Rovi Hits Patent Roadblocks

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Rovi has kept up an aggressive litigate-and-license
strategy for its interactive program guide patent
holdings, an approach that dates back to predecessor
company Gemstar-TV Guide International.

But now it’s getting
push-back from companies
that don’t want to
pay the rates Rovi is demanding.

Rovi has been unable
to reach patent-licensing
deals with Internet video
distributors including
Netflix, Hulu and Amazon.com — each of which Rovi is
suing for infringement — and, overall, the company expects
2012 licensing revenue will be approximately $50 million
lower than its previous estimates.

On the consumer-electronics front, Rovi is trying to negotiate
new IPG patent deals with LG Electronics and Vizio,
which are out of license. And, according to Rovi, growth in
revenue from cable operators did not meet expectations
for the second quarter because of delays in completing IPG
patent licenses with European MSOs.

“By and large, we’ve done a good job of getting traditional
license deals done” in the CE and service-provider segments,
Rovi CEO Tom Carson said in an interview. “We’re
now looking to the TV Everywhere space, and we have a
number of deals we’re trying to get done.”

Rovi cut its 2o12 revenue expectations by $105 million,
13% to 14% lower than its previous guidance. Other factors
for the weakened forecast: The Rovi Entertainment Store
online movie-streaming service — which it operates on behalf
of partners including Best Buy — and the company’s
advertising business are both ramping up more slowly than
expected, Carson said.

Analysts weren’t worried about the patent-licensing revenue
shortfall, noting that Rovi expects its eventual deals
will include catch-up payments. What’s more troubling is
that investors are “uncertain about the potential for any
significant revenue contribution from the company’s
growth initiatives outside of core IPG patent
licensing,” Avondale Partners analyst John Bright
wrote in a research note last week.

Rovi expects to conduct layoffs as it aims to cut
$20 million in costs before the end of 2013, Carson
said. “We are basically looking at all areas of the
business [for layoffs] but particularly areas that are
light” in terms of revenue contribution and growth, he said.

Rovi currently has 1,800 employees worldwide. The
company is not disclosing how many jobs it expects to cut.

In the second quarter, Rovi entered into new license
agreements covering the television and TV Everywhere
field of use with Cogeco Cable and Google,
which is gearing up to launch fiber-based Internet and
TV service in the Kansas City market. It also cut deals
with CE manufacturers Funai and JVC. The company
noted it has struck prior patent-licensing deals for TV
Everywhere with Comcast, NDS
(now owned by Cisco Systems), Apple
and Sony.

Meanwhile, Rovi is seeing a longerthan-
expected deployment cycle for
its next-generation TotalGuide solution
for service providers, Carson
said. The company now expects deployments
in the first half of 2013 at
Mediacom Communications, Cogeco,
BendBroadband, Buckeye Cablesystem,
Armstrong and Blue
Ridge Communications.

TAKEAWAY

Rovi has failed to sign patentlicensing
deals with Netflix,
Hulu, Amazon.com, European
cable operators and others,
hurting its financial results.

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