — would compel Time Warner Cable to replace its Sara and Passport IPGs with TV Guide Interactive.

Boylan said Gemstar, AOL and Time Warner Cable officials are talking about how to modify the AOL license to encompass Time Warner Cable subscribers.

Under one option being considered, Time Warner Cable could license Gemstar's IPG technology, but deploy it under a brand other than TV Guide Interactive, Boylan said.

"I see them carrying a guide that is licensed by Gemstar," he said. "What exactly that guide looks like and how it's branded have yet to be fully resolved."

Time Warner Cable officials declined to comment.

CABLEVISION TALKS

Boylan also said that Gemstar held IPG licensing talks with Cablevision earlier this month, in which MSO executives "expressed interest and desire to license our technology."

Cablevision developed its own simple IPG for the iO: Interactive Optimum digital package it rolled out in September.

Boylan, whose company as mentioned, has several competitors in court for alleged patent violations, suggested that Cablevision could also face the wrath of Gemstar's legal team if it doesn't come to terms.

"Absent of a license, we will aggressively protect our technology," Boylan told analysts during a recent conference call.

Another source confirmed Cablevision is talking to Gemstar about licensing TV Guide Interactive, but Cablevision believes its current IPG doesn't violate Gemstar patents. Cablevision officials declined to comment.

Gemstar is also in talks with Cox Communications Inc. about converting all of its subscribers to TV Guide Interactive, Boylan said. About half of the MSOs 1.28 million digital subscribers already have Gemstar's IPG, he added.

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