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Gemstar-TV Guide merger gets DOJ OK

Massive new company could dominate EPG market 7/16/2000 08:00:00 PM Eastern

TV Guide and Gemstar were given the go-ahead to merge last week by the Department of Justice, creating an electronic-programming-guide (EPG) behemoth, given TV Guide's brand recognition, Gemstar's reach and, more important, Gemstar's patents. The new company will be called Gemstar-TV Guide International, and Henry Yuen will serve as chairman and CEO.

The approval ends a process that began last October when Gemstar announced it would buy TV Guide. The $9.2 billion stock-and-debt deal gave Gemstar shareholders 55% of the combined company. And the fears from competitors are that the two companies, which are No. 1 and 2 in their market, will dominate EPG services.

"The patents that Gemstar has are truly exceptional," says Peter C. Boylan III, Gemstar-TV Guide International co-president and COO. "At TV Guide, we learned firsthand, after unsuccessfully litigating for many years, that the cable and satellite industry really needed patent peace, and this was really the only way to accomplish that. And we believe we'll be able to offer the best of everything necessary to have the finest state-of-the-art EPG available."

Others in the EPG market are concerned that the new company may wield too much power.

"We strongly believe that the marketplace needs a choice, and with the two guides combined into one company, there really isn't a choice," says David Williams, president and CEO of Tribune Media Services (TMS). TMS sells TV-listing services to newspapers, magazines and cable operators, as well as an online electronic-program guide called Zap2It.

"In some ways, we're glad," says Saul Shapiro, chief operating officer for Gist.com, an online EPG provider for sites such as Yahoo. "Instead of two behemoths to compete with, there's only one lumbering behemoth to contend with."

Investors believe the company's future growth will be related to EPG and eBooks, with TV Guide and Gemstar EPGs available to approximately 7 million cable subs today. TV Guide also expects to add about two million AT & T digital cable subs in the next two weeks.

Another issue facing the EPG market is Gemstar's patents, which some believe can slow competitive growth. Boylan says the company is still in litigation with Scientific-Atlanta, Pioneer, General Instruments/Motorola and TiVo. "We'd like to negotiate a reasonable settlement with any of those parties," adds Boylan. "We don't like to litigate, but if someone chooses to flagrantly disregard our intellectual property, we have no choice but to protect it. And when companies like Microsoft, AOL and Sony legitimately license the technology, we have to protect their investment as well."

Gary Lieberman, broadband technology/interactive television analyst for Morgan Stanley Dean Witter, says the outcome of those lawsuits will have agreat impact on the position the new company holds in the market. "If Gemstar is found to have a lot of the ones that they claim, then TV Guide and Gemstar will be in a powerful position," he adds.

Williams believes that the patent concerns aren't as great as the bigger challenge of the top two companies in the EPG space merging. "If you believe that the last greatest technology has been invented, then you have an issue with that," he says. "But if you believe that new technologies are going to come along, then you move along your path, as we are, and look for new technologies that will work better than the old ones."

Shapiro agrees. "We're challenged by the technical change of the Internet, and we think it will allow us to move very creatively and quickly to provide a non-infringing product."

But Boylan says that's a tough task, one that others haven't had too much success with. "It's always possible that someone is smarter than John Malone, Rupert Murdoch, Bill Gates, Steve Gates, myself and Henry Yuen, but time will tell if they can figure out how to get around Gemstar's patents," he says.

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