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Gemstar International Group Ltd. is gearing up for the next wave of technologies that could position the company at the forefront of the interactive TV race.

Key to Gemstar's strategy is the acquisition of its long-time competitor in the interactive programming guide race, TV Guide Inc. Indeed, a lot of attention is now being focused on the successor to what many now refer to as the "blue scrolly thing," the program listing channel that slowly winds its way through the television viewing day in one-hour increments.

That's because with digital two-way networks and the resultant convergence of the television with the PC on the horizon, analysts and experts are saying that the interactive program guide, or IPG, stands to be the central launching point to what could be a maze made up of hundreds of different channels.

Tool of control

"Eventually the IPG will become as ubiquitous as the remote control," said CIBC World Markets broadband/new media analyst, John Corcoran. "We believe that the IPG will become the tool of choice that consumers use to manage the intersection of the television, Internet, IP telephony and a host of other services to be delivered to the home."

Wall Street has been hip to the potential of this technology for at least the last year, even though not much has been made of it in the media, especially when compared to the amount of articles written about the Internet. But as a testament to the hype that's been surrounding these companies, for the 1999 calendar year Gemstar's stock price has appreciated almost 400%; TV Guide's stock price has appreciated 260% in the same time frame.

Gemstar's claim to fame up until this point has been its VCR Plus+ instant programming system, which allows users to record a television show simply by entering a code, which can be found in many television listing publications. This system has been licensed to virtually every major television and VCR manufacturer. In a similar way, Corcoran sees the company pursuing the penetration of its IPG technology.

"Within a few years' time, the IPG technology will likely be loaded into virtually every television, VCR and set-top box as it rolls off the production line," Corcoran said.

Dishing up data

TV Guide's look to the future includes satellites, true to its United Video Satellite Group past. Last year, the company increased its investment in a satellite company called iSky, which TV Guide president/COO Peter C. Boylan III described as "DBS's answer to wireline broadband cable's return path."

"It's high-speed Internet access, two-way wireless, with an onboard switch or router effectively in the sky," Boylan said.

iSky's biggest asset is very strategic real estate: the 109.2 degree orbital slot which "sees" the entire continental U.S.

"With a single dish it can see all of DirecTV and all of Dish Network's customers," Boylan said.

And as a hint to the direction that Gemstar plans to cover in the near future, Jan. 18 the company said it was acquiring Mountain View, Calif.-based NuvoMedia Inc. and Menlo Park, Calif.-based SoftBook Press Inc., which "publish" electronic books in all-stock deals worth some $400 million.

The strategy behind this move, according to analysts like Corcoran, is to "establish a beachhead at the intersection of reading and the digital revolution."

Joe Kiener, TV Guide's chairman/CEO, said last week that there were potential synergies on a number of fronts.

"It's not a device that's only limited to books in a narrow sense but also to magazines and various other reading materials," Kiener said at a conference call to discuss TV Guide's fourth quarter earnings.

Reading TV books

And in a telephone interview, Gemstar chairman/CEO Henry Yuen said that his company was entering into electronic books because book reading is the second most favorite pastime in America following television watching. And because the companies he's acquiring have technological advantages over copyright protection.

"Distributing protected content is an interesting challenge," Yuen said. "In music it has been a fiasco with MP3 piracy. But the protection we have is device-specific, we encrypt on the fly and we use a closed operating system."

Corcoran also believes that Gemstar will eventually add two-way connectivity to electronic books through its patented technology that uses the 900MHz paging signal as a two-way communications channel. Such technology could be used to get stock quotes and weather reports or to buy something like CDs, books, videos, DVDs and other products that meet the criteria of "impulse buy."

Gemstar said last October that it was merging with TV Guide, which is the incarnation that came out of the merger of TV Guide with United Video Satellite Group, in a stock deal valued at around $9 billion. That deal is expected to close in the second quarter of this year. The new entity will be named TV Guide International.

Gemstar is a component of the Nasdaq 100 Index and the company's shares are also included in the Nasdaq 100 Index Tracking Stock.

TV Guide Reaches Out

Products/Service       Reach

TV Guide Magazine      11 million subs/33 million weekly readers
TV Guide Channel       50 million subs/28 million weekly readers
TV Guide Interactive   40 million homes passed/3.2 million subs
TV Guide Online        48 million page views/month
The Cable Guide        3 million subs/9 million weekly readers
Sneak Prevue           34 million subs
WGN                    47 million subs
KTLA                   3 million subs
WPIX                   4 million subs
Denver 6 Service       3 million subs

SOURCE: TV Guide Inc.

TV Guide Q4 Comparison (for the three months ended Dec. 31, '99)

                    Q4 '99    vs. Q4 '98

Revenues           $317.9M          +97%
EBITDA              $56.4M          +64%
Net Income         ($19.3M)          N/A
EPS (diluted)       ($0.06)          N/A

SOURCE: TV Guide Inc.

Gemstar Q3 Comparison
(for the three months ended Dec. 31, '99)

                   Q3 '99   vs. Q3 '98

Revenues           $61.8M         +49%
Operating Income   $40.3M         +65%
Net Income         $32.0M         +70%
EPS (diluted)       $0.13         +63%

SOURCE: Gemstar International Group Ltd.

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