TV Guide's IPG Talks Go Slow with MSOs

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Talks between MSOs and TV Guide Inc. regarding the latter's interactive programming guide are going slower than expected, but the company expects to sign on the bulk of U.S. operators after its $9.5 billion merger with Gemstar International Group Ltd. wraps up.

TV Guide chief operating officer Peter Boylan, in a conference call with analysts, said he was talking with every domestic MSO except one-Insight Communications Co. Inc.-about the digital set-top guide. Insight owns a stake in a competing product from Source Media Inc.

"Those negotiations admittedly are going slower than we originally hoped," Boylan said. "It is clear that many people are waiting to see what the outcome of the merger ends up being. The offer on the table currently is very attractive to MSOs. For whatever reason they choose not to take advantage of that, they expose themselves to whatever uncertainties there might be in the future."

Some MSOs are nervous about cutting a deal before the Gemstar merger closes. If that happens, there is a risk that intellectual-property rights, which have been a bone of contention between Gemstar and operators, won't be worked out yet. Gemstar and TV Guide executives have in recent days been forced to dispute rumors that the merger is in trouble.

"Until the merger happens, we're not sure what we're dealing with," said the MSO executive who asked not to be named. "Once [Gemstar and TV Guide] get put together, there's a little more certainty around those discussions-you know that Gemstar is part of a group. We may not like what happens to the patent issues, but one of the things that gets settled [with the merger] is the patent issues."

Rumors have also begun to circulate on Wall Street that operators are even thinking of banding together to develop their own IPG-a rumor that could say more about how the negotiations are going than any serious proposal.

While the Gemstar-TV Guide merger could clear up some important disputes over intellectual-property rights, the combination eliminates a competitive situation that operators could exploit in negotiating deal terms.

Said one MSO executive who asked not to be named: "Any way you look at it, it's a very sensitive and complex set of discussions."

After the conference call, Janco Partners issued a report saying TV Guide's current offer "allows for MSOs to share in 10 percent to 15 percent of national advertising, a portion of local advertising (dependent on the size of the MSO) and 15 percent to 50 percent of t- commerce [television-commerce] revenue (dependent on the size of the MSO). This revenue sharing more than accounts for the licensing fees the MSO would pay to TV Guide."

Boylan said the merger with Gemstar is on track to be completed in the second quarter. Worries about the deal emerged after a steep slide in Gemstar's stock price even before the deep NASDAQ downturn April 14. To help ease the slide, Gemstar has said that it plans to buy back up to $150 million of its stock.

CIBC Oppenheimer Corp. broadband and new-media analyst John Corcoran predicted that the merger would close in June instead of late April, as originally expected.

Also last week, TV Guide said it would deliver a new version of the TV Guide Interactive guide to its 3.5 million digital-cable subscribers soon.

The "Release 15" upgrade-with a new graphic look, more program descriptions and other new features-will be implemented over the next four to six weeks. The new release will contain more advertising opportunities, and TV Guide Channel will air 30-second spots promoting the upgraded service.

TV Guide also said it was working with SeaChange International Inc. on a guide version with a fully integrated video-on-demand service. The integrated application is expected to be available in the third quarter, the companies said.

In its earnings report, TV Guide reported substantial growth in the first quarter,

fueled by increases at its magazine segment. Cash flow rose 27 percent to $59.6 million and revenue rose 48 percent to $299.1 million. Net income declined to $934,000, or 0 cents per share, from $12.8 million (6 cents) the year before. Advertising revenue at TV Guide Channel rose 43 percent.

Corcoran said the quarterly results were in line with expectations.

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